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 September 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 November 14, 1997.
PART I. FINANCIAL INFORMATION
FAIRMOUNT CHEMICAL CO., INC.
- ----------------------------
<TABLE>
<CAPTION>
Statements Of Income and Accumulated Deficit
For The Three Months and Nine Months Ended September 30, 1997 and 1996
(Unaudited)
(Dollar amounts rounded to hundreds, except per share data)
1997 1996
------- -------
Three Months Nine Months Three Months Nine Months
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Sales $ 2,471,400 $ 9,068,400 $ 2,826,500 $ 9,393,800
Cost of goods sold 1,725,700 7,422,200 2,599,400 7,726,600
- -----------------------------------------------------------------------------------------------------------------
Gross Profit 745,700 1,646,200 227,100 1,667,200
Research 91,100 326,600 120,400 369,600
Selling, general and
administrative expense 492,300 1,456,300 480,700 1,485,500
---------------------------------------------------------------------------------------------------------------
Operating (Loss) Income 162,300 (136,700) (374,000) (187,900)
Interest (Income) Expense 43,800 80,000 16,200 47,800
Restructuring charge - 330,000 - -
Insurance proceeds - (200,000) - -
Other (Income) Expense (8,600) 5,600 (200) (60,600)
- -----------------------------------------------------------------------------------------------------------------
Net (Loss) Income 127,100 (352,300) (390,000) (175,100)
Accumulated Deficit
Beginning of Period (15,049,400) (14,570,000) (14,078,000) (14,292,900)
---------------------------------------------------------------------------------------------------------------
Accumulated Deficit
End of Period $(14,922,300) $(14,922,300) $(14,468,000) $(14,468,000)
===============================================================================================================
Income (Loss) per share $ .01 $ (.03) $ (.03) $ ( .01)
=================================================================================================================
See Accompanying Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Balance Sheets
(Dollar amounts rounded to hundreds)
September 30, 1997 December 31, 1996
------------------ -----------------
(Unaudited)
<S> <C> <C>
Assets
- ------
Current Assets:
Cash $ 683,300 $ 427,900
Accounts receivable-trade 1,773,400 2,091,000
Inventories (Note 5) 1,589,200 1,662,400
Prepaid expenses 280,700 263,700
Other current assets 45,700 57,900
-------------------------------------------------------------------------------------------------------
Total Current Assets 4,372,300 4,502,900
-------------------------------------------------------------------------------------------------------
Property, plant and equipment
less accumulated depreciation of
$11,489,900 and $10,986,100 4,683,600 4,775,000
Deferred costs and other assets 56,000 56,000
-------------------------------------------------------------------------------------------------------
Total Assets $ 9,111,900 $ 9,333,900
============================================================================================================
Liabilities and
- ---------------
Stockholders' Equity
- --------------------
Current Liabilities:
Accounts payable $ 325,700 $ 563,500
Accrued compensation 16,400 73,100
Other accrued liabilities 453,600 243,800
Short-term bank borrowings 60,000 60,000
-------------------------------------------------------------------------------------------------------
Total Current Liabilities 855,700 940,400
-------------------------------------------------------------------------------------------------------
Promissory Notes to affiliated party (Note 3) 1,571,600 -
Accrued interest to affiliated party (Notes 3) - 491,600
Long-term notes payable to affiliated party (Notes 3) - 1,080,000
Long term bank borrowings 373,700 111,700
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) - 500 shares (500) (500)
Capital in excess of par value 7,316,000 7,316,000
Accumulated deficit (14,922,300) (14,570,000)
Additional minimum pension liability (82,100) (82,100)
-------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 6,004,500 6,356,800
-------------------------------------------------------------------------------------------------------
Total Liabilities and
Stockholders' Equity $ 9,111,900 $ 9,333,900
============================================================================================================
See accompanying Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Statements of Cash Flows
For The Nine Months Ended September 30, 1997 and 1996
(Unaudited)
(Dollar amounts rounded to hundreds)
1997 1996
----------------------------------
<S> <C> <C>
Cash Flow From Operating Activities:
Net (Loss) Income $ (352,300) $ (175,100)
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 503,800 630,000
Increase (decrease) from changes in:
Accounts receivable-trade 317,600 (438,500)
Inventories 73,200 142,400
Prepaid expenses (17,000) (92,600)
Other current assets 12,200 (34,000)
Accounts payable (237,800) 128,100
Accrued compensation (56,700) 30,300
Deferred Income - 175,000
Other liabilities 162,800 52,600
-------------------------------------------------------------------------------------------------------
Cash Flow Provided By Operating Activities 405,800 418,200
- ------------------------------------------------------------------------------------------------------------
Cash Flow (Used In) Investing Activities:
Capital expenditures (412,400) (362,000)
-------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (412,400) (362,000)
-------------------------------------------------------------------------------------------------------
Cash Flow From (Used In) Financing Activities:
Capitalized lease obligations - (83,600)
Bank borrowings 262,000 -
-------------------------------------------------------------------------------------------------------
Net Cash Provided By (Used In) Financing Activities 262,000 (83,600)
-------------------------------------------------------------------------------------------------------
Increase (Decrease) in Cash 255,400 (27,400)
Cash at Beginning of Period 427,900 432,800
- ------------------------------------------------------------------------------------------------------------
Cash at End of Period $ 683,300 $ 405,400
============================================================================================================
Supplemental Disclosure of Cash Flow Information:
Interest paid $ 62,400 $ 61,700
====== ======
Income taxes paid $ - $ -
====== ======
See accompanying Notes to Financial Statements.
