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, 1997
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: 973-344-5790
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: $11,911,200.
The aggregate market value of the Issuer's Common Stock $1 par value
("Common Stock"), held by non-affiliates of the Issuer on March 20,
1998 (1,356,452 shares) was approximately $108,516, based on $.08 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 20, 1998 was 8,293,366.
Page 1 of 39 Pages
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the Issuer's Definitive Proxy Statement for its Annual
Meeting of Stockholders to be held May 20, 1998, to be filed with the
Securities and Exchange Commission within 120 days after December 31,
1997 (the end of the registrant's fiscal year covered by this Form 10-
KSB) ("1998 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 28 THROUGH 39.
Total number of pages in this Form 10-KSB: 39, including the "cover
page" and all exhibits (sequentially numbered pages 1 through 39).
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 that 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:
1997 1996
---- ----
Plastic additives 34% 33%
Imaging chemicals 18% 26%
Hydrazine blends 19% 16%
Specialty chemicals 17% 14%
Hydrazine derivatives 12% 11%
---- ----
100% 100%
==== ====
The Company sells its products in the domestic and international
markets and continues its efforts to expand both domestic and export
sales. Net sales of $11,911,200 and $12,551,700, in 1997 and 1996,
respectively, included export sales of $4,751,300 and $5,414,400. Net
sales by major foreign geographical area were as follows:
1997 1996
---- ----
Europe 24.9% 22.1%
Other Export 15.0% 21.0%
During 1997 and 1996, two customers accounted for approximately 23.2%
and 26.6% 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. 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 depend 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, 1997 and 1996, the Company spent
approximately $418,900 and $484,200, respectively, in research and
development activities. Research and development expenditures in 1997
were lower than 1996 due to the reassignment of two research employees
to the quality control department. This was done in order to cover
personnel reductions resulting from the restructuring of the Company
during the second quarter of 1997. The Company expects 1998 research
and development expenditures to approximate the 1997 level.
Technology Sale
During 1996, the Company entered into an exclusive 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 wastewater
effluent for compliance with the requirements of local laws and
regulations. Samples are analyzed for biological oxygen demand. An
outside testing laboratory performs a complete chemical analysis
monthly. All results are forwarded to the New Jersey Department of
Environmental Protection.
The Company monitors compliance with environmental laws and
regulations. Tank dikes and equipment are inspected 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. In 1996, the Company received a complaint alleging
discharges of benzene in excess of the permissible limits on two
separate occasions during 1996. In 1997 the Company received
complaints alleging discharges of methylene chloride in excess of the
permissible limits on two separate occasions. Fines associated with
these complaints were not material to the results of operations or
financial position of the Company.
Environmental compliance, waste disposal and regulatory fees totaled
approximately $210,300 and $84,600 in 1997 and 1996, respectively.
These costs are included in general and administrative expenses.
Employees
As of December 31, 1997, the Company had 50 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 14 buildings,
of brick, cinder block or metal-clad construction. They provide
approximately 97,100 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, inventory and personal property of the Company. The
Company's debt to affiliated parties is subordinated 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
workweek 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 received $200,000 from its property insurance carrier during
the second quarter of 1997 in partial settlement for the Company's
property losses caused by the explosion. In January, 1998 the Company
received an additional payment of $1,140,100 for these property
losses. The building in which the explosion occurred has been razed
(see Note 16).
In 1997, the Company spent approximately $450,400 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, 1997.
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
------------------------
1997 1 1996 1
------- -------
Quarter High Low High Low
- ---------- ------------ ---------------
First $.13 $.09 $.25 $.22
Second .12 .09 .20 .15
Third .10 .08 .16 .10
Fourth .10 .08 .15 .09
There were approximately 266 stockholders of record at December 31,
1997. The Company did not declare or pay any dividends in 1997 or
1996.
_________________________
1There was no significant market activity for the common stock during
1997 and 1996.
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. Summit Bank renewed the
Company's line of credit during the second quarter of 1997. The line
of credit is due for renewal during the second quarter of 1998.
Management is not aware of any issue that would violate the covenants
in the credit agreement with Summit Bank or prevent the renewal of
the Company's line of credit.
The Company's working capital decreased by $174,800 in 1997 resulting
in working capital of $3,387,700 compared to working capital of
$3,562,500 in 1996. The decrease in working capital in 1997 resulted
mainly from higher current long term debt - $327,100 and lower
accounts receivables - $245,300; partially offset by higher cash
balances - $283,900, higher inventory - $47,200 and lower accounts
payables - $63,600. The current portion of long term debt increased
due to borrowings for working capital purposes. Some of these
borrowings have been repaid during the first quarter of 1998.
Accounts receivable decreased due to the receipt of several large
foreign payments received in December. Part of the increase in cash
was due to the receipt of $200,000 from the Company's property
insurance carrier for partial settlement of the Company's claim
resulting from the March 25, 1997 explosion (see below). Inventories
rose slightly due to a modest increase in orders to be shipped early
in 1998; partially offset by the write-off of a finished product that
was not shippable (see below).
On March 25, 1997 there was an explosion in a building in which some
of the Company's products are dried. There was minor collateral damage
to other surrounding buildings. The Company has discontinued drying
the product that was being dried at the time of the explosion. This
product is now being sold in a wet condition. The Company has lost
some orders for this product because of this change, but the effect of
this change on the Company's operations for the year was immaterial.
