SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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 NO
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date November 18, 1999.
25,435,583 shares common stock, par value $.001 per share
(Title of Class)
<PAGE>
FLANDERS CORPORATION
FORM 10-Q
FOR QUARTER ENDED SEPTEMBER 30, 1999
PART I - FINANCIAL INFORMATION Page
Item 1 -
Financial Statements
Consolidated Condensed Balance Sheet for September 30, 1999
and December 31, 1998 3
Consolidated Condensed Statements of Income for the three
months and nine months ended September 30, 1999 and 1998 4
Consolidated Condensed Statements of Shareholders' Equity
for the nine months ended September 30, 1999 and the year
ended December 31, 1998 5
Consolidated Condensed Statements of Cash Flows for the
nine months ended September 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
<TABLE>
<CAPTION>
FLANDERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
September 30, December 31,
ASSETS 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 14,333,305 $ 13,672,685
Receivables:
Trade, less allowance for doubtful accounts of
9/30/99 $523,012; 12/31/98 $551,725 34,359,650 26,670,650
Other 3,653,822 2,177,301
Inventories (See Note 2) 28,121,197 25,518,804
Deferred taxes 1,260,589 1,421,847
Other current assets 3,393,347 860,310
------------ ------------
Total current assets 85,121,910 70,321,597
------------ ------------
Related party receivables 4,358,260 4,263,409
Other assets 805,695 3,114,844
Intangible assets, net 32,416,427 28,990,924
Property and equipment, net of accumulated
depreciation and amortization of $17,278,678
at September 30, 1999; $14,069,608 at
December 31, 1998 61,967,137 61,089,420
------------ ------------
$184,669,429 $167,780,194
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
Current liabilities
Current maturities of long-term debt $ 938,280 $ 2,565,014
Accounts payable 18,362,519 15,851,087
Accrued expenses and other current
liabilities 6,543,310 3,933,918
------------ ------------
Total current liabilities 25,844,109 22,350,019
------------ ------------
Long-term debt, less current maturities 38,048,338 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:
25,435,583 shares at September 30, 1999;
25,624,339 at December 31, 1998 25,436 25,624
Additional paid-in capital 90,020,663 90,077,257
Retained earnings 25,015,281 19,499,933
------------ ------------
Total stockholders' equity 115,061,380 109,602,814
------------ ------------
$184,669,429 $167,780,194
============ ============
</TABLE>
See Notes to Consolidated Financial Statements
Page 3
<PAGE>
<TABLE>
<CAPTION>
FLANDERS CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF INCOME
Three Months ended Nine Months ended
September 30, September 30,
------------------------------ ------------------------------
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales $ 49,272,731 $ 49,669,341 $ 132,787,952 $ 119,532,227
Cost of goods sold 35,433,416 37,223,047 97,154,277 90,439,706
------------- ------------- ------------- -------------
Gross Profit 13,839,315 12,446,294 35,633,675 29,092,521
------------- ------------- ------------- -------------
Operating expenses 9,582,318 8,885,130 25,505,827 20,036,250
------------- ------------- ------------- -------------
Operating income 4,256,997 3,561,164 10,127,848 9,056,271
Nonoperating income (expense) (395,202) 59,141 (697,477) 786,749
------------- ------------- ------------- -------------
Income before income taxes 3,861,795 3,620,305 9,430,371 9,843,020
Income taxes 1,604,235 1,429,815 3,915,023 3,822,300
------------- ------------- ------------- -------------
Net income $ 2,257,560 $ 2,190,490 $ 5,515,348 $ 6,020,720
============= ============= ============= =============
Earnings per weighted average
common and common equivalent
share outstanding:
Basic $ 0.09 $ 0.09 $ 0.22 $ 0.24
============= ============= ============= =============
Diluted $ 0.09 $ 0.08 $ 0.21 $ 0.22
============= ============= ============= =============
Weighted average common and
common equivalent shares
outstanding:
Basic 25,264,583 25,103,156 25,371,049 25,210,106
============= ============= ============= =============
Diluted 26,341,566 27,305,317 26,631,839 27,703,287
============= ============= ============= =============
</TABLE>
See Notes to Consolidated Financial Statements
Page 4
<PAGE>
<TABLE>
<CAPTION>
FLANDERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY
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 -- -- 5,515,348
------------ ------------ ------------
Balance, September 30, 1999 $ 25,436 $ 90,020,663 $ 25,015,281
