UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 (Fee Required)
For the fiscal year ended December 31, 1996
Commission file Number 1-4591
FAIRMOUNT CHEMICAL CO., INC.
(Exact name of registrant as specified in its charter.)
New Jersey 22-0900720
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
117 Blanchard Street, Newark, NJ 07105
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: 201-344-5790
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock $1 Par Value
(Title of Class)
Check whether the issuer (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the past 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
YES [ X ] NO [ ]
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure
will be contained, to the best of Issuer's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of
this Form 10-KSB or any amendment to this Form 10-KSB [ X]
Issuer's revenue for its most recent fiscal year: $12,551,700.
The aggregate market value of the Issuer's Common Stock $1 par value
("Common Stock"), held by non-affiliates of the Issuer on March 21, 1997
(2,670,042 shares) was approximately $240,304, based on $.09 per share.
The Company's shares do not trade on any exchange nor has there been any
significant market activity with respect to such shares since the last
quarter of 1991, at which time the average of the bid and asked prices
was approximately $.05.
The total number of shares of Issuer's Common Stock outstanding on
March 21, 1997 was 8,293,366.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the Issuer's Definitive Proxy Statement for its Annual
Meeting of Stockholders to be held May 7, 1996, to be filed with the
Securities and Exchange Commission within 120 days after December 31,
1995 (the end of the registrant's fiscal year covered by this Form 10-
KSB) ("1996 Definitive Proxy Statement") are incorporated by reference
into Part III.
2. Exhibit A to the Issuer's Definitive Proxy Statement for its Annual
Meeting of Stockholders held April 19, 1983 is incorporated by reference
into Part III.
3. Exhibit A to the Issuer's Definitive Proxy Statement for its Annual
Meeting of Stockholders held May 15, 1985 is incorporated by reference
into Part III.
4. Exhibits A and B to the Issuer's Definitive Proxy Statement for its
Annual Meeting of Stockholders held May 10, 1988 are incorporated by
reference into Part III.
5. Exhibit A to the Issuer's Definitive Proxy Statement for its Annual
Meeting of Stockholders held May 23, 1990 is incorporated by reference
into Part III.
6. Exhibit A to the Issuer's Definitive Proxy Statement for its Annual
Meeting of Stockholders held May 6, 1991 is incorporated by reference
into Part III.
7. Exhibit A to the Issuer's Definitive Proxy Statement for its Annual
Meeting of Stockholders held May 4, 1993 is incorporated by reference
into Part III.
8. Exhibit (19) (ii) (sequentially numbered pages 14 through 15) to the
Issuer's Form 10-Q for the fiscal quarter ended June 30, 1986 are
incorporated by reference into Part III.
9. Amendment No. 9, dated March 29, 1987, to the Statement on Schedule
13D, filed by Phoenix Chemical Company and Phoenix Chemical Corporation
with the Securities and Exchange Commission on March 19, 1982 and April
9, 1982 respectively, and the American Stock Exchange on March 22, 1982,
and April 12, 1982, respectively, with respect to Issuer's issuance to
Phoenix Chemical Company of 500,000 shares of Issuer's Common Stock in
cancellation of current debt to Phoenix, is incorporated into Part III.
10. Amendment No. 10, dated September 10, 1987, to the Statement on
Schedule 13D, filed by Phoenix Chemical Company and Phoenix Chemical
Corporation with the Securities and Exchange Commission on March 19,
1982 and April 9, 1982, respectively, and the American Stock Exchange on
March 22, 1982 and April 12, 1982, respectively, with respect to
Issuer's issuance to Phoenix Chemical Company of 100,000 shares of
Issuer's Common Stock in cancellation of current debt to Phoenix, is
incorporated into Part III.
11. Amendment No. 11, dated December 17, 1987, to the Statement on
Schedule 13D, filed by Phoenix Chemical Company and Phoenix Chemical
Corporation with the Securities and Exchange Commission on March 19,
1982 and April 9, 1982, respectively, and the American Stock Exchange on
March 22, 1982 and April 12, 1982, respectively, with respect to
Issuer's issuance to Phoenix Chemical Company of 133,334 shares of
Issuer's Common Stock in cancellation of current debt to Phoenix, is
incorporated into Part III.
12. Amendment No. 12, dated July 7, 1988, to the Statement on Schedule
13D, filed by Phoenix Chemical Company and Phoenix Chemical Corporation
with the Securities and Exchange Commission on March 19, 1982 and April
9, 1982 respectively, and the American Stock Exchange on March 22, 1982,
and April 12, 1982, respectively, with respect to Issuer's issuance to
Phoenix Chemical Company of 1,000,000 shares of Issuer's Common Stock in
cancellation of current debt to Phoenix, is incorporated into Part III.
13. Amendment No. 13, dated August 7, 1989, to the Statement on Schedule
13D, filed by Phoenix Chemical Company and Phoenix Chemical Corporation
with the Securities and Exchange Commission on March 19, 1982 and April
9, 1982, respectively, and the American Stock Exchange on March 22,
1982, and April 12, 1982, respectively, with respect to Issuer's
issuance to Phoenix Chemical Company of 1,000,000 shares of Issuer's
Common Stock in cancellation of current debt to Phoenix, is incorporated
into Part III.
14. Amendment No. 14, dated May 23, 1990, to the Statement on Schedule
13D, filed by Phoenix Chemical Company and Phoenix Chemical Corporation
with the Securities and Exchange Commission on March 19, 1982 and April
9, 1982, respectively, and the American Stock Exchange on March 22,
1982, and April 12, 1982, respectively, with respect to Issuer's
issuance to Phoenix Chemical Company of 1,500,000 shares of Issuer's
Common Stock in cancellation of current debt to Phoenix, is
incorporated into Part III.
15. Amendment No. 15, dated December 5, 1990, to the Statement on
Schedule 13D, filed by Phoenix Chemical Company and Phoenix Chemical
Corporation with the Securities and Exchange Commission on March 19,
1982 and April 9, 1982, respectively, and the American Stock Exchange on
March 22, 1982, and April 12, 1982, respectively, with respect to
Issuer's issuance to Phoenix Chemical Company of 1,000,000 shares of
Issuer's Common Stock in cancellation of current debt to Phoenix, is
incorporated into Part III.
16. Statement on Schedule 13D, dated April 6, 1992, filed by William E.
Leistner with the Securities and Exchange Commission on April 15, 1992
with respect to the liquidation and winding up of Phoenix Chemical
Company and the distribution of 3,789,200 shares of Issuer's Common
Stock to Leistner, who was a 60% partner in Phoenix, as the result of
such liquidation is incorporated into Part III.
17. Statement on Schedule 13D, dated April 6, 1992, filed by the Estate
of Olga H. Knoepke with the Securities and Exchange Commission on May 4,
1992 with respect to the liquidation and winding up of Phoenix Chemical
Company and the distribution of 2,526,134 shares to the Estate of Olga
H. Knoepke, who was a 40% partner in Phoenix, as the result of such
liquidation, is incorporated in Part III.
18. Amendment No. 1 dated December 28, 1992, to the Statement on
Schedule 13D, filed by William E. Leistner with the Securities and
Exchange Commission on April 15, 1992, with respect to Issuer's issuance
to Leistner of 1,000,000 shares of Issuer's Common Stock in cancellation
of current debt to Leistner, is incorporated into Part III.
19. Statement on Schedule 13D, dated March 30, 1994, filed by the Estate
of William E. Leistner with the Securities and Exchange Commission on
March 30, 1994 with respect to the Estate of William E. Leistner
acquiring direct beneficial ownership of William E. Leistner's 4,790,200
shares of Common Stock and 5,400,000 shares of Preferred Stock of
Fairmount Chemical Co., Inc. upon his death on September 19, 1993 is
incorporated into Part III.
20. Form 8-K of Issuer, dated September 10, 1987, with respect to
Issuer's issuance to Phoenix Chemical Company of 100,000 shares of
Issuer's Common Stock in cancellation of current debt to Phoenix, is
incorporated into Part III.
21. Form 8-K of Issuer, dated December 17, 1987, with respect to
Issuer's issuance to Phoenix Chemical Company of 133,334 shares of
Issuer's Common Stock in cancellation of current debt to Phoenix is
incorporated into Part III.
22. Form 8-K of Issuer, dated July 7, 1988, with respect to Issuer's
issuance to Phoenix Chemical Company of 1,000,000 shares of Issuer's
Common Stock in cancellation of current debt to Phoenix, is incorporated
into Part III.
23. Form 8-K of Issuer, dated May 23, 1990, with respect to Issuer's
issuance to Phoenix Chemical Company of 1,500,000 shares of Issuer's
Common Stock in cancellation of current debt to Phoenix, is incorporated
into Part III.
24. Form 8-K of Issuer, dated December 5, 1990, with respect to Issuer's
issuance to Phoenix Chemical Company of 1,000,000 shares of Issuer's
Common Stock in cancellation of current debt to Phoenix, is incorporated
into Part III.
25. Form 8-K of Issuer, dated December 28, 1992, with respect to
Issuer's issuance to William E. Leistner of 1,000,000 shares of Issuer's
Common Stock in cancellation of current debt to Leistner, is
incorporated into Part III.
26. Form 8-K of Issuer, dated November 19, 1993, with respect to the
death of William E. Leistner, Chairman of the Board and Chief Executive
Officer and majority stockholder of Fairmount, as well as changes in
management, is incorporated into Part III.
