<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, 1998 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
----------------
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, 1998 1,640,516
------------------------------
<PAGE>
Item 1 Financial Information
Item 1 Financial Statements
THE FLAMEMASTER CORPORATION
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31 SEPTEMBER 30
1998 1998
(UNAUDITED) (NOTE)
----------- -----------
<S> <C> <C>
A S S E T S :
CURRENT ASSETS :
Cash and cash equivalents $1,561,567 $1,404,347
Marketable securities 2,349,138 2,308,817
Accounts receivable, less allowance of
$5,000 and $5,000, respectively 397,740 483,706
Inventories 674,609 654,551
Settlement receivable -0- 48,191
Prepaid expenses & other assets 30,398 32,475
Deferred income taxes 25,323 24,273
Other investments 196,287 196,290
--------- ---------
TOTAL CURRENT ASSETS: 5,235,062 5,152,650
Machinery & improvements, net of
accumulated depreciation 25,614 28,201
License agreement 100,077 104,247
--------- ---------
TOTAL ASSETS $5,360,753 $5,285,098
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Accounts payable $73,959 $95,607
Accrued liabilities 10,783 9,733
Income taxes payable 42,676 24,937
Deferred tax liability 14,861 15,379
Deferred credits 29,345 29,346
--------- ---------
TOTAL CURRENT LIABILITIES: 171,624 175,002
LONG-TERM LIABILITIES:
Notes payable 376,656 376,656
--------- ---------
TOTAL LIABILITIES: 548,280 551,658
SHAREHOLDERS' EQUITY:
PREFERRED STOCK, par value,$.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
1,640,516 shares at 12/31/98 and 1,645,015 shares
at 9/30/98. 16,405 16,450
Additional paid-in Capital 3,765,047 3,775,397
Retained earnings 949,291 924,052
Allowance for marketable securities 81,730 17,541
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 4,812,473 $4,733,440
--------- ---------
TOTAL LIABILITY AND EQUITY $5,360,753 $5,285,098
--------- ---------
--------- ---------
</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 DECEMBER 31,
-------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
1998 1997
--------- ---------
Net sales and gross revenues $ 800,620 $ 920,422
--------- ---------
--------- ---------
Costs and expenses:
Cost of sales 447,740 513,471
Selling 66,871 73,838
General and administrative 141,258 156,668
Laboratory costs 62,775 62,394
Other, (income), expenses, net (46,449) (29,142)
--------- ---------
672,195 777,229
--------- ---------
Income before income taxes 128,425 143,193
Income taxes 47,949 53,818
--------- ---------
Net income 80,476 89,375
--------- ---------
--------- ---------
Net income per share, basic $.05 $.06
--------- ---------
--------- ---------
Net income per share, diluted $.05 $.06
--------- ---------
--------- ---------
Weighted average shares outstanding:
Basic 1,642,414 1,339,699
--------- ---------
--------- ---------
Diluted 1,758,801 1,503,499
--------- ---------
--------- ---------
</TABLE>
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 1998
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Net cash provided (used) by operating activities: $ 250,367 $ 273,173
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment & improvements 2,354 (4,110)
Net purchases and sales of investment
securities (29,870) (141,074)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES: (27,516) (145,184)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of Company's Common Stock (16,204) (14,430)
Dividends paid (49,427) (54,386)
--------- ---------
Net cash used in financing activities (65,631) (68,816)
--------- ---------
NET INCREASE, (DECREASE), IN CASH 157,220 59,173
--------- ---------
Cash, beginning of period 1,404,347 $1,375,947
--------- ---------
Cash, end of period 1,561,567 1,435,120
--------- ---------
--------- ---------
Cash paid during period for income taxes 34,258 $ 60,000
--------- ---------
--------- ---------
</TABLE>
See notes to Condensed Financial Statements.
<PAGE>
Item 1 Financial Statements (continued)
THE FLAMEMASTER CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
DECEMBER 31, 1998
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)
DECEMBER 31, 1998
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 three months ended December 31, 1998 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 December 31, 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 identification method.
<PAGE>
Item 1 Financial Statements (continued)
THE FLAMEMASTER CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
DECEMBER 31, 1998
Note 3: Inventories are summarized as follows:
<TABLE>
<CAPTION>
December 31 September 30
1998 1998
------------ -------------
<S> <C> <C>
Raw materials $ 287,286 $ 269,959
Shipping materials 45,417 52,718
Finished goods 341,906 331,874
--------- ---------
$ 674,609 $ 654,551
--------- ---------
</TABLE>
Note 4: During the three months ended December 31, 1998 , the Company
purchased 4500 shares of its outstanding common stock at a cost of
$16,204.
