<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, 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 (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
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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:
DECEMBER 31, 1999 1,615,432
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<PAGE>
Item 1 Financial Information
Item 1 Financial Statements
THE FLAMEMASTER CORPORATION
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31 SEPTEMBER 30
1999 1999
(UNAUDITED) (NOTE)
--------------- ---------------
<S> <C> <C>
A S S E T S :
CURRENT ASSETS :
Cash and cash equivalents $ 2,153,920 $ 1,913,201
Marketable securities 4,191,443 2,449,981
Accounts receivable, less allowance of
$5,000 and $5,000, respectively 364,043 496,776
Inventories 983,941 873,504
Prepaid expenses 24,522 36,298
Deferred income taxes 28,518 33,485
Settlement receivable 4,800 --
Other investments 46,287 46,287
--------------- ---------------
TOTAL CURRENT ASSETS: 7,797,474 5,849,532
Machinery & improvements, net of
accumulated depreciation 22,443 21,311
License agreement, net of accumulated
amortization 83,397 87,567
--------------- ---------------
TOTAL ASSETS $ 7,903,314 $ 5,958,410
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Accounts payable $ 183,913 $ 85,880
Accrued liabilities 10,180 8,203
Income tax payable 80,133 --
Deferred tax liability 18,953 14,695
Deferred credits 22,262 22,262
--------------- ---------------
TOTAL CURRENT LIABILITIES: 315,441 131,040
LONG-TERM LIABILITIES:
Notes payable 382,542 376,656
--------------- ---------------
TOTAL LIABILITIES: 697,983 507,696
SHAREHOLDERS' EQUITY:
COMMON STOCK, par value,$.01 per share, authorized
6,000,000 shares; issued and outstanding 1,615,432
shares at 12/31/99 and 1,626,935 shares
at 9/30/99 16,154 16,269
Additional paid-in Capital 3,707,444 3,733,846
Retained earnings 1,631,928 1,562,002
Allowance for marketable securities 1,849,805 138,597
--------------- ---------------
TOTAL STOCKHOLDERS' EQUITY $ 7,205,331 $ 5,450,714
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TOTAL LIABILITY AND EQUITY $ 7,903,314 $ 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 DECEMBER 31,
------------------------------------
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Net sales $ 850,516 $ 800,131
Royalties 813 489
Interest and Other Income 166,218 59,527
--------------- ---------------
1,017,547 860,147
=============== ===============
Costs and expenses:
Cost of sales 454,658 447,740
Selling 68,909 66,871
General and administrative 164,317 141,258
Laboratory costs 67,077 62,775
Other (income), expenses, net 21,496 13,078
--------------- ---------------
Total costs and expenses: 776,457 731,722
Income before income taxes 241,090 128,425
Income taxes 100,316 47,949
--------------- ---------------
Net income 140,774 80,476
Other comprehensive income
Net of income tax
Unrealized Holding Gains (Losses) 1,029,634 38,623
--------------- ---------------
Comprehensive Income $ 1,170,408 $ 119,099
=============== ===============
Net income per share, basic $ .09 $ .05
=============== ===============
Net income per share, diluted ***** $ .05
Weighted average shares outstanding:
Basic 1,621,144 1,642,414
=============== ===============
Diluted 1,737,531 1,758,801
=============== ===============
</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 CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Net cash provided (used) by
operating activities: $ 372,313 $ 250,367
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Disposal of equipment & improvements -- 2,354
Purchase of equipment & improvements (3,975) --
Net purchases and sales of
investment securities (30,254) (29,870)
--------------- ---------------
NET CASH USED IN INVESTING ACTIVITIES: (34,229) (27,516)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of Company's Common Stock (48,299) (16,204)
Dividends paid (49,066) (49,427)
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NET CASH USED IN FINANCING ACTIVITIES (97,365) (65,631)
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NET INCREASE (DECREASE), IN CASH 240,719 157,220
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Cash, beginning of period 1,913,201 1,404,347
--------------- ---------------
Cash, end of period $ 2,153,920 $ 1,561,567
=============== ===============
Cash paid during period
for income taxes $ 8,000 $ 34,258
Cash paid during period for
interest expense $ 6,591 $ 6,591
</TABLE>
See notes to Condensed Financial Statements.
<PAGE>
Item 1 Financial Statements (continued)
THE FLAMEMASTER CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
DECEMBER 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 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.
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 three months ended December 31,1999 are not
necessarily 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)
DECEMBER 31, 1999
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 December 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.
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 first
quarter 2000 presentation.
