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, 2002 | 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, 2002 | 1,413,013 |
Item 1 Financial Information
Item 1 Financial Statement
THE FLAMEMASTER CORPORATION
CONDENSED BALANCE SHEET
| June 30 2002 (Unaudited) | |||
| A S S E T S : | |||
| Current Assets: | |||
| Cash and cash equivalents | $ | 1,636,148 | |
| Marketable securities | 3,671,934 | ||
| Accounts receivable, less allowance of $5,000 | 616,178 | ||
| Notes Receivable | 587 | ||
| Inventories | 1,133,333 | ||
| Prepaid expenses | 39,578 | ||
| Deferred income taxes | 28,380 | ||
| Other investments | 46,287 | ||
| Total current assets: | 7,172,425 | ||
| Machinery & improvements, net of accumulated depreciation | 150,002 | ||
| License agreement, net of accumulated amortization | 41,697 | ||
| TOTAL ASSETS | $ | 7,364,124 | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY: | |||
| Current Liabilities: | |||
| Accounts payable | $ | 138,297 | |
| Accrued liabilities | 10,111 | ||
| Income tax payable | 70,350 | ||
| Total current liabilities: | 218,758 | ||
| Long-term liabilities: | |||
| Notes payable | 1,710,800 | ||
| Total Liabilities: | 1,929,558 | ||
| SHAREHOLDERS’ EQUITY: | |||
| Common Stock, par value, $.01 per share, authorized 6,000,000 shares; issued and outstanding 1,413,013 shares at 06/30/02 | 14,127 | ||
| Additional paid-in Capital | 3,327,202 | ||
| Retained earning | 2,259,893 | ||
| Allowance for marketable securities | (166,656 | ) | |
| TOTAL STOCKHOLDERS’ EQUITY | $ | 5,434,566 | |
| TOTAL LIABILITY AND EQUITY | $ | 7,364,124 | |
See notes to condensed financial statements.
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Item 1 Financial Statements (continued)
THE FLAMEMASTER CORPORATION
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED JUNE 30,
| 2002 | 2001 | ||||||
| Net sales | $ | 1,329,107 | $ | 1,005,399 | |||
| Royalties | 435 | — | |||||
| Interest and Other Income | 55,846 | 88,663 | |||||
| Total Revenues | 1,385,388 | 1,094,062 | |||||
| Costs and expenses: | |||||||
| Cost of sales | 630,169 | 525,288 | |||||
| Selling | 95,785 | 83,736 | |||||
| General and administrative | 170,403 | 146,278 | |||||
| Laboratory costs | 99,331 | 77,233 | |||||
| Other expenses | 28,475 | 29,014 | |||||
| Total costs and expenses: | 1,024,163 | 861,549 | |||||
| Income before income taxes | 361,225 | 232,513 | |||||
| Income taxes | 178,523 | 80,238 | |||||
| Net income | 182,702 | 152,275 | |||||
| Other comprehensive income | |||||||
| Net of income tax | |||||||
| Unrealized Holding Gains (Losses) | (17,107 | ) | 145,021 | ||||
| Comprehensive Income | $ | 165,595 | $ | 297,296 | |||
| Net income per share, basic | $ | .13 | $ | .10 | |||
| Net income per share, diluted | **** | **** | |||||
| Weighted average shares outstanding: | |||||||
| Basic | 1,434,123 | 1,580,833 | |||||
| Diluted | 1,477,663 | 1,616,966 | |||||
**** 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
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
NINE MONTHS ENDED JUNE 30,
| 2002 | 2001 | ||||||
| Net Sales | $ | 3,711,461 | $ | 2,971,175 | |||
| Royalties | 6,865 | — | |||||
| Interest and Other Income | 222,283 | 280,600 | |||||
| Total Revenues | 3,940,609 | 3,251,775 | |||||
| Costs and expenses: | |||||||
| Cost of Sales | 1,946,928 | 1,548,905 | |||||
| Selling | 274,115 | 253,505 | |||||
| General and administrative | 481,524 | 450,925 | |||||
| Laboratory | 279,593 | 218,596 | |||||
| Other (income)/ Expenses, Net | 86,120 | 71,722 | |||||
| Total Costs and Expenses | 3,068,280 | 2,543,653 | |||||
| Income before income taxes | 872,329 | 708,122 | |||||
| Income taxes | 358,514 | 228,909 | |||||
| Net income | 513,815 | 479,213 | |||||
| Other comprehensive income | |||||||
| Net of income taxes | |||||||
| Unrealized holding gains (losses) | 36,882 | (891,489 | ) | ||||
| Comprehensive Income | $ | 550,697 | $ | (412,276 | ) | ||
| Net income per share, basic | $ | .36 | $ | .30 | |||
| Net income per share, diluted | *** | *** | |||||
| Weighted average shares outstanding: | |||||||
| Basic | 1,443,005 | 1,584,868 | |||||
| Diluted | 1,484,845 | 1,623,789 | |||||
See notes to condensed financial statements
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Item 1 Financial Statements (continued)
THE FLAMEMASTER CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED JUNE 30,
| 2002 | |||
| Net cash provided (used) by operating activities: | $ | 577,218 | |
| CASH FLOWS FROM INVESTING ACTIVITIES: | |||
| Purchase of equipment & improvements | (50,483 | ) | |
| Net purchases and sales of investment securities | (866,337 | ) | |
| NET CASH USED IN INVESTING ACTIVITIES: | (916,820 | ) | |
| CASH FLOWS FROM FINANCING ACTIVITIES: | |||
| Increase in notes payable | 450,291 | ||
| Purchase of Company’s Common Stock | (507,500 | ) | |
| Dividends paid | (92,618 | ) | |
| NET CASH USED IN FINANCING ACTIVITIES | (149,827 | ) | |
| NET INCREASE, (DECREASE), IN CASH | (489,429 | ) | |
| Cash, beginning of period | 2,125,577 | ||
| Cash, end of period | $ | 1,636,148 | |
| Cash paid during period for income taxes | $ | 304,500 | |
| Cash paid during period for interest expense | $ | 43,837 | |
See notes to Condensed Financial Statements.
