<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, 1999 COMMISSION FILE NO: 0-2172
-------------- ------
THE FLAMEMASTER CORPORATION
------------------------------------------------------
(Exact name of Registrant as specified in its Charter)
NEVADA 95-2018730
- --------------------------------- ---------------------
(State or other jurisdiction (IRS Employer
of incorporation or organization) identification 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:
MARCH 31, 1999 1,636,016
----------------------------
<PAGE>
Item 1 Financial Information
Item 1 Financial Statements
THE FLAMEMASTER CORPORATION
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, SEPTEMPER 30,
1999 1998
(UNAUDITED) (NOTE)
----------- --------------
<S> <C> <C>
A S S E T S :
CURRENT ASSETS:
- ---------------
Cash and cash equivalents $1,538,870 $1,404,347
Marketable securities 2,244,814 2,308,817
Accounts receivable, less allowance of
$5,000 and $5,000, respectively 629,796 483,706
Inventories 817,827 654,551
Settlement receivable -0- 48,191
Prepaid expenses & other assets 24,950 32,475
Deferred income taxes 17,759 24,273
Note receivable 10,000 -0-
Other investments 113,287 196,290
---------- ----------
TOTAL CURRENT ASSETS: 5,397,303 5,152,650
Machinery & improvements, net of
accumulated depreciation 23,379 28,201
License agreement 95,907 104,247
---------- ----------
TOTAL ASSETS $5,516,589 $5,285,098
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
- -------------------
Accounts payable $ 166,367 $ 95,607
Accrued liabilities 9,948 9,733
Income taxes payable 64,937 24,937
Deferred tax liability 14,177 15,379
Deferred credits 29,346 29,346
---------- ----------
TOTAL CURRENT LIABILITIES: 284,775 175,002
LONG-TERM LIABILITIES:
- ----------------------
Notes payable 376,656 376,656
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TOTAL LIABILITIES: 661,431 551,658
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 12/31/98 and zero 9/30/98 -0- -0-
COMMON STOCK, par value, $.01 per share,
authorized 6,000,000 shares; issued and outstanding
1,636,016 shares at 3/31/99 and 1,645,015 shares
at 9/30/98 16,360 16,450
Additional paid-in Capital 3,754,697 3,775,397
Retained earnings 1,138,283 924,052
Allowance for marketable securities (54,182) 17,541
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TOTAL STOCKHOLDERS' EQUITY 4,855,158 $4,733,440
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TOTAL LIABILITY AND EQUITY $5,516,589 $5,285,098
---------- ----------
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</TABLE>
Note: Balance sheet as of September 30, 1998 has been derived from the audited
balance sheet at that date. See notes to condensed financial statements.
2
<PAGE>
Item 1 Financial Statements (continued)
THE FLAMEMASTER CORPORATION
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED MARCH 31,
----------------------------
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Net sales and gross revenues $1,202,802 $1,018,351
---------- ----------
---------- ----------
Costs and expenses:
Cost of sales 520,669 484,127
Selling 62,655 67,177
General and administrative 159,820 148,399
Laboratory costs 63,939 59,703
Other, (income), expenses, net (29,785) (18,406)
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777,298 741,000
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Income before income taxes 425,504 277,351
Income taxes 178,142 104,495
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Net income 247,362 172,856
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---------- ----------
Net income per share, basic $.15 $.11
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---- ----
Net income per share, diluted $.14 $.11
---- ----
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Weighted average shares outstanding:
Basic 1,638,237 1,652,710
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---------- ----------
Diluted 1,754,624 1,769,097
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---------- ----------
</TABLE>
See notes to condensed financial statements.
