UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended SEPTEMBER 30, 2000
-------------------
[ ] Transition Report under Section 13 or 15(d) of the Exchange Act
For the transition period from __________ to __________
Commission file Number 1-4591
------------
FAIRMOUNT CHEMICAL CO., INC.
----------------------------
(Exact name of registrant as specified in its charter.)
NEW JERSEY 22-0900720
------------------------------- ------------------
(State of other jurisdiction of I.R.S. Employer
incorporation or organization) Identification No.)
117 BLANCHARD STREET, NEWARK, NJ 07105
-----------------------------------------------------
(Address of principal executive offices) (Zip Code)
(973)-344-5790
--------------
(Issuer's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practical date:
Common Stock, $1 Par Value - 8,292,866 shares as of November 13, 2000
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
<PAGE>
INDEX
-----
PAGE
PART I FINANCIAL INFORMATION
Item 1
Statements of Operations
Three months and nine months ended
September 30, 2000 and 1999 3
Balance Sheets
September 30, 2000 and December 31, 1999 4
Statement of Stockholders' Equity and Comprehensive
loss for the nine months ended September 30, 2000 and
1999 5
Statements of Cash Flows
Nine months ended September 30, 2000 and 1999 6
Notes to Financial Statements 7 - 10
Item 2.
Management's Discussion and Analysis of
Financial Condition and Results of Operation 11 - 14
PART II OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 4. Submission of Matters to Vote of Security Holders 15
Item 6. Exhibits and Reports on Form 8-K 15 - 16
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
--------------------
FAIRMOUNT CHEMICAL CO., INC.
----------------------------
STATEMENTS OF OPERATIONS
For The Three Months and Nine Months Ended September 30, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Sept. 30, 2000 Sept. 30, 1999 Sept. 30, 2000 Sept. 30, 1999
--------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net sales $2,657,800 $2,912,400 $9,192,300 $8,346,500
Cost of goods sold 2,524,800 2,537,100 7,626,200 7,085,800
--------- --------- --------- ---------
Gross profit 133,000 375,300 1,566,100 1,260,700
Research and development 97,100 94,400 302,200 284,500
Selling, general and
administrative expense 487,700 465,100 1,516,000 1,363,700
--------- --------- --------- ---------
Operating loss (451,800) (184,200) (252,100) (387,500)
Interest expense 46,400 51,300 135,300 117,500
Insurance proceeds - - (333,100) (375,000)
Other expense (income), net 29,300 (25,400) (14,800) (79,700)
--------- --------- --------- ---------
Loss before income
taxes (527,500) (210,100) (39,500) (50,300)
Income taxes - - - -
--------- --------- --------- ---------
Net Loss $(527,500) $(210,100) $(39,500) $ (50,300)
========= ========= ========= =========
Loss per share
Basic $ (.06) $ (.04) $ .00 $ (.01)
========= ========== ========= =========
Diluted $ (.06) $ (.04) $ .00 $ (.01)
========= ========== ========= =========
Common shares and equivalents
outstanding
Basic 8,292,866 8,292,866 8,292,866 8,292,866
========= ========== ========= =========
Diluted 8,292,866 8,292,866 8,292,866 8,292,866
========= ========= ========= =========
</TABLE>
See Accompanying Notes to Financial Statements.
3
<PAGE>
FAIRMOUNT CHEMICAL CO., INC.
----------------------------
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPT. 30, 2000 DECEMBER 31, 1999
-------------- -----------------
(Unaudited)
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash $ 2,242,300 $ 2,481,100
Accounts receivable-trade 2,103,900 1,985,100
Inventories 2,602,000 1,957,800
Prepaid expenses 36,100 114,100
Other current assets 14,100 10,200
------------ -----------
Total Current Assets 6,998,400 6,548,300
Property, plant and equipment
less accumulated depreciation of
$5,699,400 and $5,204,400 as of September
30, 2000 and December 31, 1999, respectively 4,002,800 3,805,800
Other assets 700 700
------------ -----------
TOTAL ASSETS $11,001,900 $10,354,800
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 1,514,900 $ 826,200
Accrued compensation 74,300 84,200
Pension liability 195,700 153,200
Other accrued liabilities 347,900 236,700
------------ -----------
Total Current Liabilities 2,132,800 1,300,300
Promissory notes to affiliated parties 1,571,600 1,571,600
Pension liability - 145,900
STOCKHOLDERS' EQUITY
Preferred stock, par and liquidation value $1 per share
authorized - 10,000,000 shares; 5,400,000 shares issued and
outstanding (liquidation value $5,400,000) 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. 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 (13,614,200) (13,574,700)
Additional minimum pension liability (97,200) (97,200)
------------ -----------
TOTAL STOCKHOLDERS' EQUITY 7,297,500 7,337,000
------------ -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 11,001,900 $10,354,800
============ ===========
</TABLE>
See accompanying Notes to Financial Statements.
