<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 31,2000 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 (IRS Employer identification
incorporation 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:
MARCH 31, 2000 1,609,865
-------------------------------
<PAGE>
Item 1 Financial Information
Item 1 Financial Statements
THE FLAMEMASTER CORPORATION
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31 SEPTEMBER 30
2000 1999
(UNAUDITED) (NOTE)
------------ ------------
<S> <C> <C>
A S S E T S :
CURRENT ASSETS :
Cash and cash equivalents $ 2 ,111,624 $ 1,913,201
Marketable securities 6,676,943 2,449,981
Accounts receivable, less allowance of
$5,000 and $5,000, respectively 585,846 496,776
Inventories 881,947 873,504
Prepaid expenses 22,932 36,298
Deferred income taxes 33,813 33,485
Other investments 46,287 46,287
------------ ------------
TOTAL CURRENT ASSETS: 10,359,392 5,849,532
Machinery & improvements, net of
accumulated depreciation 63,063 21,311
License agreement, net of accumulated
amortization 79,227 87,567
------------ ------------
TOTAL ASSETS $ 10,501,682 $ 5,958,410
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Accounts payable $ 167,524 $ 85,880
Accrued liabilities 12,792 8,203
Income tax payable 36,044 -
Deferred tax liability 14,695 14,695
Deferred credits 22,262 22,262
------------ ------------
TOTAL CURRENT LIABILITIES: 253,317 131,040
LONG-TERM LIABILITIES:
Notes payable 388,427 376,656
------------ ------------
TOTAL LIABILITIES: 641,744 507,696
SHAREHOLDERS' EQUITY:
COMMON STOCK, par value,$.01 per share,
authorized 6,000,000 shares; issued and outstanding
1,609,865 shares at 3/31/00 and 1,626,935 at 9/30/99. 16,098 16,269
Additional paid-in Capital 3,694,668 3,733,846
Retained earnings 1,965,543 1,562,002
Allowance for marketable securities 4,183,629 138,597
------------ ------------
TOTAL STOCKHOLDERS' EQUITY $9,859,938 $ 5,450,714
------------ ------------
TOTAL LIABILITY AND EQUITY $ 10,501,682 $ 5,958,410
============ ============
</TABLE>
Note: Balance sheet as of September 30, 1999 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 MARCH 31, 2000
------------------------------------
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
Net sales $ 1,033,424 $ 1,200,829
Royalties - 1,973
Interest and Other Income 441,797 42,972
------------ ------------
Total Revenues 1,475,221 1,245,774
============ ============
Costs and expenses:
Cost of sales 521,888 520,669
Selling 69,409 62,655
General and administrative 155,902 159,820
Laboratory costs 71,991 63,939
Other expenses 22,544 13,187
------------ ------------
Total costs and expenses: 841,734 820,270
------------ ------------
Income before income taxes 633,487 425,504
Income taxes 226,358 178,142
------------ ------------
Net income 407,129 247,362
Other comprehensive income
Net of income tax
Unrealized Holding Gains (Losses) 374,628 (120,401)
------------ ------------
Comprehensive Income 781,757 126,961
============ ============
Net income per share, basic $.25 $.15
============ ============
Net income per share, diluted **** $.14
============
Weighted average shares outstanding:
Basic 1,612,131 1,638,237
============ ============
Diluted 1,697,701 1,754,624
============ ============
</TABLE>
**** Diluted earnings per share is not presented, as effect of the assumed
conversion of notes payable is anti-dilutive.
See notes to condensed financial statements.