3
<PAGE>
Item 1 Financial Statements (continued)
THE FLAMEMASTER CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
SIX MONTHS ENDED MARCH 31,
----------------------------
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Net sales and gross revenues $2,003,422 $1,938,773
---------- ----------
---------- ----------
Costs and expenses:
Cost of sales 968,409 997,598
Selling 129,526 141,015
General and administrative 301,078 305,067
Laboratory costs 126,714 122,097
Other, (income), expenses, net (76,234) (47,548)
---------- ----------
1,449,493 1,518,229
---------- ----------
Income before income taxes 553,929 420,544
Income taxes 226,091 158,313
---------- ----------
Net income 327,838 $ 262,231
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Net income per share, basic $.20 $.16
---- ----
---- ----
Net income per share, diluted $.19 $.16
---- ----
---- ----
Weighted average shares outstanding:
Basic 1,640,386 1,614,952
---------- ----------
---------- ----------
Diluted 1,756,773 1,731,339
---------- ----------
---------- ----------
</TABLE>
See notes to condensed financial statements
4
<PAGE>
Item 1 Financial Statements (continued)
THE FLAMEMASTER CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED MARCH 31,
----------------------------
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Net cash provided (used) by operating activities: 75,334 $ (79,478)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment & improvements (2,925) (1,870)
Net purchases and sales of investment
securities (26,341) 144,610
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NET CASH USED IN INVESTING ACTIVITIES: (29,266) 142,740
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CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of Company's Preferred Stock -0- (42,998)
Purchase of Company's Common Stock (19,586) -0-
Dividends paid (49,179) (47,420)
Issuance of common stock -0- 16,761
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Net cash used in financing activities (68,765) (73,657)
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NET INCREASE, (DECREASE), IN CASH (22,697) (10,395)
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Cash, beginning of period 1,561,567 $1,435,120
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Cash, end of period 1,538,870 1,424,725
---------- ----------
---------- ----------
Cash paid during period for income taxes $ 149,000 $ 60,000
---------- ----------
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</TABLE>
See notes to Condensed Financial Statements.
5
<PAGE>
Item 1 Financial Statements (continued)
THE FLAMEMASTER CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1999
Note 1: FORWARD-LOOKING AND CAUTIONARY STATEMENTS
The Company and its representative 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 harbor" 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
exclusive. 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.
6
<PAGE>
Item 1 Financial Statements (continued)
THE FLAMEMASTER CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1999
Note 2: The accompanying unaudited condensed financial statements have been
prepared 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 six months ended March 31, 1999 are not
necessarily indicative of the results that may be expected for the
year ending September 30, 1999. 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, 1998.
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, 1999 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.
7
<PAGE>
Item 1 Financial Statements (continued)
THE FLAMEMASTER CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1999
Note 3: Inventories are summarized as follows:
<TABLE>
<CAPTION>
March 31, September 30
1999 1998
---------- ------------
<S> <C> <C>
Raw materials $393,253 $269,959
Shipping materials 68,486 52,718
Finished goods 356,087 331,874
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$817,826 $654,551
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</TABLE>
Note 4: During the three months ended March 31, 1999, the Company purchased
4500 shares of its outstanding common stock at a cost of $19,586.
Note 5: MARKETABLE SECURITIES:
Marketable securities classified as current assets at March 31, 1999
include the following:
<TABLE>
<CAPTION>
Fair Value Cost
---------- ---------
<S> <C> <C>
Other Govt Bonds 57,031 57,197
U.S.Treasury obligations 490,928 459,997
Corporate debt securities 23,936 23,462
Mortgage backed securities 4,239 10,911
Marketable equity securities 1,668,680 1,769,158
--------- ---------
2,244,814 2,320,725
</TABLE>
The contractual maturities of debt
securities available for sale at
March 31, 1999 are as follows:
<TABLE>
<CAPTION>
Fair Value Cost
---------- ---------
<S> <C> <C>
Due within one year 129,690 127,143
Due after one year thru 5 years 164,921 158,633
Due after 5 years thru 10 years 217,155 193,771
Due after 10 years 59,707 60,715
Not due at single maturity date 4,662 11,304
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576,135 551,566
</TABLE>
Gross unrealized holding gains and losses at March 31, were $247,182
and $323,094 respectively. Realized losses from the sale of securities
for the three months ended March 31, were $111.
8
<PAGE>
THE FLAMEMASTER CORPORATION
ITEM 2
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
MARCH 31, 1999 COMPARED TO SEPTEMBER 30, 1998 AND
- -------------------------------------------------
MARCH 31, 1999 COMPARED TO MARCH 31, 1998.
