<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 30,2000 COMMISSION FILE NO: 0-2172
THE FLAMEMASTER CORPORATION
---------------------------
(Exact name of Registrant as specified in its Charter)
NEVADA 95-2018730
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(State or other jurisdiction of (IRS Employer identification
incorporation 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
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
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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, 2000 1,606,058
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<PAGE>
Item 1 Financial Information
Item 1 Financial Statements
<TABLE>
<CAPTION>
THE FLAMEMASTER CORPORATION
CONDENSED BALANCE SHEETS
JUNE 30 SEPTEMBER 30
2000 1999
(UNAUDITED) (NOTE)
------------ --------------
<S> <C> <C>
A S S E T S :
CURRENT ASSETS :
Cash and cash equivalents $ 2,331,716 $ 1,913,201
Marketable securities 4,800,683 2,449,981
Accounts receivable, less allowance of
$5,000 and $5,000, respectively 554,251 496,776
Inventories 1,098,329 873,504
Prepaid expenses 37,990 36,298
Deferred income taxes 38,419 33,485
Other investments 46,287 46,287
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TOTAL CURRENT ASSETS: 8,907,675 5,849,532
Machinery & improvements, net of
accumulated depreciation 55,700 21,311
License agreement, net of accumulated
amortization 75,057 87,567
------------ --------------
TOTAL ASSETS $ 9,038,432 $ 5,958,410
============ ==============
LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Accounts payable $ 255,481 $ 85,880
Accrued liabilities 12,389 8,203
Income tax payable 108,078 -
Deferred tax liability 14,695 14,695
Deferred credits 22,262 22,262
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TOTAL CURRENT LIABILITIES: 412,905 131,040
LONG-TERM LIABILITIES:
Notes payable 394,312 376,656
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TOTAL LIABILITIES: 807,217 507,696
SHAREHOLDERS' EQUITY:
COMMON STOCK, par value,$.01 per share,
authorized 6,000,000 shares; issued and outstanding
1,606,058 shares at 06/30//00 and 1,626,935 at 9/30/99. 16,060 16,269
Additional paid-in Capital 3,685,931 3,733,846
Retained earnings 2,334,771 1,562,002
Allowance for marketable securities 2,194,453 138,597
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TOTAL STOCKHOLDERS' EQUITY $ 8,231,215 $ 5,450,714
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TOTAL LIABILITY AND EQUITY $ 9,038,432 $ 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 JUNE 30, 2000
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<TABLE>
<CAPTION>
2000 1999
---------- ----------
<S> <C> <C>
Net sales $1,085,721 $1,440,191
Royalties - 1,209
Interest and Other Income 532,498 63,519
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Total Revenues 1,618,219 1,504,919
========== ==========
Costs and expenses:
Cost of sales 528,675 586,570
Selling 73,259 75,318
General and administrative 154,598 147,264
Laboratory costs 69,110 75,591
Other expenses 24,476 48,330
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Total costs and expenses: 850,118 933,073
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Income before income taxes 768,101 571,846
Income taxes 327,428 207,227
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Net income 440,673 364,619
Other comprehensive income
Net of income tax
Unrealized Holding Gains (Losses) (328,114) 199,425
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Comprehensive Income $ 112,559 $ 564,044
========== ==========
Net income per share, basic $ .27 $ .22
========== ==========
Net income per share, diluted **** $ .22
==========
Weighted average shares outstanding:
Basic 1,608,552 1,634,012
========== ==========
Diluted 1,667,483 1,750,399
========== ==========
</TABLE>
**** Diluted earnings per share is not presented, as effect of the assumed
conversion of preferred stock is anti-dilutive.
See notes to condensed financial statements.
<PAGE>
Item 1 Financial Statements (continued)
THE FLAMEMASTER CORPORATION
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
NINE MONTHS ENDED JUNE 30,
--------------------------------
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
Net Sales $ 2,969,661 $ 3,441,151
Royalties 813 3,671
Interest and Other Income 1,140,513 166,018
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Total Revenues 4,110,987 3,610,840
============ ============
Costs and expenses:
Cost of Sales 1,505,221 1,554,980
Selling 211,577 204,844
General and administrative 474,817 448,342
Laboratory 208,178 202,304
Other (income)/ Expenses, Net 68,516 74,595
------------ ------------
Total Costs and Expenses 2,468,309 2,485,065
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Income before income taxes 1,642,678 1,125,775
Income taxes 654,102 433,318
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Net income 988,576 692,457
Other comprehensive income
Net of income taxes
Increase in unrealized holding gains 1,076,148 177,807
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Comprehensive Income $ 2,064,724 $ 870,264
============ ============
Net income per share, basic $ .61 $ .42
============ ============
Net income per share, diluted *** $ .41
============ ============
Weighted average shares outstanding:
Basic 1,613,938 1,638,492
============ ============
Diluted 1,672,869 1,754,879
============ ============
</TABLE>
***Diluted earnings per share is not presented, as the effect of the assumed
conversion of preferred stock is anti-dilutive.
