<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, 1998 COMMISSION FILE NO: 0-2172
THE FLAMEMASTER CORPORATION
---------------------------
(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
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
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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:
APRIL 10, 1998 1,652,710
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<PAGE>
Item 1 Financial Information
Item 1 Financial Statements
THE FLAMEMASTER CORPORATION
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30 September 30
1998 1997
(Unaudited) (Note)
----------- ------------
<S> <C> <C>
A S S E T S :
CURRENT ASSETS :
Cash and short-term investment $1,581,854 $1,375,947
Marketable securities 2,206,915 2,172,740
Accounts receivable, less allowance of
$5,000 and $5,000, respectively 439,216 451,908
Inventories 586,259 660,289
Prepaid expenses & other assets 221,492 36,986
Other investments 46,287 46,287
Deferred income taxes 54,975 49,432
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TOTAL CURRENT ASSETS: 5,136,998 4,793,589
License agreement 108,417 120,927
Equipment and improvements, net of
accumulated depreciation 30,074 36,869
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TOTAL ASSETS $5,275,489 $4,951,385
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LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Accounts payable $81,696 $95,216
Accrued liabilities 8,705 9,686
Income taxes payable 125,708 (63,347)
Deferred tax liability 41,943 57,670
Environmental reserve 7,073 53,135
Deferred credits 37,702 37,702
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TOTAL CURRENT LIABILITIES: 302,827 190,062
Long-Term debt 376,656 -
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TOTAL LIABILITIES 679,483 190,062
SHAREHOLDERS' EQUITY
PREFERRED STOCK,par value,$.01 per share,
cumulative,$.56 dividend, convertible,callable,
at $5.95, authorized 500,000 shares, issued and
outstanding, zero at 6/30/98 and 68,250 at 9/30/97 -0- 682
COMMON STOCK,par value,$.01 per share,
authorized 6,000,000 shares; issued and outstanding
1,652,710 shares at 6/30/98 and 1,567,066 shares
at 9/30/97. 13,779 13,064
Additional paid-in Capital 2,276,800 2,538,088
Retained earnings 2,407,077 2,236,753
Allowance for marketable securities (101,650) (27,264)
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TOTAL STOCKHOLDERS' EQUITY $4,596,006 $4,761,323
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TOTAL LIABILITY AND EQUITY $5,275,489 $4,951,385
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</TABLE>
Note: Balance sheet as of September 30, 1997 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>
1998 1997
---- ----
<S> <C> <C>
Net sales and gross revenues $927,550 $950,431
--------- ---------
--------- ---------
Costs and expenses:
Cost of sales 508,365 449,600
Selling 68,209 69,209
General and administrative 146,998 151,864
Laboratory costs 66,094 62,182
Other, (income), expenses, net (37,556) (70,943)
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752,110 661,912
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Income before income taxes 175,440 288,519
Income taxes (9,471) (2,064)
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Net income $165,969 $286,455
--------- ---------
--------- ---------
Net income per share, primary $.10 $.18
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--------- ---------
Net income per share, fully diluted $.09 $.16
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Weighted average shares outstanding:
Basic 1,652,785 1,552,906
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--------- ---------
Diluted 1,769,172 1,743,106
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</TABLE>
See notes to condensed financial statements.
