<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 30,1997 COMMISSION FILE NO: 0-2172
------------ ------
THE FLAMEMASTER CORPORATION
------------------------------------------------------
(Exact name of Registrant as specified in its Charter)
NEVADA 95-2018730
-------------------------------- ----------------------------
(State or other jurisdiction of (IRS Employer identification
incorporation or organization) Number)
11120 SHERMAN WAY, SUN VALLEY, CALIFORNIA 91352
- ----------------------------------------------------------------------
(Address of Principal Executive Office)
Registrant's telephone number including area code: (818) 982-1650
--------------------
Registrant's facsimile number including area code: (818) 765-5603
--------------------
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
------------ -------------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
JUNE 30, 1997 1,312,818
---------------------------
<PAGE>
Item 1 Financial Information
Item 1 Financial Statements
THE FLAMEMASTER CORPORATION
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1997 1996
(UNAUDITED) (NOTE)
----------- -------------
<S> <C> <C>
ASSETS:
CURRENT ASSETS:
Cash and short-term investments $1,718,637 $1,355,770
Marketable securities 1,277,075 1,284,006
Accounts receivable, less allowance of
$5,000 and $5,000, respectively 494,379 303,016
Inventories 640,313 699,283
Other investments 46,287 -0-
Other current assets 47,580 32,726
Deferred income taxes 67,378 76,958
------ ------
TOTAL CURRENT ASSETS: 4,291,649 3,751,759
License agreement 125,097 137,607
Investment in affiliated companies 843,336 966,886
Equipment and improvements, net of
accumulated depreciation 39,044 44,246
---------- ----------
TOTAL ASSETS $5,299,126 $4,900,498
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Accounts payable $206,948 $81,688
Accrued liabilities 8,981 13,663
Income taxes payable 34,558 26,626
Deferred tax liability 7,910 59,671
Environmental reserve 71,782 100,000
Deferred income 91,364 20,124
------ ------
TOTAL CURRENT LIABILITIES: 421,543 301,772
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 6/30/97 and 9/30/96. 793 793
COMMON STOCK, par value, $.01 per share,
authorized 6,000,000 shares; issued and outstanding
1,312,818 shares at 6/30/97 and 1,246,463 shares
at 9/30/96. 13,128 12,464
Additional paid-in Capital 2,498,417 2,293,487
Retained earnings 2,384,961 2,300,089
Allowance for marketable securities (19,716) (8,107)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY $4,877,583 $4,598,726
---------- ----------
---------- ----------
TOTAL LIABILITY AND EQUITY $5,299,126 $4,900,498
---------- ----------
---------- ----------
</TABLE>
Note: Balance sheet as of September 30, 1996 has been derived from the audited
balance sheet at that date. See notes to condensed financial statements.
<PAGE>
Item 1 Financial Statements (continued)
THE FLAMEMASTER CORPORATION
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED JUNE 30,
----------------------------------
<TABLE>
<CAPTION>
1997 1996
--------- --------
<S> <C> <C>
Net sales and gross revenues $950,431 $963,711
--------- ---------
--------- ---------
Costs and expenses:
Cost of sales 449,600 535,032
Selling 69,209 73,801
General and administrative 151,864 140,689
Laboratory costs 62,182 55,268
Other, (income), expenses, net (70,943) (27,912)
--------- ---------
661,912 776,878
--------- ---------
Income before income taxes 288,519 186,833
Income taxes (2,064) (41,063)
--------- ---------
Net income $286,455 $145,770
--------- ---------
--------- ---------
Net income per share, primary $.21 $.10
---- ----
---- ----
Net income per share, fully diluted $.19 $.09
---- ----
---- ----
Weighted average shares outstanding:
Primary 1,300,514 1,290,216
--------- ---------
--------- ---------
Fully diluted 1,490,714 1,480,416
--------- ---------
--------- ---------
</TABLE>
See notes to condensed financial statements.
<PAGE>
Item 1 Financial Statements (continued)
THE FLAMEMASTER CORPORATION
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
NINE MONTHS ENDED JUNE 30,
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Net sales and gross revenues $2,562,552 $2,453,304
---------- ----------
---------- ----------
Costs and expenses:
Cost of sales 1,363,887 1,394,488
Selling 212,834 218,298
General and administrative 460,804 415,549
Laboratory costs 173,012 165,784
Other, (income), expenses, net (96,217) (153,097)
---------- ----------
2,114,320 2,041,022
---------- ----------
Income before income taxes 448,232 412,282
Income taxes (87,986) (102,383)
---------- ----------
Net income $360,246 $309,899
---------- ----------
---------- ----------
Net income per share, primary $.27 $.22
---- ----
---- ----
Net income per share, fully diluted $.25 $.21
---- ----
---- ----
Weighted average shares outstanding:
Primary 1,220,469 1,270,796
---------- ----------
---------- ----------
Fully diluted 1,410,669 1,460,996
---------- ----------
---------- ----------
</TABLE>
See notes to condensed financial statements.
<PAGE>
Item 1 Financial Statements (continued)
THE FLAMEMASTER CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Net cash provided (used) by operating activities: $435,227 $284,274
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to equipment & improvements 2,097 11,710
Net purchases and sales of investment
securities (4,678) (28,562)
---------- ----------
(2,581) (16,852)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of Company's common stock (79,440) (40,862)
Dividends paid (165,895) (146,077)
Issuance of common stock 175,556 9,312
---------- ----------
Net cash used in financing activities (69,779) (177,627)
---------- ----------
NET INCREASE, (DECREASE), IN CASH 362,867 89,795
---------- ----------
Cash, beginning of period $1,355,770 $1,301,225
---------- ----------
Cash, end of period $1,718,637 $1,391,020
---------- ----------
---------- ----------
Cash paid during period for income taxes $112,667 $72,785
---------- ----------
---------- ----------
</TABLE>
See notes to Condensed Financial Statements.