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>
2000 1999
------------ ------------
<S> <C> <C>
Net cash provided (used) by operating activities: $ 395,063 $ 598,313
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment & improvements 18,165 (12,632)
Net purchases and sales of investment securities (112,916) (31,463)
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NET CASH USED IN INVESTING ACTIVITIES: (94,751) (44,095)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of Company's Common Stock (28,672) (46,277)
Dividends paid (51,548) (147,758)
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NET CASH USED IN FINANCING ACTIVITIES (80,220) (194,035)
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NET INCREASE, (DECREASE), IN CASH 220,092 360,183
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Cash, beginning of period 2,111,624 1,404,347
------------ ------------
Cash, end of period $ 2,331,716 $ 1,764,530
============ ============
Cash paid during period for income taxes $ 260,000 $ 482,277
Cash paid during period for interest expense $ 13,183 $ 19,774
</TABLE>
See notes to Condensed Financial Statements.
<PAGE>
Item 1 Financial Statements (continued)
THE FLAMEMASTER CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 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 nine months and three months ended June 30, 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)
JUNE 30, 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 June 30, 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)
JUNE 30,2000
Note 4: Inventories are summarized as follows:
<TABLE>
<CAPTION>
June 30 September 30
2000 1999
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<S> <C> <C>
Raw materials $ 550,616 $ 429,320
Shipping materials 123,606 51,992
Finished goods 424,107 392,192
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$ 1,098,329 $ 873,504
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</TABLE>
Note 5: During the nine months ended June 30, 2000, the Company
purchased 3,807 shares of its outstanding common stock at a cost
of $28,672.
Note 6: MARKETABLE SECURITIES:
Marketable securities classified as current assets at June 30,
2000 include the following:
<TABLE>
<CAPTION>
FAIR VALUE COST
-------------- --------------
<S> <C> <C>
U.S. Treasury obligations $ 423,625 $ 409,347
Other Government Bonds 23,988 27,046
Corporate debt securities 28,115 36,061
Mortgage backed securities 3,646 10,826
Marketable equity securities 4,321,310 2,144,680
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$ 4,800,684 $ 2,627,960
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</TABLE>
The contractual maturities of debt securities available for sale
at June 30, 2000 are as follows:
<TABLE>
<CAPTION>
FAIR VALUE COST
-------------- --------------
<S> <C> <C>
Due within one year -- --
Due after one year thru 5 years 329,521 326,282
Due after 5 years thru 10 years 107,554 102,614
Due after 10 years 1,553 1,936
Not due at single maturity date 40,746 52,448
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$ 479,374 $ 483,280
============== ==============
</TABLE>
Gross unrealized holding gains and losses at June 30,2000 were $2,440,445 and
$267,721, respectively. Realized gains from the sale of securities for the nine
months ended June 30, 2000 were $238,543.
<PAGE>
THE FLAMEMASTER CORPORATION
Item 2:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS:
JUNE 30, 2000 COMPARED TO SEPTEMBER 30, 1999 AND
JUNE 30, 2000 COMPARED TO JUNE 30, 1999.
FINANCIAL CONDITION AND LIQUIDITY:
The Company's financial condition is strong with current assets of $8,907,675
compared to current liabilities of $412,905 at June 30, 2000 for a current ratio
of better than 21.5 to 1. Working capital stood at $8,494,770 on June 30, 2000
compared to $5,716,492 at September 30, 1999 and $5,793,033 on June 30, 1999, a
robust increase. The Company's strong financial performance and appreciation in
marketable securities accounted for the increase. Accounts receivable increased
moderately to $554,251 on June 30, 2000 from $496,776 on September 30, 1999.
Inventories expanded to $1,098,329 from $873,504 at year end. Revenues for the
June 30, 2000 period were $1,618,219 compared to $1,504,919 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 paid a $.032 dividend on its common stock in May 2000 and it's Board
of Directors declared a $.032 dividend to be paid in August 2000.
RESULTS OF OPERATIONS:
For the three month ended June 30, 2000 net income was $440,673 compared to
$364,619 or $.27 per share vs. $.22 per share basic and fully diluted in the
year earlier period. The increase in earnings were due to a higher level of
investment gains.
For the nine months ended June 30, 2000 the Company's net income was $988,576
compared to $692,457 or $.61 vs. $.42 per share. Laboratory costs including
research and development for the quarter decreased modestly to $69,110 from
$75,591 in the prior year's quarter. General and administrative expenses
increased modestly to $154,598 for the quarter compared to $147,264 in the prior
year's quarter. For the nine month period general and administrative expenses
were $474,817 up modestly from the $448,342 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: AUGUST 4, 2000 /s/ JOSEPH MAZIN
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(Signature)
Joseph Mazin, President and Chairman
and Chief Executive Officer
DATE: AUGUST 4, 2000 /s/ BARBARA E. WAITE
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(Signature)
Barbara E. Waite, Treasurer and
Secretary
DATE: AUGUST 4, 2000 /s/ DONNA MAZIN
-------------------- -------------------------------
(Signature)
Donna Mazin, Director