THE EXHIBIT INDEX IS ON SEQUENTIALLY NUMBERED PAGES 27 THROUGH 36
Total number of pages in this Form 10-KSB: 36, including the "cover
page" and all exhibits (sequentially numbered pages 1 through 36).
PART I
Item 1. Business
Fairmount Chemical Co., Inc. (herein referred to as the "Company" or
the "Registrant") was incorporated in New Jersey on June 18, 1938.
The business of the Company is the manufacture and distribution of
chemicals, principal among which are (1) chemical intermediates for the
imaging industry, (2) hydrazine, its salts and derivatives, for use in
products manufactured by the Company and by various industries, (3)
additives used in the manufacture of plastics and (4) specialty
chemicals, including pharmaceutical intermediates. The Company sells
chemicals directly or through distributors to industrial users and
manufactures intermediates for other manufacturers.
The Company's major products and their markets include:
Imaging Chemicals
The Company custom manufactures chemicals for various imaging
customers. In addition, the Company manufactures and sells imaging
chemicals, including photosensitizers, stabilizers, antihalation dyes
and diazo resins. The Company's imaging chemicals are used in the
manufacture of photographic film and lithographic printing plates.
Hydrazine Based Products
Hydrazine is sold primarily to power generators as a feedwater
treatment. Hydrazine salts and derivatives are used in the manufacture
of many chemical products, including corrosion control chemicals for
commercial boiler systems.
Plastic Additives
The Company manufactures and/or sells additives such as antioxidants,
metal deactivators and UV stabilizers which are used in the manufacture
of plastics such as polyolefins, PVC, engineering resins and polyester
resins. The Company develops its own products which it currently
markets commercially to the plastics industry.
Specialty Chemicals
The Company produces pharmaceutical intermediates and custom organic
chemicals.
Major Product Sales
The percentage of total sales in each of the last two calendar years
contributed by each class of similar products was as follows:
1996 1995
---- ----
Plastic additives 33% 34%
Imaging chemicals 26% 22%
Hydrazine blends 16% 14%
Specialty chemicals 14% 21%
Hydrazine derivatives 11% 9%
---- ----
100% 100%
==== ====
The Company sells its products principally in the domestic market and
continues its efforts to expand both domestic and export sales. Net
sales of $12,551,700 and $12,234,000, in 1996 and 1995, respectively,
included export sales of $5,414,400 and $6,257,900. Net sales by major
foreign geographical area were as follows:
1996 1995
----- -----
Europe 22.1% 32.3%
Other Export 21.0% 18.5%
During 1996 and 1995, two customers accounted for approximately 26.6%
and 24.8% of the Company's sales, respectively. The loss of one of
these customers would have a material adverse effect on the Company's
business.
New Products
The Company continues the search for new products to add to its
plastics additives, imaging, hydrazine blends, hydrazine derivatives and
pharmaceutical markets. New products for use in the electronics and
automotive industry are scheduled for introduction later in 1997. The
company is also engaged in developing and manufacturing products for
others on a proprietary basis.
Raw Materials
The raw materials required by the Company are commercially available in
adequate supply from its suppliers.
Trademarks and Patents
The Company holds a number of trademarks and patents. However, it does
not believe that the sales of any of its products depends to any
significant extent on the use of trademarks and patents.
Research and Development
The Company maintains research facilities at its manufacturing location
in Newark, New Jersey.
During the years ended December 31, 1996 and 1995, the Company spent
approximately $484,200 and $488,500, respectively, in research and
development activities. The Company expects 1997 Research and
Development expenditures to approximate the 1996 level.
Technology Sale
During 1996, the Company entered into an agreement with a third party
to license certain technology and provide other information for a period
of ten years. Consideration received under this agreement is included
in other income. The impact of this technology sale on the future
operations of the Company is immaterial.
Competitive Conditions
The Company competes with various other companies, both domestic and
foreign, producing and distributing the same or similar products and, in
some instances, with companies producing different products utilized for
similar purposes. Certain of such competitors are better known,
substantially larger and have greater financial resources. Competition
is primarily on the basis of price, quality and service to customers.
The Company believes that its products are competitive on these bases.
Environmental Laws and Government Regulations
The chemical industry, including the Company, is subject to
environmental laws and regulations. The Company believes it has the
ability in terms of staff and financial resources to comply with the
present environmental statutes applicable to its business. The Company
has an ongoing program to treat and monitor its waste water effluent for
compliance with the requirements of local laws and regulations.
Samples are analyzed for biological oxygen demand. A complete chemical
analysis is performed monthly by an outside testing laboratory. All
results are forwarded to the New Jersey Department of Environmental
Protection.
The Company employs an environmental engineer to monitor the Company's
compliance with environmental laws and regulations. The engineer
inspects pipelines, tank dikes and equipment for leakage and any
evidence of potential soil contamination. The Company utilizes a
training program which includes instruction on the Company's
responsibilities with respect to environmental laws and regulations. The
Company's chemical processing operations are carried out at atmospheric
pressure or vacuum, thereby mitigating the potential for atmospheric
pollution from equipment rupture.
The Company has received notice from the New Jersey Department of
Environmental Protection ("NJDEP") that the NJDEP is investigating
whether any material from the Company has caused or contributed to the
contamination detected at the Ciuba landfill property in Newark. The
NJDEP alleges that there is a possibility that during the 1970's the
Company disposed of waste generated at the Company's facility through
contracts with certain garbage removal companies located at the Ciuba
landfill. The Company has also received notice from the United States
Environmental Protection Agency ("USEPA") that the USEPA has information
indicating that hazardous substances from the Company may have been
discharged into the Passaic River. It is the Company's understanding
that these allegations by the EPA are related to historical rather than
present events. The Company has taken the position that its material
neither caused nor contributed to the contamination of the Passaic River
and that it has not discharged hazardous substances into the Passaic
River. In both cases, it is possible that potentially responsible
parties will bring claims against Fairmount alleging that it is at least
partially responsible for the contamination.
The Company has no knowledge of contamination of soil on the premises.
There are no underground storage tanks on the Company's property. The
Company's manufacturing effluent system is connected to an above ground
piping system. The effluent is discharged to the local sewage
commission. On December 27, 1996, the Company received a complaint
alleging discharges of benzene in excess of the permissible limits on
two separate occasions during 1996. Fines associated with this
complaint are not material to the results of operations or financial
position of the Company.
Environmental compliance, waste disposal and regulatory fees totaled
approximately $ 84,600 and $87,100 in 1996 and 1995, respectively.
These costs are included in general and administrative expenses.
Employees
As of December 31, 1996, the Company had 70 employees, all of whom were
full-time employees. The Company has a contract with International
Brotherhood of Teamsters Local 575 which covers all hourly employees.
The contract expires on December 12, 1999.
Item 2. Properties
The Company has a plant located in an industrial area of Newark, New
Jersey, and owns substantially all of its property, plant and equipment.
The plant is located on approximately 13 acres of fenced land with two
railroad spur connections. It consists of 13 buildings, of brick,
cinder-block or metal-clad construction. They provide approximately
85,000 square feet of floor space, in which are located chemical process
equipment, warehouse, shipping, refrigeration, steam boilers,
maintenance, office and research and development facilities. In
addition, certain process equipment and tanks are located and operated
out-of-doors.
The Summit Bank line of credit is collateralized by the accounts
receivable and inventory of the Company. The Leistner Loan is
subordinate to the Summit Bank line of credit and is collateralized by
the accounts receivable and the machinery and equipment of the Company.
See Item 6 "Liquidity And Capital Resources," Page 9. Except for such
lien, there are no mortgages or liens on the property of the Company.
The Company normally operates its plant on a 24-hour day with a work
week of five days. While the Company believes that its plant,
buildings, and equipment are adequately maintained and, on the whole,
are reasonably suitable and sufficient for its current operations,
further capital investment may be required for maintenance of the
Company's operations and compliance with applicable laws. In the
opinion of management, the Company maintains adequate levels of property
insurance on the entire premises.
On March 25, 1997 there was an explosion in a building in which some of
the Company's products are dried. There were no injuries to any
employees. The damage to the building and contained equipment was
extensive. There was minor collateral damage to other buildings. The
Company believes it will have alternate means of drying products in
place in less than sixty days. Insurance coverage is sufficient to
cover the property and material losses sustained. Therefore, the
Company believes that this occurrence will not result in any materially
adverse effect to its 1997 operations.
In 1996, the Company spent approximately $481,200 on capital
expenditures to upgrade and expand other production facilities and for
building and equipment improvements.
Item 3. Legal Proceedings
None.
Item 4. Submission of Matters to a Vote of Security Holders
The Company submitted no matters to a vote of its security holders
during the last quarter of its fiscal year ending December 31, 1996.
PART II
Item 5. Market for Issuer's Common Equity and Related Stockholder
Matters
On July 5, 1991, the Company's shares of common stock were deleted from
NASDAQ as a result of the Company's failure to meet the capital and
surplus requirements as set forth in Section 1(c)(3), Part II of
Schedule D of the NASD by-laws. The Company's common stock is now
traded over the counter and is not quoted on the automated quotation
system of a registered securities association. For each fiscal quarter,
the charts below reflect the high and low bid prices for the Common
Stock. The bid prices reflect inter-dealer quotations without retail
mark-ups, mark-downs or commissions and do not necessarily represent
actual transactions. Price Ranges of Common Stock were as follows:
Common Stock Bid Prices
------------------------
1996 1 1995 1
------- -------
Quarter High Low High Low
- ---------- ------------ ---------------
First $.25 $.22 $.28 $.20
Second .20 .15 .28 .22
Third .16 .10 .25 .22
Fourth .15 .09 .25 .22
There were approximately 289 stockholders of record at December 31,
1996. The Company did not declare or pay any dividends in 1996 and
1995.