However, during 1997 the Company wrote-off inventory of $87,800 that
was similar in nature to the product that exploded due to volatility
concerns of shipping this product in an already dried condition. The
Company received $200,000 from its property insurance carrier during
the second quarter of 1997 in partial settlement for the Company's
property losses caused by the explosion. In January, 1998 the Company
received an additional payment of $1,140,100 for these property losses
(see Note 16).
During the second quarter of 1997 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 year
includes a restructuring charge of $310,000 for severance, early
retirement and accrued vacation time.
On June 24, 1997, following the Annual Meeting of Shareholders,
William E. Setzler, Chairman of the Board and Chief Executive Officer
and Sondra M. Jacoby, Chief Financial Officer, Corporate Secretary and
a Board Director resigned as directors and officers of the Company.
The President of the Company, Todd K. Walker was appointed to the
position of Chairman of the Board and Chief Executive Officer. James
F. Gilday, the Controller of the Company, was appointed Chief
Financial Officer and Corporate Secretary and also appointed to the
Board of Directors.
On July 2, 1997 the Company replaced certain outstanding debt
obligations payable to affiliated parties with promissory notes. On
this date William E. Setzler and Sondra M. Jacoby, the executors of
the Leistner Estate, terminated the Credit Facility with affiliated
parties. The Credit Facility borrowings, $1,080,000, were replaced by
four promissory notes due on January 1, 2005. The Leistner Estate
received a note for $648,000. 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. The balance of the Leistner Loan, $491,600,
that was due April 1, 1998 was replaced with a promissory note to the
Leistner Estate for the same amount, due January 1, 2005. (See Note
4).
At a Board of Directors meeting held on September 5, 1997, the Board
of Directors elected three new outside directors, Howard R. Leistner,
Richard Mizrack, and Dr. Reidar Halle. At the meeting, the resignation
of Board member Leonard R. Wood was accepted.
On October 9, 1997 the executors of the Leistner Estate endorsed two
promissory notes of $684,000 and $491,600 to the order of the Howard
Leistner, Hedi Mizrack and Gilbert Leistner Irrevocable Grantor Trust.
The trust was established to expedite the settlement of the Leistner
Estate and to be the repository of the common and preferred shares of
the Company, as well as the promissory notes held by the Leistner
Estate (see Note 16).
On January 13, 1998, Mr. Todd K. Walker resigned as President, Chief
Executive Officer, Chairman of the Board of Directors and as a
director of Fairmount Chemical Co., Inc. Dr. Reidar Halle, a director
of the Company was retained to serve as Chief Executive Officer of the
Company on an interim basis until a President and Chief Executive
Officer is chosen by the board. Mr. Howard R. Leistner, also a
director of the Company was appointed as Chairman of the Board.
The Company has conducted a comprehensive review of its computer
systems to identify the systems that could be affected by the "Year
2000" issue and has developed an implementation plan to resolve the
issue. The Year 2000 problem is the result of computer programs being
written using two digits rather than four to define the applicable
year. Any of the Company's programs that have time-sensitive software
may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a major system failure or miscalculations.
The Company presently expects that, with modifications to existing
software and converting to new software, the Year 2000 problem will
not pose significant operational problems for the Company's computer
systems. However, if such modifications and conversions are not
completed timely, the Year 2000 problem may have a material impact on
the operations of the Company.
In June 1997, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 130,
"Reporting Comprehensive Income" ("SFAS 130"). SFAS 130 establishes
standards for reporting and display of comprehensive income and its
components in the financial statements. SFAS 130 is effective for
fiscal years beginning after December 15, 1997. Reclassification of
financial statements for earlier periods provided for comparative
purposes is required. The adoption of SFAS 130 will have no impact on
the Company's consolidated results of operations, financial position
or cash flows.
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments
of an Enterprise and Related Information" ("SFAS 131"). SFAS 131
establishes standards for the way public business enterprises report
information about operating segments in annual financial statements
and requires that those enterprises report selected information about
operating segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures
about products and services, geographic areas and major customers.
SFAS 131 is effective for financial statements for fiscal years
beginning after December 15, 1997, and the Company will comply
beginning with year-end 1998 results. Financial statement disclosures
for prior periods are required to be restated. The Company is in the
process of evaluating the disclosure requirements. The adoption of
SFAS 131 will have no impact on the Company's consolidated results of
operations, financial position or cash flows.
Research and Development
During the years ended December 31, 1997 and 1996, the Company spent
approximately $418,900 and $484,200, respectively, in research and
development activities. Research and development expenditures in 1997
were lower than 1996 due to the reassignment of two research employees
to the quality control department. This was done in order to cover
personnel reductions resulting from the restructuring of the Company
during the second quarter of 1997. The Company expects 1998 research
and development expenditures to approximate the 1997 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 wastewater
effluent for compliance with the requirements of local laws and
regulations. Samples are analyzed for biological oxygen demand. An
outside testing laboratory performs a complete chemical analysis
monthly. All results are forwarded to the New Jersey Department of
Environmental Protection.
The Company monitors compliance with environmental laws and
regulations. Tank dikes and equipment are inspected 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. In 1996, the Company received a complaint alleging
discharges of benzene in excess of the permissible limits on two
separate occasions during 1996. In 1997, the Company received
complaints alleging discharges of methylene chloride in excess of the
permissible limits on two separate occasions. Fines associated with
these complaints were not material to the results of operations or
financial position of the Company.
