WWW.EXFILE.COM - FLAMEMASTER CORPORATION - FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549

FORM 10- QSB

QUARTERLY REPORT UNDER SECTION 13 or 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR QUARTER ENDED: JUNE 30, 2003   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 or organization) (IRS Employer identification 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 ý NO o

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

June 30, 2003 1,394,366

Item 1 Financial Information
Item 1 Financial Statement

THE FLAMEMASTER CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEET

June 30,
2003
(Unaudited)
A S S E T S :        
Current Assets:   
Cash and cash equivalents   $ 2,214,630  
Marketable securities    3,191,621  
Accounts receivable, less allowance  
of $5,000    627,345  
Reserve for returned material    (22,000 )
Notes Receivable    74,198  
Inventories    1,135,012  
Prepaid expenses    53,493  
Deferred income taxes    247,346  
Total current assets:     7,521,645  
 
Machinery & improvements, net of  
accumulated depreciation    182,857  
License agreement, net of accumulated  
amortization    25,017  
TOTAL ASSETS    $7,729,519  
LIABILITIES AND STOCKHOLDERS’ EQUITY:   
Current Liabilities:   
Accounts payable   $317,975  
Accrued liabilities    19,485  
Income taxes payable    81,109  
Deferred tax liability    12,856  
Total current liabilities:     431,425  
 
Long-term liabilities:   
Notes payable    1,700,600  
Total Liabilities:     2,132,025  
 
Minority interest    1,900  
 
SHAREHOLDERS’ EQUITY:   
 
Common Stock, par value, $.01 per share,   
authorized 6,000,000 shares; issued and outstanding  
1,394,366 shares at 06/30/03.    13,899  
Additional paid-in Capital    3,248,236  
Retained earning    2,621,168  
Allowance for marketable securities    (287,709 )
TOTAL STOCKHOLDERS’ EQUITY    $ 5,595,594  
TOTAL LIABILITY AND EQUITY    $ 7,729,519  

See notes to condensed financial statements.

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Item 1  Financial Statements (continued)

THE FLAMEMASTER CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED JUNE 30,

2003 2002
Net sales     $ 1,478,940   $ 1,329,107  
Royalties    2,399    435  
Interest and Other Income    114,633    55,846  
Total Revenues    1,595,972    1,385,388  
Costs and expenses:  
   Cost of sales    765,362    630,169  
   Selling    94,717    95,785  
   General and administrative    167,374    170,403  
   Laboratory costs    106,590    99,331  
   Other expenses    33,008    28,475  
Total costs and expenses:    1,167,051    1,024,163  
Income before income taxes    428,921    361,225  
Income taxes    180,943    178,523  
Net income    247,978    182,702  
Other comprehensive income  
  Net of income tax  
Unrealized Holding Gains (Losses)    (121,450 )  (17,107 )
Comprehensive Income   $ 126,528   $ 165,595  
Net income per share, basic   $ .18   $ .13  
Net income per share, diluted   $ .16    ****  
Weighted average shares outstanding:  
   Basic    1,396,474    1,434,123  
   Diluted    1,651,323    1,477,663  

****   Diluted earnings per share are not presented, as effect of the assumed conversion of Notes Payable is anti-dilutive.

See notes to condensed financial statements.

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Item 1  Financial Statements (continued)

THE FLAMEMASTER CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
NINE MONTHS ENDED JUNE 30,

2003 2002
Net Sales     $ 3,753,970   $ 3,711,461  
Royalties    2,588    6,865  
Interest and Other Income    247,829    222,283  
Total Revenues    4,004,387    3,940,609  
Costs and expenses:  
  Cost of Sales    1,985,362    1,946,928  
  Selling    281,425    274,115  
  General and administrative    518,366    481,524  
  Laboratory    304,786    279,593  
  Other (income)/ Expenses, Net    35,485    86,120  
  Interest on Convertible Notes    59,576    --  
Total Costs and Expenses    3,185,000    3,068,280  
Income before income taxes    819,387    872,329  
Income taxes    320,561    358,514  
Net income    498,826    513,815  
Other comprehensive income  
  Net of income taxes  
Unrealized holding gains (losses)    (121,450 )  36,882  
Comprehensive Income   $ 377,376   $ 550,697  
Net income per share, basic   $ .36   $ .36  
Net income per share, diluted   $ .33    ***  
Weighted average shares outstanding:  
   Basic    1,400,261    1,443,005  
   Diluted    1,655,019    1,484,845  

****   Diluted earnings per share are not presented, as effect of the assumed conversion of Notes Payable is anti-dilutive.

See notes to condensed financial statements.