<PAGE>
Item 1 Financial Statements (continued)
THE FLAMEMASTER CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME(UNAUDITED)
NINE MONTHS ENDED JUNE 30, 1998
------------------------------
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Net sales and gross revenues $2,866,323 $2,562,552
---------- ----------
---------- ----------
Costs and expenses:
Cost of sales 1,505,963 1,363,887
Selling 209,223 212,834
General and administrative 452,065 460,804
Laboratory costs 188,191 173,012
Other, (income), expenses, net (85,103) (96,217)
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2,270,339 2,114,320
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Income before income taxes 595,984 448,232
Income taxes (167,784) (87,986)
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Net income $428,200 $360,246
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---------- ----------
Net income per share, basic $.26 $.21
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Net income per share, diluted $.25 $.21
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Weighted average shares outstanding:
Basic 1,627,563 1,532,952
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---------- ----------
Diluted 1,743,950 1,723,152
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</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
Item 1 Financial Statements (continued)
THE FLAMEMASTER CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Net cash provided (used) by operating activities: $494,465 $435,227
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CASH FLOWS FROM INVESTING ACTIVITIES:
Disposal of equipment & improvements 2,396 2,097
Net purchases and sales of investment
securities (101,061) (4,678)
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NET CASH USED IN INVESTING ACTIVITIES: (98,665) (2,581)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of Company's Preferred Stock (42,998) -0-
Purchase of Company's Common Stock (14,430) (79,440)
Dividends paid (149,226) (165,895)
Issuance of common stock 16,761 175,556
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Net cash used in financing activities (189,893) (69,779)
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NET INCREASE, (DECREASE), IN CASH $205,907 $362,867
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Cash, beginning of period $1,375,947 $1,355,770
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Cash, end of period $1,581,854 $1,718,637
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---------- ----------
Cash paid during period for income taxes $180,000 $112,667
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</TABLE>
See notes to Condensed Financial Statements.
<PAGE>
Item 1 Financial Statements (continued)
THE FLAMEMASTER CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1: FORWARD-LOOKING AND CAUTIONARY STATEMENTS
The Company and its representatives may from time to time make written or
oral forward-looking statements, including statements contained in the Company's
filings with the Securities and Exchange Commission and in its reports to
stockholders. In connection with the "safe habor" provisions of the Private
Securities Litigation Reform Act of 1995, the Company is hereby indentifying
information that is forward-looking, including , without limitation, statements
regarding the Company's future financial performance, the effect of government
regulations, national and local economic conditions, the competitive environment
in which the Company operates, results or success of discussions with other
entitities on mergers, acquisitions, or alliance possibilities and expansion of
product offerings. Actual results may differ materially from those described in
the forward-looking statement. The Company cautions that the foregoing list of
important factors is not exclusivie. The Company does not undertake to update
any forward-looking statement that may be made from time to time by or on behalf
of the Company.
<PAGE>
Item 1 Financial Statements (continued)
THE FLAMEMASTER CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1998
Note 2: The accompanying unaudited condensed financial statements
have been prepaid in accordance with generally 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, 1998, are not necessarily indicative
of the results that may be expected for the year ending September 30,
1998. 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, 1997.
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, 1998 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
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1998
Note 3: Inventories are summarized as follows:
<TABLE>
<CAPTION>
June 30, September 30
1998 1997
---- ----
<S> <C> <C>
Raw materials $246,753 $269,518
Shipping materials 49,661 58,897
Finished goods 289,845 331,874
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$586,259 $660,289
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</TABLE>
Note 4: During the three months ended June 30,1998 , the Company did not
purchase any of its outstanding common stock.
Note 5: MARKETABLE SECURITIES:
Marketable securities classified as current assets at June 30, 1998
include the following:
<TABLE>
<CAPTION>
Fair Value Cost
---------- ----
<S> <C> <C>
Other Govt Bonds $56,870 $57,238
U.S.Treasury obligations 466,462 436,746
Corporate debt securities 47,933 42,589
Mortgage backed securities 2,038 2,365
Marketable equity securities 1,633,613 1,783,857
--------- ---------
$2,206,916 $2,322,795
</TABLE>
The contractual maturities of debt
securities available for sale at
June 30, 1998 are as follows:
<TABLE>
<CAPTION>
Fair Value Cost
---------- ----
<S> <C> <C>
Due within one year $ -0- $ -0-
Due after one year thru 5 years 204,064 197,143
Due after 5 years thru 10 years 300,606 272,185
Due after 10 years 56,870 57,238
Note due at single maturity date 2,038 2,365
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$563,578 $528,931
</TABLE>
Gross unrealized holding gains and losses at June 30, were $180,577 and
$296,456 respectively. Net realized gains from the sale of securities for
the three months ended June 30, were $7,021.