_________________________
1 There was no significant market activity for the common stock during
1996 and 1995.
Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
In 1996, the Company realized a significant improvement in its
liquidity position by obtaining a $1,250,000 line of credit from Summit
Bank in Hackensack, New Jersey.
The Company's working capital increased by $132,300 in 1996 resulting
in working capital of $3,562,500 compared to working capital of
$3,430,200 in 1995. The increase in working capital in 1996 resulted
from higher balances of trade receivables - $188,900 and prepaid assets
- - $103,600 coupled with lower balances of other accrued liabilities -
$107,600 and capitalized leases - $154,600. Trade receivables increased
due to an increased mix of foreign receivables which have longer
collection terms. Prepaid assets were higher due to payment in 1996 for
a three year pollution liability insurance policy. Other accrued
balances were lower due to higher accruals in 1995 for sales commissions
on an agency agreement that was terminated during 1996 and for chemical
disposal expenses that were paid during the first quarter of 1996.
Capitalized leases in 1996 were reduced through normal monthly payments
until the bank line of credit was obtained, at which time monies were
borrowed and used to repay the remaining balances. Decreases in working
capital were due to lower inventory balances - $407,700 coupled with
short-term bank borrowings - $60,000. Inventory decreased as a result
of lower production during December due to a holiday shutdown.
As of January 1, 1993, the Company owed W.E. Leistner ("Leistner"),
$5,603,700, (the "Leistner Loan"). At the Board of Director's Meeting
following the 1993 Annual Meeting, the Board approved the sale of
5,400,000 shares of cumulative convertible Preferred Stock, $1.00 par
value per share, in a private transaction to Leistner, the registrant's
principal stockholder, in consideration of retirement of debt to
Leistner of $5,400,000. The balance of the Leistner Loan principal was
paid out of corporate funds of approximately $203,700 during May, 1993.
The Leistner Loan is controlled by the co-executors of the Estate of
Leistner ("Leistner Estate"). Accrued interest for the Leistner Loan as
of December 31, 1996 and 1995 was $491,600. The executors of the Estate
of W.E. Leistner ("Leistner Estate") have agreed to extend repayment of
the interest until April 1, 1998.
The balance of Notes Payable to Affiliated Parties as of December 31,
1995, was $1,080,000 which represents borrowings under a separate
financing, the Credit Facility Loan Agreement ("Credit Facility"). On
March 20, 1992, the Credit Facility was created with monies contributed
to a fund (the "Fund") by Leistner and the Estate of Olga H. Knoepke.
At that date, the Fund provided the Company with a $2,494,000 credit
facility under which all borrowings bear interest at the rate of 5% per
annum. The Fund is controlled by the co-executors of the Leistner
Estate. There were no borrowings from the Credit Facility in 1996.
There were borrowings of $290,000 from the Credit Facility in 1995 used
primarily for working capital purposes. The executors of the Leistner
Estate have agreed to extend repayment of the Credit Facility
indebtedness until April 1, 1998.
On March 25, 1997 there was an explosion in a building in which some of
the Company's products are dried. There were no injuries to any
employees. The damage to the building and contained equipment was
extensive. There was minor collateral damage to other buildings. The
Company believes it will have alternate means of drying products in
place in less than sixty days. Insurance coverage is sufficient to
cover the property and material losses sustained. Therefore, the
Company believes that this occurrence will not result in any materially
adverse effect to its 1997 operations.
The Company's capital expenditures of approximately $481,200 in 1996
were used for the expansion and upgrade of production capacity and
building and equipment improvements.
Research and Development
During the years ended December 31, 1996 and 1995, the Company spent
approximately $484,200 and $488,500, respectively, in research and
development activities. The Company expects 1997 Research and
Development expenditures to approximate the 1996 level.
Environmental Laws and Government Regulations
The chemical industry, including the Company, is subject to
environmental laws and regulations. The Company believes it has the
ability in terms of staff and financial resources to comply with the
present environmental statutes applicable to its business. The Company
has an ongoing program to treat and monitor its waste water effluent for
compliance with the requirements of local laws and regulations. Samples
are analyzed for biological oxygen demand. A complete chemical analysis
is performed monthly by an outside testing laboratory. All results are
forwarded to the New Jersey Department of Environmental Protection.
The Company employs an environmental engineer to monitor the Company's
compliance with environmental laws and regulations. The Company
engineer inspects pipelines, tank dikes and equipment for leakage and
any evidence of potential soil contamination. The Company utilizes a
training program which includes instruction on the Company's
responsibilities with respect to environmental laws and regulations. The
Company's chemical processing operations are carried out at atmospheric
pressure or vacuum, thereby mitigating the potential for atmospheric
pollution from equipment rupture.
The Company has received notice from the New Jersey Department of
Environmental Protection ("NJDEP") that the NJDEP is investigating
whether any material from the Company has caused or contributed to the
contamination detected at the Ciuba landfill property in Newark. The
NJDEP alleges that there is a possibility that during the 1970's the
Company disposed of waste generated at the Company's facility through
contracts with certain garbage removal companies located at the Ciuba
landfill. The Company has taken the position that its material was not
sent to the Ciuba landfill. The Company has also received notice from
the United States Environmental Protection Agency ("USEPA") that the
USEPA has information indicating that hazardous substances from the
Company may have been discharged into the Passaic River. It is the
Company's understanding that these allegations by the EPA are related to
historical rather than present events. The Company has taken the
position that its material neither caused nor contributed to the
contamination of the Passaic River and that it has not discharged
hazardous substances into the Passaic River. In both cases, it is
possible that potentially responsible parties will bring claims against
Fairmount alleging that it is at least partially responsible for the
contamination.
The Company has no knowledge of contamination of soil on the premises.
There are no underground storage tanks on the Company's property. The
Company's internal effluent system is connected to an above ground
piping system. The effluent is discharged to the local sewage
commission. On March 24, 1994, the Company received and subsequently
entered into a consent order of final judgement with the local sewage
commission covering the period from July 1, 1991 to the date of the
consent order. During this period, the Company exceeded discharge
limits for toluene on ten separate occasions. The Company paid a
settlement in the amount of $10,000 and agreed to and did have toluene
emissions under the discharge limit by October 1, 1994.
Environmental compliance, waste disposal and regulatory fees totaled
approximately $87,100 and $131,700 in 1995 and 1994, respectively.
These costs are included in general and administrative expenses.
Results of Operations 1996 - 1995
A. Net sales for 1996 were $12,551,700, an increase of $227,700 or
1.8% as compared to 1995. The increase in net sales was primarily due
to increased volumes of imaging chemicals - $550,900, hydrazine blends -
$309,700, hydrazine derivatives - $195,000 and polymer additives -
$37,900; partially offset by lower volumes of specialty chemicals mainly
due to the loss of a customer that began manufacturing for themselves a
product formerly supplied by the Company - ($865,800). Gross profit for
1996 decreased $844,700 or 29.2% due to lower margins resulting from
stiff price competition in several products coupled with increased
manufacturing expenses. Included in this decrease is a loss of $106,000
due to the shipment of off-spec material to a customer. The Company is
attempting to recover this loss from its insurance carrier.
Net Sales 1996 1995
-----------------
Plastic additives 33% 34%
Imaging chemicals 26% 22%
Hydrazine blends 16% 14%
Specialty chemicals 14% 21%
Hydrazine derivatives 11% 9%
-----------------
100% 100%
-----------------
B. Operating loss was $457,700, a change of $789,500 versus operating
income of $331,800 in 1995. The change was due to the lower margins and
increased manufacturing costs affecting gross profit. Research and
development and selling, general and administrative expenses were
slightly lower versus 1995.
Interest expense to an affiliate was slightly higher in 1996 versus
1995 due to lower borrowings during the early part of 1995. Other
income increased $135,200 versus 1995. The increase was the result of
the Company granting a technology license for the manufacture,
production and sale of one of the Company's products - $175,000, coupled
with customs duty refunds; partially offset by the receipt of a state
grant for safety training during 1995.
1997 Outlook
The Company has budgeted approximately $475,000 for capital
expenditures in 1997. Major expenditures will consist of capital
repairs to buildings, the replacement of process equipment and storage
tanks.
Improved operating results will depend on improving the 1996 level of
sales volumes to existing major customers.
The Company should realize improved margins through lower raw
materials costs coupled with improved manufacturing efficiencies.
The meet liquidity requirements, including capital programs, the
Company will look primarily to cash generated from operations, its
available cash balances and its bank line of credit. The Company
believes these sources to be adequate to meet operating requirements.