4
<PAGE>
FAIRMOUNT CHEMICAL CO., INC.
----------------------------
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
AND
COMPREHENSIVE LOSS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
------------------------------ ------------------------------
Comprehensive Comprehensive
Loss Loss
------------- -------------
<S> <C> <C> <C> <C>
Preferred stock:
Balance at September 30, $5,400,000 $5,400,000
(5,400,000 shares)
Common stock:
Balance at September 30, 8,293,400 8,293,400
(8,293,366 shares)
Capital in excess of par value:
Balance at September 30, 7,316,000 7,316,000
Accumulated deficit:
Balance at January 1 (13,574,700) (13,009,200)
Net Loss (39,500) (39,500) (50,300) (50,300)
----------- -----------
Balance at September 30, (13,614,200) (13,059,500)
Accumulated other comprehensive
loss:
Balance at January 1 (97,200) (301,600)
Additional minimum pension
liability - - - -
----------- -----------
Comprehensive Loss $(39,500) $ (50,300)
=========== ===========
----------- -----------
Balance at September 30, (97,200) (301,600)
Treasury stock:
Balance at September 30, (500) (500)
(500 shares)
----------- -----------
Total Stockholders' Equity $7,297,500 $7,647,800
=========== ===========
</TABLE>
See accompanying notes to financial statements
5
<PAGE>
FAIRMOUNT CHEMICAL CO., INC.
----------------------------
STATEMENTS OF CASH FLOWS
For The Nine Months Ended September 30, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss $(39,500) $ (50,300)
Adjustments to reconcile net loss to
net cash provided by (used in) operating
activities
Depreciation 495,000 540,000
Insurance proceeds (333,100) (375,000)
Increase (decrease) from changes in:
Accounts receivable-trade (118,800) (714,900)
Inventories (644,200) (453,400)
Prepaid expenses 78,000 51,300
Other current assets (3,900) 6,300
Accounts payable 688,700 244,800
Accrued compensation (9,900) (78,900)
Other liabilities 7,800 129,400
----------- ----------
Cash Flow Provided by (Used In)
Operating Activities 120,100 (700,700)
CASH FLOW (USED IN) PROVIDED BY
INVESTING ACTIVITIES:
Capital expenditures (692,000) (167,300)
Insurance proceeds 333,100 375,000
----------- ----------
Net Cash (Used In) Provided by
Investing Activities (358,900) 207,700
CASH FLOW USED IN
FINANCING ACTIVITIES:
Bank repayment - (33,900)
----------- ----------
Cash Flow Used in
Financing Activities - (33,900)
----------- ----------
DECREASE IN CASH (238,800) (526,900)
Cash at Beginning of Period 2,481,100 2,422,700
----------- ----------
CASH AT END OF PERIOD $ 2,242,300 $1,895,800
=========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $120,000 $ 102,000
=========== ==========
Income taxes paid $ - $ -
=========== ==========
</TABLE>
See accompanying Notes to Financial Statements
6
<PAGE>
FAIRMOUNT CHEMICAL CO., INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
ORGANIZATION
The accompanying financial statements, which should be read in
conjunction with the financial statements of Fairmount Chemical Co., Inc. (the
"Company") included in the 1999 Annual Report filed on Form 10-KSB, are
unaudited but have been prepared in the ordinary course of business for the
purpose of providing information with respect to the interim period. The Company
believes that all adjustments (none of which were other than normal recurring
accruals) necessary for a fair presentation for such periods have been included.
The Company's interim results of operations are not necessarily indicative of
what may be expected for the full year.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with the
2000 presentation.
