10-Q 1 a2037482z10-q.txt FORM 10-Q 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 --------------------------------------------- ---------------------------- (State or other jurisdiction of incorporation (IRS Employer identification 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: December 31, 2000 1,585,451 -------------------------------------- Item 1 Financial Information Item 1 Financial Statement THE FLAMEMASTER CORPORATION CONDENSED BALANCE SHEETS

~~THE~~DECEMBER ~~FLAMEMASTER~~31 ~~CORPORATION CONDENSED BALANCE SHEETS JUNE 30~~ SEPTEMBER 30 2000 ~~1999~~2000 (UNAUDITED) (NOTE) ------------- -------------- A S S E T S : CURRENT ASSETS : Cash and cash equivalents $ 2,~~331~~382,~~716~~630 $ 12,~~913~~399,~~201~~141 Marketable securities 42,~~800~~751,~~683~~747 23,~~449~~954,~~981~~345 Accounts receivable, less allowance of $5,000 and $5,000, respectively ~~554~~512,~~251~~751 ~~496~~538,~~776~~466 Inventories 1958,~~098,329~~695 ~~873~~925,~~504~~771 Prepaid expenses 3723,~~990~~658 3630,~~298~~233 Deferred income taxes 3848,~~419~~416 3346,~~485~~366 Other investments 4676,~~287~~912 4676,~~287~~912 ------------- -------------- TOTAL CURRENT ASSETS: 86,~~907~~754,~~675~~809 57,~~849~~971,~~532~~234 Machinery & improvements, net of accumulated depreciation 5572,~~700~~529 2170,~~311~~527 License agreement, net of accumulated amortization 7566,~~057~~717 8770,~~567~~887 ~~------------ --------------~~ TOTAL ASSETS $ 96,~~038~~894,~~432~~055 $ 58,~~958~~112,~~410~~648 ============= ============== LIABILITIES AND STOCKHOLDERS' EQUITY: CURRENT LIABILITIES: Accounts payable $ ~~255~~160,~~481~~034 $ 85,~~880~~256 Accrued liabilities 128,~~389~~768 8,~~203~~736 Income tax payable ~~108~~63,~~078~~257 -27,205 Deferred tax liability 1449,~~695~~553 14624,~~695~~217 Deferred credits 2212,~~262~~143 2214,~~262~~167 ------------- -------------- TOTAL CURRENT LIABILITIES: ~~412~~293,~~905~~755 ~~131~~759,~~040~~581 LONG-TERM LIABILITIES: Notes payable ~~394~~406,~~312~~082 ~~376~~400,~~656~~197 ------------- -------------- TOTAL LIABILITIES: ~~807~~699,~~217~~837 ~~507~~1,~~696~~159,778 SHAREHOLDERS' EQUITY: COMMON STOCK, par value,$.01 per share, authorized 6,000,000 shares; issued and outstanding 1,~~606~~585,~~058~~451 shares at 0612/3031//00 and 1,~~626~~595,~~935~~757 at 9/30/9900. 1615,~~060~~855 1615,~~269~~958 Additional paid-in Capital 3,~~685~~638,~~931~~483 3,~~733~~662,~~846~~137 Retained ~~earnings~~earning 2,~~334~~465,~~771~~642 12,~~562~~441,~~002~~387 Allowance for marketable securities 274,~~194,453~~238 ~~138~~833,~~597~~388 ------------- -------------- TOTAL STOCKHOLDERS' EQUITY $ 86,~~231~~194,~~215~~218 $ 56,~~450~~952,~~714~~870 ------------- -------------- TOTAL LIABILITY AND EQUITY $ 96,~~038~~894,~~432~~055 $ 58,~~958~~112,~~410~~648 ============= ==============

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, ------------------------------------

