<PAGE>
FORM 10 Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 or 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED: JUNE 30, 1996 COMMISSION FILE NO: 0-2172
THE FLAMEMASTER CORPORATION
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(Exact name of Registrant as specified in its Charter)
NEVADA 95-2018730
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(State or other jurisdiction of incorporation (IRS Employer identification
or organization) Number)
11120 SHERMAN WAY, SUN VALLEY, CALIFORNIA 91352
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(Address of Principal Executive Office)
Registrant's telephone number including area code: (818) 982-1650
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Registrant's facsimile number including area code: (818) 765-5603
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Indicate by check mark whether 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
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
JUNE 30, 1996 1,251,464
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Item 1 Financial Information
Item 1 Financial Statements
THE FLAMEMASTER CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, SEPTEMBER 30,
1996 1995
(UNAUDITED) (NOTE)
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CURRENT ASSETS:
Cash and short-term investments $1,391,020 $1,301,225
Marketable securities 1,203,340 1,225,664
Accounts receivable, less allowance of
$5,000 and $5,000, respectively 546,481 495,773
Inventories 675,488 593,991
Other current assets 36,816 37,015
Deferred income taxes 103,742 57,585
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TOTAL CURRENT ASSETS: 3,956,887 3,711,253
License agreement 119,976 154,287
Investment in affiliated companies 950,869 902,332
Equipment and improvements, net of
accumulated depreciation 40,592 52,302
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TOTAL ASSETS $5,068,324 $4,820,174
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable 210,770 $79,877
Accrued liabilities 14,968 15,659
Income taxes payable 68,858 37,195
Deferred tax liability 60,600 46,054
Enviromental reserve 100,000 100,000
Deferred credit -0- 22,576
Deferred income 39,762 26,833
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TOTAL CURRENT LIABILITIES: 494,958 328,194
SHAREHOLDERS' EQUITY
PREFERRED STOCK, par value,
$.01 per share, cumulative,
$.56 dividend, convertible, callable,
at $5.95, authorized 500,000 shares,
issued and outstanding 79,250 at
6/30/96 and 79,650 at 9/30/95 792 797
COMMON STOCK,par value, $.01 per share,
authorized 6,000,000 shares; issued and
outstanding 1,251,464 shares at 6/30,96
and 1,261,731 shares at 9/30/95 12,544 12,617
Additional paid in capital 2,299,910 2,318,504
Retained earnings 2,280,346 2,129,402
Allowance for marketable securities (20,226) 30,660
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TOTAL STOCKHOLDERS' EQUITY $4,573,366 $4,491,980
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TOTAL LIABILITY AND EQUITY $5,068,324 $4,820,174
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Note: Balance sheet as of September 30, 1995 has been derived from the audited
balance sheet at that date. See notes to condensed consolidated financial
statements.
<PAGE>
Item 1 Financial Statements (continued)
THE FLAMEMASTER CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED JUNE 30,
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1996 1995
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Net sales and gross revenues $963,711 $ 693,644
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Costs and expenses:
Cost of sales 535,032 363,011
Selling 73,801 72,495
General and administrative 140,689 169,296
Laboratory costs 55,268 54,163
Other, (income), expenses, net (27,912) (38,429)
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776,878 620,536
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Income before income taxes 186,833 73,108
Income taxes (41,063) (30,309)
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Net income $145,770 $42,799
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Net income per share, primary $.10 $.03
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Net income per share, fully diluted $.09 $.03
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Weighted average shares outstanding:
Primary 1,290,216 1,274,687
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Fully diluted 1,480,416 1,465,847
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See notes to condensed consolidated financial statements.
