<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: DECEMBER 31, 1996 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
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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:
December 31, 1996 1,241,174
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Item 1 Financial Information
Item 1 Financial Statements
THE FLAMEMASTER CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
DECEMBER 31, SEPTEMBER 30,
1996 1996
(UNAUDITED) (NOTE)
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CURRENT ASSETS:
Cash and short-term investments $1,239,203 $1,355,770
Marketable securities 1,301,327 1,284,006
Accounts receivable, less allowance of
$5,000 and $5,000, respectively 399,597 303,016
Inventories 641,041 699,283
Other current assets 32,745 32,726
Deferred income taxes 73,293 76,958
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TOTAL CURRENT ASSETS: 3,687,206 3,751,759
License agreement 133,437 137,607
Investment in affiliated companies 974,228 966,886
Equipment and improvements, net of
accumulated depreciation 39,430 44,246
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TOTAL ASSETS $4,834,301 $4,900,498
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LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Accounts payable $59,826 $81,688
Accrued liabilities 15,788 13,663
Income taxes payable 10,585 26,626
Deferred tax liability 62,129 59,671
Environmental reserve 110,000 100,000
Deferred income 18,447 20,124
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TOTAL CURRENT LIABILITIES: 276,775 301,772
SHAREHOLDERS' EQUITY
PREFERRED STOCK,par value,$.01 per share,
cumulative,$.56 dividend, convertible,callable,
at $5.95, authorized 500,000 shares, issued and
outstanding 79,250 at 12/31/96 and 9/30/96. 793 793
COMMON STOCK, par value,$.01 per share,
authorized 6,000,000 shares; issued and outstanding
1,241,174 shares at 12/31/96 and 1,246,463 shares
at 9/30/96. 12,411 12,464
Additional paid-in Capital 2,283,752 2,293,487
Retained earnings 2,259,915 2,300,089
Allowance for marketable securities 655 (8,107)
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TOTAL STOCKHOLDERS' EQUITY $4,557,526 $4,598,726
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TOTAL LIABILITY AND EQUITY $4,834,301 $4,900,498
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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 DECEMBER 31,
------------------------------------
1996 1995
---- ----
Net sales and gross revenues $736,978 $743,306
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Costs and expenses:
Cost of sales 448,905 436,692
Selling 73,624 69,803
General and administrative 147,779 150,181
Laboratory costs 54,735 53,368
Other, (income), expenses, net (33,908) (38,701)
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691,135 671,343
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Income before income taxes 45,843 71,963
Income taxes (19,182) (19,574)
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Net income $26,661 $52,389
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Net income per share, primary $.01 $.03
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---- ----
Weighted average shares outstanding:
Primary 1,266,516 1,254,286
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Fully diluted 1,456,716 1,445,446
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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)
THREE MONTHS ENDED DECEMBER 31,
1996 1995
---- ----
Net cash provided (used) by operating activities: $(31,385) $174,212
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CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to equipment & improvements -
Net purchases and sales of investment
securities (8,560) 14,172
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(8,560) 14,172
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CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of Company's common stock (21,998) (36,585)
Dividends paid (54,624) (48,774)
Issuance of common stock - 3,000
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Net cash used in financing activities (76,622) (82,359)
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NET INCREASE, (DECREASE), IN CASH (116,567) 106,025
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Cash, beginning of period $1,355,770 $1,301,225
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Cash, end of period $1,239,203 $1,407,250
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Cash paid during period for income taxes $29,100 $29,750
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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 three months ended December 31,1996
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 December 31, 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 identification 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:
December 31, September 30,
1996 1996
---- ----
Raw materials $293,039 $312,765
Shipping materials 28,723 32,692
Finished goods 319,279 353,826
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$641,041 $699,283
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Note 3: During the three months ended December 31, 1996, the Company purchased
5,290 shares of its outstanding common stock at a cost of $21,998.
