<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: MARCH 31,1997 COMMISSION FILE NO: 0-2172
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THE FLAMEMASTER CORPORATION
---------------------------
(Exact name of Registrant as specified in its Charter)
NEVADA 95-2018730
- ---------------------- -------------------------
(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:
March 31, 1997 1,236,656
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<PAGE>
Item 1 Financial Information
Item 1 Financial Statements
THE FLAMEMASTER CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, September 30,
1997 1996
(Unaudited) (Note)
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and short-term investments $1,286,798 $1,355,770
Marketable securities 1,283,915 1,284,006
Accounts receivable, less allowance of
$5,000 and $5,000, respectively 429,302 303,016
Inventories 591,679 699,283
Other investments 41,646 -0-
Other current assets 25,158 32,726
Deferred income taxes 79,149 76,958
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TOTAL CURRENT ASSETS: 3,737,647 3,751,759
License agreement 129,267 137,607
Investment in affiliated companies 986,083 966,886
Equipment and improvements, net of
accumulated depreciation 43,051 44,246
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TOTAL ASSETS $4,896,048 $4,900,498
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LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Accounts payable $79,310 $81,688
Accrued liabilities 12,332 13,663
Income taxes payable 41,794 26,626
Deferred tax liability 67,645 59,671
Environmental reserve 110,000 100,000
Deferred income 16,770 20,124
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TOTAL CURRENT LIABILITIES: 327,851 301,772
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 3/31/97 and 9/30/96. 793 793
COMMON STOCK, par value, $.01 per share,
authorized 6,000,000 shares; issued and outstanding
1,236,656 shares at 3/31/97 and 1,246,463 shares
at 9/30/96. 12,366 12,464
Additional paid-in Capital 2,275,440 2,293,487
Retained earnings 2,301,023 2,300,089
Allowance for marketable securities (21,425) (8,107)
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TOTAL STOCKHOLDERS' EQUITY $4,568,197 $4,598,726
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TOTAL LIABILITY AND EQUITY $4,896,048 $4,900,498
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</TABLE>
Note: Balance sheet as of September 30, 1996 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 MARCH 31,
--------------------------------
1997 1996
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Net sales and gross revenues $875,143 $746,286
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Costs and expenses:
Cost of sales 465,382 422,764
Selling 70,001 74,694
General and administrative 161,171 124,679
Laboratory costs 56,095 57,148
Other, (income), expenses, net (57,909) (85,218)
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694,740 594,067
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Income before income taxes 180,403 152,219
Income taxes (70,868) (36,549)
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Net income $109,535 $115,670
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Net income per share, primary $.09 $.09
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Weighted average shares outstanding:
Primary 1,284,241 1,250,729
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Fully diluted 1,474,441 1,262,093
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The results of the fully diluted earnings per share computation is anti-
dilutive.
See notes to condensed consolidated financial statements.
<PAGE>
Item 1 Financial Statements (continued)
THE FLAMEMASTER CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
SIX MONTHS ENDED MARCH 31,
1997 1996
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Net sales and gross revenues $1,612,121 $1,489,593
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Costs and expenses:
Cost of sales 914,287 859,456
Selling 143,625 144,497
General and administrative 308,950 274,860
Laboratory costs 110,830 110,516
Other, (income), expenses, net (91,817) (124,107)
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1,385,875 1,265,222
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Income before income taxes 226,246 224,371
Income taxes (90,050) (56,123)
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Net income $136,196 $168,248
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Net income per share, primary $.10 $.12
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Weighted average shares outstanding:
Primary 1,275,403 1,263,886
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Fully diluted 1,465,603 1,454,086
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The results of the fully diluted earnings per share computation is anti-
dilutive.
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)
SIX MONTHS ENDED MARCH 31, 1997
1997 1996
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Net cash provided (used) by operating activities: $57,403 $222,004
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CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to equipment & improvements (8,814) -
Net purchases and sales of investment
securities 35,773 (35,301)
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26,959 (35,301)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of Company's common stock (44,293) (39,461)
Dividends paid (109,041) (97,439)
Issuance of common stock - 6,000
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Net cash used in financing activities (153,334) (130,900)
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NET INCREASE, (DECREASE), IN CASH $(68,972) $55,803
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Cash, beginning of period $1,355,770 $1,301,225
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Cash, end of period $1,286,798 $1,357,028
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Cash paid during period for income taxes $40,000 $41,750
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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 prepaid 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 six months ended March 31, 1997 are not necessarily indicative of
the results that may be expected for the year ending September 30,
1997. For further information, refer to the consolidated financial
statements and footnotes threto included in the Company's annual
report on Form 10-K for the year ended September 30, 1996.