<PAGE>
Item 1 Financial Statements (continued)
THE FLAMEMASTER CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
NINE MONTHS ENDED JUNE 30,
--------------------------
1996 1995
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Net sales and gross revenues: $2,453,304 $2,140,461
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Costs and expenses:
Cost of sales 1,394,488 1,145,171
Selling 218,298 214,285
General and adminstrative 415,549 493,530
Laboratory costs 165,784 160,147
Other, (income), expenses, net (153,097) (90,414)
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2,041,022 1,922,719
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Income before income taxes 412,282 217,742
Income taxes (102,383) (94,872)
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Net income $309,899 $122,870
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Net income per share, primary $.22 $.08
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Net income per share,fully diluted $.21
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Weighted average shares outstanding:
Primary 1,270,796 1,281,350
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Fully diluted 1,460,996 1,472,510
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See notes to condensed consolidated financial statements.
<PAGE>
Item 1 Financial Statements (continued)
THE FLAMEMASTER CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED JUNE 30, 1996
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1996 1995
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Net cash provided by operating activities: $284,274 $241,444
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CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to equipment & improvements 11,710
Net purchases and sales of investment
securities (28,562) (187,143)
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(16,852) (187,143)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of Company's common stock (40,862) (45,826)
Dividends paid (146,077) (147,296)
Dividends returned -0- 65,624
Issuance of common stock 9,312 11,470
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Net cash used in financing activities (177,627) (116,028)
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NET INCREASE, (DECREASE), IN CASH 89,795 (61,727)
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Cash, beginning of period $1,301,225 $1,396,592
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Cash, end of period $1,391,020 $1,334,865
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Cash paid during period for income taxes $72,785 $61,727
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See notes to condensed consolidated financial statements.
<PAGE>
Item 1 Financial Statements (continued)
THE FLAMEMASTER CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1: The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with general accepted accounting
principles for interim financial information and with the instructions
to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal
recurring accruals),considered necessary for a fair presentation have
been included.Operating results for the nine months ended June 30,
1996 are notnecessarily indicative of the results that may be expected
for the year ending September 30, 1996. For further information,
refer to the consolidated financial statements and footnotes thereto
included in the Company's annual report on Form 10-K for the year
ended September 30,1995.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVESTMENT IN DEBT AND EQUITY SECURITIES
The Company adopted Statement of Financial Accounting Standards No:115
("SFAS No: 115"), Accounting for Certain investments in Debt and
Equity Securities, effective January 1, 1995.
Management determines the approriate classification of its
investments in debt and equity securities at the time of purchase and
reevaluates such determination at each balance sheet date. Debt
securities for which the Company does not have the intent or ability
to hold to maturity are classified as available for sale, along with
the Company's investment in equity securities. Securities available
for sale are carried at fair value, with the unrealized gains and
losses reported in a separate component of shareholders' equity, net
of income taxes, until realized. At June 30, 1996 the Company had no
investments that qualified as trading or held to maturity.
The amortized cost of zero-coupon debt securities classified as
available for sale is adjusted for accretion of discounts to maturity.
Such amortization and interest are included in interest income.
Realized gains and losses are included in other income or expense.
The cost of securities sold is based on specific indentification
method.
<PAGE>
Item 1 Financial Statements (continued)
THE FLAMEMASTER CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 2: Inventories are summarized as follows:
June 30, September 30,
1996 1995
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Raw materials $328,150 $268,142
Shipping materials 31,746 32,566
Finished Goods 315,592 293,283
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$675,488 $593,991
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Note 3: During the nine months ended June 30, 1996, the Company purchased
13,265 shares of its outstanding common stock at a cost of $37,084.
Note 4: MARKETABLE SECURITIES:
Marketable securities classified as current assets at June 30, 1996
include the following:
Fair Value Cost
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U.S.Treasury obligations $388,418 $380,753
Corporate debt securities 25,925 21,439
Mortgage backed securities 2,823 3,186
Marketable equity securities 786,174 844,048
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$1,203,340 $1,249,426
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The contractual maturities of debt
securities available for sale at
June 30, 1996 are as follows:
Fair Value Cost
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Due within one year $ -0- $ -0-
Due after one year thru 5 years 108,553 102,483
Due after 5 years thru 10 years 256,311 257,904
Due after ten years 49,479 41,805
Note due at single maturity date 2,823 3,186
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$417,166 $405,378
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Gross unrealized holding gains and losses at June 30, 1996 were $85,454 and
$131,540, respectively.