Environmental compliance, waste disposal and regulatory fees totaled
approximately $210,300 and $84,600 in 1997 and 1996, respectively.
These costs are included in general and administrative expenses.
Results of Operations 1997 - 1996
A. Net sales for 1997 were $11,911,200, a decrease of $640,500 or 5.1%
as compared to 1996. The decrease in net sales was primarily due to
lower volumes of imaging chemicals mainly due to lower demand from a
major customer that initiated a major restructuring in 1997 and
delayed ordering substantial volumes until early 1998 - $1,159,300.
Also contributing to the decrease in sales were lower prices for
polymer additives due to competitive pressures from foreign
competitors - $135,900; partially offset by increased volumes of
specialty chemicals - $388,400, hydrazine blends - $176,600 and
hydrazine derivatives - $89,700 Gross profit for 1997 increased
$208,700 or 10.2% versus 1996 due to improved margins that resulted
from the lowering of costs achieved through the restructuring program
initiated during the second quarter of 1997.
Net Sales 1997 1996
-----------------
Plastic additives 34% 33%
Imaging chemicals 18% 26%
Hydrazine blends 19% 16%
Specialty chemicals 17% 14%
Hydrazine derivatives 12% 11%
-----------------
100% 100%
-----------------
B. Operating loss was $384,800, an improvement of $72,900 versus an
operating loss of $457,700 in 1996. The improvement in operating
income was due to the cost savings realized in the manufacturing,
general and administrative and research departments from the
restructuring during the second quarter of 1997. The amount of the
restructuring charge in 1997 was $310,000 which was for expenses
associated with payments for severance, early retirements and accrued
vacation time. Environmental expenses increased $125,700 in 1997
versus 1996 due to increased costs for waste removal, environmental
compliance and an OSHA consultant.
Interest expense was higher in 1997 versus 1996 due to the Company in
1997 beginning to pay interest on its $491,600 debt obligation to an
affiliated party, coupled with increased borrowings through the bank
line of credit for working capital purposes and an increase of 1% in
the interest rate on the remaining debt owed to affiliated parties per
the new promissory note agreements (see Note 4). Other income was
lower during 1997 versus 1996 due to the granting of a technology
license for the manufacture, production and sale of one of the
Company's products in 1996 - $175,000, and to custom duty refunds in
1996 - $46,500.
During 1997 the Company received insurance proceeds of $200,000 as a
partial settlement for the property losses sustained from the March
25, 1997 explosion. Part of these proceeds were used to repair damage
to buildings caused by the explosion - $29,000 (see Note 16).
1998 Outlook
The Company has budgeted approximately $500,000 for capital
expenditures in 1998. Major expenditures will consist of the
replacement and improvement of process equipment, coupled with safety
and environmental projects.
The Company continues to experience competitive pressure on the
pricing of certain of its products and has reacted by closely
monitoring the cost of its raw materials and by reevaluating its
manufacturing processes. Management believes the reduced operating
cost structure of the Company realized through the second quarter 1997
restructuring has repositioned the Company to operate profitably
during 1998, as it has during the third and fourth quarters of 1997.
The Company is refocusing the direction of its marketing efforts by
concentrating on more aggressively expanding the customer base for the
Company's existing product line. The Company will also continue to
develop new products when it determines that there is a profitable
market potential to be realized in relation to the costs and efforts
expended.
To 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
for the year ending December 31,1998.
Item 7. Financial Statements and Supplementary Data
Index to Financial Statements and Related Information
Financial Statements Page
--------
Independent Auditors' Report 14
Statements of Operations for the years ended December 31,
1997 and 1996 15
Balance Sheets as of December 31, 1997 and 1996 16
Statements of Stockholders' Equity
for the years ended December 31, 1997 and 1996 17
Statements of Cash Flows for the years ended December 31,
1997 and 1996 18
Notes to Financial Statements 19-27
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Fairmount Chemical Co., Inc.:
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, 1997 and 1996, and the 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, 1997 and 1996, 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 note 1 to the financial statements, the Company
changed its method of determining the cost of inventories in 1996.
March 16, 1998
<TABLE>
<CAPTION>
FAIRMOUNT CHEMICAL CO., INC.
Statements of Operations
Years Ended December 31, 1997 and 1996
(Dollar amounts rounded to hundreds, except per share data)
1997 1996
----------- ------------
<S> <C> <C>
Net sales $11,911,200 $12,551,700
Cost of goods sold 9,657,700 10,506,900
- ----------------------------------------------------------------------
Gross profit 2,253,500 2,044,800
Research & development 418,900 484,200
Selling, general and
administrative expenses 1,909,400 2,018,300
Restructuring charge (Note 15) 310,000 --
- ----------------------------------------------------------------------
Operating loss (384,800) (457,700)
Interest expense (Note 4) 129,200 77,300
Other income (Note 8) (46,800) (257,900)
Insurance proceeds (Note 16) (171,000) --
- ----------------------------------------------------------------------
Net loss before income taxes $ (296,200) $ (277,100)
Provision for income taxes -- --
- ----------------------------------------------------------------------
Net loss $ (296,200) $ (277,100)
======================================================================
Basic loss per share (Note 10) $ (.04) $ (.03)
======================================================================
See accompanying notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
FAIRMOUNT CHEMICAL CO., INC.