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Item 1  Financial Statements (continued)

THE FLAMEMASTER CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED JUNE 30,

2003
Net cash provided (used) by operating activities:     $ 729,472  
 
 
CASH FLOWS FROM INVESTING ACTIVITIES:  
Purchase of equipment & improvements    (23,561 )
Net purchases and sales of investment securities    (231,944 )
 
NET CASH USED IN INVESTING ACTIVITIES:    (255,505 )
 
CASH FLOWS FROM FINANCING ACTIVITIES:  
Increase in notes payable    -0-  
Purchase of Company's Common Stock    (113,883 )
Dividends paid    (89,638 )
Minority interest    1,900  
 
NET CASH USED IN FINANCING ACTIVITIES    (201,621 )
 
 
NET INCREASE, (DECREASE), IN CASH    272,346  
 
Cash, beginning of period    1,942,284  
 
Cash, end of period   $ 2,214,630  
 
Cash paid during period for income taxes   $ 199,000  
 
Cash paid during period for interest expense   $ 59,576  
 

See notes to condensed financial statements

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Item 1  Financial Statements (continued)

THE FLAMEMASTER CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2003

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 is 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 entities 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-QSB 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, 2003 are not indicative of the results that may be expected for the year ending September 30, 2003.
 
    For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-KSB for the year ended September 30, 2002.

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Item 1  Financial Statements (continued)

THE FLAMEMASTER CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2003

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, 2003 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.

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Item 1  Financial Statements (continued)

THE FLAMEMASTER CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2003

Note 4:   Inventories are summarized as follows:
June 30,
2003
Raw materials     $503,996  
Shipping materials    225,474  
Finished goods    405,541  
    $ 1,135,011  

 

Note 5:   During the three months ended June 30, 2003, the Company purchased 3,828 shares of its outstanding common stock at a cost of $24,983.

 

Note 6:   MARKETABLE SECURITIES:
Marketable securities classified as current assets at June 30, 2003 include the following:

 

Fair Value Cost
U.S. Treasury obligations     $ 288,209   $ 253,290  
Other Government Bonds    49,668    44,374  
Corporate debt securities    313,119    338,262  
Mortgage backed securities    136,925    123,791  
Marketable equity securities    2,403,700    2,957,678  
    $ 3,191,621   $ 3,707,395  
The contractual maturities of debt  
securities available for sale at  
June 30, 2003 is as follows:  
Fair Value Cost
Due within one year   $69,895   $74,710  
Due after one year thru 5 years    121,416    151,205  
Due after 5 years thru 10 years    119,427    100,315  
Due after 10 years    467,896    418,880  
Not due at single maturity date    9,286    14,606  
    $ 787,920    759,716  

Gross unrealized holding gains and losses at June 30, 2003 were $322,209 and $847,984, respectively. Realized gains and losses from the sale of securities for the three months ended June 30, 2003 were $64,720 and $19,609 respectively.

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THE FLAMEMASTER CORPORATION

Item 2:
Management’s Discussion and Analysis of Financial Condition and Results of Operations:

June 30, 2003 compared to September 30, 2002 and
June 30, 2003 compared to June 30, 2002.

FINANCIAL CONDITION AND LIQUIDITY:

The Company’s financial condition is strong with current assets of $7,521,645 compared to current liabilities of $431,425 at June 30, 2003, for a current ratio of more than 17.4 to 1. Working capital increased to $7.090,220 on June 30, 2003, compared to $6,584,369 at September 30, 2002. Cash, cash equivalents, and marketable securities stood at $5,406,251. Accounts receivable expanded to $627,345 from $616,178 in the prior year’s quarter ended June 30, 2002 due to the increase level of business the Company is experiencing. Inventories grew moderately to $1,135,012 on June 30, 2003 from $1,080,285 at September 30, 2002, in line with an increase in production. Revenues for the June 30, 2003 quarter increased to $1,595,972 compared to $1,385,388 in the year earlier quarter. Sales from operations expanded to $1,478,940 for the June 30, 2003 quarter, compared to $1,329,107 in the year earlier 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 next 12 months of operation. Management believes that the Company’s creditworthiness in substantial relative to its size.

The Company paid a $.032 cash dividend on its company stock in May 2003.

RESULTS OF OPERATIONS:

For the three months ended June 30, 2003, income before income taxes expanded to $428,921 compared to $361,225 in the prior year. Net income after taxes rose to $247,978 or $.18 per share compared to $182,702 or $.13 per share for the June 30, 2002 quarter. Laboratory costs including research and development for the quarter increased to $106,590 from $99,331 in the year ago period. The Company has expanded its development efforts for more high end products in its core aircraft sealants market. General and Administration expenses remained steady at $167,374.

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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: JOSEPH MAZIN
August 7, 2003
         (Signature)
  Joseph Mazin, President and Chairman
  And Chief Executive Officer and Chief
  Financial Officer
   
DATE: MARY KAY EASON
August 7, 2003
         (Signature)
  Mary Kay Eason, Treasurer and Secretary
   
   
DATE: DONNA MAZIN
August 7, 2003
         (Signature)
  Donna Mazin, Director

 

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