</TABLE>
FAIRMOUNT CHEMICAL CO., INC.
- ----------------------------
NOTES TO FINANCIAL STATEMENTS
- -----------------------------
September 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 nine months ended September 30, 1997 and 1996, the
statements of cash flows for the nine months ended September 30, 1997
and 1996, and the balance sheet as of September 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 September
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. Accrued
interest of $491,600 remained. On July 2, 1997 the Company replaced
the $491,600 balance of the Leistner Loan, that was due April 1, 1998,
with a promissory note to the Leistner Estate for the same amount, due
January 1, 2005.
B. On March 20, 1992, a Credit Facility Loan Agreement ("Credit
Facility") was created with monies contributed to a fund ("the Fund")
by William E. 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 paid interest at the rate of 5% per annum.
The outstanding borrowings from the Credit Facility were $1,080,000.
On July 2, 1997 the Credit Facility was terminated and the Company
replaced the $1,080,000 of credit facility borrowings with new
promissory notes due January 1, 2005. The Leistner Estate received a
note for $648,000. Three notes were issued to 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
replaced the Credit Facility. The Credit Facility has been
terminated.
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 September 30, 1997 and December 31, 1996
consisted of the following:
September 30, 1997 December 31, 1996
------------------ -----------------
Finished Goods $ 1,337,300 $ 1,455,100
Raw Material 252,000 207,300
------- -------
$ 1,589,300 $ 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 October 9, 1997 the executors of the Leistner Estate
endorsed two promissory notes of $648,000 and $491,600 (see Note 3) to
the order of the Howard Leistner, Hedi Mizrack and Gilbert Leistner
Irrevocable Grantor Trust (the"Trust"). This trust was established to
expedite the settlement of the Leistner Estate and to be the
repository of the common and preferred shares of Fairmount, as well as
the promissory notes held by the Leistner Estate.. The transfer of
the common and preferred Fairmount shares have not yet been executed.
FAIRMOUNT CHEMICAL CO., INC.
- ----------------------------
MANAGEMENT'S DISCUSSION AND
- ----------------------------
ANALYSIS OF FINANCIAL CONDITION AND
- -----------------------------------
RESULTS OF OPERATIONS
- ---------------------
September 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's working capital decreased $46,000 for the first
nine months of 1997 compared to a increase of $67,800 for the same
period in 1996. The decrease was primarily due to lower accounts
receivable, lower inventories and to a liability reserve for
restructuring charges; partially offset by lower accounts payable, and
higher cash balances. The lower accounts receivable and higher cash
balances were due to the receipt of large foreign receivables in
September.
The Company's capital expenditures in 1997 have been for the
purchase and installation of production equipment and storage tanks.