Balance Sheets
December 31, 1997 and 1996
(Dollar amounts rounded to hundreds)
1997 1996
---------- ----------
<S> <C> <C>
Assets
Current Assets:
Cash $ 711,800 $ 427,900
Accounts receivable-trade 1,845,700 2,091,000
Inventories (Note 2) 1,709,600 1,662,400
Prepaid expenses 282,500 263,700
Other current assets 102,800 57,900
- --------------------------------------------------------------------------------------
Total Current Assets 4,652,400 4,502,900
- --------------------------------------------------------------------------------------
Property, plant and equipment
less accumulated depreciation of
$3,934,400 and $4,336,800 in 1996 (Note 3) 4,504,400 4,775,000
Other assets (Note 7) 44,900 56,000
- --------------------------------------------------------------------------------------
Total Assets $9,201,700 $9,333,900
======================================================================================
Liabilities and
Stockholders' Equity
Current Liabilities:
Accounts payable $ 499,900 $ 563,500
Accrued compensation 55,900 73,100
Accrued pension liability (Note 7) 194,800 155,000
Other accrued liabilities 127,000 88,800
Short-term bank borrowings (Note 5) 387,100 60,000
- --------------------------------------------------------------------------------------
Total Current Liabilities 1,264,700 940,400
- --------------------------------------------------------------------------------------
Promissory notes to affiliated parties (Note 4) 1,571,600 --
Accrued interest to affiliated party (Note 4) -- 491,600
Long-term notes payable to affiliated party
(Note 4) -- 1,080,000
Long-term bank borrowings (Note 5) 33,900 111,700
Accrued pension liability (Note 7) 486,300 353,400
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 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 (14,866,200) (14,570,000)
Additional minimum liability (Note 7) (297,500) (82,100)
- --------------------------------------------------------------------------------------
Total Stockholders' Equity 5,845,200 6,356,800
- --------------------------------------------------------------------------------------
Total Liabilities and
Stockholders' Equity $ 9,201,700 $ 9,333,900
======================================================================================
See accompanying notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
FAIRMOUNT CHEMICAL CO., INC.
Statements of Stockholders' Equity
Years Ended December 31, 1997 and 1996
(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, 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 as adjusted
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
Net loss for 1997 (296,200) (296,200)
Additional minimum
liability (Note 6) (215,400) (215,400)
- --------------------------------------------------------------------------------------------------------------------------------
Balance
December 31, 1997 5,400,000 $5,400,000 8,293,366 $8,293,400 (500) ($500) $7,316,000 ($14,866,200) ($297,500) $5,845,200
================================================================================================================================
See accompanying notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
FAIRMOUNT CHEMICAL CO., INC.
Statements of Cash Flows
Years Ended December 31, 1997 and 1996
(Dollar amounts rounded to hundreds)
1997 1996
----------- ----------
<S> <C> <C>
Cash Flow from Operating Activities:
Net loss $ (296,200) $ (277,100)
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 721,000 869,800
Increase (decrease) from changes in:
Accounts receivable-trade 245,300 (188,900)
Inventories (47,200) 407,700
Prepaid expenses (18,800) (103,600)
Other assets (33,800) (86,900)
Accounts payable (63,600) 3,300
Accrued compensation (17,200) (21,900)
Other liabilities (4,500) (67,200)
- -----------------------------------------------------------------------------
Cash Flow Provided by Operating Activities 485,000 535,200
- -----------------------------------------------------------------------------
Cash Flow (Used in) Investing Activities:
Capital expenditures (450,400) (481,200)
- -----------------------------------------------------------------------------
Cash Flow From Financing Activities:
Capitalized lease obligations -- (230,600)
Bank borrowings 249,300 171,700
- -----------------------------------------------------------------------------
Cash Flow (Used in)/Provided by Financing
Activities 249,300 (58,900)
- -----------------------------------------------------------------------------
Increase/(Decrease) in Cash 283,900 (4,900)
Cash at Beginning of Period 427,900 432,800
- -----------------------------------------------------------------------------
Cash at End of Period $ 711,800 $ 427,900
=============================================================================
Supplemental Disclosure of Cash Flow
Information:
Interest Paid $ 129,200 $ 77,300
======= ======
Income taxes paid $ -- $ --
======= ======
Non-Cash Transaction:
Minimum pension liability adjustment: $ 215,400 $ 82,100
======= ======
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, 1997.
(See Note 16)
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the
1997 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 1996 was to increase the loss by $22,600. The effect on earnings
per share in 1996 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, 1997 and 1996, 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:
1997 1996
-------------------------
Finished goods $ 1,452,800 $ 1,455,100
Raw materials and work in process 256,800 207,300
-------------------------
$ 1,709,600 $ 1,662,400
=========================
The reserve for obsolete inventory was $35,400 and $87,400 at December
31, 1997 and 1996, respectively.
NOTE 3. PROPERTY, PLANT and EQUIPMENT
Property, plant and equipment, by major classification, at December
31, 1997 and 1996 is summarized as follows:
1997 1996
-------------------------
Land $ 259,300 $ 259,300
Buildings 3,461,500 3,486,800
Machinery and equipment 4,562,500 5,210,600
Vehicles 66,800 66,800
Furniture and fixtures 88,700 88,300
-------------------------
8,438,800 9,111,800
Less: Accumulated depreciation 3,934,400 4,336,800
-------------------------
$ 4,504,400 $4,775,000
=========================
Construction in progress of approximately $39,800 at December 31, 1997
and $57,600 at December 31, 1996 is included in machinery and
equipment.