Note 4: For the three month period ended December 31, 1996, 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 December 31,
1996 include the following:
Fair Value Cost
---------- ----
U.S. Treasury obligations $409,692 $394,111
Corporate debt securities 23,380 22,576
Mortgage backed securities 2,786 3,133
Marketable equity securities 865,469 904,944
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$1,301,327 $1,324,764
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The contractual maturities of debt
securities available for sale at
December 31,1996 are as follows:
Fair Value Cost
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Due within one year $ - $ -
Due after one year thru 5 years 113,091 106,603
Due after 5 years thru 10 years 267,090 266,517
Due after 10 years 52,892 43,567
Note due at single maturity date 2,786 3,153
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$435,859 $419,840
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Gross unrealized holding gains and losses at December 31, 1996 were $96,592
and $122,485, respectively. Realized gains from the sale of securities for the
three months ended December 31, 1996 were $6,060.
<PAGE>
THE FLAMEMASTER CORPORATION AND SUBSIDIARY
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS:
DECEMBER 31, 1996 COMPARED TO SEPTEMBER 30, 1996 AND
DECEMBER 31, 1996 COMPARED TO DECEMBER 31, 1995.
FINANCIAL CONDITION:
The Company's financial condition is strong. Current assets were
$3,687,206 compared to current liabilities of $276,775 at December 31,
1996 for a current ratio of better than 13.3 to 1. Working capital
stood at $3,410,431 on December 31, 1996 compared to $3,449,987 on
September 30, 1996. The modest change in working capital is not
significant.
Accounts receivable increased to $399,597 on December 31,
1996 from $303,016 on September 30, 1996. The increase is
attributable to an increase in orders in December. Inventories were
$641,041 down moderately from $699,263 on September 30, 1996, again
due to increase in orders and shipments. Net sales for the three
months ended December 31, 1996 remained steady at $736,978 from
$743,306 in the prior year.
The Company is experiencing an upturn in inquiries and orders for
future delivery.
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 December
1996 and its Board of Directors declared a $.035 dividend to be paid
on March 12, 1997 to shareholders of record, February 25, 1997.
RESULTS OF OPERATIONS:
For the three months ended December 31, 1996 net income declined to
$26,661 from $52,389 in the year earlier period. The decline in net
was due to several factors, including higher start up costs for some
of the newer products, higher freight costs and moderately higher
selling and marketing costs. Selling prices are expected to rise to
offset these higher expenses. Per share income declined to $.01 for
the quarter compared to $.03 in the year earlier. Sales for the three
months declined slightly to $736,978 from $743,306 the year before.
Cost of sales for the quarter increased to $448,905 or 60% of sales
from $436,692 or 58.75% of sales. Management anticipates that
increased selling prices will offset higher operating costs.
<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
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(Registrant)
DATE: 2-3-97 /s/ Joseph Mazin
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(Signature)
Joseph Mazin, President and Chairman
and Chief Executive Officer
DATE: 2-3-97 /s/ Barbara E. Waite
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(Signature)
Barbara E. Waite, Treasurer and
Assistant Secretary
DATE: 2-3-97 /s/ Donna Mazin
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(Signature)
Donna Mazin, Director
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,239,203
<SECURITIES> 1,301,327
<RECEIVABLES> 404,597
<ALLOWANCES> 5,000
<INVENTORY> 641,041
<CURRENT-ASSETS> 3,687,206
<PP&E> 886,077
<DEPRECIATION> 847,077
<TOTAL-ASSETS> 4,834,301
<CURRENT-LIABILITIES> 276,775
<BONDS> 0
0
793
<COMMON> 12,411
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 4,834,301
<SALES> 635,288
<TOTAL-REVENUES> 736,978
<CGS> 448,905
<TOTAL-COSTS> 276,138
<OTHER-EXPENSES> (33,908)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 45,843
<INCOME-TAX> 19,182
<INCOME-CONTINUING> 26,661
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 26,661
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
