SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended February 28, 2001 Commission File No. 0-5940
TEMTEX INDUSTRIES, INC.
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(Exact name of Registrant as specified in its Charter)
Delaware 75-1321869
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(State or other jurisdiction of (I.R.S Employer
incorporation or organization) Identification No.)
5400 LBJ Freeway, Suite 1375, Dallas, Texas 75240
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(Address of principal executive offices) (Zip Code)
972/726-7175
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(Registrant's telephone number including area code)
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 such shorter period that
the registrant was required to file such reports), and (2) has been
subject to such filing requirement for the past 90 days.
Yes X No
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The Registrant had 3,444,641 shares of common stock, par value $.20 per
share, outstanding as of the close of the period covered by this
report.
PART I. FINANCIAL INFORMATION
TEMTEX INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)
(In thousands except share and per share data)
Three Months Ended Six Months Ended
February 28, February 29, February 28, February 29,
2001 2000 2001 2000
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Net sales $ 4,098 $ 5,210 $ 9,034 $ 11,334
Cost of goods sold 3,993 4,829 8,358 9,977
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105 381 676 1,357
Cost and expenses:
Selling, general and administrative 1,346 2,015 2,781 3,797
Interest 126 60 213 103
Other expense (income) 37 4 (15) (145)
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1,509 2,079 2,979 3,755
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LOSS FROM OPERATIONS
BEFORE INCOME TAX BENEFIT (1,404) (1,698) (2,303) (2,398)
State, federal and foreign income tax
benefit -- (679) -- (959)
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NET LOSS $ (1,404) $ (1,019) $ (2,303) $ (1,439)
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Basic and diluted loss per common
share: $ (.41) $ (.30) $ (.67) $ (.42)
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Basic and diluted weighted average
common shares outstanding 3,444,641 3,444,641 3,444,641 3,444,641
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See notes to condensed consolidated financial statements.
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TEMTEX INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands except share and per share data)
February 28, August 31,
2001 2000
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(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 426 $ 1,021
Accounts receivable, less allowance
for doubtful accounts of
$348 at February 28, 2001 and $319 at
August 31, 2000 2,432 2,847
Inventories 7,590 7,452
Prepaid expenses and other assets 225 180
Income taxes recoverable 604 484
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TOTAL CURRENT ASSETS 11,277 11,984
OTHER ASSETS 147 162
PROPERTY, PLANT AND EQUIPMENT
Buildings and improvements 2,615 2,615
Machinery, equipment, furniture and
fixtures 18,575 18,432
Leasehold improvements 1,306 1,302
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22,496 22,349
Less allowances for depreciation and
amortization 18,476 17,954
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4,020 4,395
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$ 15,444 $ 16,541
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February 28, August 31,
2001 2000
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(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 2,180 $ --
Accounts payable 1,302 1,565
Accrued expenses 883 1,396
Income taxes payable 31 206
Current maturities of indebtedness to
related parties 17 15
Current maturities of long-term
obligations 34 32
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TOTAL CURRENT LIABILITIES 4,447 3,214
INDEBTEDNESS TO RELATED PARTIES,
less current maturities 1,556 1,565
LONG-TERM OBLIGATIONS,
less current maturities 354 372
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock - $1 par value; 1,000,000
shares authorized, none issued -- --
Common stock - $.20 par value; 10,000,000
shares authorized,
5,286,125 shares issued 720 720
Additional capital 9,253 9,253
Retained earnings (deficit) (447) 1,856
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9,526 11,829
Less:
Treasury stock:
At cost - 153,696 shares 439 439
At no cost - 1,687,788 shares -- --
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9,087 11,390
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$ 15,444 $ 16,541
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See notes to condensed consolidated financial statements.
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TEMTEX INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
Six Months Ended
February 28, February 29,
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2001 2000
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OPERATING ACTIVITIES
Net loss $ (2,303) $ (1,439)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation and amortization 564 605
Loss on disposition of property,
plant and equipment -- 12
Provision for doubtful accounts 64 74
Changes in operating assets and
liabilities:
Accounts receivable 351 356
Inventories (138) 643
Prepaid expenses and other assets (30) 1,488
Accounts payable and accrued
expenses (776) (540)
Income taxes payable/recoverable (295) (1,415)
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NET CASH USED IN OPERATING
ACTIVITIES (2,563) (216)
INVESTING ACTIVITIES
Purchases of property, plant and
equipment (189) (410)
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NET CASH USED IN INVESTING
ACTIVITIES (189) (410)
FINANCING ACTIVITIES
Net proceeds from notes payable 2,180 --
Principal payments on long-term
obligations and indebtedness
to related parties (23) (20)
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NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 2,157 (20)
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DECREASE IN CASH AND CASH EQUIVALENTS (595) (646)
Cash and cash equivalents at beginning
of period 1,021 4,077
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CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 426 $ 3,431
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See notes to condensed consolidated financial statements.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial
statements include the accounts of Temtex Industries, Inc. (the
Company) and its wholly owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
The condensed financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial
information and with the instructions for Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the
information and notes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included.