<PAGE>
THE FLAMEMASTER CORPORATION
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS:
JUNE 30, 1998 COMPARED TO SEPTEMBER 30, 1997 AND
JUNE 30, 1998 COMPARED TO JUNE 30, 1997.
FINANCIAL CONDITION:
The Company's financial condition is strong, current assets were
$5,136,998 compared to current liabilities of $302,827 at June 30,
1998 for a current ratio of about 17 to 1. Working capital stood at
$4,834,171 on June 30, 1998 compared to $4,603,527 on September 30,
1997. The increase is attributable to the Company's strong financial
performance. Accounts receivable declined slightly to $439,216 from
$451,908 at September 30, 1997 due to strong collection efforts.
Inventories declined to $586,259 from $660,289 at year end due to
quicker turn around time. Revenues for the three months declined
slightly to $927,550 from $950,431 in the previous year's quarter due
to expanded sales of lower priced items. For the nine months sales
increased to $2,866,323 from $2,562,552 in the prior year's period.
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 cash dividend in July 1998 up from an adjusted
$.028 cash dividend paid in March 1998, a 20% stock dividend was paid
April 9, 1998.
RESULTS OF OPERATIONS:
For the three months ended June 30, 1998 net income was $165,969
compared to $286,455 in the prior year, the decline in net income was
due to sales of lower margin products. Per share net income basic was
$.10 vs $.18 in the year earlier and diluted $.09 vs $.16.
For the nine months ended June 30, 1998 net income was $428,200 vs
$360,246 for the June 30, 1997 period, while per share earnings basic
expanded to $.26 from $.21.
For the three month period cost of sales expanded due to sales of
lower margin products and a modest increase in some raw materials and
freight charges. Selling expense remained steady while general and
administrative costs declined slightly. Laboratory costs including
research and development for the quarter increased to $66,094 from
$62,182 in the previous year.
For the nine month period cost of sales decreased to 52.5% of sales
from $53.2% of sales in the June 30, 1997 period, while general &
administrative expenses declined to 15.77% from 17.98% in the year
earlier due to greater efficiency as well as growth in sales volume.
<PAGE>
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 hereunto duly authorized.
THE FLAMEMASTER CORPORATION
---------------------------
(Registrant)
DATE: August 6, 1998 /s/ Joseph Mazin
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(Signature)
Joseph Mazin, President and Chairman
and Chief Executive Officer
DATE: August 6, 1998 /s/ Barbara E. Waite
------------------------- ------------------------------
(Signature)
Barbara E. Waite, Treasurer and
Secretary
DATE: August 6, 1998 /s/ Donna Mazin
------------------------- ------------------------------
(Signature)
Donna Mazin, Director
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 1,581,584
<SECURITIES> 2,206,915
<RECEIVABLES> 444,216
<ALLOWANCES> 5,000
<INVENTORY> 586,259
<CURRENT-ASSETS> 5,136,998
<PP&E> 884,544
<DEPRECIATION> 854,470
<TOTAL-ASSETS> 5,275,489
<CURRENT-LIABILITIES> 302,827
<BONDS> 0
0
0
<COMMON> 13,779
<OTHER-SE> 4,582,227
<TOTAL-LIABILITY-AND-EQUITY> 5,275,489
<SALES> 2,841,392
<TOTAL-REVENUES> 2,866,323
<CGS> 1,505,963
<TOTAL-COSTS> 849,479
<OTHER-EXPENSES> (85,103)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 595,984
<INCOME-TAX> 167,784
<INCOME-CONTINUING> 428,200
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 428,200
<EPS-PRIMARY> .26
<EPS-DILUTED> .25
</TABLE>
