<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, 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 incorporation (IRS Employer identification
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
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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:
DECEMBER 31, 1997 1,324,786
___________________________
<PAGE>
Item 1 Financial Information
Item 1 Financial Statements
THE FLAMEMASTER CORPORATION
CONDENSED BALANCE SHEETS
DECEMBER 31, SEPTEMBER 30,
1997 1997
(UNAUDITED) (NOTE)
---------------- -------------
ASSETS:
CURRENT ASSETS:
- ---------------
Cash and short-term investments $1,435,120 $1,375,947
Marketable securities 2,658,968 2,172,740
Accounts receivable, less allowance of
$5,000 and $5,000, respectively 457,979 451,908
Inventories 624,014 660,289
Prepaid expenses & other assets 45,664 36,986
Other investments 46,287 46,287
Deferred income taxes 39,070 49,432
---------- ---------
TOTAL CURRENT ASSETS: 5,307,102 4,793,589
License agreement 116,757 120,927
Equipment and improvements, net of
accumulated depreciation 36,002 36,869
---------- ----------
TOTAL ASSETS $5,459,861 $4,951,385
---------- ---------
---------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
- -------------------
Accounts payable $190,478 $ 95,216
Accrued liabilities 9,782 9,686
Income taxes payable - (63,347)
Deferred tax liability 57,517 57,670
Environmental reserve 44,495 53,135
Deferred credits 37,702 37,702
---------- ---------
TOTAL CURRENT LIABILITIES: 339,974 190,062
SHAREHOLDERS' EQUITY
PREFERRED STOCK,par value,$.01 per share,
cumulative,$.56 dividend, convertible,callable,
at $5.95, authorized 500,000 shares, issued and
outstanding 59,250 at 12/31/97 and 68,250 9/30/97 593 682
COMMON STOCK,par value,$.01 per share,
authorized 6,000,000 shares; issued and
outstanding 1,324,786 shares at 12/31/97
and 1,306,412 shares at 9/30/97. 13,248 13,064
Additional paid-in Capital 2,530,562 2,538,088
Retained earnings 2,264,744 2,236,753
Allowance for marketable securities 310,740 (27,264)
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TOTAL STOCKHOLDERS' EQUITY $5,119,887 $4,761,323
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TOTAL LIABILITY AND EQUITY $5,459,861 $4,951,385
---------- ---------
---------- ---------
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 DECEMBER 31,
____________________________________
1997 1996
--------- ---------
Net sales and gross revenues $920,422 $736,978
--------- ---------
--------- ---------
Costs and expenses:
Cost of sales 513,471 448,905
Selling 73,838 73,624
General and administrative 156,668 147,779
Laboratory costs 62,394 54,735
Other, (income), expenses, net (29,142) (33,908)
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777,229 691,135
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Income before income taxes 143,193 45,843
Income taxes 53,818 19,182
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Net income 89,375 $26,661
--------- ---------
--------- ---------
Net income per share, primary $.06 $.01
==== ====
Net income per share, fully diluted $.06 $.01
==== ====
Weighted average shares outstanding:
Primary 1,339,699 1,266,516
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--------- ---------
Fully diluted 1,503,499 1,456,716
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--------- ---------
See notes to condensed financial statements.
<PAGE>
Item 1 Financial Statements (continued)
THE FLAMEMASTER CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED DECEMBER 31, 1997
1997 1996
---- ----
Net cash provided (used) by operating activities: $273,173 $(31,385)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to equipment & improvements (4,110) -
Net purchases and sales of investment
securities (141,074) (8,560)
--------- ---------
(145,184) (8,560)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of Company's common stock (14,430) (21,998)
Dividends paid (54,386) (54,624)
Issuance of common stock - -
--------- ---------
Net cash used in financing activities (68,816) (76,622)
--------- ---------
NET INCREASE, (DECREASE), IN CASH 59,173 (116,567)
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Cash, beginning of period $1,375,947 $1,355,770
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Cash, end of period $1,435,120 $1,239,203
---------- ----------
---------- ----------
Cash paid during period for income taxes $ 60,000 $ 29,100
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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 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 three months ended
December 31, 1997 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 December 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
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
Note 2: Inventories are summarized as follows:
DECEMBER 31 SEPTEMBER 30
1997 1997
---------- -----------
Raw materials $288,519 $269,518
Shipping materials 56,565 58,897
Finished goods 278,930 331,874
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$624,014 $660,289
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Note 3: During the three months ended December 31 ,1997 , the Company
purchased 3874 shares of its outstanding common stock at a
cost of $14,430.
