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, 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 incorporation (IRS Employer identification
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:
December 31, 2000 1,585,451
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Item 1 Financial Information
Item 1 Financial Statement
THE FLAMEMASTER CORPORATION
CONDENSED BALANCE SHEETS
DECEMBER 31 SEPTEMBER 30
2000 2000
(UNAUDITED) (NOTE)
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A S S E T S :
CURRENT ASSETS:
Cash and cash equivalents $ 2,382,630 $ 2,399,141
Marketable securities 2,751,747 3,954,345
Accounts receivable, less allowance of
$5,000 and $5,000, respectively 512,751 538,466
Inventories 958,695 925,771
Prepaid expenses 23,658 30,233
Deferred income taxes 48,416 46,366
Other investments 76,912 76,912
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TOTAL CURRENT ASSETS: 6,754,809 7,971,234
Machinery & improvements, net of
accumulated depreciation 72,529 70,527
License agreement, net of accumulated
amortization 66,717 70,887
TOTAL ASSETS $ 6,894,055 $ 8,112,648
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Accounts payable $ 160,034 $ 85,256
Accrued liabilities 8,768 8,736
Income tax payable 63,257 27,205
Deferred tax liability 49,553 624,217
Deferred credits 12,143 14,167
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TOTAL CURRENT LIABILITIES: 293,755 759,581
LONG-TERM LIABILITIES:
Notes payable 406,082 400,197
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TOTAL LIABILITIES: 699,837 1,159,778
SHAREHOLDERS' EQUITY:
COMMON STOCK, par value,$.01 per share,
authorized 6,000,000 shares; issued and outstanding
1,585,451 shares at 12/31/00 and 1,595,757 at 9/30/00. 15,855 15,958
Additional paid-in Capital 3,638,483 3,662,137
Retained earning 2,465,642 2,441,387
Allowance for marketable securities 74,238 833,388
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TOTAL STOCKHOLDERS' EQUITY $ 6,194,218 $ 6,952,870
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TOTAL LIABILITY AND EQUITY $ 6,894,055 $ 8,112,648
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Note: Balance sheet as of September 30, 2000 has been derived from the audited
balance sheet at that date. See notes to condensed financial statements.
Item 1 Financial Statements (continued)
THE FLAMEMASTER CORPORATION
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED DECEMBER 31,
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2000 1999
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Net sales $ 862,946 $ 850,516
Royalties - 813
Interest and Other Income 88,697 166,218
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Total Revenues 951,643 1,017,547
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Costs and expenses:
Cost of sales 445,093 454,658
Selling 84,855 68,909
General and administrative 152,596 164,317
Laboratory costs 67,090 67,077
Other expenses 20,964 21,496
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Total costs and expenses: 770,598 776,457
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Income before income taxes 181,045 241,090
Income taxes 71,191 100,316
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Net income 109,854 140,774
Other comprehensive income
Net of income tax
Unrealized Holding Gains (Losses) (759,148) 1,029,634
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Comprehensive Income $ (649,294) $ 1,170,408
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Net income per share, basic $.07 $.09
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Net income per share, diluted **** ****
Weighted average shares outstanding:
Basic 1,594,291 1,621,144
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Diluted 1,710,678 1,737,531
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**** Diluted earnings per share are not presented, as effect of the assumed
conversion of preferred stock is anti-dilutive. See notes to condensed financial
statements.
Item 1 Financial Statements (continued)
THE FLAMEMASTER CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED DECEMBER 31,
--------------------------------
2000 1999
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Net cash provided (used) by operating activities: $ 224,699 $ 372,313
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment & improvements (7,636) (3,975)
Net purchases and sales of investment securities (130,103) (30,254)
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NET CASH USED IN INVESTING ACTIVITIES: (137,739) (34,229)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in notes payable 5,885
Purchase of Company's Common Stock (58,299) (48,299)
Dividends paid (51,057) (49,066)
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NET CASH USED IN FINANCING ACTIVITIES (103,471) (97,365)
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NET INCREASE, (DECREASE), IN CASH (16,511) 240,719
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Cash, beginning of period 2,399,141 1,913,201
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Cash, end of period $ 2,382,630 $ 2,153,920
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Cash paid during period for income taxes $ 38,300 $ 8,000
Cash paid during period for interest expense $ 6,591 $ 6,591
See notes to Condensed Financial Statements.