<PAGE>
Item 1 Financial Statements (continued)
THE FLAMEMASTER CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
Note 1: The accompanying unaudited condensed 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 nine months ended June 30, 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 thereto 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 June 30, 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
identification method.
<PAGE>
Item 1 Financial Statements (continued)
THE FLAMEMASTER CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
Note 2: Inventories are summarized as follows:
<TABLE>
<CAPTION>
June 30, September 30
1997 1996
-------- ------------
<S> <C> <C>
Raw materials $296,455 $312,765
Shipping materials 53,755 32,692
Finished goods 290,103 353,826
-------- --------
$640,313 $699,283
-------- --------
</TABLE>
Note 3: During the three months ended June 30, 1997, the Company purchased
5,800 shares of its outstanding common stock at a cost of $25,793.
Note 4: MARKETABLE SECURITIES:
Marketable securities classified as current assets at June 30,1997
include the following:
<TABLE>
<CAPTION>
Fair Value Cost
---------- ----------
<S> <C> <C>
U.S. Treasury obligations $420,730 $407,592
Corporate debt securities 25,621 22,575
Mortgage backed securities 2,696 3,051
Marketable equity securities 828,028 886,711
---------- ----------
$1,277,075 $1,319,929
The contractual maturities of debt
securities available for sale at
June 30, 1997 are as follows:
</TABLE>
<TABLE>
<CAPTION>
Fair Value Cost
---------- ----------
<S> <C> <C>
Due within one year $ -0- $ -0-
Due after one year thru 5 years 116,234 110,762
Due after 5 years thru 10 years 275,862 274,051
Due after 10 years 54,255 45,355
Note due at single maturity date 2,696 3,051
--------- ----------
$449,047 $433,219
</TABLE>
Gross unrealized holding gains and losses at June 30, were $90,671 and $133,526
respectively. Realized gains from the sale of securities for the nine months
ended June 30, were $11,962.
<PAGE>
THE FLAMEMASTER CORPORATION
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS:
JUNE 30, 1997 COMPARED TO SEPTEMBER 30, 1996 AND JUNE 30, 1997
COMPARED TO JUNE 30, 1996.
FINANCIAL CONDITION:
The Company's financial position is strong, current assets were
$4,291,649 compared to current liabilities of $421,543 at June 30,
1997 for a current ratio of 10 to 1. Working capital stood at
$3,870,106 on June 30, 1997, compared to $3,449,987 on September 30,
1996 and $3,461,929 on June 30, 1996, an increase of $408,177 over the
prior year. The increase is attributable to strong operating results,
investment income and the merger of the Dynamastic unit. Accounts
receivable increased to $494,379 at June 30, 1997 from $303,016 at
September 30, 1996 due to the steady growth in business. Inventories
decreased to $640,313 from $699,283 at year end as a result of
expediting small purchases. Net sales for the nine months were up
4.4% to $2,562,552 from $2,453,304 in the year earlier. The Company
benefited from new product 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 June 1997 and
its Board of Directors declared a $.035 dividend to be paid on,
September 18, 1997 to shareholders of record, August 18, 1997.
RESULTS OF OPERATIONS:
For the three months ended June 30, 1997 net income was $286,455
compared to $145,770 or $.21 per share vs. $.10 per share in the year
earlier period. The healthy increase in net was the result of strong
demand for the Company's new products which yield higher margins and
investment income. Cost of sales declined to 53.2% of sales for the
nine months ended June 30,1997 due to increase in sales of higher
margin products. Selling expense decreased modestly while general &
administrative expenses increased moderately.
<PAGE>
PART II OTHER INFORMATION
THE FLAMEMASTER CORPORATION
ITEM 4: SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
The Registrant's annual meeting was held on MAY 22,1997 and the
following Directors were re-elected:
Leon Gutowicz
Joseph Mazin
Donna Mazin
Sion Mazin
Bruce Stuart
Mr. Joseph Busschaert is deceased and Mr. Stuart Weinstein has been
elected for his replacement.
The Directors were elected by a vote of 998,720 or a total of 78.4%.
<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:
--------------------------------- ------------------------------------
(Signature)
Joseph Mazin, President and Chairman
and Chief Executive Officer
DATE:
--------------------------------- ------------------------------------
(Signature)
Barbara E. Waite, Treasurer and
Secretary
DATE:
--------------------------------- ------------------------------------
(Signature)
Donna Mazin, Director
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 1,718,637
<SECURITIES> 1,277,075
<RECEIVABLES> 499,379
<ALLOWANCES> 5,000
<INVENTORY> 640,313
<CURRENT-ASSETS> 4,291,649
<PP&E> 884,410
<DEPRECIATION> 845,366
<TOTAL-ASSETS> 5,299,126
<CURRENT-LIABILITIES> 421,543
<BONDS> 0
0
793
<COMMON> 13,128
<OTHER-SE> 4,863,662
<TOTAL-LIABILITY-AND-EQUITY> 5,299,126
<SALES> 2,552,282
<TOTAL-REVENUES> 2,562,552
<CGS> 1,363,887
<TOTAL-COSTS> 2,210,537
<OTHER-EXPENSES> (96,217)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 448,232
<INCOME-TAX> (87,986)
<INCOME-CONTINUING> 360,246
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 360,246
<EPS-PRIMARY> .27
<EPS-DILUTED> .25
</TABLE>