2000 1999 ----------- ----------- Net sales $1 862,~~085,721~~946 $1 850,~~440,191~~516 Royalties - ~~1,209~~813 Interest and Other Income ~~532~~88,~~498~~697 63166,~~519~~218 ----------- ----------- Total Revenues 1951,~~618,219~~643 1,~~504~~017,~~919~~547 =========== =========== Costs and expenses: Cost of sales ~~528~~445,~~675~~093 ~~586~~454,~~570~~658 Selling 7384,~~259~~855 7568,~~318~~909 General and administrative ~~154~~152,~~598~~596 ~~147~~164,~~264~~317 Laboratory costs 6967,~~110~~090 7567,~~591~~077 Other expenses 2420,~~476~~964 4821,~~330~~496 ----------- ----------- Total costs and expenses: ~~850~~770,~~118~~598 ~~933~~776,~~073~~457 ----------- ----------- Income before income taxes ~~768~~181,~~101~~045 ~~571~~241,~~846~~090 Income taxes ~~327~~71,~~428~~191 ~~207~~100,~~227~~316 ----------- ----------- Net income ~~440~~109,~~673~~854 ~~364~~140,~~619~~774 Other comprehensive income Net of income tax Unrealized Holding Gains (Losses) (~~328~~759,~~114~~148) ~~199~~1,~~425~~029,634 ----------- ----------- Comprehensive Income $ ~~112~~(649,~~559~~294) $ ~~564~~1,~~044~~170,408 =========== =========== Net income per share, basic $ .2707 $ .2209 =========== =========== Net income per share, diluted **** $**** ~~.22 ==========~~ Weighted average shares outstanding: Basic 1,~~608~~594,~~552~~291 1,~~634~~621,~~012~~144 =========== =========== Diluted 1,~~667~~710,~~483~~678 1,~~750~~737,~~399~~531 =========== ===========

------------------- **** 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 ------------ ------------ Net ~~Sales~~cash provided (used) by operating activities: $ 2224,~~969,661~~699 $ 3372,~~441,151~~313 ~~Royalties~~----------- ~~813~~----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of equipment & improvements (7,636) (3,~~671~~975) ~~Interest~~Net purchases and ~~Other~~sales ~~Income~~of 1investment securities (130,~~140,513~~103) ~~166~~(30,~~018~~254) ------------ ------------ ~~Total~~NET ~~Revenues~~CASH ~~4,110,987~~USED ~~3,610,840~~IN ~~============~~INVESTING ~~============ Costs and expenses~~ACTIVITIES: ~~Cost~~(137,739) of(34,229) ~~Sales~~CASH ~~1,505,221~~FLOWS ~~1,554,980~~FROM ~~Selling~~FINANCING ~~211,577~~ACTIVITIES: ~~204,844~~Increase ~~General~~in ~~and~~notes ~~administrative~~payable ~~474~~5,~~817~~885 ~~448,342~~Purchase ~~Laboratory~~of ~~208,178~~Company's ~~202,304~~Common ~~Other~~Stock (~~income~~58,299)/ ~~Expenses~~(48,299) ~~Net~~Dividends 68paid (51,~~516~~057) 74(49,~~595~~066) ------------ ------------ ~~Total~~NET ~~Costs~~CASH ~~and~~USED ~~Expenses~~IN 2FINANCING ACTIVITIES (103,~~468,309~~471) 2(97,~~485,065~~365) ------------ ------------ ~~Income~~NET ~~before income taxes 1~~INCREASE,~~642,678~~ 1(DECREASE),~~125,775~~ ~~Income~~IN ~~taxes~~CASH ~~654~~(16,~~102~~511) ~~433~~240,~~318~~719 ------------ ------------ ~~Net income 988~~Cash,~~576~~ ~~692,457~~beginning ~~Other comprehensive income Net~~ of ~~income~~period ~~taxes~~2,399,141 ~~Increase in unrealized holding gains~~ 1,~~076~~913,~~148~~201 ~~177,807~~ ------------ ------------ ~~Comprehensive~~Cash, ~~Income~~end of period $ 2,~~064~~382,~~724~~630 $ ~~870~~2,~~264~~153,920 ============ ============ ~~Net~~Cash ~~income~~paid ~~per~~during ~~share,~~period ~~basic~~for $income ~~.61~~taxes $ ~~.42 ============ ============ Net income per share~~38,300 diluted *** $ ~~.41~~8,000 ~~============~~Cash ~~============~~paid ~~Weighted~~during ~~average~~period ~~shares~~for ~~outstanding:~~interest ~~Basic~~expense ~~1,613,938~~$ 16,~~638,492~~591 ~~============~~$ ~~============ Diluted 1~~6,~~672,869 1,754,879 ============ ============~~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:

~~2000~~December ~~1999~~31 ~~------------~~September ~~------------~~30 ~~Net~~2000 ~~cash~~2000 ~~provided (used) by operating activities: $ 395,063 $ 598,313~~ ------------ ------------ ~~CASH~~Raw ~~FLOWS~~materials ~~FROM~~$ ~~INVESTING ACTIVITIES: Purchase of equipment & improvements 18~~484,~~165~~817 ~~(12,632)~~$ ~~Net purchases and sales of investment securities (112~~469,~~916)~~384 ~~(31,463)~~Shipping ~~------------~~materials ~~------------ NET CASH USED IN INVESTING ACTIVITIES: (94~~97,~~751)~~234 ~~(44~~105,~~095)~~767 ~~------------~~Finished ~~------------~~goods ~~CASH FLOWS FROM FINANCING ACTIVITIES: Purchase of Company's Common Stock (28~~376,~~672)~~644 ~~(46~~350,~~277)~~620 ~~Dividends paid (51,548) (147,758)~~ ------------ ------------ ~~NET~~$ ~~CASH USED IN FINANCING ACTIVITIES (80~~958,~~220)~~695 ~~(194,035)~~$ ~~------------ ------------ NET INCREASE~~925,771 ~~(DECREASE), IN CASH 220,092 360,183~~ ------------ ------------ 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

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:

~~June~~FAIR 30VALUE ~~September~~COST ~~30 2000 1999~~ ----------~~----~~ ----------~~----~~ ~~Raw~~U.S. ~~materials~~Treasury obligations $ ~~550~~499,~~616~~374 $ ~~429~~465,~~320~~932 ~~Shipping~~Other ~~materials~~Government ~~123~~Bonds 42,~~606~~371 5142,~~992~~827 ~~Finished~~Corporate ~~goods~~debt ~~424~~securities 5,~~107~~723 16,759 Mortgage backed securities 887 1,278 Marketable equity securities 2,203,392 2,~~192~~137,675 ----------~~----~~ ----------~~----~~ $ 12,~~098~~751,~~329~~747 $ ~~873~~2,~~504~~664,471 ~~--------------~~========== ~~--------------~~==========

The contractual maturities of debt securities available for sale at December 31, 2000 is as follows:

FAIR VALUE COST ----------~~----~~ --------- Due within one year - -~~---~~ ~~U.S.~~Due ~~Treasury~~after ~~obligations~~one year thru 5 years $ ~~423~~396,~~625~~427 $ ~~409~~392,~~347~~166 ~~Other~~Due ~~Government~~after ~~Bonds~~5 ~~23,988~~years ~~27,046~~thru ~~Corporate~~10 ~~debt~~years ~~securities 28~~124,~~115~~895 36106,~~061~~330 ~~Mortgage~~Due ~~backed~~after ~~securities~~10 3years 26,~~646~~147 1027,~~826~~021 ~~Marketable~~Not ~~equity~~due ~~securities~~at ~~4,321,310~~single 2maturity date 887 1,~~144,680~~278 ----------~~----~~ ---------~~-----~~ $ 4548,~~800,684~~356 $ 2526,~~627,960~~795 ==========~~====~~ =========~~=====~~

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 --------------------------- (Registrant) DATE: FEBRUARY 7,2001 /s/ JOSEPH MAZIN ----------------------------------------------- (Signature) Joseph Mazin, President and Chairman and Chief Executive Officer DATE: FEBRUARY 7, 2001 /s/ MARY KAY EASON ----------------------------------------------- (Signature) Mary Kay Eason, Assistant Treasurer and Secretary DATE: FEBRUARY 7, 2001 /s/ DONNA MAZIN ----------------------------------------------- (Signature) Donna Mazin, Director

FAIR VALUE COST -------------- -------------- 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 -------------- -------------- $ 479,374 $ 483,280 ============== ==============

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