Note 5: MARKETABLE SECURITIES:
Marketable securities classified as current assets at December 31,
1998 include the following:
<TABLE>
<CAPTION>
Fair Value Cost
--------- ---------
<S> <C> <C>
Other Govt Bonds $ 57,385 $ 57,211
U.S.Treasury obligations 496,347 452,110
Corporate debt securities 23,491 23,462
Mortgage backed securities 3,753 10,925
Marketable equity securities 1,768,160 1,745,427
--------- ---------
2,349,136 2,289,135
</TABLE>
The contractual maturities of debt
securities available for sale at
December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Fair Value Cost
---------- ---------
<S> <C> <C>
Due within one year $ 128,349 $ 124,662
Due after one year thru 5 years 166,358 156,191
Due after 5 years thru 10 years 221,440 190,808
Due after 10 years 60,576 60,743
Notes due at single maturity date 4,253 11,304
--------- ---------
580,976 543,708
</TABLE>
Gross unrealized holding gains and losses at December 31, were
$257,024 and $197,023 respectively. Net realized gains from the sale
of securities for the three months ended December 31, were $8,031.
<PAGE>
THE FLAMEMASTER CORPORATION
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS:
DECEMBER 31, 1998 COMPARED TO SEPTEMBER 30, 1998 AND
DECEMBER 31, 1998 COMPARED TO DECEMBER 31, 1997.
FINANCIAL CONDITION AND LIQUIDITY:
The Company's financial condition is strong, current assets were
$5,235,062 compared to current liabilities of $171,624 at December
31,1998 for a current ratio of 30.5 to 1. Working capital stood at
$5,063,438 on December 31,1998 compared to $4,977,648 at September
30,1998 and $4,967,128 on December 31,1997, a modest increase. The
Company's strong financial performance accounts for the increase.
Accounts receivable decreased moderately to $397,740 from $457,979 at
December 31,1997 due to strong collection efforts. Inventories
increased moderately to $674,609 from $654,551 at year end due to
strong order flow late in the quarter. Revenues for the December
31,1998 three month period were $800,620 compared to $920,422 in the
prior year. Revenues for the quarter declinded due to a combination
of factors including, product mix, seasonal adjustment by some key
customers and longer lead times required by the newer 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 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 the year 2000 issues.
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 by the
Company based on the complete systems review. 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.
The Company paid a $.03 dividend on its common stock in October 1998
and its Board of Directors declared a $.03 dividend paid in January
1999.
RESULTS OF OPERATIONS:
For the three months ended December 31,1998 net income was $80,476
compared to $89,375 or $.05 per share vs. $.06 per share in the year
earlier period. The modest decrease in earnings were the result of
introduction of new products with longer lead time requirements
affecting the current quarter's bottom line. The Company continued to
expand its product lines in high performance sealants. Laboratory
costs including research and development for this quarter remained
steady at $62,775 from $62,394 in the previous year. General and
administrative expenses decreased moderately to $141,258 from
$156,668.
<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: February 5, 1999 /s/ Joseph Mazin
-------------------------- ------------------------------------
(Signature)
Joseph Mazin, President and Chairman
and Chief Executive Officer
DATE: February 5, 1999 /s/ Barbara E. Waite
-------------------------- ------------------------------------
(Signature)
Barbara E. Waite, Treasurer and
Secretary
DATE: February 5, 1999 /s/ Donna Mazin
-------------------------- ------------------------------------
(Signature)
Donna Mazin, Director
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,561,567
<SECURITIES> 2,349,138
<RECEIVABLES> 402,740
<ALLOWANCES> 5,000
<INVENTORY> 674,609
<CURRENT-ASSETS> 5,235,062
<PP&E> 888,157
<DEPRECIATION> 862,543
<TOTAL-ASSETS> 5,360,753
<CURRENT-LIABILITIES> 171,624
<BONDS> 0
0
0
<COMMON> 16,405
<OTHER-SE> 4,796,068
<TOTAL-LIABILITY-AND-EQUITY> 5,360,753
<SALES> 800,131
<TOTAL-REVENUES> 800,620
<CGS> 447,740
<TOTAL-COSTS> 270,904
<OTHER-EXPENSES> (46,449)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 128,425
<INCOME-TAX> 47,949
<INCOME-CONTINUING> 80,476
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 80,476
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