============ ============ ============
</TABLE>
See Notes to Consolidated Financial Statements
Page 5
<PAGE>
<TABLE>
<CAPTION>
FLANDERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
---------------------------- ----------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES $ 2,920,198 $ 3,579,091 $ 1,244,954 $ (5,688,161)
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) --
Purchase of fixed assets (1,639,198) (3,553,045) (4,086,787) (13,530,697)
------------ ------------ ------------ ------------
NET CASH (USED) BY
INVESTING ACTIVITIES (1,639,198) (3,545,278) (5,873,479) (26,550,671)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on receivables secured by
common stock -- -- 235,700 --
Short-term investments -- (665) -- (294,992)
Repurchase of common stock -- (2,869,786) (1,027,310) (3,285,558)
Registration costs for prior private
offering -- (86,613) -- (86,613)
Net change in long-term borrowings (418,041) (1,596,730) 6,316,455 17,012,473
------------ ------------ ------------ ------------
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES (418,041) (4,553,794) 5,289,145 13,581,010
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH 862,959 (4,519,981) 660,620 (18,657,822)
CASH AT BEGINNING OF PERIOD 13,470,346 21,316,739 13,672,685 35,454,580
------------ ------------ ------------ ------------
CASH AT END OF PERIOD (See Note 4) $ 14,333,305 $ 16,796,758 $ 14,333,305 $ 16,796,758
============ ============ ============ ============
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION
Cash paid for income taxes $ 210,963 $ 1,347,261 $ 2,313,458 $ 1,347,261
============ ============ ============ ============
Cash paid for interest $ 313,960 $ 530,858 $ 904,801 $ 931,611
============ ============ ============ ============
SUPPLEMENTAL DISCLOSURES OF NON-CASH
FINANCING ACTIVITIES
Issuance of common stock for acquisitions $ -- $ -- $ -- $ 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:
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 nine months ended September
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 September 30, 1999 and December 31,
1998:
<TABLE>
9/30/99 12/31/98
----------- -----------
<S> <C> <C>
Finished goods $14,353,346 $12,988,501
Work in progress 3,695,668 1,036,809
Raw materials 10,166,597 11,587,908
----------- -----------
28,215,611 25,613,218
Less allowance 94,414 94,414
----------- -----------
$28,121,197 $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 nine months ended September 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 -- 42,850 $ -- $2.50 - 4.00 $ -- $ 4.13
Exercised -- -- $ -- $ -- $ -- $
Canceled or expired -- 36,500 $ -- $2.50 - 9.50 $ -- $ 5.62
--------------------
Outstanding at September 30, 1999 637,239 6,936,720 $5.54 - 14.73 $1.00 - 9.50 $ 9.57 $ 3.69
====================
Exercisable at September 30, 1999 637,239 6,893,870 $5.54 - 14.73 $1.00 - 9.50 $ 9.57 $ 3.69
====================
</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 September
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 June 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 dates 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 September 30, 1999 Compared to
September 30, 1998
The following table summarizes our results of operations as a percentage of
net sales for the three months ended September 30, 1999 and 1998.
<TABLE>
<CAPTION>
Three Months Ended
September 30,
--------------------------------------
1999 1998
----------------- -----------------
(000's omitted)
<S> <C> <C> <C> <C>
Net sales 49,273 100.0% 49,669 100.0%
Gross profit 13,839 28.1 12,446 25.1
Operating expenses 9,582 19.4 8,885 17.9
Operating income 4,257 8.6 3,561 7.2
Income before income taxes 3,862 7.8 3,620 7.3
Income taxes 1,604 3.3 1,430 2.9
Net income 2,258 4.6 2,190 4.4
</TABLE>
Net sales: Net sales for the third quarter of 1999 were $49,273,000, not
significantly changed from $49,669,000 of revenues for the third quarter of
1998. Tidewater's operations contributed approximately $1,167,000. Tidewater was
acquired on March 31, 1999. Excluding revenues of Tidewater from the quarter's
numbers, revenues decreased approximately $1,563,000, or 3.1%. This decrease was
due to several factors: We believe the U.S. air filtration market has been soft
this year, as other major air filter manufacturers have also reported sales
decreases and softness in the marketplace; we also experienced shipment delays
due to hurricanes on the Eastern Seaboard which impacted revenues; and sales of
high-end filters to end users in the semiconductor industry were still down
compared to last year.
