<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, 1999 COMMISSION FILE NO: 0-2172
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THE FLAMEMASTER CORPORATION
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(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
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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:
JUNE 30, 1999 1,633,616
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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
1999 1998
(UNAUDITED) (NOTE)
------------ ------------
<S> <C> <C>
A S S E T S :
CURRENT ASSETS :
Cash and cash equivalents $ 1,764,530 $ 1,404,347
Marketable securities 2,641,647 2,308,817
Accounts receivable, less allowance of
$5,000 and $5,000, respectively 640,133 483,706
Inventories 870,563 654,551
Settlement receivable -0- 48,191
Prepaid expenses & other assets 452,310 32,475
Deferred income taxes 26,270 24,273
Note receivable 10,000 -0-
Other investments 48,287 196,290
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TOTAL CURRENT ASSETS: 6,453,740 5,152,650
Machinery & improvements, net of
accumulated depreciation 25,113 28,201
License agreement 91,737 104,247
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TOTAL ASSETS $ 6,570,590 $ 5,285,098
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LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Accounts payable $ 191,664 $ 95,607
Accrued liabilities 1,287 9,733
Income taxes payable 422,759 24,937
Deferred tax liability 15,652 15,379
Deferred credits 29,345 29,346
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TOTAL CURRENT LIABILITIES: 660,707 175,002
LONG-TERM LIABILITIES:
Notes payable 376,656 376,656
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TOTAL LIABILITIES: 1,037,363 551,658
SHAREHOLDERS' EQUITY:
PREFERRED STOCK, par value,$.01 per share,
cumulative,$.56 dividend, convertible,callable,
at $5.95, authorized 500,000 shares, issued and
outstanding, zero at 6/30/99 and zero 9/30/98 -0- -0-
COMMON STOCK, par value,$.01 per share,
authorized 6,000,000 shares; issued and outstanding
1,633,616 shares at 6/30//99 and 1,645,015 shares
at 9/30/98. 16,336 16,450
Additional paid-in Capital 3,749,177 3,775,397
Retained earnings 1,448,806 924,052
Allowance for marketable securities 318,908 17,541
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TOTAL STOCKHOLDERS' EQUITY 5,533,227 $ 4,733,440
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TOTAL LIABILITY AND EQUITY
$ 6,570,590 $ 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.
<PAGE>
Item 1 Financial Statements (continued)
THE FLAMEMASTER CORPORATION
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED JUNE 30,
------------------------------------
<TABLE>
<CAPTION>
1999 1998
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<S> <C> <C>
Net sales and gross revenues $ 1,441,400 $ 927,550
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Costs and expenses:
Cost of sales 586,570 508,365
Selling 75,318 68,209
General and administrative 147,264 146,998
Laboratory costs 75,591 66,094
Other, (income), expenses, net (15,189) (37,556)
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869,554 752,110
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Income before income taxes 571,846 175,440
Income taxes (207,227) (9,471)
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Net income 364,619 165,969
Other comprehensive income
Net of income tax
Unrealized Holding Gains (Losses) 199,425 (143,824)
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Comprehensive Income $ 564,044 $ 22,145
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Net income per share, basic $ .22 $ .10
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Net income per share, diluted $ .22 $ .09
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Weighted average shares outstanding:
Basic 1,634,012 1,652,785
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----------- -----------
Diluted 1,750,399 1,769,172
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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,
--------------------------
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Net sales and gross revenues $ 3,444,822 $ 2,866,323
----------- -----------
----------- -----------
Costs and expenses:
Cost of sales 1,554,980 1,505,963
Selling 204,844 209,223
General and administrative 448,342 452,065
Laboratory costs 202,304 188,191
Other, (income), expenses, net (91,423) (85,103)
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2,319,047 2,270,339
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Income before income taxes 1,125,775 595,984
Income taxes 433,318 167,784
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Net income 692,457 $ 428,200
Other comprehensive income
Net of Income Tax
Unrealized Holding Gains (Losses) 177,807 (43,888)
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Comprehensive Income $ 870,264 $ 384,312
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Net income per share, basic $ .42 $ .26
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Net income per share, diluted $ .41 $ .25
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Weighted average shares outstanding:
Basic 1,638,492 1,627,563
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Diluted 1,754,879 1,743,950
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</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,
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Net cash provided (used) by operating activities: 598,313 494,465
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CASH FLOWS FROM INVESTING ACTIVITIES:
Disposal of equipment & improvements -0- 2,396
Purchase of equipment & improvements (12,632) -0-
Net purchases and sales of investment
securities (31,463) (101,061)
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NET CASH USED IN INVESTING ACTIVITIES: (44,095) (98,665)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of Company's Preferred Stock -0- (42,998)
Purchase of Company's Common Stock (46,277) (14,430)
Dividends paid (147,758) (149,226)
Issuance of common stock -0- 16,761
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Net cash used in financing activities (194,035) (189,893)
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NET INCREASE, (DECREASE), IN CASH 360,183 205,907
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Cash, beginning of period 1,404,347 1,375,947
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Cash, end of period 1,764,530 1,581,854
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Cash paid during period for income taxes 482,277 180,000
Cash paid during period for interest expense 19,774 -0-
</TABLE>
See notes to Condensed Financial Statements.
<PAGE>
Item 1 Financial Statements (continued)
THE FLAMEMASTER CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 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 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, 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 nine months ended June 30, 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 June 30, 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.