Item 1 Financial Statements (continued)
THE FLAMEMASTER CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
DECEMBER 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 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-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, 2000 are not
indicative of the results that may be expected for the year ending
September 30, 2001. 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, 2000.
Item 1 Financial Statements (continued)
THE FLAMEMASTER CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
DECEMBER 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
December 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.
Item 1 Financial Statements (continued)
THE FLAMEMASTER CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
DECEMBER 31, 2000
Note 4: Inventories are summarized as follows:
December 31 September 30
2000 2000
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Raw materials $ 484,817 $ 469,384
Shipping materials 97,234 105,767
Finished goods 376,644 350,620
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$ 958,695 $ 925,771
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Note 5: During the three months ended December 31, 2000, the Company
purchased 10,307 shares of its outstanding common stock at a cost
of $58,299.
Note 6: MARKETABLE SECURITIES:
Marketable securities classified as current assets at December 31,
2000 include the following:
FAIR VALUE COST
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U.S. Treasury obligations $ 499,374 $ 465,932
Other Government Bonds 42,371 42,827
Corporate debt securities 5,723 16,759
Mortgage backed securities 887 1,278
Marketable equity securities 2,203,392 2,137,675
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$2,751,747 $2,664,471
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The contractual maturities of debt
securities available for sale
at December 31, 2000 is as follows:
FAIR VALUE COST
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Due within one year - -
Due after one year thru 5 years $ 396,427 $ 392,166
Due after 5 years thru 10 years 124,895 106,330
Due after 10 years 26,147 27,021
Not due at single maturity date 887 1,278
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$ 548,356 $ 526,795
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Gross unrealized holding gains and losses at December 31, 2000 were $462,615 and
$375,339, respectively. Realized gains and losses from the sale of securities
for the three months ended December 31, 2000 were $12,219 and $411 respectively.
THE FLAMEMASTER CORPORATION
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS:
DECEMBER 31, 2000 COMPARED TO SEPTEMBER 30, 2000 AND
DECEMBER 31, 2000 COMPARED TO DECEMBER 31, 1999.
FINANCIAL CONDITION AND LIQUIDITY:
The Company's financial condition is strong with current assets of $ 6,754,809
compared to current liabilities of $ 293,755 at December 31, 2000 for a current
ratio of 23 to 1. Working capital decreased to $6,461,054 on December 31, 2000
compared to $7,211,653 at September 30, 2000. Cash and cash equivalents, and
marketable securities stood at $5,134,377. Accounts receivable expanded to
$512,751 from $364,043 in the prior year's quarter ended December 31, 1999.
Inventories grew to $958,695 on December 31, 2000 from $925,771 at year-end due
to an increase in order volume. Revenues for the December 31, 2000 quarter were
$ 951,643 compared to $1,017,547 in the prior year.
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 December 2000 and its
Board of Directors declared a $.032 dividend to be paid in March 2001.
RESULTS OF OPERATIONS:
For the three month ended December 31, 2000 net income was $ 109,853 compared to
$140,774 or $.07 per share vs. $.09 per share in the year earlier period. The
decrease in earnings was due to lower level of investment gains. The Company
continues to expand its customer base. Laboratory costs including research and
development for this quarter remained steady at $67,090 from $67,077. General
and administrative expenses decreased to $152,596 from $164,317.
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
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(Registrant)
DATE:
FEBRUARY 7,2001 /s/ JOSEPH MAZIN
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(Signature)
Joseph Mazin, President and Chairman
and Chief Executive Officer
DATE:
FEBRUARY 7, 2001 /s/ MARY KAY EASON
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(Signature)
Mary Kay Eason, Assistant Treasurer and
Secretary
DATE:
FEBRUARY 7, 2001 /s/ DONNA MAZIN
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(Signature)
Donna Mazin, Director