Note 4: MARKETABLE SECURITIES:
Marketable securities classified as current assets at December
31,1997 include the following:
FAIR VALUE COST
---------- ----------
Other Govt Bonds $170,934 $173,319
U.S.Treasury obligations 448,417 421,914
Corporate debt securities 24,732 22,575
Mortgage backed securities 2,427 2,782
Marketable equity securities 2,012,458 1,749,366
--------- ---------
2,658,968 2,369,956
The contractual maturities of debt
securities available for sale at
December 31, 1997 are as follows:
FAIR VALUE COST
---------- ----------
Due within one year $ -0- $ -0-
Due after one year thru 5 years 248,349 239,105
Due after 5 years thru 10 years 224,800 205,385
Due after 10 years 170,932 173,318
Note due at single maturity date 2,427 2,782
--------- ---------
646,508 620,590
Gross unrealized holding gains and losses at December 31, were $ 411,541 and
$122,530 respectively. Realized gains from the sale of securities for the
three months ended December 31, were $6,825.
<PAGE>
THE FLAMEMASTER CORPORATION
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS:
DECEMBER 31, 1997 COMPARED TO SEPTEMBER 30, 1997 AND
DECEMBER 31, 1997 COMPARED TO DECEMBER 31, 1996.
FINANCIAL CONDITION:
--------------------
The Company's financial position is strong, current assets were
$5,307,102 compared to current liabilities of $339,974 at December
31, 1997 for a current ratio of 15.6 to 1. Working capital stood
at $4,967,128 on December 31, 1997 compared to $4,603,527 on
September 30, 1997. The increase is attributableto the Company's
strong financial performance. Accounts receivable remained steady
at $457,979 from $451,908 at September 30, 1997. Inventories
declined moderately to $624,014 from $660,289 at year end due to
quicker turn around time. Revenues for the three months were up
$183,444 or 25% over the prior year's quarter. Sales were up due
to addition of both new customers and 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
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
1997 and its Board of Directors declared a $.035 dividend to be
paid on March 31, 1998 to shareholders of record, March 16, 1998.
RESULTS OF OPERATIONS:
----------------------
For the three months ended December 31, 1997 net income was $89,375
compared to $26,661 or $.06 per share vs. $.01 per share in the
year earlier period. The healthy increase in net earnings was due
to the Company's strong sales gain resulting in a lower cost of
sales. The Company expanded its product lines in high performance
sealants and added several new customers. Selling expense decreased
as a percentage of sales due to the expanded volume of business.
Laboratory costs including research and development for this
quarter increased to $62,394 from $54,735 in the previous year, but
as a percentage of sales decreased modestly. General and
administrative expenses decreased to about 17% of sales from about
20% in the year earlier quarter also due to the growth in sales
volume.
<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>
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,435,120
<SECURITIES> 2,658,968
<RECEIVABLES> 462,979
<ALLOWANCES> 5,000
<INVENTORY> 624,014
<CURRENT-ASSETS> 5,307,102
<PP&E> 880,312
<DEPRECIATION> 844,310
<TOTAL-ASSETS> 5,459,861
<CURRENT-LIABILITIES> 339,974
<BONDS> 0
0
593
<COMMON> 13,248
<OTHER-SE> 5,106,046
<TOTAL-LIABILITY-AND-EQUITY> 5,459,861
<SALES> 899,933
<TOTAL-REVENUES> 920,422
<CGS> 513,471
<TOTAL-COSTS> 292,900
<OTHER-EXPENSES> (29,142)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 143,193
<INCOME-TAX> 53,818
<INCOME-CONTINUING> 89,375
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 89,375
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
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