UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 1997
-------------
Commission file Number 1-4591
FAIRMOUNT CHEMICAL CO., INC.
(Exact name of registrant as specified in its charter.)
New Jersey 22-0900720
(State of 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)
Registrant's telephone number, including area code: (201)-344-5790
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
YES [ X ] NO [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practical date:
Common Stock, $1 Par Value - 8,292,866 shares as of August 14, 1997
Page 2
Form 10-QSB
PART I. FINANCIAL INFORMATION
FAIRMOUNT CHEMICAL CO., INC.
<TABLE>
<CAPTION>
Statements Of Income and Accumulated Deficit
For The Three Months and Six Months Ended June 30, 1997 and 1996
(Unaudited)
(Dollar amounts rounded to hundreds, except per share data)
1997 1996
------ -----
Three Months Six Months Three Months Six Months
------------ ---------- ------------ ----------
<S> <C> <C> <C> <C>
Net Sales $3,440,200 $6,597,000 $3,348,300 $6,567,300
Cost of goods sold 2,954,500 5,696,500 2,542,100 5,127,200
- ---------------------------------------------------------------------------------------------------
Gross Profit 485,700 900,500 806,200 1,440,100
Research 118,900 235,500 129,200 249,200
Selling, general and
administrative expense 455,000 964,000 548,700 1,004,800
-------------------------------------------------------------------------------------------------
Operating Income (88,200) (299,000) 128,300 186,100
Interest (Loss) Expense 19,000 36,200 14,300 31,600
Restructuring charge 330,000 330,000 - -
Insurance proceeds (200,000) (200,000) - -
- ---------------------------------------------------------------------------------------------------
Other (Income) Expense 11,500 14,200 (14,700) (60,400)
Net (Loss) Income (248,700) (479,400) 128,700 214,900
Accumulated Deficit
Beginning of Period (14,800,700) (14,570,000) (14,206,700) (14,292,900)
-------------------------------------------------------------------------------------------------
Accumulated Deficit
End of Period $(15,049,400) $(15,049,400) $(14,078,000) $(14,078,000)
-------------------------------------------------------------------------------------------------
(Loss) Income per share $ (.02) $ (.04) $ .01 $.02
- ---------------------------------------------------------------------------------------------------
See Accompanying Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Form 10-QSB
FAIRMOUNT CHEMICAL CO., INC.
Balance Sheets
(Dollar amounts rounded to hundreds)
June 30, 1997 December 31, 1996
------------- -----------------
(Unaudited)
Assets
- ------
<S> <C> <C>
Current Assets:
Cash $ 504,000 427,900
Accounts receivable-trade 2,239,600 2,091,000
Inventories (Note 5) 1,499,500 1,662,400
Prepaid expenses 308,100 263,700
Other current assets 50,200 57,900
- ------------------------------------------------------------------------------------------
Total Current Assets 4,601,400 4,502,900
- ------------------------------------------------------------------------------------------
Property, plant and equipment
less accumulated depreciation of
$11,309,900 and $10,986,100 4,782,900 4,775,000
Deferred costs and other assets 56,000 56,000
- ------------------------------------------------------------------------------------------
Total Assets $9,440,300 9,333,900
- ------------------------------------------------------------------------------------------
Liabilities and
- ---------------------
Stockholders' Equity
- ---------------------
Current Liabilities:
Accounts payable $741,200 563,500
Accrued compensation 51,600 73,100
Other accrued liabilities 445,800 243,800
Short-term bank borrowings 60,000 60,000
- ------------------------------------------------------------------------------------------
Total Current Liabilities 1,298,600 940,400
- ------------------------------------------------------------------------------------------
Accrued interest to affiliated party (Notes 3, 7 491,600 491,600
Long-term notes payable to affiliated party (Notes 3,7 1,080,000 1,080,000
Long term bank borrowings 386,300 111,700
Accrued pension liability 306,400 353,400
Stockholders' Equity
Preferred stock, par value $1 per share
authorized - 10,000,000 shares; 5,400,000
shares issued and outstanding 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 1997 and 1996 8,293,400 8,293,400
Less: Treasury stock (at cost) - 5 (500) (500)
Capital in excess of par value 7,316,000 7,316,000
Accumulated deficit (15,049,400) (14,570,000)
Additional minimum pension liab (82,100) (82,100)
- ------------------------------------------------------------------------------------------
Total Stockholders' Equity 5,877,400 6,356,800
- ------------------------------------------------------------------------------------------
Total Liabilities and
Stockholders' Equity 9,440,300 9,333,900
- ------------------------------------------------------------------------------------------
See accompanying Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Form 10-QSB
FAIRMOUNT CHEMICAL CO., INC.