REVENUE
Revenue is recognized on the date of invoice to a customer and invoices
are prepared on or after the date of shipment. The Company's terms are FOB
shipping point and accordingly title for goods pass to the customer when product
is shipped. Sales are generally final, without a right of return. If the product
does not meet specifications, the Company may accept returns.
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.
No provisions for income taxes have been recorded by the Company as a
result of net operating losses utilized. A valuation allowance has been recorded
at September 30, 2000 and September 30, 1999 for that portion of deferred tax
assets which are not presently considered more likely than not to be realized.
FINANCIAL STATEMENTS
The statements of operations for the three months and nine months ended
September 30, 2000 and 1999, the statements of cash flows for the nine months
ended September 30, 2000 and 1999, and the balance sheet as of September 30,
2000 are unaudited. The balance sheet as of December 31, 1999 is audited.
7
<PAGE>
Notes to Financial Statements (Continued)
Note 2. EARNINGS PER SHARE
------------------
Basic earnings per share are based on the net earnings of the Company
since there were no preferred dividends paid in the periods ended September 30,
2000 and 1999. Diluted earnings per share is calculated by dividing the net
earnings of the Company by the weighted average number of shares outstanding
adjusted for dilutive common share equivalents including preferred stock and
shares granted under stock option arrangements. Due to the Company reporting a
loss for the three and nine months ended September 30, 2000 and 1999, the
exercise of options and conversion of the preferred stock is not assumed, as the
results would be anti-dilutive. As of September 30, 2000 and 1999, 1,072,500
stock options were outstanding, 72,500 with an exercise price of $1.00 per
share, and 1,000,000 with an exercise price of $.11 per share.
Note 3. LONG TERM PROMISSORY NOTES TO AFFILIATED PARTIES
------------------------------------------------
All promissory notes have similar terms and conditions. Interest
payable from January 1, 1999 through December 31, 1999 was at the rate of 7.75%
per annum. Interest is payable at the corporate base rate posted by Citibank, N.
A. (or its successor) on the last banking day of the previous calendar year.
Interest payable from January 1, 2000 through December 31, 2000 is at the rate
of 8.5 % per annum. All of the promissory notes are subordinated to the
Company's line of credit financing with Summit Bank and are collateralized by
security agreements on the Company's accounts receivable, inventories and
personal property. All promissory notes are due January 1, 2005. Interest paid
on long-term debt to affiliated parties during the nine months ended September
30, 2000 was $100,200 and $91,400 during the nine months ended September 30,
1999.
<TABLE>
<CAPTION>
<S> <C>
Promissory Notes:
Leistner Trust $ 491,600
Leistner Trust $ 648,000
da Mota Family Partnership $ 224,600
Glen da Mota $ 142,500
Lynn da Mota $ 64,800
-----------
$ 1,571,600
</TABLE>
Note 4. BANK BORROWINGS
---------------
The Company has a $1,250,000 line of credit from Summit Bank. The line
of credit is subject to an annual review for renewal. The working capital line
of credit was renewed and amended during the second quarter of 2000. Under the
amended loan agreement, the Company has available the lesser of $1,250,000 or up
to 80 % of its eligible receivables, as defined in the loan agreement. The 80 %
limitation on eligible receivables should not have a material effect on
Fairmount. The bank has been given a first security interest in the accounts
receivable, inventories and personal property of the Company.
Note 5. INVENTORIES
-----------
Inventories at September 30, 2000 and December 31, 1999 consisted of
the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000 DECEMBER 31, 1999
------------------ -----------------
<S> <C> <C>
Finished goods $ 2,219,100 $ 1,622,900
Raw materials 382,900 334,900
------------ ------------
$ 2,602,000 $1,957,800
============ ============
</TABLE>
8
<PAGE>
Notes to Financial Statements (Continued)
Note 6. INSURANCE PROCEEDS
------------------
During February 1999, the Company received a payment of $375,000 from
its property insurance carrier as final settlement for the property damages
sustained from the March 25, 1997 dryer explosion.
On November 10, 1999, a fire destroyed certain equipment and a
portion of the roof in one of the production buildings. The Company received
$100,000 from its property insurance carrier in March 2000 and an additional
$233,100 in May 2000 in partial settlement for its property losses caused by the
fire.