<PAGE>
Item 1 Financial Statements (continued)
THE FLAMEMASTER CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
DECEMBER 31, 1999
Note 4: Inventories are summarized as follows:
<TABLE>
<CAPTION>
December 31 September 30
1999 1999
---- ----
<S> <C> <C>
Raw materials $ 462,978 $ 429,320
Shipping materials 129,290 51,992
Finished goods 391,673 392,192
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$ 983,941 $ 873,504
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</TABLE>
Note 5: During the three months ended December 31, 1999, the Company
purchased 11,504 shares of its outstanding common stock at a cost
of $48,301.
Note 6: MARKETABLE SECURITIES:
Marketable securities classified as current assets at December 31,
1999 include the following:
<TABLE>
<CAPTION>
Fair Value Cost
------------ ------------
<S> <C> <C>
U.S. Treasury obligations 356,951 349,619
Other Government Bonds 26,792 27,070
Corporate debt securities 24,830 26,061
Mortgage backed securities 3,720 10,863
Marketable equity securities 3,779,150 1,949,753
------------ ------------
4,191,443 2,363,366
============ ============
</TABLE>
The contractual maturities of debt securities available for sale
at December 31, 1999 are as follows:
<TABLE>
<CAPTION>
Fair Value Cost
------------ ------------
<S> <C> <C>
Due within one year -- --
Due after one year thru 5 years 293,047 293,815
Due after 5 years thru 10 years 82,904 75,355
Due after 10 years 28,417 29,040
Note due at single maturity date 7,924 15,403
------------ ------------
412,292 413,613
============ ============
</TABLE>
Gross unrealized holding gains and losses at December 31, were $2,030,994 and
$202,919, respectively. Realized gains from the sale of securities for the
three months ended December 31, 1999 were $102,222.
<PAGE>
THE FLAMEMASTER CORPORATION
Item 2:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS:
DECEMBER 31, 1999 COMPARED TO SEPTEMBER 30, 1999 AND
DECEMBER 31, 1999, 1999 COMPARED TO DECEMBER 31, 1998.
FINANCIAL CONDITION AND LIQUIDITY:
The Company's financial condition continues very strong with current assets of
$7,797,474 compared to current liabilities of $315,441 at December 31, 1999 for
a current ratio of about 24.7 to 1. Working capital stood at $7,482,033 on
December 31, 1999 compared to $5,718,492 at September 30, 1999 and $5,063,438 on
December 31, 1998, a robust increase. The Company's strong financial performance
and appreciation in marketable securities account for the increase. Accounts
receivable decreased modestly to $364,043 from $397,740 at December 31, 1998.
Inventories grew to $983,941 from $873,504 at year end due to the increase in
business. Revenues for the December 31, 1999 three month period were $1,017,547
compared to $860,147 in the prior year. New products 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 (year 2000) issues.
The Company paid a $.03 dividend on its common stock in November 1999 and its
Board of Directors declared a $.032 dividend to be paid in February 2000.
RESULTS OF OPERATIONS:
For the three months ended December 31, 1999 net income was $140,774 compared to
$80,476 or $.09 per share vs. $.05 per share in the year earlier period. The
increase in earnings were due to a favorable product line and a higher level of
investment gains. The Company continued to expand its product mix and add to its
customer base. Laboratory costs including research and development for this
quarter increased to $67,077 from $62,775 due to a greater emphasis on new
product development. General and administrative expenses increased in line with
the increase in business to $164,317 from $141,258.
<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 7, 2000 /s/ JOSEPH MAZIN
- ---------------------- ------------------------------
(Signature)
Joseph Mazin, President and Chairman
and Chief Executive Officer
DATE: February 7, 2000 /s/ BARBARA E. WAITE
- ---------------------- ------------------------------
(Signature)
Barbara E. Waite, Treasurer and
Secretary
DATE: February 7, 2000 /s/ DONNA MAZIN
- ---------------------- -------------------------------
(Signature)
Donna Mazin, Director
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 2,153,920
<SECURITIES> 4,191,443
<RECEIVABLES> 369,043
<ALLOWANCES> 5,000
<INVENTORY> 983,941
<CURRENT-ASSETS> 7,797,474
<PP&E> 893,406
<DEPRECIATION> 870,963
<TOTAL-ASSETS> 7,903,314
<CURRENT-LIABILITIES> 315,441
<BONDS> 0
0
0
<COMMON> 16,154
<OTHER-SE> 7,189,177
<TOTAL-LIABILITY-AND-EQUITY> 7,903,314
<SALES> 850,516
<TOTAL-REVENUES> 1,017,547
<CGS> 454,658
<TOTAL-COSTS> 754,961
<OTHER-EXPENSES> 21,496
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 241,090
<INCOME-TAX> 100,316
<INCOME-CONTINUING> 140,774
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 140,774
<EPS-BASIC> .09
<EPS-DILUTED> 0
</TABLE>