Item 7. Financial Statements and Supplementary Data
Index to Financial Statements and Related Information
Financial Statements Page
--------
Independent Auditors' Report 13
Statements of Operations for the years
ended December 31, 1996 and 1995 14
Balance Sheets as of December 31, 1996 and 1995 15
Statements of Stockholders' Equity
for the years ended December 31, 1996 and 1995 16
Statements of Cash Flows for the years
ended December 31, 1996 and 1995 17
Notes to Financial Statements 18-25
Independent Auditors' Report
The Board of Directors and Stockholders
Fairmount Chemical Co., Inc.:
We have audited the accompanying balance sheets of Fairmount
Chemical Co., Inc. as of December 31, 1996 and 1995, and related
statements of operations, stockholders' equity and cash flows for
the years then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Fairmount
Chemical Co., Inc. as of December 31, 1996 and 1995, and the results of
its operations and its cash flows for the years then ended in conformity
with generally accepted accounting principles.
As discussed in notes 1 to the financial statements, the Company
changed its method of determining the cost of inventories in 1996.
/s/ KPMG Peat Mark LLP
- -----------------------
KPMG Peat Mark LLP
Short Hills, New Jersey
March 24, 1997
<TABLE>
<CAPTION>
FAIRMOUNT CHEMICAL CO., INC.
Statements of Operations
Years Ended December 31, 1996 and 1995
(Dollar amounts rounded to hundreds, except per share data)
1996 1995
----------- ------------
<S> <C> <C>
Net sales $12,551,700 $12,324,000
Cost of goods sold 10,506,900 9,434,500
- ----------------------------------------------------------------------
Gross profit 2,044,800 2,889,500
Research & development 484,200 488,500
Selling, general and
administrative expenses 2,018,300 2,069,200
- ----------------------------------------------------------------------
Operating income/(loss) (457,700) 331,800
Interest expense 77,300 68,700
Other income (Note 7) (257,900) (117,300)
- ----------------------------------------------------------------------
Net (loss)/income before income taxes $ (277,100) $ 380,400
Provision for income taxes -- --
- ----------------------------------------------------------------------
Net (loss)/income $ (277,100) $ 380,400
======================================================================
(Loss)/earnings per share $ (.02) $ .03
======================================================================
See accompanying Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
FAIRMOUNT CHEMICAL CO., INC.
Balance Sheets
December 31, 1996 and 1995
(Dollar amounts rounded to hundreds)
1996 1995
---------- ----------
<S> <C> <C>
Assets
Current Assets:
Cash $ 427,900 $ 432,800
Accounts receivable-trade 2,091,000 1,902,100
Inventories (Note 2) 1,662,400 2,070,100
Prepaid expenses 263,700 160,100
Other current assets 57,900 26,300
- ---------------------------------------------------------------------
Total Current Assets 4,502,900 4,591,400
- ---------------------------------------------------------------------
Property, plant and equipment
less accumulated depreciation of
$10,986,100 in 1996 and $10,116,300
in 1995 (Note 3) 4,775,000 5,163,600
Other assets (Note 7) 56,000 700
- ---------------------------------------------------------------------
Total Assets $9,333,900 $9,755,700
=====================================================================
Liabilities and
Stockholders' Equity
Current Liabilities:
Accounts payable $ 563,500 $ 560,200
Accrued compensation 73,100 95,000
Other accrued liabilities 243,800 351,400
Short-term bank borrowings (Note 5) 60,000 --
Capitalized lease obligations (Note 5) -- 154,600
- ---------------------------------------------------------------------
Total Current Liabilities 940,400 1,161,200
- ---------------------------------------------------------------------
Accrued interest to
affiliated party (Note 4) 491,600 491,600
Long-term notes payable to
affiliated party (Note 4) 1,080,000 1,080,000
Long-term bank borrowings (Note 5) 111,700 --
Long-term capitalized lease
obligations (Note 5) -- 76,000
Accrued pension liability (Note 7) 353,400 230,900
Stockholders' Equity
Preferred stock, par value $1 per share
authorized - 10,000,000
shares; 5,400,000
shares issued and
outstanding (Note 10) 5,400,000 5,400,000
Common stock, par value $1 per share
authorized - 15,000,000 shares;
8,293,366 shares issued and
outstanding in 1996 and 1995 8,293,400 8,293,400
Less: Treasury stock (at cost)
- 500 shares (500) (500)
Capital in excess of par value 7,316,000 7,316,000
Accumulated deficit (14,570,000) (14,292,900)
Additional minimum liability (Note 7) (82,100) --
- ---------------------------------------------------------------------
Total Stockholders' Equity 6,356,800 6,716,000
- ---------------------------------------------------------------------
Total Liabilities and
Stockholders' Equity $ 9,333,900 $ 9,755,700
=====================================================================
See accompanying Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
FAIRMOUNT CHEMICAL CO., INC.
Statements of Stockholders' Equity
Years Ended December 31, 1996 and 1995
(Dollar amounts rounded to hundreds)
Additional Capital Additional
Preferred Stock Common Stock Treasury Stock in Excess Accumulated Minimum
Shares Amount Shares Amount Shares Amount of par Value Deficit Liability Total
- -----------------------------------------------------------------------------------------------------------------------------------
Balance
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
December 31, 1994 5,400,000 $5,400,000 8,293,366 $8,293,400 (500) ($500) $7,316,000 ($14,791,600) -- $6,217,300
Adjustment for the
cumulativeeffect
on prior years of
applying retroactively
the new method of
accounting for
inventories (Note 1) 118,300 118,300
- -----------------------------------------------------------------------------------------------------------------------------------
Balance as adjusted
December 31, 1994 5,400,000 $5,400,000 8,293,366 $8,293,400 (500) ($500) $7,316,000 ($14,673,300) $6,335,600
Net income for 1995 380,400 380,400
- -----------------------------------------------------------------------------------------------------------------------------------
Balance as adjusted
December 31, 1995 5,400,000 $5,400,000 8,293,366 $8,293,400 (500) ($500) $7,316,000 ($14,292,900) -- $6,716,000
Net loss for 1996 (277,100) (277,100)
Additional minimum
liability (Note 6) $(82,100) (82,100)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance
December 31, 1996 5,400,000 $5,400,000 8,293,366 $8,293,400 (500) ($500) $7,316,000 ($14,570,000) $(82,100) $6,356,800
==================================================================================================================================
See accompanying Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
FAIRMOUNT CHEMICAL CO., INC.
Statements of Cash Flows
Years Ended December 31, 1996 and 1995
(Dollar amounts rounded to hundreds)
1996 1995
----------- ----------
<S> <C> <C>
Cash Flow From Operating Activities:
Net (loss)/Income (277,100) $ 380,400
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 869,800 821,300
Increase (decrease) from changes in:
Accounts receivable-trade (188,900) (492,000)
Inventories 407,700 (480,400)
Prepaid expenses (103,600) 99,600
Other assets (86,900) 2,800
Accounts payable 3,300 67,900
Accrued compensation (21,900) 48,700
Other liabilities (67,200) (41,200)
- ----------------------------------------------------------------------
Cash Flow Provided by Operating Activities 535,200 407,100
- ----------------------------------------------------------------------
Cash Flow Used in Investing Activities:
Capital expenditures (481,200) (955,800)
- ----------------------------------------------------------------------
Cash Flow From Financing Activities:
Capitalized lease obligations (230,600) 230,600
Bank borrowings 171,700 --
Credit facility -- 290,000
- ----------------------------------------------------------------------
Cash Flow Used in/Provided by
Financing Activities (58,900) 520,600
- ----------------------------------------------------------------------
Decrease in Cash (4,900) (28,100)
Cash at Beginning of Period 432,800 460,900
- ----------------------------------------------------------------------
Cash at End of Period $ 427,900 $ 432,800
======================================================================
Supplemental Disclosure of Cash Flow Information:
Interest Paid $ 77,300 $ 68,700
========== ==========
Income taxes paid $ -- $ --
========== ==========
See accompanying Notes to Financial Statements
</TABLE>
FAIRMOUNT CHEMICAL CO., INC.
Notes to Financial Statements
(Dollar amounts rounded to hundreds, except per share data)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Fairmount Chemical Co., Inc. ("Fairmount" or "the Company") is
incorporated in the State of New Jersey and is in the business of
manufacturing and distributing specialty chemicals. Fairmount is 57.8%
owned by the Estate of William E. Leistner as of December 31, 1996.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with the
1996 presentation.
REVENUE
Revenue is recognized on the date of invoice to a customer (invoices
are prepared on or after the date of shipment).
CASH EQUIVALENTS
Cash equivalents are all highly liquid short-term investments with a
maturity of three months or less.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is
determined by the first-in, first-out (FIFO) method. During 1996, in
order to better match revenues and expenses, the Company adopted the
FIFO method for inventories which had previously been costed on the
last-in, first-out (LIFO) method. The Company has applied this change
in method retroactively, which resulted in a decrease in the accumulated
deficit of $118,300 at that date. The impact on operations in 1995 was
to increase net income by $1,700 and in 1996 to increase the loss by
$22,600. The effect on earnings per share in 1996 and 1995 was zero.
There are no general and administrative costs allocated to inventory.
PROPERTY, PLANT and EQUIPMENT
Property, plant and equipment are stated at cost and are depreciated
using the straight line method over the estimated useful lives of the
respective assets. Maintenance and repairs are charged to expense as
incurred, and expenditures for renewals and betterments are capitalized.
Gains or losses on sales or retirements are recognized in income.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are charged to operations as incurred.
INCOME TAXES
The Company accounts for income taxes in accordance with the asset and
liability method. Under the asset and liability method, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
As of December 31, 1996 and 1995, the fair values of the Company's
financial instruments, principally cash and debt, approximates their
carrying amount.