<PAGE>
Item 1 Financial Statements (continued)
THE FLAMEMASTER CORPORATION
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
SIX MONTHS ENDED MARCH 31,
--------------------------------
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
Net Sales $1,883,940 $2,000,960
Royalties 813 2,462
Interest and Other Income 608,015 102,499
------------ ------------
2,492,768 2,105,921
============ ============
Costs and expenses:
Cost of Sales 976,546 968,409
Selling 138,318 129,526
General and administrative 320,219 301,078
Laboratory 139,068 126,714
Other expenses 44,040 26,265
------------ ------------
1,618,191 1,551,992
------------ ------------
Income before income taxes 874,577 553,929
Income taxes 326,674 226,091
------------ ------------
Net income 547,903 327,838
Other comprehensive income
Net of income taxes
Increase in unrealized holding gains 1,404,262 (81,778)
------------ ------------
Comprehensive Income 1,952,165 246,060
============ ============
Net income per share, basic $ .34 $.20
============ ============
Net income per share, diluted $. 34 $.19
============ ============
Weighted average shares outstanding:
Basic 1,616,624 1,640,386
============ ============
Diluted 1,702,194 1,756,773
============ ============
</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 MARCH 31,
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
Net cash provided (used) by operating activities: $ 233,860 $ 75,334
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment & improvements (38,134) (2,925)
Net purchases and sales of investment securities (151,676) (26,341)
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES: (189,810) (29,266)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of Company's Common Stock (34,514) (19,586)
Dividends paid (51,832) (49,179)
------------ ------------
NET CASH USED IN FINANCING ACTIVITIES (86,346) (68,765)
------------ ------------
NET INCREASE, (DECREASE), IN CASH (42,296) (22,697)
------------ ------------
Cash, beginning of period 2,153,920 1,561,567
------------ ------------
Cash, end of period $ 2,111,624 $ 1,538,870
============= ============
Cash paid during period for income taxes $ 199,000 $ 149,000
Cash paid during period for interest expense $ 13,183 -0-
</TABLE>
See notes to Condensed Financial Statements.
<PAGE>
Item 1 Financial Statements (continued)
THE FLAMEMASTER CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2000
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 Securities and Exchange
Commission and its reports to stockholders. In connection with the
"safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995, the Company is hereby identifying information
that its forward- looking, including, without limitations,
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 statements that may be made from time to time by or
on behalf of the Company.
Note 2: BASIS OF PRESENTATION:
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 and three months ended March 31,2000 are
not indicative of the results that may be expected for the year
ending September 30, 2000. 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, 1999.
<PAGE>
Item 1 Financial Statements ( continued)
THE FLAMEMASTER CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2000
Note 3: 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, 2000 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.
RECLASSIFICATION OF FINANCIAL STATEMENTS:
Beginning in the first quarter of fiscal 2000, various items of
portfolio income, which were previously classified as "other
(income), expenses, net" are classified as "interest and other
income" in the condensed Statements of Income. Amounts reported for
the prior quarters have been reclassified to conform to the quarter
2000 presentation.
<PAGE>
Item 1 Financial Statements (continued)
THE FLAMEMASTER CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31,2000
Note 4: Inventories are summarized as follows:
<TABLE>
<CAPTION>
MARCH 31 SEPTEMBER 30
2000 1999
-------- --------
<S> <C> <C>
Raw materials $355,261 $429,320
Shipping materials 99,935 51,992
Finished goods 426,751 392,192
-------- --------
$881,947 $873,504
-------- --------
</TABLE>
Note 5: During the three months ended March 31, 2000, the Company
purchased 5,567 shares of its outstanding common stock at a cost
of $34,514.
Note 6: MARKETABLE SECURITIES:
Marketable securities classified as current assets at March 31,
2000 include the following:
<TABLE>
<CAPTION>
FAIR VALUE COST
------------ ------------
<S> <C> <C>
U.S. Treasury obligations $ 389,916 $ 379,879
Other Government Bonds 24,506 27,058
Corporate debt securities 30,094 36,061
Mortgage backed securities 3,530 10,846
Marketable equity securities 6,228,896 2,061,198
------------ ------------
$ 6,676,942 $ 2,515,042
============ ============
</TABLE>
The contractual maturities of debt securities available for sale
at March 31, 2000 are as follows:
<TABLE>
<CAPTION>
FAIR VALUE COST
---------- ---------
<S> <C> <C>
Due within one year - -
Due after one year thru 5 years 298,713 192,806
Due after 5 years thru 10 years 107,003 70,912
Due after 10 years 26,143 29,131
Note due at single maturity date 16,232 25,403
---------- ---------
$ 448,091 $ 318,252
========== =========
</TABLE>
Gross unrealized holding gains and losses at March 31, were $ 4,386,604 and $
224,704, respectively. Realized gains from the sale of securities for the three
months ended March 31, 2000 were $ 371,679.