Results of Operations
- ---------------------
Net sales for the first nine months of 1997 were $9,068,000, a
decrease of $325,400 or 3.5% versus the same period in 1996. The
decrease was primarily due to a decrease in sales volumes of
photographic chemicals - $1,098,200 and lower prices for polymer
additives - $9,700; partially offset by higher volumes of hydrazine
and derivatives - $455,500, hydrazine blends - $169,700 and specialty
chemicals - $157,300. Net sales for the three months ended September
30, 1997 were $2,471,000, a decrease of $355,100 or 12.6%. The
decrease in net sales were due to lower volumes of photographic
chemicals - $344,000, coupled with lower volumes and prices of polymer
additives - $306,900 and lower volumes of specialty chemicals - $400;
partially offset by increased volumes of hydrazine blends - $191,700
and hydrazine derivatives - $104,500.
The gross profit for the first nine months of 1997 decreased
$21,000 or 1.3% versus the same period in 1996. The decrease was due
to the lower sales volume of photographic chemicals coupled with lower
margins of polymer additives; partially offset by higher volumes of
hydrazine derivatives and hydrazine blends, coupled with lower
manufacturing expenses. The gross profit for the third quarter of
1997 increased $518,600 versus the third quarter of 1996. The
increase was due to higher volumes of hydrazine blends and hydrazine
derivatives, coupled with improved margins due to lower manufacturing
expenses; partially offset by lower volumes of photographic chemicals
and polymer additives.
Management's Discussion and Analysis of Financial Condition and
- ---------------------------------------------------------------
Results of Operations (Cont'd)
- -----------------------------
Research, selling, general and administrative expenses for the
nine months ended September 30, 1997 decreased $72,200 or 3.9% versus
the same period in 1996. Research, selling and general and
administrative expenses for the three months ended September 30, 1997
decreased $17,700 or 2.9% versus the same period in 1996. The
decreases in the two periods were due to the cost savings resulting
from the restructuring in the second quarter of 1997. During the
third quarter of 1997 some of the cost savings were partially offset
by expenses for waste removal and for an OSHA consultant.
The nine months ending September 30, 1997 includes a $350,000
restructuring charge incurred during the second quarter of 1997.
During this quarter 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. Also included in the nine
months ending September 30, 1997 is $200,000 for an advance on an
insurance claim for the March 25, 1997 explosion that destroyed a
building and the equipment within. No employees were injured. The
Company expects the final settlement of this claim to substantially
exceed this advance and the Company believes an additional piece of
the settlement should be received by the end of 1997 or early in 1998.
Other income for the nine months ended September 30, 1997 was
lower versus 1996 due to higher custom duty refunds in 1996. The
refunds are for customs duty paid on imported raw materials which are
converted to finished products and subsequently exported.
At the Board of Directors meeting held on September 5,1997 the
board elected three new outside directors, Howard R. Leistner, Richard
Mizrack and Dr. Reidar Halle. At the meeting, the resignation of
board member Leonard T. Wood was accepted. Remaining on the board are
Todd K. Walker, Chairman, Chief Executive Oficer and President and
James F. Gilday, Corporate Secretary and Chief Financial Officer.
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
November 14, 1997 S/Todd K. Walker
- ----------------- ----------------------------
Date Todd K. Walker
Chairman of the Board,
Chief Executive Officer
November 14, 1997 S/James F. Gilday
- ----------------- ----------------------------
Date James F. Gilday
Chief Financial Officer &
Secretary
1
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Exhibit 27 - FINANCIAL DATA SCHEDULE
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1997 AND THE
CONSOLIDATED STATEMENT OF OPERATIONS FOR SIX MONTHS ENDED SEPTEMBER
30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 683,300
<SECURITIES> 0
<RECEIVABLES> 1,773,400
<ALLOWANCES> 0
<INVENTORY> 1,589,200
<CURRENT-ASSETS> 4,372,300
<PP&E> 16,092,800
<DEPRECIATION> 11,489,900
<TOTAL-ASSETS> 9,111,900
<CURRENT-LIABILITIES> 855,700
<BONDS> 0
<COMMON> 8,293,400
0
5,400,000
<OTHER-SE> (7,606,800)
<TOTAL-LIABILITY-AND-EQUITY> 9,111,900
<SALES> 9,068,400
<TOTAL-REVENUES> 9,068,400
<CGS> 7,422,200
<TOTAL-COSTS> 7,422,200
<OTHER-EXPENSES> 2,118,500
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 80,000
<INCOME-PRETAX> (352,300)
<INCOME-TAX> 0
<INCOME-CONTINUING> (352,300)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (352,300)
<EPS-PRIMARY> ( 0.04)
<EPS-DILUTED> (0.03)
</TABLE>