Page 10
<PAGE>
Gross Profit: Gross profit for the third quarter of 1999 increased by
$1,393,000, or 11.2%, to $13,839,000, which represented 28.1% of net sales, from
$12,446,000, which represented 25.1% of net sales, for the third quarter of
1998. We believe this increase in gross margin percentage is primarily due to
several things, including: higher margins on sales through our direct sales
offices, which made significant contributions to sales of our products for the
first time during the quarter; margin improvement from our ongoing automation
projects; and operational efficiencies at our newest facilities in Nevada,
Illinois and North Carolina which are gradually increasing over time, and should
increase to the levels experienced historically at other plants during the next
twelve to eighteen months.
Operating expenses: Operating expenses for the third quarter of 1999
increased by $697,000, or 7.8%, to $9,582,000, representing 19.4% of net sales,
from $8,885,000, representing 17.9% of net sales, for the third quarter of 1998.
The increase in operating expenses was attributable to several factors,
including: The acquisition of Tidewater, which contributed approximately
$229,000; the establishment of direct sales offices in the Western U.S.; and
increased expenditures in central administrative areas in preparation for the
consolidation of subsidiaries' overhead operations planned for the next twelve
months.
Operating income: Operating income for the third quarter of 1999 increased
by $696,000, or 19.5%, to $4,257,000, representing 8.6% of net sales, from
$3,561,000, representing 7.2% of net sales, for the third quarter of 1998. This
increase was due to the increase in gross margin, partially offset by the
increase in sales and operating expenses already discussed.
Net income: Net income for the third quarter of 1999 increased by $68,000,
or 3.1%, to $2,258,000, or $0.09 per share (both diluted and basic), from
$2,190,000, or $0.08 (diluted, $0.09 basic) per share for the third quarter of
1998.
Results of Operations for the Nine Months Ended September 30, 1999 Compared to
September 30, 1998
The following table summarizes our results of operations as a percentage of
net sales for the nine months ended September 30, 1999 and 1998.
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------------------------
1999 1998
------------------ ------------------
(000's omitted)
<S> <C> <C> <C> <C>
Net sales 132,788 100.0% 119,532 100.0%
Gross profit 35,634 26.8 29,093 24.3
Operating expenses 25,506 19.2 20,036 16.8
Operating income 10,128 7.6 9,056 7.6
Income before income taxes 9,430 7.1 9,843 8.2
Income taxes 3,915 2.9 3,822 3.2
Net income 5,515 4.2 6,021 5.0
</TABLE>
Net sales: Net sales for the first nine months of 1999 increased by
$13,256,000, or 11.1%, to $132,788,000 from $119,532,000 for the first nine
months of 1998. This increase was due to the acquisitions of Tidewater and
Eco-Air, partially offset by softness in the U.S. air filtration marketplace,
shipment delays caused by hurricanes, and the continued decline of sales to the
semiconductor industry.
Page 11
<PAGE>
Gross Profit: Gross profit for the first nine months of 1999 increased by
$6,541,000, or 22.5%, to $35,634,000, which represented 26.8% of net sales, from
$29,093,000, which represented 24.3% of net sales, for the first nine months of
1998. We believe this increase in gross margin percentage is primarily due to
several things, including: higher margins on sales through our direct sales
offices, which made significant contributions to sales of our products for the
first time during the third quarter; margin improvement from our ongoing
automation projects; and operational efficiencies at our newest facilities in
Nevada, Illinois and North Carolina which are gradually increasing over time,
and should increase to the levels experienced historically at other plants
during the next twelve to eighteen months.
Operating expenses: Operating expenses for the first nine months of 1999
increased by $5,470,000, or 27.3%, to $25,506,000, representing 19.2% of net
sales, from $20,036,000, representing 16.8% of net sales, for the first nine
months of 1998. The increase in operating expenses was primarily attributable to
the acquisitions of Eco-Air and Tidewater, which contributed approximately
$4,048,000, and new direct sales offices and associated start-up costs.
Net income: Net income for the first nine months of 1999 decreased by
$506,000, or 8.4%, to $5,515,000, or $0.21 (diluted, $0.22 basic) per share,
from $6,021,000, or $0.22 (diluted, $0.24 basic) per share for the first nine
months 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
$59,277,000 at September 30, 1999, compared to $47,972,000 at December 31, 1998.
This includes cash and cash equivalents of $14,333,000 at September 30, 1999,
and $13,673,000 at December 31, 1998.
Our trade receivables increased $7,689,000, or 28.8%, to $34,360,000 at
September 30, 1999, from $26,671,000 at December 31, 1998. Days sales
outstanding, the number of days of average sales represented by outstanding
receivables decreased to 64 days at September 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 generated $2,920,000 of cash during the third quarter of
1999, compared to $1,245,000 generated in the third 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. 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 third quarter of 1999
consumed $418,000 of cash, primarily consisting of payments on long-term debt.