NOTE 2. INVENTORIES
Inventories at December 31, consisted of:
1996 1995
-------------------------
Finished goods $ 1,455,100 $ 1,854,400
Raw materials and work in process 207,300 215,700
-------------------------
$ 1,662,400 $ 2,070,100
=========================
The reserve for obsolete inventory was $87,400 and $98,600 at
December 31, 1996 and 1995, respectively.
NOTE 3. PROPERTY, PLANT and EQUIPMENT
Property, plant and equipment, by major classification, at December 31,
1996 and 1995 is summarized as follows:
1996 1995
-------------------------
Land $ 259,300 $ 259,300
Buildings 4,658,700 4,554,800
Machinery and equipment 10,305,500 9,990,700
Vehicles 152,100 135,900
Furniture and fixtures 385,500 339,200
-------------------------
15,761,100 15,279,900
Less: Accumulated depreciation 10,986,100 10,116,300
-------------------------
$ 4,775,000 $5,163,600
=========================
Construction in progress of approximately $57,600 at December 31, 1996
and $345,300 at December 31, 1995 is included in machinery and
equipment.
NOTE 4. LONG-TERM PAYABLE TO AFFILIATED PARTY
A. As of January 1, 1993 the Company owed William E. Leistner
("Leistner") $5,603,700 (the "Leistner Loan"). At the Board of
Director's Meeting following the 1993 Annual Meeting, the board approved
the sale of 5,400,000 shares of cumulative convertible Preferred Stock,
$1.00 par value per share, in a private transaction to Leistner, the
Company's principal stockholder, in consideration of retirement of debt
owed to Leistner of $5,400,000. The balance of the Leistner Loan was
paid out of corporate funds of approximately $203,700 during May, 1993.
This transaction retired the principal of the Leistner Loan.
Beginning on April 1, 1992, the Leistner Loan had an interest rate
equal to one percent above the prime rate as announced by First Fidelity
Bank, Newark, New Jersey. Accrued interest payable for the Leistner
Loan is $491,600 for 1996 and 1995, respectively. The Leistner Loan is
controlled by the co-executors of the Estate of Leistner ("Leistner
Estate"). The executors of the Leistner Estate have agreed to extend
repayment of the interest until April 1, 1998.
B. The balance of Notes Payable to Affiliated Parties as of December
31, 1996 and 1995 was $1,080,000, which represents borrowings under a
separate financing, the Credit Facility Loan Agreement ("Credit
Facility"). On March 20, 1992, the Credit Facility was created with
monies contributed to a fund (the "Fund") by Leistner and the Estate of
Olga H. Knoepke. The Fund is now controlled by the co-executors of the
Estate of Leistner. At that date, the Fund provided the Company with a
$2,494,000 credit facility under which all borrowings bear interest at
the rate of 5% per annum. Interest expense was $54,000 and $50,800 for
1996 and 1995. There were no borrowings from the Credit Facility in
1996. There were borrowings of $290,000 from the Credit Facility in
1995. The executors of the Leistner Estate have agreed to extend
repayment of the Credit Facility indebtedness until April 1, 1998.
<TABLE>
<CAPTION>
Indebtedness to Related Parties - Non Current
---------------------------------------------
Fairmount Fund (60%
Estate of W.E. Leistner Estate of W. E. Leistner, 40%
(Leistner Loan Interest) Estate of O.H. Knoepke)
------------------------ -----------------------
<S> <C> <C>
Balance as of
December 31, 1994 $ 491,600 $ 790,000
Additions -- 290,000
Reductions -- --
----------- -------------
Balance as of
December 31, 1995 $ 491,600 $ 1,080,000
Additions -- --
Reductions -- --
----------- -------------
Balance as of
December 31, 1996 $491,600 $1,080,000
=========== =============
</TABLE>
Notes to Financial Statements (Continued)
NOTE 5. LONG-TERM DEBT
1996 1995
-------- -------
Capital Expenditures Line of Credit $171,700 $ --
Capitalized Leases -- 230,600
-------- -------
Less Current Indebtedness 60,000 154,600
-------- -------
Long Term Debt $111,700 $76,000
======== =======
In July, 1996, the Company obtained a $1,250,000 line of credit from a
bank. The proceeds of the borrowings during 1996 were used to eliminate
the outstanding capitalized lease obligations. The line of credit is
comprised of two separate available balances. There is $750,000
available for working capital purposes and $500,000 available to finance
capital expenditures. Interest on the borrowings are at the bank's
prime rate plus 1%. Borrowings and repayments under the working capital
line of credit are handled on a revolving credit basis. There are
currently no borrowings against the working capital line. Borrowings
against the capital expenditures line of credit are treated as a three
year note. The line of credit is subject to an annual review for
renewal. The bank has been given a first security interest in the
accounts receivable and inventory of the Company.
NOTE 6. INCENTIVE STOCK OPTIONS
On April 19, 1983, the stockholders approved an Incentive Stock Option
Plan (the "1983 Plan"), which was adopted by the Board of Directors on
August 17, 1982. The 1983 Plan provides for granting incentive stock
options to key employees to purchase not more than 75,000 shares of
common stock of the Company. The option price per share cannot be less
than the market price on date of grant. The option is exercisable after
the optionee has been in the employ of the Company for at least one year
after the date of grant (subject to limited exceptions) and may be
exercised for a period of 10 years from the date of grant unless an
earlier date is stated in the option.
On July 10, 1984, the Board of Directors amended the 1983 Plan,
increasing the number of shares in the Plan by 100,000 shares. This
amendment was approved by the stockholders on May 15, 1985. On November
29, 1988, the Board of Directors further amended the plan, effective
January 1, 1987, to reflect changes made by the Internal Revenue Code of
1986 by modifying the provisions regarding the annual dollar limitation
with respect to grants of options and the sequence in which stock
options may be exercised. On January 29, 1991, the Board of Directors
adopted a new amendment to the Plan, increasing the maximum number of
shares for which options can be granted under the Plan from 175,000
shares to 350,000 shares. The stockholders approved such amendment on
May 6, 1991. In addition, on March 2, 1993, the Board of Directors
adopted a new amendment to the Plan, increasing the maximum number of
shares for which options can be granted under the Plan from 350,000
shares to 500,000 shares. The stockholders approved such amendment on
May 4, 1993.
Effective as of January 1, 1996, the Company adopted Statement of
Financial Accounting Standards ("SFAS") 123, Accounting for Stock-Based
Compensation. SFAS 123 encourages, but does not require, companies to
record compensation cost for stock-based employee compensation plans at
fair value. The Company has chosen to continue to account for stock-
based compensation using the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25, "Accounting For Stock Issued
to Employees," and related interpretations. Accordingly, compensation
cost for stock options is measured as the excess, if any, of the quoted
market price at the date of the grant over the amount an employee must
pay to acquire the stock. Because the Company grants options at a price
equal to the market price of the stock at the date of grant, no
compensation expense is recorded. Although pro forma disclosures of
compensation expense as determined under the provisions of SFAS 123 is
required, the Company has not provided such disclosures, as such.
Proforma effect on net (loss)/income and (loss)income per share is not
materially different from reported net (loss)/income and (loss)/income
per share in 1996 and 1995, respectively. The current effect of
applying SFAS 123 may not be representative of the effects on reported
net income for future years.
Stock option transactions for the years ended December 31, 1996 and 1995
under the plans were as follows:
1996 1995
- -------------------------------------------------------------------
Shares Price Shares Price
Outstanding
at beginning
of the year 222,000 $1.00 252,375 $1.00
Granted -- -- -- --
Forfeited (58,000) $1.00 (4,000) $1.00
Expired -- $1.00 (26,375) $1.00
- -------------------------------------------------------------------
Outstanding
at end
of the year 164,000 $1.00 222,000 $1.00
- -------------------------------------------------------------------
Exercisable 164,000 $1.00 222,000 $1.00
===================================================================
All stock options outstanding as of December 31, 1996 and 1995 are
exercisable at $1.00 per share. The average life of stock options
outstanding as of December 31, 1996 and 1995 is five and six years
respectively.
NOTE 7. PENSION PLAN
The Company has a defined benefit pension plan covering all of its
employees. The benefits are based on years of service and the
employees' compensation. The Company's funding policy is to contribute
annually the statutory minimum. In 1996, the Company made contributions
of $90,000 and $21,000 for the plan years of 1996 and 1995,
respectively. In 1995 the Company made contributions of $141,000 and
$73,000 for the plan years 1995 and 1994, respectively. Assets of the
plan are held by an insurance company in guaranteed annuity contracts.
The following table sets forth the plan's funded status and amounts
recognized in the Company's balance sheet at December 31, 1996 and 1995.
Actuarial data related to plan obligations:
Disclosure of plan obligation:
1996 1995
----------- -----------
Vested benefit obligation $ 3,268,900 $ 2,986,600
Accumulated benefit obligation $ 3,350,500 $ 3,056,000
----------- -----------
Projected benefit obligation $(3,525,600) $(3,212,600)
Plan assets, fair value 2,842,100 2,788,400
----------- -----------
Funded status (683,500) (424,200)
Remaining unrecognized net obligation
at adoption of SFAS No. 87 55,300 66,400
Unrecognized prior service cost (81,700) (95,100)
Unrecognized net loss (gain) 338,900 142,000
Additional minimum liability (137,400) --
----------- -----------
Accrued pension liability $ (508,400) $ (310,900)
=========== ===========
Current portion $ 155,000 $ 80,000
Long-term portion $ 353,400 $ 230,900
Included in other assets is an associated intangible pension asset of
$55,300 in 1996.