Statements of Cash Flows
For The Six Months Ended June 30, 1997 and 1996
(Unaudited)
(Dollar amounts rounded to hundreds)
1997 1996
---------------------------
Cash Flow From Operating Activities:
<S> <C> <C>
Net (Loss) Income $(479,400) $214,900
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 323,800 420,000
Increase (decrease) from changes in:
Accounts receivable-trade (148,600) (636,600)
Inventories 162,900 132,400
Prepaid expenses (44,400) (83,900)
Other current assets 7,700 4,400
Accounts payable 177,700 (29,300)
Accrued compensation (21,500) (49,400)
Other liabilities 155,000 147,400
- ---------------------------------------------------------------------------------------------
Cash Flow Provided By Operating Activities 133,200 119,900
- ---------------------------------------------------------------------------------------------
Cash Flow (Used In) Investing Activities:
Capital expenditures (331,700) (172,400)
- ---------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (331,700) (172,400)
- ---------------------------------------------------------------------------------------------
Cash Flow From (Used In) Financing Activities:
Capitalized lease obligations - (81,100)
Bank borrowings 274,600 -
- ---------------------------------------------------------------------------------------------
Net Cash Provided By Financing Activities 274,600 (81,100)
Increase (Decrease) in Cash 76,100 (133,600)
Cash at Beginning of Period 427,900 432,800
- ---------------------------------------------------------------------------------------------
Cash at End of Period $504,000 $299,200
- ---------------------------------------------------------------------------------------------
Supplemental Disclosure of Cash Flow Information:
Interest paid $ 38,000 $ 42,600
Income taxes paid $ - $ -
See accompanying Notes to Financial Statements.
</TABLE>
Form 10-QSB
FAIRMOUNT CHEMICAL CO., INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 1997
Note 1. Summary of Significant Accounting Policies
ORGANIZATION
The accompanying financial statements, which should be read in
conjunction with the financial statements of Fairmount Chemical
Co., Inc. ("the Company") included in the 1996 Annual Report
filed on Form 10-KSB, are unaudited but have been prepared in the
ordinary course of business for the purpose of providing
information with respect to the interim period. The Company
believes that all adjustments necessary for a fair presentation
for such periods have been included.
REVENUE
Revenue is recognized on the date of invoice to a customer
(invoices are prepared on or after the date of shipment).
INCOME TAXES
The Company accounts for income taxes in accordance with the
Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes." Under the asset and liability method of
Statement 109, 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.
FINANCIAL STATEMENTS
The statements of income and accumulated deficit for the three
months and six months ended June 30, 1997 and 1996, the
statements of cash flows for the six months ended June 30, 1997
and 1996, and the balance sheet as of June 30, 1997 are
unaudited. The balance sheet as of December 31, 1996 is audited.
Note 2. Income (Loss) Per Share
Net income per share is based on earnings 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 June 30, 1997 and 1996 the share base was
13,693,366 respectively.
Note 3. Long Term Debt To Affiliated Parties
A. As of January 1, 1993 the Company owed William E. Leistner
$5,603,700 (The "Leistner Loan"). At the Board of Directors
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 Branch. Accrued interest
payable for the Leistner Loan is $491,600 for June 30, 1997 and
1996, respectively. The Leistner Loan is controlled by the co-
executors of the Estate of Leistner ("Leistner Estate"). Repayment of the
interest is not due until April 1, 1998.
B. The balance of Notes Payable to Affiliated Parties as of
June 30, 1997 and 1996 was $1,080,000, respectively, 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. Repayment of the Credit
Facility indebtedness is not due until April 1, 1998
All loans payable and future borrowings under the Credit
Facility have been collateralized by the accounts receivable and
machinery and equipment of the Company.
Note 4. Majority Stockholder
The Estate of William E. Leistner owns approximately 57.8% of
the common stock of the Company. The estate also owns all
5,400,000 outstanding shares of the cumulative convertible
preferred stock.
Note 5. Inventory
Inventories at June 30, 1997 and December 31, 1996 consisted
of the following:
June 30, 1997 December 31, 1996
-------------- ------------------
Finished Goods $ 1,164,400 $ 1,455,100
Raw Material 335,100 207,300
------------- -----------------
$ 1,499,500 $ 1,662,400
============= =================
Note 6. 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 bases, it is possible that potentially responsible
parties will bring claims against Fairmount alleging that it is
at least partially responsible for the contamination.