- ------------------------------------------
FINANCIAL CONDITION AND LIQUIDITY:
The Company's financial condition is strong, current assets were $5,397,303
compared to current liabilities of $284,775 at March 31, 1999 for a current
ratio of 19 TO 1.
Working capital stood at $5,112,528 on March 31, 1999 compared to $4,977,648
at September 30, 1998 and $4,895,220 on March 31, 1998, a modest increase.
The Company's strong financial performance accounts for the increase.
Accounts receivable jumped to $629,796 from $577,715 at March 31, 1998, due
to the increased volume of business. Inventories rose significantly to
$817,827 from $654,551 at year end due to the expanded volume of orders. The
trend of increasing inventory levels is expected to continue to accommodate
the higher levels of orders. Revenues for March 31, 1999 quarter were
$1,202,802 compared to $1,018,351 in the prior year, an 18.1% gain. Revenues
for the six months were $2,003,422 compared to $1,938,773 in the year earlier
period. The Company benefited from a wider acceptance of its recent new
product introductions.
Management believes that future working capital requirements will be provided
primarily from operations and the Company's liquidity and working capital
requirements are adequate for the next 12 months of operation. Management
believes that the Company's creditworthiness is substantial relative to its
size.
The Company is in the process of upgrading its computer systems and has
completed a review of year 2000 requirements. Some minor adjustments will be
needed to be compatible with year 2000 requirements. The Company also plans
to be cautious with respect to raw material requirements and plans for
unexpected delays in delivery by increasing inventory levels. No other year
2000 issues are anticipated. Even if all of the Company's computer systems
completely fail to meet year 2000 requirements, the Company can continue to
function with limited interruption through backup manual systems.
Management believes that capital expenditure for upgrading its computer
systems as well as being Y2K compliant will not exceed $25,000 over the next
six months.
The Company paid a $.03 dividend on its common stock in January 1999 and its
Board of Directors declared a $.03 dividend paid in April 1999.
RESULTS OF OPERATIONS:
For the three months ended March 31, 1999 net income was $247,362 compared to
$172,856 or $.15 per share vs. $.11 per share in the year earlier quarter.
The 43% earnings gain is the result of an expanded customer base, wider
acceptance of new product introductions and increased internet marketing
activity. The Company continues to expand its product lines in high
performance sealants and related products.
For the six month period net income rose to $327,838 from $262,231 a 25%
increase. Laboratory costs, including research and development for this
quarter rose moderately to $63,939 from $59,703 due to an expanding product
line up. For the six months laboratory costs increased to $126,714 from
$122,097.
General and administrative expenses in the quarter rose modestly to $159,820
from $148,399 in the prior year's quarter due to additional temporary help to
handle the increased volume of business. For the six month period general
and administrative expenses decreased very modestly to $301,078 from $305,067.
9
<PAGE>
Part 11 Other Information
THE FLAMEMASTER CORPORATION
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
The Registrant's annual meeting was held on March 18, 1999 and the following
directors were re-elected.
William Deutsch
Leon Gutowicz
Joseph Mazin
Donna Mazin
Sion Mazin
Stuart Weinstein
The directors were elected by a vote of 1,484,200 or a total of 90.46%.
10
<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
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 1,538,870
<SECURITIES> 2,244,814
<RECEIVABLES> 634,796
<ALLOWANCES> 5,000
<INVENTORY> 817,827
<CURRENT-ASSETS> 5,397,303
<PP&E> 891,083
<DEPRECIATION> 867,704
<TOTAL-ASSETS> 5,516,589
<CURRENT-LIABILITIES> 284,775
<BONDS> 0
0
0
<COMMON> 16,360
<OTHER-SE> 4,838,798
<TOTAL-LIABILITY-AND-EQUITY> 5,516,589
<SALES> 2,000,960
<TOTAL-REVENUES> 2,003,422
<CGS> 968,409
<TOTAL-COSTS> 1,525,727
<OTHER-EXPENSES> (76,234)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 553,929
<INCOME-TAX> 226,091
<INCOME-CONTINUING> 327,838
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 327,838
<EPS-PRIMARY> .20
<EPS-DILUTED> .19
</TABLE>