Net pension cost included in operating results for 1996 and 1995
amounted to $171,100 and $88,800, respectively, and was comprised of the
following:
1996 1995
----------- -----------
Service cost $ 139,700 $ 87,800
Interest cost on projected
benefit obligation 241,200 220,400
Return on plan assets (167,500) (170,000)
Net amortization and deferral (42,300) (49,400)
----------- -----------
Total net pension cost $ 171,100 $ 88,800
=========== ===========
The weighted average discount rate and the rate of increase in future
compensation levels used in determining the actuarial present value of
the projected benefit obligation were 7.5 percent and 5 percent,
respectively, as of December 31, 1996 and 7.0 percent and 5 percent,
respectively, as of December 31, 1995. The expected long-term rate of
return on assets was 8 percent for the measurement period ending on each
of those dates.
The provisions of SFAS No. 87, "Employees Accounting for Pensions",
requires recognition in the balance sheet of an additional minimum
liability when accumulated benefits are in excess of plan assets. The
Company recorded an adjustment of $137,400, to recognize the minimum
liability. The adjustment had no effect on 1996 operations but was
accounted for as a reduction of stockholders' equity and the recognition
of an intangible pension asset.
NOTE 8. SUPPLEMENTARY (INCOME) AND EXPENSE STATEMENT INFORMATION
Year Ended December 31
----------------------
1996 1995
----------- -----------
Maintenance and repairs $ 782,000 $ 806,900
Licensing Fee $(175,000) --
Taxes, other than income
and payroll taxes $ 152,500 $ 144,000
Duty drawback $ (46,500) $ --
Duty drawback, included in Other (income), was primarily due to the
receipt of prior year customs duty refunds. Duty drawback is a refund
of customs duty paid on imported raw materials which are converted to
finished products and subsequently exported.
In October 1996, the Company entered into an agreement with a third
party to license certain technology and provide certain other
information for a period of ten years. Consideration received under
this agreement is included in Other (income). The impact of the
licensing of this technology on the future operations of the Company is
immaterial.
NOTE 9. INCOME TAXES (BENEFITS)
The Company has not provided for any federal or state income taxes for
the years ended December 31, 1996 and December 31, 1995 due to net
operating losses utilized.
Income tax expense for the years ended December 31, 1996 and 1995
differed from the amounts computed by applying the U.S. federal income
tax rate of 34% to pretax income (loss) as a result of the following:
1996 1995
----------- -----------
Computed "expected" tax (benefit) $ (94,200) $ 129,300
State tax net of federal benefit (16,400) 22,600
Change in valuation allowance 108,600 (154,020)
Non-deductible travel and entertainment 2,000 2,120
=========== ===========
$ -0- $ -0-
=========== ===========
The temporary differences which give rise to a significant portion of
deferred tax assets and liabilities at December 31, 1996 and 1995 are
presented below.
1996 1995
----------- -----------
Deferred tax assets:
Pension $ 158,500 $ 126,100
Interest 196,600 196,600
Inventory 97,700 107,900
Research and development tax credits 434,000 434,000
Net operating loss - state 246,300 235,000
Net operating loss - federal 4,189,000 4,123,000
----------- -----------
Total tax assets 5,322,100 5,222,600
Valuation allowance 5,096,200 4,987,600
----------- -----------
Net deferred tax assets 225,900 235,000
Deferred tax liability:
Depreciation deferred tax credit (225,900) (235,000)
----------- -----------
Net deferred tax asset $ -0- $ -0-
=========== ===========
The Company has federal net operating loss carryforwards of
approximately $12,321,700 which expire in the year 2006.
NOTE 10. NET INCOME (LOSS) PER SHARE
Net income (loss) per share are based on earnings (loss) divided by the
weighted average number of shares of common stock outstanding adjusted
for dilutive common stock equivalents. Common stock equivalents include
shares outstanding under stock option plans and preferred stock, as
converted to common stock in the ratio of one-to-one. At December 31,
1996 and 1995, the share base was 13,693,366, respectively.
NOTE 11. STOCK PURCHASES AND DISTRIBUTIONS
On May 4, 1993, the Company converted $5,400,000 of amounts due
Leistner to equity by issuing Leistner 5,400,000 shares of cumulative
convertible preferred stock at $1.00 per share. This transaction was
approved by the Board of Directors. The preferred stock is convertible
into common stock on a one-for-one basis. Dividends, as declared and
determined by the Board from time to time, are cumulative. There were
no dividends declared during 1996 and 1995. In the event of involuntary
liquidation, each preferred shareholder is entitled to cash payment, at
par value plus declared but unpaid dividends in preference over the
common stockholders. There are no restrictions on retained earnings.
The preferred shareholder may redeem at par value all or any portion of
the shares of preferred stock owned and/or convert dollar-for-dollar all
or any portion of the shares of preferred stock owned to common stock if
there is significant change of ownership or control, sale of the
business or reorganization.
NOTE 12. IMPAIRMENT OF LONG-LIVED ASSETS
The Company adopted the provisions of SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of," as of January 1, 1996. This statement requires that long-lived
assets and certain identifiable intangibles be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of
an asset to the future net cash flows expected to be generated by the
asset. If such assets are considered to be impaired, the impairment to
be recognized is measured by the amount by which the carrying amount of
the assets exceeds the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less
the cost to sell. Adoption of this Statement did not have an impact on
the Company's financial position or results of operations.
NOTE 13. FOREIGN SALES AND MAJOR CUSTOMERS
The business of the Company is the manufacturing and distribution of
chemical products, principally to customers in the domestic market.
Export sales in 1996 and 1995 amounted to $5,414,400 and $6,257,900,
respectively. In 1996 and 1995, two customers accounted for
approximately 26.6% and 24.8% of sales, respectively.
NOTE 14. COMMITMENTS AND CONTINGENCIES
The Company has received notice from the New Jersey Department of
Environmental Protection ("NJDEP") that the NJDEP is investigating
whether any material from the Company has caused or contributed to the
contamination detected at the Ciuba landfill property in Newark. The
NJDEP alleges that there is a possibility that during the 1970's the
Company disposed of waste generated at the Company's facility through
contracts with certain garbage removal companies located at the Ciuba
landfill. The Company has also received notice from the United States
Environmental Protection Agency ("USEPA") that the USEPA has information
indicating that hazardous substances from the Company may have been
discharged into the Passaic River. It is the Company's understanding
that these allegations by the EPA are related to historical rather than
present events. The Company has taken the position that its material
neither caused nor contributed to the contamination of the Passaic River
and that it has not discharged hazardous substances into the Passaic
River. In both cases, it is possible that potentially responsible
parties will bring claims against Fairmount alleging that it is at least
partially responsible for the contamination.
The Company has no knowledge of contamination of soil on the premises.
There are no underground storage tanks on the Company's property. The
Company's manufacturing effluent system is connected to an above ground
piping system. The effluent is discharged to the local sewage
commission. On December 27, 1996, the Company received a complaint
alleging discharges of benzene in excess of the permissible limits on
two separate occasions during 1996. Fines associated with this
complaint are not material to the results of operations or financial
position of the Company.
It is the Company's policy to accrue and charge against operations,
environmental clean-up costs when it is probable that a liability has
been incurred and an amount is reasonably estimable. In this regard,
environmental compliance waste disposal and regulatory fees aggregated
$84,600 and $87,100 in 1996 and 1995 respectively. These costs are
included in general and administrative expenses.
The Company is subject to various claims, including environmental
matters, and other routine litigation arising in the normal course of
its business. Based on the advice of legal counsel, management believes
that the resolution of such matters will not have a material adverse
affect on the financial position of the Company, but could be material
to the results of operations of the Company in any one accounting
period.
In 1994, the Company received notification from a customer stating that
a certain product sold was defective, resulting in damage to the
customer's product. In 1996, this matter was settled with the customer.
The Company's insurance carrier fully reimbursed the Company for the
cost of this settlement.
NOTE 15. SUBSEQUENT EVENT
On March 25, 1997 there was an explosion in a building in which some of
the Company's products are dried. There were no injuries to any
employees. The damage to the building and contained equipment was
extensive. There was minor collateral damage to other buildings. The
Company believes it will have alternate means of drying products in
place in less than sixty days. Insurance coverage is sufficient to
cover the property and material losses sustained. Therefore, the
Company believes that this occurrence will not result in any materially
adverse effect to its 1997 operations.
Item 8. Changes In and Disagreement with Accountants on Accounting and
Financial Disclosure
None
Item 9. Directors, Executive Officers and Control Persons of the
Issuer, Compliance with Section 16(a) of the Exchange Act.
Incorporated by reference to the Company's 1997 Definitive Proxy
Statement.
Item 10. Executive Compensation
Incorporated by reference to the Company's 1997 Definitive Proxy
Statement.
Item 11. Security Ownership of Certain Beneficial Owners and Management
Incorporated by reference to the Company's 1997 Definitive Proxy
Statement.
Item 12. Certain Relationships and Related Transactions
Incorporated by reference to the Company's 1997 Definitive Proxy
Statement.
PART IV
Item 13. Exhibits, Financial Statement Schedules, and Reports on Form
8-K
(a) Exhibits
Reference is made to the Index of Exhibits commencing this page; all
Exhibits are listed.