NOTE 4. PROMISSORY NOTES/LONG-TERM PAYABLE TO AFFILIATED PARTIES
A. As of January 1, 1993 the Company owed William E. Leistner
$5,603,700 (the "Leistner Loan"). At the Board 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
Fairmount Fund") by William E. Leistner and the Estate of Olga H.
Knoepke. At that date, the Fairmount 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. Interest paid on the promissory
notes/long-term debt to affiliated parties was $94,300 in 1997.
Interest paid on long-term debt to affiliated parties was $54,000 in
1996.
On October 9, 1997 the executors of the Leistner Estate endorsed two
promissory notes of $648,000 and $491,600 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. (See Note 16)
<TABLE>
<CAPTION>
Indebtedness to Affiliated Parties - Non Current
Dec. 31 Dec. 31 Dec. 31
1995 Additions Reductions 1996 Additions Reductions 1997
---- --------- ---------- ---- --------- ---------- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Estate of W.E. Leistner $ 491,600 -- -- $ 491,600 -- $ 491,600 --
(Leistner Loan Interest)
Fairmount Fund 1,080,000 -- -- 1,080,000 -- 1,080,000 --
(Leistner Estate, 60%)
(Knoepke Estate, 40%)
Promissory Notes: --
(Leistner Estate) $ 491,600 $ 491,600
(Leistner Estate) 648,000 -- 648,000
(da Mota Family) 224,640 -- 224,640
(Glen da Mota Family) 142,560 -- 142,560
(Lynn da Mota) 64,800 -- 64,800
--------- ----- ----- --------- --------- --------- ---------
Total $1,571,600 -- -- $1,571,600 $1,571,600 $1,571,600 $1,571,600
========= ===== ===== ========= ========= ========= =========
</TABLE>
NOTE 5. LONG-TERM DEBT
1997 1996
------ ------
Capital Expenditures Line of Credit $ 84,500 $ 135,200
Working Capital Line of Credit 336,500 36,500
------- --------
Less Current Indebtedness 387,100 60,000
------- --------
Long Term Debt $ 33,900 $ 111,700
======= ========
In July 1996, the Company obtained a $1,250,000 line of credit from
Summit Bank. Part of the proceeds of the borrowings during 1996 were
used to eliminate 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. 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, inventory, and personal property
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. The
stockholders approved this amendment 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 the 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) and (loss) per share is not materially
different from reported net (loss) and (loss) per share in 1997 and
1996, respectively. The current effect of applying SFAS 123 may not
be representative of the effects on reported net income/(loss) for
future years.
Stock option transactions for the years ended December 31, 1997 and
1996 under the plans were as follows:
1997 1996
- -------------------------------------------------------------------
Shares Price Shares Price
Outstanding
at beginning
of the year 164,000 $1.00 222,000 $1.00
Granted -- -- -- --
Forfeited (59,500) $1.00 (58,000) $1.00
Expired (32,000) $1.00 -- $1.00
- -------------------------------------------------------------------
Outstanding
at end
of the year 72,500 $1.00 164,000 $1.00
- -------------------------------------------------------------------
Exercisable 72,500 $1.00 164,000 $1.00
===================================================================
All stock options outstanding as of December 31, 1997 and 1996 are
exercisable at $1.00 per share. The average life of stock options
outstanding as of December 31, 1997 and 1996 is four and five 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 1997, the Company made
contributions of $141,000 and $53,500 for the plan years of 1997 and
1996, respectively. In 1996 the Company made contributions of $90,000
and $21,000 for the plan years 1996 and 1995, 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, 1997 and
1996.
Actuarial data related to plan obligations:
Disclosure of plan obligation:
1997 1996
----- -----
Vested benefit obligation $ 3,574,000 $ 3,268,900
--------- ---------
Accumulated benefit obligation $ 3,663,400 $ 3,350,500
--------- ---------
Projected benefit obligation $(3,880,700) $(3,525,600)
Plan assets, fair value 2,982,300 2,842,100
--------- ---------
Funded status (898,400) (683,500)
Remaining unrecognized net obligation
at adoption of SFAS No. 87 44,200 55,300
Unrecognized prior service cost (68,300) (81,700)
Unrecognized net loss 583,100 338,900
Additional minimum liability (341,700) (137,400)
--------- ---------
Accrued pension liability $ (681,100) $ (508,400)
========= =========
Current portion $ 194,800 $ 155,000
Long-term portion $ 486,300 $ 353,400
Included in other assets is an associated intangible pension asset of
$44,200 in 1997 and $55,300 in 1996.
Net pension cost included in operating results for 1997 and 1996
amounted to $162,900 and $171,100, respectively, and was comprised of
the following:
1997 1996
----- -----
Service cost $ 136,200 $ 139,700
Interest cost on projected benefit
obligation 255,100 241,200
Return on plan assets (156,300) (167,500)
Net amortization and deferral (72,100) (42,300)
--------- ---------
Total net pension cost $ 162,900 $ 171,100
========= =========
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 7.0 percent and 5 percent,
respectively, as of December 31, 1997 and 7.5 percent and 5 percent,
respectively, as of December 31, 1996. 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 a net adjustment of $204,300, to recognize the
additional minimum liability in 1997. The adjustment had no effect on
1997 operations but was accounted for as a further reduction of
stockholders' equity and the reduction of an intangible pension asset
established in 1996.