Our investing activities consumed $1,639,000 of cash, primarily to purchase
manufacturing and other 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
Page 12
<PAGE>
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.
As of September 30, 1999, this rate was 6.46%. As of September 30, 1999, we had
used $21,473,000 of the revolving credit facility. Unless this line of credit is
renewed, it will expire in February 2000. We plan to renew or extend this credit
facility.
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 September 30, 1999, we had repurchased
approximately 1,105,000 shares of our common stock under this authorization for
total cash consideration of $4,313,000. Thus, as of September 30, 1999, up to an
additional 895,000 shares were 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 three 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.
In July, we established a national contracts sales group. This group is
focused on obtaining national supply agreements with major industrial end users,
typically with purchases from us by each such customer expected to exceed $1
million per year. These types of customers are not typically accessible to our
predominantly regional representative and distributor organizations, and so
remain a largely untapped market for us. While it is difficult to predict the
precise magnitude of sales that will actually result from this endeavor, we have
targeted customers with aggregate annual air filtration requirements in excess
of $100 million. To date, we have received our first major contract for this
market segment, a three-year exclusive arrangement to provide filters to a major
HVAC system manufacturer which is expected to contribute at least $5 million to
annual sales, beginning in the fourth quarter of 1999.
During the quarter, we negotiated joint venture agreements with major air
filter distributors or manufacturers in several different areas in the Pacific
Rim, including Australia, Korea, Malaysia, Singapore, Taiwan, Hong Kong and
China. These arrangements are structured so that we sell the ventures
proprietary materials and provide certain proprietary equipment. These
agreements are not expected to have a material effect on our financial position
or results of operations during the first half of the year 2000. However, we
hope that the ventures will become a significant source of revenue and income in
the future.
Page 13
<PAGE>
Also during the quarter, we finished our internal verification of a new
Indoor Air Quality system targeted toward commercial office buildings. This
product, part of our engineered services group, uses air quality monitoring,
computer models and automated data collection to develop a complete analysis of
a building's air quality over time, which is then used to generate and verify
solutions to air quality problems. While the ten installations of this
technology currently in place are not material to the results of the Company,
and sales from this product are not expected to be a material contributor in the
next year, we believe that this combination of filtration products and
engineering services is the best way to address Indoor Air Quality problems,
including Sick Building Syndrome, and believe the potential market for this
application exceeds $5 million.
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 sales to date in 1999 and 1998 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 the rest
of this year.
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 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.
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 our ability to offer a "one stop" supply of air
filtration products to HVAC distributors and wholesalers may 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:
Page 14
<PAGE>
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.
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
Page 15
<PAGE>
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.
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.
Page 16
<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 September 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.
Page 17
<PAGE>
We have granted options to purchase a total of 6,936,720 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.
Page 18
<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 99%
complete, and the activities involved in assessing external risks and
operational issues are 98% 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 November.
Project Phase % Completed Scheduled Completion
Awareness 100% Complete
Evaluation 100% Complete
Hardware Implementation 100% Complete
Phased Software Implementation 100% Compete
Final Validation 98% November 1999
- --------------------------------------------------------------------------------
Overall 99%
Page 19
<PAGE>
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 September 30, 1999 was approximately
$38,987,000. 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 September 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.
Page 20
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
There were no material additions to, or changes in status of, any ongoing,
threatened or pending legal proceedings during the three months ended
September 30, 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.
Page 21
<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 19th day of November, 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 Schedule contains summary financial information extracted from the
Company's Form 10-Q for the Period Ended September 30, 1999, and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 14,333,305
<SECURITIES> 0
<RECEIVABLES> 34,882,662
<ALLOWANCES> 523,012
<INVENTORY> 28,121,197
<CURRENT-ASSETS> 85,121,910
<PP&E> 79,245,815
<DEPRECIATION> 16,278,678
<TOTAL-ASSETS> 184,669,429
<CURRENT-LIABILITIES> 25,844,109
<BONDS> 0
0
0
<COMMON> 90,046,099
<OTHER-SE> 25,015,281
<TOTAL-LIABILITY-AND-EQUITY> 184,669,429
<SALES> 49,272,731
<TOTAL-REVENUES> 49,272,731
<CGS> 35,433,416
<TOTAL-COSTS> 9,582,318
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 313,960
<INCOME-PRETAX> 3,861,795
<INCOME-TAX> 1,604,235
<INCOME-CONTINUING> 2,257,560
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,257,560
<EPS-BASIC> 0.09
<EPS-DILUTED> 0.09
</TABLE>