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 appropriate 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 March 31, 1997 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 CONSOLIIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 2: Inventories are summarized as follows:
March 31 September 30
1997 1996
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Raw materials $283,183 $312,765
Shipping materials 31,489 32,692
Finished goods 277,007 353,826
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$591,679 $699,283
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Note 3: During the three months ended March 31, 1997, the Company purchased
4,518 shares of its outstanding common stock at a cost of $22,295.
Note 4: For the six month period ended March 31,1997 assumed conversion of
preferred stock is anti-dilutive. Therefore, fully diluted earnings
per share are not presented for the period.
Note 5: MARKETABLE SECURITIES:
Marketable securities classified as current assets at March 31,1997
include the following:
Fair Value Cost
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U.S.Treasury obligations $403,775 $400,851
Corporate debt securities 26,292 22,576
Mortgage backed securities 2,757 3,112
Marketable equity securities 851,091 902,894
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$1,283,915 $1,329,433
The contractual maturities of debt
securities available for sale at
March 31, 1997 are as follows:
Fair Value Cost
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Due within one year $ -0- $ -0-
Due after one year thru 5 years 113,371 108,684
Due after 5 years thru 10 years 265,458 270,282
Due after 10 years 51,238 44,461
Note due at single maturity date 2,759 3,112
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$432,826 $426,539
Gross unrealized holding gains and losses at March 31, were $90,956 and
$136,474, respectively. Realized gains from the sale of securities for the six
months ended March 31, were $5,767.
<PAGE>
THE FLAMEMASTER CORPORATION AND SUBSIDIARY
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS:
MARCH 31, 1997 COMPARED TO SEPTEMBER 30, 1996 AND
MARCH 31, 1997 COMPARED TO MARCH 31, 1996.
FINANCIAL CONDITION:
The Company's financial position is strong, current assets were
$3,737,647 compared to current liabilities of $327,851 at March 31,
1997 for a current ratio of 11.4 to 1. Working capital stood at
$3,409,796 on March 31, 1997 compared to $3,449,987 on September 30,
1996. The modest decrease is attribututable to stock buyback and
dividends. Accounts receivable increased to $429,302 at March 31,
1997 from $303,016 at September 30, 1996 due to the growth in sales
volume. Inventories declined moderately to $591,679 from $699,283
at year end due to expediting of orders. Net sales for the three
months were up $128,857 or 17.3% over prior year's quarter, while
sales for the six months were up $122,528 or 8.2% over the six month
period ended March 31, 1996. The Company benefited from new products
introductions.
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 forseeable
future. Management believes that the Company's creditworthiness is
substantial relative to its size. The Company paid a $.035 dividend on
its common stock in March 1997 and its Board of Directors declared a
$.035 dividend to be paid on , June 18,1997 to shareholders of record,
May 15, 1997.
RESULTS OF OPERATIONS:
For the three months ended March 31, 1997 net income was $109,535
compared to $115,670 or $.09 per share vs. $.09 per share in the year
earlier period. The slight decline in net was the result of higher
income tax provision. Cost of sales for the three months declined to
53.2% of sales from 56.7% as a result of increase in sales of higher
margin products. Selling expense decreased as a percentage of sales
due to expanded volume of business. Laboratory costs remained steady
both for the three months and for the six month periods ended March
31,1997. General and administrative expenses increased for both the
three months and six month periods due to increase in legal expenses
and additional reserve of environmental litigation settlement.
<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: May 14, 1997 /s/ Joseph Mazin
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(Signature)
Joseph Mazin, President and Chairman
and Chief Executive Officer
DATE: May 14, 1997 /s/ Barbara E. Waite
------------------------------ -------------------------------
(Signature)
Barbara E. Waite, Treasurer and
Assistant Secretary
DATE: May 14, 1997 /s/ Donna Mazin
------------------------------ -------------------------------
(Signature)
Donna Mazin, Director
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 1,286,798
<SECURITIES> 1,283,915
<RECEIVABLES> 434,302
<ALLOWANCES> 5,000
<INVENTORY> 591,679
<CURRENT-ASSETS> 3,737,647
<PP&E> 895,321
<DEPRECIATION> 852,270
<TOTAL-ASSETS> 4,896,048
<CURRENT-LIABILITIES> 327,851
<BONDS> 0
0
793
<COMMON> 12,366
<OTHER-SE> 4,555,038
<TOTAL-LIABILITY-AND-EQUITY> 4,896,048
<SALES> 1,607,862
<TOTAL-REVENUES> 1,612,121
<CGS> 914,287
<TOTAL-COSTS> 1,477,692
<OTHER-EXPENSES> (91,817)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 226,246
<INCOME-TAX> 90,050
<INCOME-CONTINUING> 136,196
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 136,196
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
</TABLE>