NOTE 8. SUPPLEMENTARY (INCOME) AND EXPENSE STATEMENT INFORMATION
Year Ended December 31
----------------------
1997 1996
----------- -----------
Maintenance and repairs $ 723,700 $ 782,000
Licensing Fee $ -- $(175,000)
Taxes, other than income
and payroll taxes $ 137,900 $ 152,500
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 exclusive 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, 1997 and December 31, 1996 due to net
operating losses utilized.
Income tax expense for the years ended December 31, 1997 and 1996
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:
1997 1996
----------- -----------
Computed "expected" tax (benefit) $ (70,900) $ (94,200)
State tax net of federal benefit (12,400) (16,400)
Loss of state net operating loss
carryforwards 123,000 --
Change in valuation allowance (46,400) 108,600
Non-deductible penalties 4,700 --
Non-deductible travel and entertainment 2,000 2,000
======= =======
$ -0- $ -0-
======= =======
The temporary differences which give rise to a significant portion of
deferred tax assets and liabilities at December 31, 1997 and 1996 are
presented below.
1997 1996
----------- -----------
Deferred tax assets:
Involuntary conversion $ 64,000 $ --
Restructuring 12,700 --
Pension 145,800 158,500
Interest 196,600 196,600
Inventory 85,200 97,700
Research and development tax credits 434,000 434,000
Net operating loss - state 127,200 246,300
Net operating loss - federal 4,201,000 4,189,000
----------- -----------
Total tax assets 5,266,500 5,322,100
Valuation allowance 5,049,800 5,096,200
----------- -----------
Net deferred tax assets 216,700 225,900
Deferred tax liability:
Depreciation deferred tax credit (216,700) (225,900)
=========== ===========
Net deferred tax asset $ -0- $ -0-
=========== ===========
The Company has federal net operating loss carryforwards of
approximately $12,356,200 which expire through the year 2007.
NOTE 10. (LOSS) PER SHARE
In February 1997, the Financial Accounting Standards Board (the
"FASB") issued Statement of Financial Accounting Standards ("SFAS")
No. 128, "Earnings Per Share" ("SFAS 128"). SFAS 128 became effective
for financial statements for both interim and annual periods ending
after December 15, 1997. It also required all prior period earnings
per share data presented to be restated. Under SFAS 128, basic
earnings per share are based on the net loss of the Company since
there were no preferred dividends paid in 1997 or 1996. The net loss
of the Company is divided by the weighted average number of shares of
common stock outstanding (based on 8,293,366 in both 1997 and 1996).
Common stock equivalents include principally convertible preferred stock
at December 31, 1997 and 1996, respectively. Because the company reported
losses in 1997 and 1996, the conversion of the preferred stock is not
assumed, as the result is anti-dilutive.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. The Company
had 5,400,000 shares of convertible preferred stock outstanding in 1997
and 1996 which are dilutive. The exercise price exceeded the average
market price for all of the outstanding stock options of the Company
during both 1997 and 1996 and therefore are not dilutive.
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 1997 and 1996. In the event of
involuntary liquidation, each preferred shareholder be 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 1997 and 1996 amounted to $4,751,300 and $5,414,400,
respectively. In 1997 and 1996, two customers accounted for
approximately 23.2% and 26.6% 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. In 1996, the Company received a complaint alleging
discharges of benzene in excess of the permissible limits on two
separate occasions during 1996. In 1997, the company received
complaints alleging discharges of methylene chloride in excess of the
permissible limits on two separate occasions. 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
$210,300 and $84,600 in 1997 and 1996 respectively. These costs are
included in general and administrative expenses.
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 of 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.
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. SECOND QUARTER 1997 RESTRUCTURING
During the second quarter of 1997 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 year
includes a restructuring charge of $310,000 for severance, early
retirement and accrued vacation time.
NOTE 16. SUBSEQUENT EVENTS
On January 28, 1998 the Company received a payment of $1,140,100 from
its property insurance carrier as part of the settlement for the
property damages sustained from the March 25, 1997 dryer explosion.
This payment is in addition to a $200,000 initial payment received
during the second quarter of 1997. The Company is continuing to
negotiate with its carrier for an additional amount in final
settlement of its claim. The amount the Company is negotiating for is
somewhere between the two amounts already received. The outcome of the
final resolution of this claim is uncertain. The destroyed assets,
principally property, plant and equipment, were fully depreciated at
the time of the incident.
On January 13, 1998, Mr. Todd K. Walker resigned as President, Chief
Executive Officer, Chairman of the Board of Directors and as a
director of Fairmount Chemical Co., Inc. Dr. Reidar Halle, a director
of the Company, was retained to serve as Chief Executive Officer of
the Company on an interim basis until a President and Chief Executive
Officer is chosen by the Board. Mr. Howard R. Leistner, also a
director of the Company, was appointed as Chairman of the Board.
It is expected that in April, 1998 the transfer of 4,789,200 of common
shares and 5,400,000 of preferred shares of the Company's stock will
be executed from the Estate of William E. Leistner to the Howard R.