During the second quarter of 1997, the Company received notice
of two claims for personal injuries to individuals working at a
location adjacent to the Company's property. The injuries were
allegedly sustained as a result of the March 25 explosion on the
Company's property. The Company has not received details as to
the extent of the injuries or for a dollar value of the claims.
Note 7. Subsequent Event
On July 2, 1997 the Company replaced its existing indebtedness
to affiliated parties with new promissory notes. The $491,600
balance of the Leistner Loan (see Note 3) that was due April 1,
1998 has been replaced with a note to the Leistner Estate due on
January 1, 2005. The $1,080,000 borrowings from the Credit
Facility Loan Agreement ("Credit Facility") (See Note 3) due
April 1, 1998 has been replaced with four notes, all due on
January 1, 2005. The Leistner Estate received a note for
$648,000. The remaining three notes were issued to the
beneficiaries of the Knoepke Estate. These three notes were
issued to the da Mota Family Partnership - $224,640, Glen da Mota
- - $142,560 and Lynn da Mota - $64,800.
All of the promissory notes described above have similar terms
and conditions. Interest on the unpaid principal from January 1,
1997 through December 31, 1997 is at the rate of 6% per annum.
Interest payable from January 1, 1998 through December 31, 1998
is at the rate of 7% per annum. Interest payable thereafter
commencing with 1999, is at the corporate base rate posted by
Citibank, N.A. (or its successor) on the last banking day of the
previous calendar year. All of the promissory notes are
subordinated to the Company's line of credit financing with
Summit Bank and are collaterized by security agreements on the
Company's accounts receivables, inventories and personal
property.
The promissory note to the Leistner Estate for $491,600 is
subordinated to the Company's line of credit financing with
Summit Bank and to the new promissory notes, totaling $1,080,000,
that replace the Credit Facility. The Credit Facility has been
terminated.
FAIRMOUNT CHEMICAL CO., INC.
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
June 30, 1997
Liquidity and Capital Resources
To meet its liquidity requirements, including its capital
program, the Company accesses funds generated from operations,
its available cash balances and its bank line of credit.
The Company has accrued interest payable of $491,600 as of
June 30, 1997 on a loan from the Estate of Leistner. The
principal of this loan has been repaid. The executors of the
Estate of Leistner have agreed to extend repayment of the
interest until April 1, 1998.
The Company's working capital decreased $259,700 for the first
six months of 1997 compared to an increase of $412,200 for the
same period in 1996. The decrease was primarily due to a
liability reserve for restructuring charges, coupled with lower
inventories; partially offset by higher accounts receivable. The
lower inventories and higher accounts receivable were due to high
volumes of shipments during June in anticipation of a July plant
shutdown for maintenance purposes.
The Company's capital expenditures in 1997 have been for the
purchase and installation of production equipment.
Results of Operations
Net sales for the first six months of 1997 were $6,597,000, an
increase of $29,700 versus the same period in 1996. The increase
in sales was primarily due to an increase in sales volumes of
hydrazine derivatives - $351,000, polymer additives - $297,200
and specialty chemicals - $157,800; partially offset by lower
volumes of imaging chemicals - $754,200 and hydrazine blends -
$22,100. Net sales for the three months ended June 30, 1997 were
$3,440,200 an increase of $91,900 or 2.7%. The increase in net
sales were due to higher volumes of polymer additives - $275,000,
hydrazine derivatives - $141,300 and hydrazine blends - $96,300;
partially offset by lower volumes of imaging chemicals - $309,300
and specialty chemicals - $111,400.
The gross profit for the first six months of 1997 decreased
$539,600 or 37.5% versus the same period in 1996. The decrease
was mainly due to lower sales prices on polymer additives and
specialty chemicals resulting from market competition, coupled
with lower volumes of high margin imaging chemicals due to
decreased orders from a major customer that had built up
inventories last year; partially offset by higher volumes of
hydrazine derivatives. The gross profit for the three months
ending June 30, 1997 decreased $320,500 or 39.8% versus the same
period in 1996. The decrease in gross profit for the second
quarter resulted from the conditions previously mentioned that
impacted the first six months, coupled with lower volumes of an
imaging chemical that the Company can no longer dry due to the
March 25, 1997 explosion that destroyed four of the Company's
dryers. The Company is having some success marketing this
product in a moist condition. Also, the Company's overall
manufacturing efficiency was negatively impacted during the
second quarter as a result of dealing with the numerous explosion
related distractions in the aftermath of the event.