<PAGE>
THE FLAMEMASTER CORPORATION
Item 2:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS:
MARCH 31,2000 COMPARED TO SEPTEMBER 30, 1999 AND
MARCH 31 2000 COMPARED TO MARCH 31, 1999.
FINANCIAL CONDITION AND LIQUIDITY:
The Company's financial condition continues very strong with current assets of
$10,359,392 compared to current liabilities of $253,317 at March 31, 2000 for a
current ratio of about 40.9 to 1. Working capital stood at $10,106,075 on March
31, 2000 compared to $5,718,492 at September 30, 1999 and $5,112,528 on March
31, 1999, a healthy increase. The Company's strong financial performance and
appreciation in marketable securities accounted for the increase. Accounts
receivable decreased modestly to $585,846 from $629,796 at March 31, 1999.
Inventories remained at a steady level at $881,947 from $873,504 at year end.
Revenues for the March 31, 2000 three month period were $1,475,221 compared to
$1,245,774 in the prior year. Investment gains accounted for the increase in
revenues.
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 not
experienced any significant Y2K issues.
The Company paid a $.032 dividend on its common stock in February 2000 and it's
Board of Directors declared a $.032 dividend to be paid in May 2000.
RESULTS OF OPERATIONS:
For the three month ended March 31, 2000 net income was $407,129 compared to
$247,362 or $.25 per share vs. $.15 per share basic and $.14 fully diluted in
the year earlier period. The increase in earnings were due to a higher level of
investment gains.
For the six months ended March 31, 2000 the Company's net income was $547,903
compared to $327,838 or $.34 vs. $.20 per share basic and $.19 per share fully
diluted. Laboratory costs including research and development for the quarter
increased modestly to $71,991 from $63,939 in the prior year's quarter due to
additional new product development. General and administrative expenses remained
steady at $155,902 for the quarter compared to $159,820 in the prior year's
quarter. For the six month period general and administrative expenses were
$320,219 up modestly from the $301,078 in the year earlier period.
<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: May 2, 2000 /s/ JOSEPH MAZIN
- --------------------- ------------------------------
Joseph Mazin, President and Chairman
and Chief Executive Officer
DATE: May 2, 2000 /s/ BARBARA E. WAITE
- -------------------- ------------------------------
Barbara E. Waite, Treasurer and
Secretary
DATE: May 2, 2000 /s/ DONNA MAZIN
- -------------------- -------------------------------
Donna Mazin, Director
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> MAR-31-2000
<CASH> 2,111,624
<SECURITIES> 6,676,943
<RECEIVABLES> 590,846
<ALLOWANCES> 5,000
<INVENTORY> 881,947
<CURRENT-ASSETS> 10,359,392
<PP&E> 931,541
<DEPRECIATION> 868,478
<TOTAL-ASSETS> 10,501,682
<CURRENT-LIABILITIES> 253,317
<BONDS> 0
0
0
<COMMON> 16,098
<OTHER-SE> 9,843,840
<TOTAL-LIABILITY-AND-EQUITY> 10,501,682
<SALES> 1,883,940
<TOTAL-REVENUES> 2,492,768
<CGS> 976,546
<TOTAL-COSTS> 1,574,151
<OTHER-EXPENSES> 44,040
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 874,577
<INCOME-TAX> 326,674
<INCOME-CONTINUING> 547,903
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 547,903
<EPS-BASIC> .34
<EPS-DILUTED> .34
</TABLE>