<PAGE>
Item 1 Financial Statements (continued)
THE FLAMEMASTER CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1999
Note 3: Inventories are summarized as follows:
<TABLE>
<CAPTION>
June 30, September 30
1999 1998
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<S> <C> <C>
Raw materials $450,463 $269,959
Shipping materials 60,505 52,718
Finished goods 359,595 331,874
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$870,563 $654,551
-------- --------
</TABLE>
Note 4: During the three months ended June 30, 1999, the Company purchased
2400 shares of its outstanding common stock at a cost of
$10,486.76.
Note 5: MARKETABLE SECURITIES:
Marketable securities classified as current assets at June 30,
1999 include the following:
<TABLE>
<CAPTION>
FAIR VALUE COST
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<S> <C> <C>
Other Govt Bonds 55,337 57,184
U.S.Treasury obligations 483,457 468,024
Corporate debt securities 22,643 23,462
Mortgage backed securities 15,095 17,003
Marketable equity securities 2,065,115 1,778,795
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2,641,647 2,344,468
The contractual maturities of debt
securities available for sale
at June 30, 1999 are as follows:
FAIR VALUE COST
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Due within one year 131,200 129,674
Due after one year thru 5 years 162,958 161,114
Due after 5 years thru 10 years 209,724 196,788
Due after 10 years 57,192 60,686
Not due at single maturity date 15,458 17,411
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576,532 565,673
</TABLE>
Gross unrealized holding gains and losses at June 30, were
$424,908 and $127,730 respectively. Realized gains from the sale
of securities for the three months ended June 30, were $5,442.
<PAGE>
THE FLAMEMASTER CORPORATION
Item 2:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS:
JUNE 30, 1999 COMPARED TO SEPTEMBER 30, 1998 AND
JUNE 30, 1999 COMPARED TO JUNE 30, 1998.
FINANCIAL CONDITION AND LIQUIDITY:
The Company's financial condition is strong, current assets were $6,453,740
compared to current liabilities of $660,707 at June 30, 1999 for a current ratio
of about 9.8 to 1.
Working capital stood at $5,793,033 on June 30, 1999 compared to $4,977,648 on
September 30, 1998. Accounts receivable increased to $640,133 from $439,216 at
June 30,1998.
The increases are atttributable to the Company's strong financial performance.
Inventories rose to $870,563 from $654,551 at year end due to higher volume of
business.
Revenues for the three months expanded to $1,441,400 from $927,550 in the
previous year's quarter due to an increase in U.S.Government business as well as
acceptance of the Company's new product introductions.
For the nine months sales increased to $3,444,822 from $2,866,323 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 is in the process of upgrading its computer systems and has
completed a review of year 2000 requirements. Some minor adjustment 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
interuption 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 April 1999 and the Board
of Directors declared a $.03 cash dividend to be paid on August 5, 1999.
RESULTS OF OPERATIONS:
For the three months ended June 30, 1999 net income was $364,619 compared to
$165,969 in the prior year. The rise in net income was due to expanded volume
and increase in sales of high margin products. Per share net income primary was
$.22 vs $.10 in the year earlier and fully diluted $.22 vs $.09.
For the nine months ended June 30, 1999 net income was $692,457 vs $428,200 for
the June 30, 1998 period, while per share earnings primary expanded to $.42 from
$.26. For the three month period cost of sales as a percentage of sales declined
significantly to 40% from 54% in the previous year's quarter due to the volume
increase and sales of higher margin products. Selling expense also declined as a
percentage of sales benefiting from the volume increase. Laboratory costs
including research and development for the quarter increased to $75,591 from
$66,094 in the previous year. For the nine month period cost of sales decreased
to 45% of sales from 52.5% of sales in the June 30, 1998 period, while general &
administrative expenses declined to 13% from 15.77% in the year earlier due to
greater efficiency as well as 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: AUGUST 3, 1999 JOSEPH MAZIN
- ---------------------- --------------------------------------
(Signature)
Joseph Mazin, President and Chairman
and Chief Executive Officer
DATE: AUGUST 3, 1999 BARBARA E. WAITE
- ---------------------- --------------------------------------
(Signature)
Barbara E. Waite, Treasurer and
Secretary
DATE: AUGUST 3, 1999 DONNA MAZIN
- ---------------------- --------------------------------------
(Signature)
Donna Mazin, Director
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 1,764,530
<SECURITIES> 2,641,647
<RECEIVABLES> 645,133
<ALLOWANCES> 5,000
<INVENTORY> 870,563
<CURRENT-ASSETS> 6,453,740
<PP&E> 898,436
<DEPRECIATION> 873,323
<TOTAL-ASSETS> 6,570,590
<CURRENT-LIABILITIES> 660,707
<BONDS> 0
0
0
<COMMON> 16,336
<OTHER-SE> 5,516,891
<TOTAL-LIABILITY-AND-EQUITY> 6,570,590
<SALES> 3,441,151
<TOTAL-REVENUES> 3,444,822
<CGS> 1,554,980
<TOTAL-COSTS> 2,410,470
<OTHER-EXPENSES> (91,423)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,125,775
<INCOME-TAX> 433,318
<INCOME-CONTINUING> 692,457
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 177,807
<NET-INCOME> 870,264
<EPS-BASIC> .42
<EPS-DILUTED> .41
</TABLE>