Note 7. 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 the
Company alleging that it is at least partially responsible for the
contamination. To date, no litigation has commenced with respect to these
matters.
It is the Company's policy to accrue and charge against earnings,
environmental cleanup costs when it is probable that a liability has been
incurred and an amount is reasonably estimable. These accruals are reviewed
periodically and adjusted, if necessary, as additional information becomes
available. These accruals can change substantially due to such factors as
additional information on the nature or extent of the contamination, methods of
remediation required and other actions by government agencies or private
parties. Cash expenditures often lag behind the period in which an accrual is
recorded by a number of years. The Company has not accrued costs associated with
the above two matters, because the amounts cannot be reasonably estimated.
Management does not believe that the resolution of such matters will
have a material adverse affect on the financial position of the Company but
could be material to the results of operations and cash flow of the Company in
any one accounting period.
A bodily injury claim was filed against the Company on December 2, 1998
in the Superior Court of New Jersey Law Division, Hudson County. The plaintiff
alleges that on March 25, 1997, the date of an explosion at the Company's plant,
the force of the explosion threw him backward and resulted in injuries. The
plaintiff was an invitee upon the adjoining property to the Company. This claim
was settled on July 20, 2000, for an immaterial amount.
9
<PAGE>
Notes to Financial Statements (Continued)
On May 13, 1999, a toxic tort case was brought against the Company and
other defendants by former employees, family members of the former employees or
heirs of deceased former employees of La Gloria and Gas Company and the La
Gloria Refinery located in Tyler, Texas. The claimants contend that the employee
plaintiffs and their families were exposed to a number of toxic chemicals by
working in and around them or with them at the La Gloria Plant and by
second-hand exposure occurring as a result of the toxic substance being brought
home on the clothing and bodies of the employee plaintiffs. Plaintiffs have sued
the employer defendants and numerous manufacturers, suppliers, and distributors
of chemicals, solvents and products supplied to the La Gloria Plant. The Company
sold a hydrazine blend to La Gloria during 1990 and 1991. On October 21, 1999,
the Federal Court granted defendants' motion to dismiss because of lack of
subject matter jurisdiction. Claimants re-filed this cause of action in Texas
state court in the District Court of Harrison County, Texas on December 15,
1999. Claimants' allegations in the state court petition are identical to the
allegations discussed above. The discovery process is in the initial phase and
the Company is not able to determine potential exposure at this time. The
Company's commercial general liability and commercial umbrella insurance carrier
is defending the Company in that action.
The Company is subject to various claims, and other routine litigation
arising in the normal course of its business. 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 and cash flow of the Company in any one accounting period.
10
<PAGE>
FAIRMOUNT CHEMICAL CO., INC.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SEPTEMBER 30, 2000
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
To meet its liquidity requirements, including its capital program, the
Company accesses funds generated from operations, its available cash balances
and its bank line of credit with Summit Bank in Hackensack, New Jersey. The
working capital line of credit was renewed and amended during the second quarter
of 2000. Under the amended loan agreement, Fairmount has available the lesser of
$1,250,000 or up to 80 % of its eligible receivables, as defined in the loan
agreement. The 80 % limitation on eligible receivables should not have a
material effect on Fairmount.
The Company's working capital decreased by $382,400 during the first
nine months of 2000. The decrease during the first nine months of 2000 was due
in part to net loss for the period, higher accounts payable of $688,700, higher
other accrued liabilities of $111,200 and lower prepaid expenses of $78,000. The
decrease was partially offset by a payment of $333,100 received from the
Company's property insurance carrier as partial settlement of the property
damaged sustained from a fire on November 10,1999. In addition, contributing to
offset the decrease in working capital was higher accounts receivable of
$118,800, and higher inventories of $644,200.
The inventory was higher as of September 30, 2000 as compared to
December 31, 1999 due to production in excess of shipments. Inventory increased
by $644,200 as of September 30, 2000, compared to December 31, 1999. The
accounts payable increase was a result of increased raw material and supply
purchases. The increase in accounts receivable was due to increased shipments
during the first nine months of 2000. Accounts receivable during the nine months
ended September 30, 2000, increased by $118,800 as compared to December 31,
1999.
During February 1999 the Company received a payment of $375,000 from
its property insurance carrier as final settlement for the property damages
sustained from the March 25, 1997 dryer explosion.