Leistner, Hedi Mizrack and Gilbert Leistner Irrevocable Grantor Trust.
This trust will terminate on June 19, 2002. Howard R. Leistner, Hedi
Mizrack and Gilbert Leistner are William E. Leistner's children.
Item 8. Changes In and Disagreement with Accountants on Accounting and
Financial Disclosure
None
PART III
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 1998 Definitive Proxy
Statement.
Item 10. Executive Compensation
Incorporated by reference to the Company's 1998 Definitive Proxy
Statement.
Item 11. Security Ownership of Certain Beneficial Owners and
Management
Incorporated by reference to the Company's 1998 Definitive Proxy
Statement.
Item 12. Certain Relationships and Related Transactions
Incorporated by reference to the Company's 1998 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. (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, 1998 attached to Form 10-KSB for the fiscal year ending
December 31, 1996. (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).
(4) Termination of the 1992 Credit Facility Loan Agreement attached to
this Form 10-KSB for the fiscal year ending December 31, 1997 as
Exhibit 4(a).
(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's issuance 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 Form 10-KSB for the fiscal year ending
December 31, 1996 as Exhibit 25, sequentially numbered page 36.
(b) Reports on Form 8-K during the last quarter of 1997 - 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/Reidar T. Halle
Chief Executive Officer and
President
By: S/James F. Gilday
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/Howard R. Leistner Chairman of the Board April 1, 1998
(Howard R. Leistner)
S/Dr. Reidar T. Halle Director, Chief Executive Officer, April 1, 1998
(Dr. Reidar T. Talle) President
S/James F. Gilday Director, Vice President, Treasurer April 1, 1998
James F. Gilday Chief Financial Officer and Secretary
EXHIBIT 24
CONSENT OF INDEPENDENT AUDITORS
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 16, 1998, relating to the balance
sheets of Fairmount Chemical Co., Inc. as of December 31, 1997 and
1996, and the related statements of operations, stockholders' equity,
and cash flows for the years then ended, which report appears in the
December 31, 1997 annual report on Form 10-KSB of Fairmount Chemical
Co., Inc. Our report refers to a change to the FIFO method of valuing
inventory.
New York, New York
March 16, 1998
Insert letter here!
Exhibit 4(a)
TERMINATION OF
1992 CREDIT FACILITY LOAN AGREEMENT
TERMINATION AGREEMENT made this 2 day of July, 1997 between Sondra
Jacoby and William E. Setzler, as Executors of the Estate of William E.
Leistner, c/o Rosen & Reade, LLP, 757 Third Avenue, New York, New York
10017 (the "Leistner Estate"), on behalf of the Phoenix Chemical
Company/Fairmount Fund (the "Fairmount Fund"), and Fairmount Chemical
Co., Inc., with offices at 117 Blanchard Street, Newark, New Jersey
07105 ("Fairmount").
WITNESSETH:
WHEREAS, the Fairmount Fund entered into an agreement entitled
"1992 Credit Facility Loan Agreement" dated as of March 20, 1992 (the
"Credit Facility") with Fairmount and William E. Leistner ("Leistner")
pursuant to which the Fairmount Fund agreed to make available to
Fairmount, under certain terms and conditions, a credit facility in an
amount not to exceed $2,494,000;
WHEREAS, Leistner contributed 60% of the Fairmount Fund and the
Estate of Olga H. Knoepke (the "Knoepke Estate"), pursuant to a commitment
incurred by Olga H. Knoepke prior to her death on October 27, 1991,
contributed 40% of the Fairmount Fund;
WHEREAS, pursuant to an agreement dated March 20, 1992, between
Leistner and the Knoepke Estate (the "Side Agreement"), it was agreed
that Leistner would have full authority to execute, deliver and perform
the Credit Facility, and to take other actions, without the consent of
the Knoepke Estate, for and on behalf of the Fairmount Fund;
WHEREAS, the Side Agreement further provides that upon the
Fairmount Fund's receipt of any repayments of principal and/or interest
from Fairmount, Leistner would cause the Fairmount Fund to pay 40% of
such proceeds to the Knoepke Estate and 60% of such proceeds to
Leistner;
WHEREAS, Leistner died on September 19, 1993 and his estate (the
"Leistner Estate") succeeded to his interest in 60% of the Fairmount
Fund;
WHEREAS, the Knoepke Estate has been fully distributed and Glen da
Mota, Lynn da Mota and the da Mota Family Partnership (collectively, the
"Knoepke Beneficiaries") have succeeded to the 40% interest of the
Knoepke Estate in the Fairmount Fund;
WHEREAS, the principal amount presently outstanding under the
Credit Facility is $1,080,000 (the "Principal Amount");
WHEREAS, the Executors of the Leistner Estate and Fairmount desire
to terminate the Credit Facility;
WHEREAS, the date on which the Principal Amount is due and payable
to the Fairmount Fund was extended until April 1, 1998;
WHEREAS, the parties hereto desire to further extend until January
1, 2005, the date on which the Principal Amount is due and payable by
Fairmount and, accordingly, to increase the rate of interest payable by
Fairmount with respect to the Principal Amount;
WHEREAS, Fairmount presently owes to the Leistner Estate $491,600
(the "Leistner Debt") which, pursuant to the terms of the Credit
Facility and the Side Agreement, is subordinate in right of payment to
the Principal Amount and the interest thereon;
WHEREAS, the date on which the Leistner Debt is due and payable by
Fairmount to the Leistner Estate was extended until April 1, 1998; and
WHEREAS, the Leistner Estate and Fairmount desire to further extend
until January 1, 2005 the date on which the Leistner Debt is due and
payable by Fairmount and, accordingly, to increase the rate of interest
payable with respect thereto.