Operating results for the six-month period ended February 28, 2001
are not necessarily indicative of the results that may be expected
for the year ending August 31, 2001. For further information, refer
to the consolidated financial statements and notes thereto included
in the Company's annual report on Form 10-K for the year ended August
31, 2000.
NOTE B--INCOME TAXES
For the six-month period ended February 29, 2000, the Company
recorded a state and federal tax benefit using an effective rate of
approximately 39%.
For the six-month period ended February 28, 2001, no state and
federal income tax benefit has been recorded as the Company has
recorded a valuation allowance to fully reserve the net operating
loss carryforwards since the realization of these assets is
uncertain.
The Company has state net operating loss carryforwards of
approximately $11,500,000 expiring in the years 2002 through 2015.
In addition, the Company also has a federal net operating loss
carryforward of approximately $3,100,000 which begins to expire in
the year 2021.
NOTE C--INCOME PER (LOSS) COMMON SHARE
Basic income (loss) per common share is based upon the weighted
average number of shares of common stock outstanding during each
period. Diluted income (loss) per share is based upon the weighted
average number of shares of common stock and common stock
equivalents outstanding during each period unless the effect of the
common stock equivalents would be antidilutive. Common stock
equivalents include options granted to key employees and outside
directors. The number of common stock equivalents was based on the
number of shares issuable on the exercise of options reduced by the
number of shares that are assumed to have been purchased at the
average price of common stock during each quarter with the proceeds
from the exercise of the options.
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NOTE D--INVENTORIES
Inventories are summarized below:
February 28, 2001 August 31, 2000
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(in thousands)
Finished goods $ 3,211 $ 2,992
Work in process 461 619
Raw materials and supplies 3,918 3,841
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$ 7,590 $ 7,452
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NOTE E--NOTES PAYABLE AND LONG-TERM DEBT
In September 2000, the Company entered into a three-year credit
agreement with Frost Capital Group whereby the Company may borrow a
maximum of $4,000,000 under a revolving credit facility. The amount
available under the facility is subject to limitations based on
specified percentages of the Company's eligible outstanding accounts
receivable and inventory. The outstanding principal is due on
demand and bears interest at an annual rate of 1.25% above the
specified bank's prime commercial interest rate. Interest is
payable monthly and is added to the outstanding loan balance. The
credit agreement does not require the maintenance of any financial
ratios. At February 28, 2001 there was approximately $2,180,000
outstanding under the credit facility with approximately $1,820,000
of unused credit still available.
NOTE F--COMMITMENTS AND CONTINGENCIES
Due to the complexity of the Company's operations, disagreements
occasionally occur.
In the opinion of management, the Company's ultimate loss from such
disagreements and potential resulting legal action, if any, will not
be significant.
NOTE G--FOREIGN OPERATIONS
At February 28, 2001 net assets of approximately $1,012,000 were
located at the Company's manufacturing facility in Mexico.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the financial condition and
results of operations of the Company should be read in conjunction
with the unaudited condensed consolidated financial statements and
related notes of the Company included elsewhere in this report. This
Management's Discussion and Analysis of Financial Condition and
Results of Operations and other parts of this Quarterly Report on
Form 10-Q contain forward-looking statements that involve risks and
uncertainties. Among the risks and uncertainties to which the
Company is subject are the risks inherent in the cyclical and
unpredictable nature of the housing and home products business
generally, fluctuations in interest rates, geographic concentration
of the Company's primary market, the fact that the Company has
experienced fluctuations in revenues and operating results, and the
highly competitive nature of the industries in which the Company
competes, together with each of those other factors set forth in the
Company's filings made with the Securities & Exchange Commission. As
a result, the actual results realized by the Company could differ
materially from the results discussed in the forward-looking
statements made herein. Words or phrases such as "will,"
"anticipate," "expect," "believe," "intend," "estimate," "project,"
"plan" or similar expressions are intended to identify forward-
looking statements. Readers are cautioned not to place undue
reliance on the forward-looking statements made in this Quarterly
Report on Form 10-Q.
Net Sales
Net sales of fireplace products decreased approximately 21% or
$1,112,000 in the second quarter of fiscal 2001 compared to the
second quarter of fiscal 2000. The decrease in sales resulted from
the decrease in customer orders and the decreased quantity of
fireplaces delivered in the second quarter of 2001 compared to the
second quarter of 2000. Between the comparative six-month periods,
net sales decreased approximately 20% or $2,300,000 in fiscal 2001,
again due to the decrease in quantities delivered. Competition
within the industry continues to suppress selling prices.
Gross Profit
Gross profit decreased from $381,000 to $105,000 or approximately
72% from the second quarter of fiscal 2000 to the second quarter of
fiscal 2001. Between the comparative six-month periods, gross profit
decreased from $1,357,000 in fiscal 2000 to $676,000 in fiscal 2001.
