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 May 31, 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 Identification No.)
incorporation or organization)
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 Nine Months Ended
May 31, May 31,
2001 2000 2001 2000
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Net sales $ 4,766 $ 4,770 $ 13,800 $ 16,104
Cost of goods sold 4,606 4,620 12,964 14,597
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160 150 836 1,507
Cost and expenses:
Selling, general and administrative 1,852 1,914 4,633 5,711
Interest 138 108 351 211
Other expense (income) 20 8 5 (137)
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2,010 2,030 4,989 5,785
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LOSS FROM OPERATIONS
BEFORE INCOME TAX PROVISION (1,850) (1,880) (4,153) (4,278)
State, federal and foreign income tax
provision -- 959 -- --
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NET LOSS $ (1,850) $ (2,839) $ (4,153) $ (4,278)
========== ========== ========== =========
Basic and diluted loss per common
share: $ (.54) $ (.82) $ (1.21) $ (1.24)
========== ========== ========== ==========
Basic and diluted weighted average
common shares outstanding 3,444,641 3,444,641 3,444,641 3,444,641
========== ========== ========== ==========
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)
May 31, August 31,
2001 2000
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(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 259 $ 1,021
Accounts receivable, less allowance for doubtful accounts of
$316 at May 31, 2001 and $319 at August 31, 2000 2,450 2,847
Inventories 7,527 7,452
Prepaid expenses and other assets 274 180
Deferred taxes recoverable -- 484
TOTAL CURRENT ASSETS 10,510 11,984
OTHER ASSETS 145 162
PROPERTY, PLANT AND EQUIPMENT
Buildings and improvements 2,615 2,615
Machinery, equipment, furniture and fixtures 18,603 18,432
Leasehold improvements 1,306 1,302
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22,524 22,349
Less allowances for depreciation and amortization 18,698 17,954
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3,826 4,395
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$ 14,481 $ 16,541
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May 31, August 31,
2001 2000
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(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 2,441 $ --
Accounts payable 1,595 1,565
Accrued expenses 1,232 1,396
Income taxes payable 4 206
Current maturities of indebtedness to related parties 18 15
Current maturities of long-term obligations 34 32
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TOTAL CURRENT LIABILITIES 5,324 3,214
INDEBTEDNESS TO RELATED PARTIES,
less current maturities 1,551 1,565
LONG-TERM OBLIGATIONS,
less current maturities 369 372
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock - $1 par value; 1,000,000
shares authorized, none issued -- --
Common stock - $.20 par value; 10,000,000 shares authorized,
5,286,125 shares issued 720 720
Additional capital 9,253 9,253
Retained earnings (deficit) (2,297) 1,856
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7,676 11,829
Less:
Treasury stock
At cost -153,696 shares 439 439
At no cost - 1,687,788 shares -- --
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7,237 11,390
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$ 14,481 $ 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)
Nine Months Ended
May 31,
---------------------
2001 2000
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OPERATING ACTIVITIES
Net loss $ (4,153) $ (4,278)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 852 924
Loss on disposition of property, plant and equipment -- 15
Provision for doubtful accounts 91 105
Changes in operating assets and liabilities:
Accounts receivable 306 553
Inventories (75) 975
Prepaid expenses and other assets (77) 1,571
Accounts payable and accrued expenses (134) (728)
Income taxes payable/recoverable 282 (414)
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NET CASH USED IN OPERATING ACTIVITIES (2,908) (1,277)
INVESTING ACTIVITIES
Purchases of property, plant and equipment (283) (555)
Proceeds from disposition of property, plant and
equipment -- 3
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NET CASH USED IN INVESTING ACTIVITIES (283) (552)
FINANCING ACTIVITIES
Net proceeds from notes payable and long-term obligations 2,465 --
Principal payments on long-term obligations and
ndebtedness to related parties (36) (31)
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NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 2,429 (31)
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DECREASE IN CASH AND CASH EQUIVALENTS (762) (1,860)
Cash and cash equivalents at beginning of period 1,021 4,077
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 259 $ 2,217
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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 nine month period ended May 31, 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 nine month period ended May 31, 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 has a federal net operating loss
carryforward of approximately $3,100,000 which begins to expire in
the year 2021.
At May 31, 2000, the Company changed its estimate from a net income
to a net loss position for fiscal year 2000. The Company recorded a
$959,000 (($0.28) per share) provision for income taxes for the
quarter ended May 31, 2000 to reverse the income tax benefits
recorded on operating losses during the first six months of fiscal
year 2000.