NOW THEREFORE, the parties hereto agree as follows:
1. Termination of Credit Facility. The parties agree that the
Credit Facility is hereby terminated and, except as otherwise provided
herein, neither Fairmount nor the Fairmount Fund shall have any further
rights or obligations with respect to the other.
2. Extension of Due Date and Increased Rate of Interest. The
parties agree that the date on which the Principal Amount shall be due
and payable is January 1, 2005 and that interest on the unpaid Principal
Amount shall be payable monthly by Fairmount at the following rates:
(a) Effective January 1, 1997 through December 31, 1997 - 6% per
annum;
(b) From January 1, 1998 through December 31, 1998 - 7% per
annum; and
(c) For each calendar year commencing on or after January 1,
1999, at the corporate base rate posted by Citibank, N.A. (or
its successor) on the last banking day of the previous
calender year.
3. Promissory Notes. The Fairmount Fund is being terminated and
dissolved and its assets distributed, pro rata, to the Leistner Estate
and the Knoepke Beneficiaries. Accordingly, the Executors of the
Leistner Estate hereby direct Fairmount to issue to the order of the
Executors of the Leistner Estate a promissory note for $648,000,
representing 60% of the Principal Amount, and to the Knoepke
Beneficiaries promissory notes for an aggregate of $432,000,
representing 40% of the Principal Amount, with such 40% to be in the
form of three separate promissory notes as follows:
(a) Payable to the order of Glen da Mota $142,560
(b) Payable to the order of Lynn da Mota $64,800
(c) Payable to the order of the da Mota Family
Partnership $224,640
The Executors of the Leistner Estate hereby approve the
promissory notes in the form annexed hereto as Exhibits A, B, C and D,
and accept such notes as full consideration for any and all obligations
owed to the Fairmount Fund under the Credit Facility. Fairmount agrees
to exchange and reissue the notes payable to the order of the Knoepke
Beneficiaries, in different proportions, if so directed by the Executors
of the Leistner Estate. The Executors of the Leistner Estate agree and
acknowledge that the promissory notes referred to above supersede any
and all previous notes and evidences of indebtedness with respect to the
Principal Amount.
4. Leistner Debt. The Executors of the Leistner Estate and
Fairmount agree that the date on which the Leistner Debt shall be due
and payable is January 1, 2005, and that the Leistner Debt shall bear
interest at the rates set forth in Paragraph 2 hereof. The Executors of
the Leistner Estate hereby approve the promissory note in the form
annexed hereto as Exhibit E and accept such note in full consideration
of all obligations of Fairmount to Leistner with respect to the Leistner
Debt. The Executors of the Leistner Estate agree and acknowledge that
the promissory note referred to in this Paragraph 4 supersedes any and
all previous notes and evidences of indebtness with respect to the
Leistner Debt.
5. Entire Agreement: Amendments. This Agreement constitutes the
entire agreement of the parties hereto with respect to the subject
matter hereof and supersedes any and all prior agreements and
understandings, whether oral or written, with respect thereto. No
amendment or modification of this Agreement, including, without
limitation, any relating to this Paragraph 5, shall be effective unless
in writing signed by all of the parties hereto.
6. Binding Effect. This Agreement shall inure to the benefit of
and shall be binding upon all the parties hereto and their respective
administrators, executors, heirs, personal representatives, successors
and assigns.
7. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of
which, taken together, shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have signed this Agreement
as of the date first above written.
FAIRMOUNT FUND
By: ESTATE OF WILLIAM E. LEISTNER
By: /S/SONDRA JACOBY
SONDRA JACOBY
AND: /S/WILLIAM SETZLER
WILLIAM SETZLER, EXECUTORS
FAIRMOUNT CHEMICAL CO., INC.
By: /S/ TODD K. WALKER
TODD K. WALKER
President
<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, 1997 AND THE CONSOLIDATED STATEMENT OF
OPERATIONS FOR TWELVE MONTHS ENDED DECEMBER 31, 1997
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 711,800
<SECURITIES> 0
<RECEIVABLES> 1,845,700
<ALLOWANCES> 0
<INVENTORY> 1,709,600
<CURRENT-ASSETS> 4,652,400
<PP&E> 8,438,800
<DEPRECIATION> 3,934,400
<TOTAL-ASSETS> 9,201,700
<CURRENT-LIABILITIES> 1,264,700
<BONDS> 0
<COMMON> 8,293,400
0
5,400,000
<OTHER-SE> (7,847,700)
<TOTAL-LIABILITY-AND-EQUITY> 9,201,700
<SALES> 11,911,200
<TOTAL-REVENUES> 11,911,200
<CGS> 9,657,700
<TOTAL-COSTS> 9,657,700
<OTHER-EXPENSES> 2,638,300
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 129,200
<INCOME-PRETAX> (296,200)
<INCOME-TAX> 0
<INCOME-CONTINUING> (296,200)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (296,200)
<EPS-PRIMARY> (0.04)
<EPS-DILUTED> (0.04)
</TABLE>