Management's Discussion and Analysis of Financial Condition and
Results of Operations (Cont'd)
The gross profit for the first six months of 1997 decreased
$539,600 or 37.5% versus the same period in 1996. The decrease
was mainly due to lower sales prices on polymer additives and
specialty chemicals resulting from market competition, coupled
with lower volumes of high margin imaging chemicals due to
decreased orders from a major customer that had built up
inventories last year; partially offset by higher volumes of
hydrazine derivatives. The gross profit for the three months
ending June 30, 1997 decreased $320,500 or 39.8% versus the same
period in 1996. The decrease in gross profit for the second
quarter resulted from the conditions previously mentioned that
impacted the first six months, coupled with lower volumes of an
imaging chemical that the Company can no longer dry due to the
March 25, 1997 explosion that destroyed a building and the contained
equipment. There was minor collateral damage to other buildings.
There were no injuries to any employees. The Company is having
some success marketing this product in a moist condition. Also,
the Company's overall manufacturing efficiency was negatively
impacted during the second quarter as a result of dealing with the
numerous explosion related distractions in the aftermath of the event.
During this period the Company's management conducted a review
of operations and of the financial condition of the Company and
concluded that it was necessary to implement a restructuring of
the organization. As a result, in May, the Company reduced the
workforce by eighteen salaried and hourly employees. The Company
also decided to discontinue the manufacturing of a number of
small volume products that were no longer profitable to produce.
Net income for the six months and three months ending June 30,
1997 include a restructuring charge of $350,000 for severance and
accrued vacation time.
In May the Company received a $200,000 advance on its
insurance claim for the explosion. The Company expects the final
settlement of this claim to substantially exceed this advance and
the Company believes a resolution of this matter should be
reached by the end of the year.
Research, selling, general and administrative expenses for the
first six months of 1997 were 4.4% lower than the same period in
1996 due to the absence in 1997 of a salary of an officer who
retired in the third quarter of 1996 and the absence of a salary
of a salesman who left the Company in February, 1997. Research,
selling and general and administrative expenses for the three
months ended June 30, 1997 decreased 15.3% versus the same period
in 1996 due to the reasons mentioned earlier, coupled with lower
advertising and travel related expenses.
On June 24, 1997, following the Company's annual meeting,
William E. Setzler, Chairman of the Board and Chief Executive
Officer and Sondra M. Jacoby, Chief Financial Officer and
Corporate Secretary announced their retirements, effective
immediately. Both officers also resigned from the Board of
Directors. Todd K. Walker was appointed to the position of
Chairman of the Board and Chief Executive Officer. Mr. Walker
retains his previous title of President. James F. Gilday was
appointed Chief Financial Officer and Corporate Secretary and
also appointed to the Board of Directors. Mr. Gilday was
formerly the controller of the Company.
PART II - OTHER INFORMATION
Reports on Form 8-K
No reports have been filed on Form 8-K during this quarter.
FAIRMOUNT CHEMICAL CO., INC.
SIGNATURE
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.
FAIRMOUNT CHEMICAL CO., INC.
----------------------------
Registrant
August 14, 1997 S/Todd K. Walker
- --------------- ---------------------------
Date Todd K. Walker
Chairman of the Board,
Chief Executive Officer
August 14, 1997 S/James F. Gilday
- --------------- ---------------------------
Date James F. Gilday
Chief Financial Officer &
Secretary
14
<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
JUNE 30, 1997 AND THE CONSOLIDATED STATEMENT OF
OPERATIONS FOR SIX MONTHS ENDED JUNE 30, 1997
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1996
<CASH> 504,000
<SECURITIES> 0
<RECEIVABLES> 2,239,600
<ALLOWANCES> 0
<INVENTORY> 1,499,000
<CURRENT-ASSETS> 4,601,400
<PP&E> 16,092,800
<DEPRECIATION> 11,309,900
<TOTAL-ASSETS> 9,440,300
<CURRENT-LIABILITIES> 1,298,600
<BONDS> 0
<COMMON> 8,293,400
0
5,400,000
<OTHER-SE> (7,816,000)
<TOTAL-LIABILITY-AND-EQUITY> 9,440,300
<SALES> 6,597,000
<TOTAL-REVENUES> 6,797,000
<CGS> 5,696,500
<TOTAL-COSTS> 5,696,500
<OTHER-EXPENSES> 1,543,700
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 36,200
<INCOME-PRETAX> (479,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (479,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (479,400)
<EPS-PRIMARY> (0.04)
<EPS-DILUTED> (0.06)
</TABLE>