On November 10, 1999, a fire destroyed certain equipment and a portion
of the roof in one of the production buildings. No employees were injured. The
total amount of the damage is not known at this time, however Fairmount believes
that its insurance is sufficient to cover the property losses sustained. The
fire had an adverse effect on operations during the fourth quarter of 1999, and
the first half of 2000. Fairmount started normal operations in this building
during the second quarter of 2000.
Fairmount was notified by its insurance carrier that when its property and
boiler insurance policy expires on February 1, 2000, it would not be renewed
because of adverse loss experience. Fairmount has obtained coverage through
another carrier, though at a substantially higher premium.
11
<PAGE>
RESULTS OF OPERATIONS
---------------------
Net sales for the three months ended September 30, 2000 were
$2,657,800, a decrease of $254,600 or 8.7 % as compared to 1999.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPT 30,
---------------------------
2000 1999 Change
--------- -------- --------
<S> <C> <C> <C>
Imaging & photographic
chemicals $ 981,200 $ 539,700 $ 441,500
Hydrazine blends 518,100 531,200 (13,100)
Hydrazine derivatives 166,700 323,300 (156,600)
Plastic additives 714,400 1,099,900 (385,500)
Specialty chemicals 277,400 418,300 (140,900)
---------- ---------- --------
Total $2,657,800 $2,912,400 $(254,600)
========== ========== ==========
</TABLE>
Net sales for the nine months ended September 30, 2000 were $9,192,300,
an increase of $845,800 or 10.1 % as compared to
1999.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPT 30,
--------------------------
2000 1999 Change
--------- -------- --------
<S> <C> <C> <C>
Imaging & photographic
chemicals $2,715,500 $ 1,638,000 1,077,500
Hydrazine blends 1,730,100 1,783,100 (53,000)
Hydrazine derivatives 649,600 873,600 (224,000)
Plastic additives 2,949,400 2,489,100 460,300
Specialty chemicals 1,147,700 1,562,700 (415,000)
---------- ---------- --------
Total $ 9,192,300 $ 8,346,500 $ 845,800
========== ========== ==========
</TABLE>
The increase in imaging and photographic chemical sales was due in part
to increased shipments to the photographic industry. The demand for certain
types of chemicals used in photographic films is expected to decrease during the
coming years as the market for film diminishes due in part to new digital
imaging technologies. Fairmount is aware of this possibility and is taking steps
to substitute new products that are used in making photographic paper and
increase its market share of existing products by broadening its customer base.
Sales of plastics additives decreased from $1,099,900 in the third
quarter of 1999 to $714,400 in the third quarter of 2000, a decrease of $385,500
or 35 %. For the nine months ended September 30, 2000, sales were $2,949,400
compared to $2,489,100, an increase of $460,300 or 18.5 %. The increase in the
sales amount is net of price decreases effective during the second half of 1999.
As in prior years, Fairmount expects the downward pressure on plastic additive
prices to continue.
The decrease in specialty chemicals was due in part to decreased
shipments of pharmaceutical intermediates. The demand for one of the
intermediates has decreased during the past few years, and Fairmount expects
that the trend will continue. Also, the demand for the newly introduced
specialty products has been delayed to the first half of 2001, due to delays by
Fairmount's customers.
12
<PAGE>
The decrease in hydrazine derivatives is due to the softening in that
market and customers consolidating. The Company does not believe that its
hydrazine derivative business will return to previous levels.
Each class of similar products contributed the following percentage of
total sales in each of the following periods:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Imaging & photographic chemicals 36.9% 18.5% 29.5% 19.6%
Hydrazine blends 19.5% 18.2% 18.8% 21.4%
Hydrazine derivatives 6.3% 11.1% 7.1% 10.5%
Plastic additives 26.9% 37.8% 32.1% 29.8%
Specialty chemicals 10.4% 14.4% 12.5% 18.7%
------ ------ ------ -----
100.0% 100.0% 100.0% 100.0%
====== ====== ====== =====
</TABLE>
The gross profit for the three months of September 30, 2000 was
$133,000, a decrease of $242,300 compared to the same period in 1999. As a
percent of sales the gross margin was 5.0 % compared to 12.9 % during 1999. This
decrease was due in part to lower sales volume and lower production in the
quarter ended September 30, 2000 compared to the same period in 1999.