<PAGE>
THE FLAMEMASTER CORPORATION AND SUBSIDIARY
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS:
JUNE 30, 1996 COMPARED TO SEPTEMBER 30, 1995 AND
JUNE 30, 1996 COMPARED TO JUNE 30, 1995
FINANCIAL CONDITION
The Company continues to maintain a strong financial position. Current
assets were $3,956,887 compared to current liabilities of $494,958 at
June 30, 1996 for a current ratio of about 8 to 1. Working capital stood
$3,461,929 on June 30, 1996 compared to $3,383,059 on September
30,1995 and $3,239,519 on June 30, 1995, an increase of $222,410
over the prior year. The increase is attributable to operating and
investment income.
Accounts receivable increased moderately to $546,481 at June 30,1996
from $495,773 at September 30, 1995 due to the growth in sales volume.
Inventories increased to $675,488 from $593,991 at year end as a
result of increase in orders.
Net sales for the nine months were up by 14.6% to $2,453,304 from
$2,140,461 in the year earlier. The Company benefited from an upturn
in areospace business and from introduction of new products.
Management believes that future working capital requirements will be
provided primarily from operations and that the Company's liquidity and
working capital requirements are adequate for the foreseeable future.
Management believes that the Company's creditworthiness is substantial
relative to its size.
The Company paid a $.03 dividend on its common stock in June 1996 and
the Board of Directors declared a regular $.03 dividend to be paid
September 27, 1996 to shareholders of record September 5, 1996.
RESULTS OF OPERATIONS:
For the three months ended June 30, 1996 net income expanded to
$145,770 from $42,799 a more than 340% increase from the prior
year period. Per share income increased to $.10 for the quarter ended
June 30, 1996 compared to $.03 a year earlier.
Sales for the three months grew to $963,711 from $693,644 a more than
38.9% increase from the year before. Cost of sales for the nine months
ended June 30, 1996 rose slightly to 56.85% of sales. Selling expense
decreased modestly as a percentage of sales, while general and
administrative expenses decreased significantly to $415,549 from
$493,530 for the nine month period due to a reduction in legal expense.
<PAGE>
SIGNATURES:
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 hereunto duly authorized.
THE FLAMEMASTER CORPORATION
(Registrant)
DATE:
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(Signature)
Joseph Mazin, President and Chairman
and Chief Executive Officer
DATE:
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(Signature)
Barbara E. Waite, Treasurer and
Assistant Secretary
DATE:
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(Signature)
Donna Mazin, Director
<TABLE> <S> <C>
<PAGE>
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<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-1-1995
<PERIOD-END> JUN-30-1996
<CASH> 1,391,020
<SECURITIES> 1,203,340
<RECEIVABLES> 551,481
<ALLOWANCES> 5,000
<INVENTORY> 675,488
<CURRENT-ASSETS> 3,956,887
<PP&E> 876,518
<DEPRECIATION> 835,926
<TOTAL-ASSETS> 5,068,324
<CURRENT-LIABILITIES> 494,958
<BONDS> 0
0
792
<COMMON> 12,544
<OTHER-SE> 4,580,256
<TOTAL-LIABILITY-AND-EQUITY> 5,068,324
<SALES> 2,439,126
<TOTAL-REVENUES> 2,453,304
<CGS> 1,394,488
<TOTAL-COSTS> 799,631
<OTHER-EXPENSES> 21,494
<LOSS-PROVISION> 20,226
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 412,282
<INCOME-TAX> 102,383
<INCOME-CONTINUING> 309,899
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 309,899
<EPS-PRIMARY> .22
<EPS-DILUTED> .21
</TABLE>