In both comparison periods, the decrease in gross profit resulted
from the reduced level of sales, which did not allow for full
recovery of overhead costs.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased approximately
$669,000 or 33% in the second quarter of fiscal 2001 compared to the
second quarter of fiscal 2000. Between the comparative six-month
periods, selling, general and administrative expenses decreased
approximately $1,016,000 or 27%. Significant reductions were
recorded in salaries, wages, selling commissions and related payroll
expenses.
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These reductions resulted primarily from the plan initiated in fiscal
2000 to relocate the majority of manufacturing from the California
facility to Tennessee and Mexico along with personnel reductions in
California and the Corporate office.
Interest Expense
Net interest expense increased by $66,000 between the comparative
quarters and $110,000 between the six-month periods. The increase
was primarily attributable to an increase in the average indebtedness
in fiscal 2001 resulting from borrowings under the new line of
credit.
Income Taxes
The Company has not recorded a benefit for income taxes on its
operating loss in fiscal 2001 due to the Company recording a
valuation allowance to fully reserve the entire amount until such
time that reassessment indicates that it is more likely than not that
the benefits will be realized. For both the three-month period and
the six-month period ended February 29, 2000, the Company recorded a
state and federal tax rate benefit using an effective rate of
approximately 40%.
Liquidity and Capital Resources
Net cash used by operating activities was $2,563,000 for the first
six-months of fiscal 2001 compared to $216,000 for the first six
months of 2000. The decreased cash flow from operations in the first
six-months of fiscal 2001 was primarily due to the operating loss and
the decrease in accounts payable and accrued expenses.
Working capital decreased $1,940,000 in the first six-months of
fiscal 2001 due mainly to the loss from operations which resulted in
the need for the Company to borrow under its credit agreement.
Capital expenditures and capitalized lease obligations for the first
six months of 2001 were $189,000. Expenditures include amounts for
tooling, dies, replacement items and major repairs to manufacturing
equipment.
In September 2000, the Company entered into a three-year credit
agreement with Frost Capital Group whereby the Company may borrow a
maximum of $4,000,000 under a revolving credit facility. The amount
available under the facility is subject to limitations based on
specified percentages of the Company's eligible outstanding accounts
receivable and inventory. The outstanding principal is due on demand
and bears interest at an annual rate of 1.25% above the specified
bank's prime commercial interest rate and is secured by the assets of
the Company and its subsidiary, Temco Fireplace Products, Inc.
Interest is payable monthly and is added to the outstanding loan
balance. The credit agreement does not require the maintenance of
any financial ratios. At February 28, 2001, there was approximately
$2,180,000 outstanding under the credit facility and approximately
$1,820,000 remaining available.
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The Company believes that future cash flow from operations, together
with funds available from the revolving credit facility, should
provide the Company with adequate funds to meet its working capital
requirements as well as requirements for capital expenditures for at
least the next twelve months. However, to the extent the Company
continues to experience operating losses in future periods that cause
the Company to require capital in excess of the borrowing capacity of
its existing revolving credit facility, it may be required to seek
additional borrowing capacity under its existing revolving credit
facility or additional sources of capital. Sources of additional
capital may include public and private equity and debt financings,
sales of nonstrategic assets and other financing arrangements. No
assurances can be made that the Company will be able to obtain
sufficient capital in the future.
Other
On January 12, 2001, the Company received a letter from
Nasdaq stating that the Company's common stock had failed to
maintain a minimum bid price of $1.00 over the previous 30
consecutive trading days as required by The Nasdaq SmallCap
Market under Marketplace Rule 4310(c)(4) and, therefore, in
accordance with Marketplace Rule 4310(c)(8)(B), the Company would
be provided 90 calendar days, or until April 12, 2001, to regain
compliance with Marketplace Rule 4310(c)(4). The January 12
Nasdaq letter further states that if the Company's common stock
fails to demonstrate compliance with Marketplace Rule 4310(c)(4)
on or before April 12, 2001, the staff of Nasdaq would provide
the Company with written notification that its common stock would
be delisted, although the Company would have the right to appeal
the staff's determination. The Company's common stock failed to
regain compliance with Marketplace Rule 4310(c)(4) on or before
April 12, 2001. Accordingly, the Company expects to receive a
letter from Nasdaq's staff notifying it that its common stock
will be delisted from the Nasdaq SmallCap Market. The Company
has not yet received such a letter. The Company does not intend
to appeal the expected determination of Nasdaq's staff.
Upon the expected delisting of the Company's common stock with the
Nasdaq SmallCap Market, the Company intends for its stock to be traded
via the OTC Bulletin Board(R) (OTCBB). The expected delisting of the
Company's stock on the Nasdaq SmallCap Market will likely adversely
affect the ability or willingness of investors to purchase the Company's
stock. In addition, the market liquidity of the Company's securities is
likely to be adversely affected.
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PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
The Registrant did not file any reports on Form 8-K during
the quarter for which this report is filed.
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SIGNATURES
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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.
TEMTEX INDUSTRIES, INC.
DATE: 4/16/01 BY: /s/ E.R.Buford
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E. R. Buford
President
DATE: 4/16/01 BY: /s/ R. L. DeLozier
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R. L. DeLozier
Secretary/Treasurer
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