The gross profit for the nine months ended September 30, 2000 was
$1,566,100, an increase of $305,400 or 24.2 % compared to 1999. As a percent of
gross sales, the gross margin during the first nine months of 2000 was 17.0 %
compared to 15.1 % during 1999. The increase in gross profit was in part due to
the increase in sales of imaging and photographic chemicals, which traditionally
have higher gross margins than the Company's other product lines and increased
sales of plastic additives. In addition to higher sales volume, higher
production had a positive impact on gross profit.
Research and development expenses increased by $2,700 in the quarter
ended September 30, 2000 compared to the same period in 1999. For the nine
months ended September 30, 2000 research and development expenses were $302,200
compared to $284,500 for the nine months ended September 30 1999, an increase of
$17,700.
Selling, general and administrative expenses increased by $22,600 in
the third quarter of 2000 compared to the same period in 1999. Selling expenses
decreased $6,700, and general and administrative expenses increased by $29,300
in the third quarter of 2000 compared to the third quarter of 1999. For the nine
months ended September 30, 2000 selling, general and administrative expenses
increased by $152,300 compared to the same period in 1999. Selling expenses
increased by $200 and general and administrative expenses increased by $152,100.
The Company recorded an operating loss of $451,700 in the three months
ended September 30, 2000 compared to an operating loss of $184,200 in 1999. For
the nine months ended September 30, 2000 the operating loss was $252,100
compared to a operating loss of $387,500 in the same period in 1999.
Interest expense was higher in the nine month period ended September
30, 2000 versus the same period in 1999, due to the increased interest rate on
the remaining debt owed to affiliated parties per the promissory note agreements
and increased other interest charges.
13
<PAGE>
During 2000, the Company received gross insurance proceeds of $333,100
as partial settlement of the property losses sustained from a fire on November
10, 1999. During 1999, Fairmount received gross insurance proceeds of $375,000,
for property losses sustained from the March 25, 1997 explosion.
During the quarter ended September 30, 2000 the Company recorded a
foreign exchange currency loss of approximately $54,500, which is included in
other expenses (income), net.
No provisions for income taxes have been recorded by the Company as a
result of net operating losses utilized. A valuation allowance has been recorded
at September 30, 2000 and 1999 for that portion of deferred tax assets, which
are not presently considered more likely than not to be realized.
Forward Looking Statements
This document contains forward-looking statements that involve risks
and uncertainties that could cause the results of Fairmount to differ materially
from those expressed or implied by such forward-looking statements. These risks
include the timely development, production and acceptance of new products and
services; competition; the flow of products into third-party distribution
channels; and other risks detailed from time to time in Fairmount's Securities
and Exchange Commission filings. The words "anticipates," "believes,"
"estimates," "expects," "intends," "will," and similar expressions, as they
relate to Fairmount or our management, may identify forward-looking statements.
Such statements reflect the current views of Fairmount with respect to future
events and are subject to certain risks, uncertainties and assumptions. Should
one or more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary from those described herein
as anticipated, believed, estimated or expected. Fairmount does not intend to
update these forward-looking statements.
14
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
-------------------------
During the quarter ended September 30, 2000, the Company settled the
bodily injury claim filed against the Company on December 2, 1998. The claim was
settled on July 20, 2000, for an immaterial amount. There were not other
material changes in the potential claims reported by the Company in its Annual
Report on Form 10-KSB in "Item 1. Business - Environmental Laws and Government
Regulations".
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
---------------------------------------------------------
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
----------------------------------------
(a) Exhibits
27.1 Financial Data Schedule
(b) No reports have been filed on Form 8-K during the quarter ended
September 30, 2000.
15
<PAGE>
FAIRMOUNT CHEMICAL CO., INC.
----------------------------
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FAIRMOUNT CHEMICAL CO., INC.
-------------------------------------
Registrant
NOVEMBER 13 , 2000 /S/ REIDAR HALLE
--------------------------- -------------------------------------
Date Reidar T. Halle
Chief Executive Officer &
President
NOVEMBER 13, 2000 /S/ WILLIAM C. KALTNECKER
------------------ ------------------------------------
Date William C. Kaltnecker
Controller