(a) (3) Exhibits:
(3) Restated Certificate of Incorporation filed May 11, 1982 with
Secretary of State of New Jersey, incorporated by reference from the
Company's Form 10-K for the fiscal year ending December 31, (Exhibit
3.3).
(3) Restated Certificate of Incorporation filed May 13, 1993 with the
Secretary of State of New Jersey, attached to Form 10-KSB (Exhibit
3.1.)
(3) Restated Certificate of Incorporation filed June 8, 1994 with the
Secretary of the State of New Jersey, attached to Form 10-KSB as
(Exhibit 3.1.)
(3) Certificate of Amendment to Certificate of Incorporation filed June
9, 1986 with Secretary of State of New Jersey.
(3) Certificate of Amendment to Certificate of Incorporation filed June
1, 1988 with Secretary of State of New Jersey, incorporated by
reference from the Company's Form 10-K for the fiscal
year ending December 31, 1988 (Exhibit 3)
(3) By-laws as last amended February 21, 1984, incorporated by
reference from Company's Form 10-K for the fiscal year ending
December 31, 1983 (sequentially numbered pages 56 through 69).
(4) Loan and Security Agreement, dated as of March 21, 1989, by and
between the Issuer and Phoenix Chemical Company, incorporated by
reference from the Company's Form 10-K for the fiscal year ending
December 31, 1988 (Exhibit (4)(a)).
(4) Promissory Note, dated as of March 21, 1989, executed by Issuer in
favor of Phoenix Chemical Company, incorporated by reference from the
Company's Form 10-K for the fiscal year ending
December 31, 1988 (Exhibit (4)(b)).
(4) Credit Facility Loan Agreement, dated as of March 21, 1989, by and
between the Issuer and Phoenix Chemical Company, incorporated by
reference from the Company's Form 10-K for the fiscal year ending
December 31, 1988 (Exhibit (4)(c)).
(4) Loan and Security Agreement, dated as of March 19, 1990, by and
between the Issuer and Phoenix Chemical Company, attached to the
Company's Form 10-K for the fiscal year ending December 31, 1989
as (Exhibit (4)(a)), sequentially numbered pages 34 through 44.
(4) Promissory Note, dated as of March 19, 1990, executed by Issuer in
favor of Phoenix Chemical Company, attached to the Company's
Form 10-K for the fiscal year ending December 31, 1989 as
(Exhibit 4(b)), sequentially numbered pages 45 through 47.
(4) 1990 Credit Facility Loan Agreement, dated as of March 19, 1990, by
and between the Issuer and Phoenix Chemical Company, attached to the
Company's Form 10-K for the fiscal year ending December 31, 1989 as
(Exhibit 4(c)), sequentially numbered pages 48 through 49.
(4) Loan and Security Agreement, dated as of March 18, 1991, by and
between the Issuer and Phoenix Chemical Company, incorporated
by reference from the Company's Form 10-K for the fiscal year
ending December 31, 1990 (Exhibit 4(a)).
(4) Promissory Note, dated as of March 18, 1991, by Issuer in favor of
Phoenix Chemical Company, incorporated by reference from the
Company's Form 10-K for the fiscal year ending December 31, 1990
(Exhibit 4(b)).
(4) 1991 Credit Facility Loan Agreement, dated as of January 29, 1991,
by and between the Issuer and Phoenix Chemical Company, incorporated
by reference from the Company's Form 10-K for the fiscal year ending
December 31, 1990 (Exhibit 4(c)).
(4) Amendment to 1991 Credit Facility Loan Agreement, dated as of March
18, 1991, by and between the Issuer and Phoenix Chemical Company,
incorporated by reference from the Company's Form 10-K for the
fiscal year ending December 31, 1990 (Exhibit 4(d)).
(4) 1992 Credit Facility Loan Agreement ("1992 Credit Facility"), dated
as of March 20, 1992, by and among Issuer and the Phoenix Chemical
Company/Fairmount Fund, incorporated by reference to the Company's
Form 10-K for the fiscal year ending December 31, 1991 (Exhibit 4 (a)).
(4) Letter Agreement extending the date for maturity of the Leistner
Loan and all borrowings under the Credit Facility to December 31, 1994,
attached to Form 10-KSB for the fiscal year ending December 31, 1992
(Exhibit 4(a)).
(4) Letter Agreement extending the date for maturity of current
indebtedness to the Fairmount Fund and the Estate of Leistner to
July 15, 1995, attached to Form 10-KSB for the fiscal year ending
December 31, 1993 (Exhibit 4(a)).
(4) Letter Agreement extending the date for maturity of current
indebtedness to the Fairmount Fund and the Estate of Leistner to
January 15, 1996 attached to Form 10-KSB for the fiscal year ending
December 31, 1994 (Exhibit 4(a)).
(4) Letter Agreement extending the date for maturity of current
indebtedness to the Fairmount Fund and the Estate of Leistner to
April 1, 1997 attached to Form 10-KSB for the fiscal year ending
December 31, 1995.
(4) Letter Agreement extending the date for maturity of current
indebtedness to the Fairmount Fund and the Estate of Leistner to April
1, 1998 attached to this Form 10-KSB for the fiscal year ending
December 31, 1996 as Exhibit 4(a).
(4) Employment agreement between Todd K. Walker (Employee) and
Fairmount Chemical Co., Inc. (Employer), attached to Form 10-KSB for
the fiscal year ending December 31, 1994 as Exhibit 4(b).
(10)(i) Amendment No. 10, dated September 10, 1987, to the Statement on
Schedule 13D, filed by Phoenix Chemical Company and the Phoenix
Chemical Corporation with the Securities and Exchange Commission on
March 19, 1982 and April 9, 1982, respectively, and the
American Stock Exchange on March 22, 1982 and April 12, 1982,
respectively, with respect to Issuer's issuance to Phoenix Chemical
Company of 100,000 shares of Issuer's Common Stock in
cancellation of current debt to Phoenix.
(10)(i) Amendment No. 11, dated December 17, 1987, to the Statement on
Schedule 13D, filed by Phoenix Chemical Company and Phoenix Chemical
Corporation with the Securities and Exchange Commission on
March 19, 1982 and April 9, 1982, respectively, and the American
Stock Exchange on March 22, 1982 and April 12, 1982, respectively,
with respect to Issuer'sissuance to Phoenix Chemical Company of 133,334
shares of Issuer's Common Stock in cancellation of current debt to Phoenix.
(10)(i) Amendment No. 12, dated July 7, 1988, to the Statement on
Schedule 13D, filed by Phoenix Chemical Company and Phoenix Chemical
Corporation with the Securities and Exchange Commission on March 19,
1982, and April 9, 1982, respectively, and the American Stock Exchange
on March 22, 1982 and April 12, 1982, respectively, with respect to
Issuer's issuance to Phoenix Chemical Company of 1,000,000 shares of
Issuer's Common Stock in cancellation of current debt to Phoenix.
(10)(i) Amendment No. 13, dated August 7, 1989 to the Statement on
Schedule 13D, filed by Phoenix Chemical Company and Phoenix Chemical
Corporation with the Securities and Exchange Commission on March 19,
1982 and April 9, 1982, respectively, and the American Stock Exchange
on March 22, 1982, and April 12, 1982, respectively, with respect to
Issuer's issuance to Phoenix Chemical Company of 1,000,000 shares of
Issuer's Common Stock in cancellation of current debt to Phoenix.
(10)(i) Amendment No. 14, dated May 23, 1990, to the Statement on
Schedule 13D, filed by Phoenix Chemical Company and Phoenix Chemical
Corporation with the Securities and Exchange Commission on March 19,
1982 and April 9, 1982, respectively, and the American Stock Exchange
on March 22, 1982 and April 12, 1982, respectively, with respect to
Issuer's issuance to Phoenix Chemical Company of 1,500,000 shares of
Issuer's Common Stock in cancellation of current debt to Phoenix.
(10)(i) Amendment No. 15, dated December 5, 1990, to the Statement on
Schedule 13D, filed by Phoenix Chemical Company and Phoenix Chemical
Corporation with the Securities and Exchange Commission on March 19,
1982 and April 9, 1982, respectively, and the American Stock Exchange
on March 22, 1982, and April 12, 1982, respectively, with respect to
Issuer's issuance to Phoenix Chemical Company of 1,000,000 shares of
Issuer's Common Stock in cancellation of current debt to Phoenix.
(10)(i) Statement on Schedule 13D, dated April 6, 1992, filed by
William E. Leistner with the Securities and Exchange Commission on
April 15, 1992 with respect to the liquidation and winding up of
Phoenix Chemical Company and the distribution of 3,789,200 shares of
Issuer's Common Stock to Leistner, who was a 60% partner in Phoenix,
as the result of such liquidation is incorporated into Part III.
(10)(i) Statement on Schedule 13D, dated April 6, 1992, filed by the
Estate of Olga H. Knoepke, with the Securities and Exchange Commission
on May 4, 1992, with respect to the liquidation and winding up of
Phoenix Chemical Company and the distribution of 2,526,134 shares to the
Estate of Olga H. Knoepke, who was a 40% partner in Phoenix, as the
result of such liquidation is incorporated into Part III.
(10)(i) Statement on Schedule 13D, dated September 19, 1993, filed by
the Estate of William E. Leistner with the Securities and Exchange
Commission on March 30, 1994 with respect to the Estate of William E.