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.
NOTE D--INVENTORIES
Inventories are summarized below:
May 31, 2001 August 31, 2000
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(in thousands)
Finished goods $ 3,170 $ 2,992
Work in process 461 619
Raw materials and supplies 3,896 3,841
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$ 7,527 $ 7,452
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NOTE E--NOTES PAYABLE AND LONG-TERM DEBT/LIQUIDITY
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 May 31, 2001 there was approximately $2,441,000
outstanding under the credit facility, which was the maximum credit
available on that day.
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 May 31, 2001 net assets of approximately $1,174,000 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 were approximately the same in the
third quarter of fiscal 2001 compared to the third quarter of fiscal
2000. Between the comparative quarters, the increase (less than 1%)
in the quantity of units shipped was offset by a decrease (also less
than 1%) in the average selling price of the units. Between the
comparative nine month periods, net sales decreased approximately 14%
or $2,300,000 in fiscal 2001. The decrease in net sales was due to
suppressed selling prices and the decrease in quantities delivered in
fiscal 2001.
Gross Profit
Gross profit increased from $150,000 in the third quarter of fiscal
2000 to $160,000 in the third quarter of fiscal 2001. Between the
comparative nine month periods, gross profit decreased from
$1,507,000 in fiscal 2000 to $836,000 in fiscal 2001. The decrease
in gross profit in the nine month comparison period resulted from the
reduced level of sales, which did not allow for full recovery of
overhead costs.
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Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased approximately
$62,000 or 3% in the third quarter of fiscal 2001 compared to the
third quarter of fiscal 2000. Between the comparative nine month
periods, selling, general and administrative expenses decreased
approximately $1,078,000 or 19%. Reductions were recorded in
salaries, wages, selling commissions and related payroll expanses in
fiscal 2001 in both the third quarter as well as the nine month
comparison periods. These reductions resulted primarily from the
plan initiated in the fourth quarter of 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 $30,000 between the comparative
quarters and $140,000 between the nine 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. In the third quarter of fiscal 2000
the Company reversed the amount of benefits that it had previously
recorded for federal income taxes. This resulted in a federal income
tax expense of $959,000 in the third quarter and neither an expense
nor benefit at the end of the nine month period.
Liquidity and Capital Resources
Net cash used by operating activities was $2,908,000 for the first
nine months of fiscal 2001 compared to $1,277,000 for the first nine
months of 2000. The decreased cash flow from operations in the first
nine months of fiscal 2001 was primarily due to the operating loss
and the decrease in accounts payable and accrued expenses.
Working capital decreased $3,584,000 in the first nine 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
nine months of 2001 were $283,000. Expenditures include amounts for
tooling, dies, replacement items and major repairs to manufacturing
equipment.
9
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 May 31, 2001, there was approximately $2,441,000 outstanding under
the credit facility which was the maximum credit available on that
day. The borrowing since May 31, 2001 has fluctuated below and above
the amount outstanding at May 31, 2001 based on the eligible assets
and has ranged from $2,317,000 to $2,950,000 from May 31, 2001
through July 13, 2001.
Management believes that sufficient resources will be available to
meet the Company's cash requirements near term with substantial
reliance upon the Company's credit facility. Longer-term cash
requirements are dependent on the Company's ability to increase
sales, and to manage working capital requirements, and there can be
no assurance that the Company's projected cash resources will be
sufficient to fund the Company's future cash requirements beyond the
near term. The Company has experienced declining sales and
continuing significant operating losses. Should this trend continue,
it will be necessary to secure additional financing to continue
operations. There can be no assurance that any additional financing
will be available. Accordingly, to remain viable, the Company must
increase revenues and/or raise additional capital, notwithstanding
the liquidity provided by the Company's revolving credit facility.
Thus, the Company may need to raise additional funds through the
issuance of equity securities, in which case the percentage ownership
of the stockholders of the company either will be reduced, or such
equity securities may have rights, preferences or privileges senior
to common stock. Further, there can be no assurance that additional
financing will be available when needed.
Other
On April 25, 2001 the Company's common stock was delisted from the
NASDAQ SmallCap Market for failure to maintain a minimum bid price of
$1.00 over a thirty-consecutive day trading period. Beginning April
25, 2001, the Company's stock is trading via the OTC Bulletin Board
(R) (OTCBB).
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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: 1/16/01 BY:/s/E.R.Buford
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E. R. Buford
President
DATE: 1/16/01 BY:/s/R. L. DeLozier
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R. L. DeLozier
Secretary/Treasurer
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