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Item 1 Financial Statements (continued)
THE FLAMEMASTER CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2002
| 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, 2002 are not indicative of the results that may be expected for the year ending September 30, 2002. 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, 2001. |
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Item 1 Financial Statements (continued)
THE FLAMEMASTER CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2002
| 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, 2002 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. |
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Item 1 Financial Statements (continued)
THE FLAMEMASTER CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2002
| Note 4: | Inventories are summarized as follows: |
| June 30, 2002 | ||||
| Raw materials | $ | 561,127 | ||
| Shipping materials | 164,682 | |||
| Finished goods | 407,524 | |||
| $ | 1,133,333 | |||
| Note 5: | During the three months ended June 30, 2002, the Company purchased 31,225 shares of its outstanding common stock at a cost of $191,169.11. |
| Note 6: | MARKETABLE SECURITIES: Marketable securities classified as current assets at June 30, 2002 include the following: |
| Fair Value | Cost | |||||
| U.S. Treasury obligations | $ | 682,846 | $ | 636,085 | ||
| Other Government Bonds | 37,671 | 36,250 | ||||
| Corporate debt securities | 8,165 | 27,770 | ||||
| Mortgage backed securities | 405,982 | 408,468 | ||||
| Marketable equity securities | 2,537,270 | 2,784,942 | ||||
| $ | 3,671,934 | $ | 3,893,515 | |||
| The contractual maturities of debt securities available for sale at June 30, 2002 is as follows: |
| Fair Value | Cost | |||||
| Due within one year | $ | 129,686 | $ | 129,245 | ||
| Due after one year thru 5 years | 311,054 | 312,845 | ||||
| Due after 5 years thru 10 years | 141,131 | 119,062 | ||||
| Due after 10 years | 146,811 | 138,953 | ||||
| Not due at single maturity date | 405,982 | 408,468 | ||||
| $ | 1,134,664 | $ | 1,108,573 | |||
Gross unrealized holding gains and losses at June 30, 2002 were $449,285 and $670,867, respectively. Realized gains and losses from the sale of securities for the nine months ended June 30, 2002 were $79,760 and $4,394 respectively.
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THE FLAMEMASTER CORPORATION
Item 2:
Management's Discussion and Analysis of Financial Condition and Results of Operations:
June 30, 2002 compared to September 30, 2001 and
June 30, 2002 compared to June 30, 2001.
FINANCIAL CONDITION AND LIQUIDITY:
The Company’s financial condition is strong with current assets of $7,172,425 compared to current liabilities of $218,758 at June 30, 2002, for a current ratio of more than 32.75 to 1. Working capital increased to $6,953,667 on June 30, 2002, compared to $6,563,805 at September 30, 2001. Cash, cash equivalents, and marketable securities stood at $5,308,082. Accounts receivable expanded to $616,178 from $561,663 in the prior year’s quarter ended June 30, 2001, due to the increase level of business the Company is experiencing. Inventories grew to $1,133,333 on June 30, 2002 from $988,073 at September 30, 2001 also due to the increased volume of business. Revenues for the June 30, 2002 quarter increased to $1,385,388 compared to $1,094,062 in the year earlier quarter. Sales from operations expanded to $1,329,107 for the June 30, 2002 quarter, compared to $1,005,399 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 is substantial relative to its size.
The Company paid a $.032 cash dividend on its company stock in April 2002 and in July 2002.
RESULTS OF OPERATIONS:
For the three months ended June 30, 2002, income before income taxes expanded to $361,225 compared to $232,513 in the prior year. Net income after taxes rose to $182,702 or $.13 per share compared to $152,275 or $.10 per share for the June 30, 2001 quarter. Laboratory costs including research and development for the quarter increased to $99,331 from $77,233 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 increased to $170,403 in the quarter from $146,278 in the prior year due to wage increases and additional expenses.
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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 2, 2002 | |
| (Signature) | |
| Joseph Mazin, President and Chairman | |
| and Chief Executive Officer | |
| DATE: | MARY KAY EASON |
| August 2, 2002 | |
| (Signature) | |
| Mary Kay Eason, Treasurer and Secretary | |
| DATE: | DONNA MAZIN |
| August 2, 2002 | |
| (Signature) | |
| Donna Mazin, Director |
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