Leistner acquiring direct beneficial ownership of William E. Leistner's
4,790,200 shares of Common Stock and 5,400,000 shares of Preferred Stock
of Fairmount Chemical Co., Inc. upon his death on September 19, 1993
is incorporated into Part III.
(10)(i) Amendment No. 1, dated December 28, 1992, to the Statement on
Schedule 13D, filed by William E. Leistner with the Securities and
Exchange Commission on April 15, 1992, with respect to Issuer's
issuance to Leistner of 1,000,000 shares of Issuer's Common Stock in
cancellation of current debt to Leistner is incorporated into Part III..
(10)(i) Form 8-K of Issuer, dated September 10, 1987, with respect to
Issuer's issuance to Phoenix Chemical Company of 100,000 shares of
Issuer's Common Stock in cancellation of current debt to Phoenix.
(10)(i) Form 8-K of Issuer, dated December 17, 1987, with respect to
Issuer's issuance to Phoenix Chemical Company of 133,334 shares of
Issuer's Common Stock in cancellation of current debt to Phoenix.
(10)(i) Form 8-K of Issuer, dated July 7, 1988, with respect to
Issuer's issuance to Phoenix Chemical Company of 1,000,000 shares of
Issuer's Common Stock in cancellation of current debt to Phoenix.
(10)(i) Form 8-K of Issuer, dated May 23, 1990, with respect to
Issuer's issuance to Phoenix Chemical Company of 1,500,000 shares of
Issuer's Common Stock in cancellation of current debt to Phoenix.
(10)(i) Form 8-K of Issuer, dated December 5, 1990, with respect to
Issuer's issuance to Phoenix Chemical Company of 1,000,000 shares of
Issuer's Common Stock in cancellation of current debt to Phoenix.
(10)(i) Agreement, dated as of March 20, 1992, by and among the estate
of Olga H. Knoepke and William E. Leistner regarding the Phoenix
Chemical Company/Fairmount Fund, incorporated by reference to the
Company's Form 10-K for the fiscal year ending December 31, 1991
(Exhibit 10(ii) (A) (1)).
(10)(i) Assignment, dated as of March 31, 1992, by the estate of Olga
H. Knoepke (the "Estate") in favor of William E. Leistner, pursuant to
which the Estate sells and transfers to Dr. Leistner all of its rights
in and to the Issuer's indebtedness to Phoenix Chemical Company,
incorporated by reference to the Company's Form 10-K for the fiscal
year ending December 31, 1991 (Exhibit (10)(ii) (A) (2)).
(10)(i) Offer, dated April 7, 1992, made by William E. Leistner to
cancel 40% ($4,402,480) of the Issuer's current total indebtedness to
William E. Leistner for $440,248 and the Issuer's acceptance of such
offer, incorporated by reference to the Company's Form 10-K for the
fiscal year ended December 31, 1991 (Exhibit 10(i)).
(10)(i) Form 8-K of Issuer, dated December 28, 1992, with respect to
Issuer's issuance to William E. Leistner of 1,000,000 shares of
Issuer's Common Stock in cancellation of current debt to Leistner.
(10)(i) Form 8-K of Issuer, dated November 19, 1993, with respect to
the death of William E. Leistner, Chairman of the Board, Chief
Executive Officer and majority stockholder of Fairmount, as well as
changes in control of management.
(10)(ii)(A)Incentive Stock Option Plan, incorporated by
reference to Company's Definitive Proxy Statement for its Annual
Meeting of Stockholders held April 19, 1983 (Exhibit A), and
amendment thereto, incorporated by reference from the Company's
Definitive Proxy Statement for its Annual Meeting of Stockholders
held May 15, 1985 (Exhibit A); Incentive Stock Option Plan, as
amended in 1988, incorporated by reference from the Company's Form 10-K
for the fiscal year ending December 31, 1988 (Exhibit 10); and
amendment to Incentive Stock Option Plan in 1991, incorporated by
reference to the Company's Definitive Proxy Statement for its Annual
Meeting of Stockholders held May 6, 1991 (Exhibit A).
(24) Consent of KPMG Peat Marwick LLP, Independent Certified Public
Accountants, attached to this Form 10-KSB as Exhibit 24, sequentially
numbered page 35.
(25) Letter by KPMG Peat Marwick LLP, Independent Certified Public
Accountants, attached to this Form 10-KSB as Exhibit 25, sequentially
numbered page 36.
(b) Reports on Form 8-K during the last quarter of 1996 - None.
SIGNATURES
In accordance with Section 13 or 15 (d) of the Securities and Exchange
Act of 1934, the Registrant caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
FAIRMOUNT CHEMICAL CO., INC.
Registrant
By: S/William E. Setzler
---------------------
William E. Setzler, Chairman of the Board and
Chief Executive Officer
By: S/Sondra Jacoby
----------------
Sondra Jacoby, Vice President, Treasurer,
Chief Financial Officer and Secretary
In accordance with the Securities and Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
- --------- ---------- -----
/S/W.E. Setzler Chairman of the Board,
- -------------- and Chief Executive Officer 1997
(William E. Setzler)
/S/Leonard Wood Director, Vice Chairman
- -------------- of the Board 1997
(Leonard Wood)
/S/Todd K. Walker Director, President and
- ---------------- Chief Operating Officer
(Todd K. Walker) 1997
/S/Sondra Jacoby Director, Vice President,
- --------------- Treasurer, Chief Financial
(Sondra Jacoby) Officer and Secretary 1997
********************
EXHIBIT 25
March 24, 1997
Fairmount Chemical Co., Inc.
117 Blanchard Street
Newark, N.J. 07105
Gentlemen:
We have audited the balance sheets of Fairmount Chemical Co., Inc. as of
December 31, 1996 and 1995, and the related statements of operations,
stockholder's equity, and cash flows for the years then ended and have
reported thereon under date of March 24, 1997. The aforementioned
financial statements and our report thereon are included in the
Company's annual report on Form 10 KSB for the year ended December 31,
1996. As stated in Note 1 to those financial statements, the Company
changed its method of accounting for inventories from the last-in first-
out (LIFO) method to the first-in first-out (FIFO) method, and states
that the newly adopted accounting principle is preferable in the
circumstances because it better matches revenue and expenses. In
accordance with your request, we have reviewed and discussed with
company officials the circumstances and business judgment and planning
upon which the decision to make this change in the method of accounting
was based.
With regard to the aforementioned accounting change, authoritative
criteria have not been established for evaluating the preferability of
one acceptable method of accounting over another acceptable method.
However, for purposes of Fairmount Chemical Co., Inc.'s compliance with
the requirements of the Securities and Exchange Commission, we are
furnishing this letter.
Based on our review and discussion, with reliance on management's
business judgment and planning, we concur that the newly adopted method
of accounting is preferable in the Company's circumstances.
Very truly yours,
KPMG Peat Marwick LLP
**************************
Exhibit4(a)
March 28, 1997
To: Fairmount Chemical Co., Inc.
The current indebtedness of Fairmount both to the Fairmount Fund
and the Estate of William E. Leistner, both due on October 1, 1997
is hereby extended to April 1, 1998 for both debts.
/s/Sondra Jacoby Leistner /s/William E. Setzler
- -------------------------- ----------------------
Sondra Jacoby Leistner William E. Setzler
Co-Executor of the Estate Co-Executor of the Estate
of William E. Leistner William E. Leistner
****************
Exhibit 24
Independent Auditors' Consent
The Board of Directors and Stockholders
Fairmount Chemical Co., Inc.
We consent to incorporation by reference in the Registration Statements
Nos. 2-84988 and 2-99610 on Form S-8 of Fairmount Chemical Co., Inc. of
our report dated March 24, 1997, relating to the balance sheets of
Fairmount Chemical Co., Inc. as of December 31, 1996 and 1995, and the
related statements of operations, stockholders' equity, and cash flows
for the years then ended, which report appears in the December 31, 1996
annual report on Form 10-KSB of Fairmount Chemical Co., Inc. Our report
refers to the change to the FIFO method of valuing inventory.
/S/KPMG PEAT MARWICK LLP
- ------------------------
KPMG Peat Marwick LLP
Short Hills, New Jersey
March 24, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
TOTAL-TEL USA COMMUNICATIONS, INC.
Exhibit 27 - FINANCIAL DATA SCHEDULE
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AS OF
DECEMBER 31, 1996 AND THE CONSOLIDATED STATEMENT OF
OPERATIONS FOR TWELVE MONTHS ENDED DECEMBER 31, 1996
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 427,900
<SECURITIES> 0
<RECEIVABLES> 2,091,000
<ALLOWANCES> 0
<INVENTORY> 1,662,400
<CURRENT-ASSETS> 4,502,900
<PP&E> 15,761,100
<DEPRECIATION> 10,986,100
<TOTAL-ASSETS> 9,333,900
<CURRENT-LIABILITIES> 940,400
<BONDS> 0
<COMMON> 8,293,400
0
5,400,000
<OTHER-SE> (7,336,600)
<TOTAL-LIABILITY-AND-EQUITY> 9,333,900
<SALES> 12,551,700
<TOTAL-REVENUES> 12,551,700
<CGS> 10,506,900
<TOTAL-COSTS> 10,506,900
<OTHER-EXPENSES> 2,244,600
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 77,300
<INCOME-PRETAX> (277,100)
<INCOME-TAX> 0
<INCOME-CONTINUING> (277,100)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (277,100)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> (0.02)
</TABLE>
