Mail Stop 0510
February 7, 2005
Via U.S. mail and facsimile
Mr. Joseph Mazin
President and Chief Executive Officer, The Flamemaster Corporation
11120 Sherman Way
Sun Valley, CA 91352
RE: Form 10-KSB for the fiscal year ended September 30, 2004
File No. 0-2712
Dear Mr. Mazin:
We have reviewed this filing and have the following
comments. If you disagree with a comment, we will consider your
explanation as to why our comment is inapplicable or a revision is
unnecessary. Please be as detailed as necessary in your
explanation.
In some of our comments, we may ask you to provide us with
supplemental information so we may better understand your
disclosure.
After reviewing this information, we may or may not raise
additional
comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or on any other
aspect
of our review. Feel free to call us at the telephone numbers
listed
at the end of this letter.
FORM 10-KSB FOR THE YEAR ENDED SEPTEMBER 30, 2004
Comments applicable to your overall filing
1. Where a comment below requests additional disclosures or other
revisions to be made, please show us in your supplemental response
what the revisions will look like. With the exception of the
comments below that specifically request an amendment, all other
revisions may be included in your future filings.
2. Please disclose the information required by Items 307 and 308
of
Regulation S-B in an amendment to your Form 10-KSB, or tell us
where
these disclosures are provided.
Item 5. Market for Registrant`s Common Equity and Related
Shareholder
Matters, page 6
3. Your ticker symbol appears to have changed to "FAMEC". Please
revise.
4. Please adjust the High/Low Bid table to retroactively present
for
all stock splits, including those that occurred after the close of
the period but before the issuance of the financial statements.
Correspondingly, please provide disclosure to indicate that these
stock splits have been reflected in the table.
Management`s Discussion and Analysis
Financial Condition and Liquidity, page 7
5. Your discussion of liquidity appears to be limited to the
historical 2004 fiscal year. Please also include a discussion
about
your prospects for the future. Accordingly, the discussion of the
sufficiency of your resources to satisfy your operations and cash
requirements should be expanded to discuss the future as well as
any
known trends, events or uncertainties that have or are reasonably
likely to have a material impact on your short-term or long-term
liquidity. Refer to Item 303(b)(1)(i) of Regulation S-B as well
as
SEC Release 33-8350.
Subsequent to Year End, page 8
6. Please revise the title of this section as this discussion
appears
to be subsequent to fiscal 2003, not fiscal 2004.
Financial Statement Schedules, page 11
7. We note that you list Schedule II as a financial statement
schedule however we could not locate it in the filing. Please
revise.
Exhibits, page 11
8. The Statement regarding computation of per share earnings is
incorrectly listed as Exhibit I.
Financial Statements
Statement of Income, page 15
9. It is not clear why diluted net income per share is not
applicable
for the year ended September 30, 2004. If the effect of potential
common shares is considered to be antidilutive, your diluted
earnings
per share computation should be the same as your basic earnings
per
share computation. Please revise.
10. Please tell us how you determined it is appropriate to include
interest as well as other income and expense in income from
operations.
11. Please help us understand why royalties paid are not included
in
the cost of goods sold line item.
Statement of Comprehensive Income, page 16
12. Given you realized gains and losses from the sale of
securities
for the year ended September 30, 2004, help us understand why
there
are no reclassification adjustments for the year ended September
30,
2004 Refer to paragraphs 18 through 20 of SFAS 130.
Statement of Shareholders` Equity, page 17
13. In May 2004 you paid out a 12.5% stock dividend. Tell us why
you
did not transfer amounts from retained earnings to common stock
and
additional paid-in capital for an amount equal to the fair value
of
the additional shares issued. Refer to paragraph 10 of Chapter 7B
of
ARB No. 43.
14. Please clarify whether your financial statements have been
adjusted for the one for ten reverse stock split, which was
effective
on October 29, 2004, or the seven for one stock split, which was
effective on January 7, 2005. In this regard, if changes to
common
stock resulting from stock splits (including reverse stock splits)
occur after the close of the period but before issuance of the
financial statements, the splits should be reflected retroactively
in
the latest balance sheet. Refer to SAB Topic 4:C.
15. Please clarify whether the computations of basic and diluted
EPS
were adjusted retroactively for all periods presented to reflect
the
one for ten reverse stock split and the seven for one stock split
as
required by paragraph 54 of SFAS 128.
Statement of Shareholders` Equity, page 17
16. Tell us the nature of the line item "Marketable Security
Allow,
Divestiture" reported on the Statement of Shareholders` Equity
during
the year ended September 30, 2004.
Statement of Cash Flows, page 18
17. Please help us understand why the issuance of preferred
restricted stock in the notes conversion as well as the conversion
of
the preferred stock into common stock are reflected as cash flows
from financing activities. Tell us why these amounts are not
reflected as noncash investing and financing activities in
accordance
with paragraph 32 of SFAS 95.
18. Please explain why the dividends paid for common stock under
cash
flows from financing activities do not agree to the cash dividends
amounts reported on the statement of shareholders` equity for the
year ended September 30, 2004.
19. Please disclose the nature of the amounts included in Notes
Receivable and explain to us why the changes in these amounts are
classified as cash flows from operating activities. Refer to
paragraphs 21 through 23 of SFAS 95.
Note A - Summary of Significant Accounting Policies, page 19
General
20. Clarify which stock splits have been retroactively reflected
throughout the financial statements and notes to the financial
statements including those stock splits which occurred after the
close of the period. If a stock split has not been reflected,
tell
us why.
21. Please disclose the types of expenses that you include in the
cost of goods sold line item and the types of expenses that you
include in the selling and administrative expenses line item.
Please
disclose whether you include inbound freight charges, purchasing
and
receiving costs, inspection costs, warehousing costs, internal
transfer costs, and the other costs of your distribution network
in
the cost of sales line item. With the exception of warehousing
costs, if you currently exclude a portion of these costs from cost
of
goods sold, please disclose:
? in a footnote the line items that these excluded costs are
included in and the amounts included in each line item for each
period presented, and
? in MD&A that your gross margins may not be comparable to
those
of other entities, since some entities include all of the costs
related to their distribution network in cost of goods sold and
others like you exclude a portion of them from gross margin,
including them instead in a line item, such as selling and
administrative expenses.
22. Please disclose your accounting policy for shipping and
handling
costs. In doing so, disclose both the line item in which you
include
amounts paid by customers to you for shipping and handling and the
line item(s) in which you include your actual costs for shipping
and
handling. If you do not include all of your actual costs for
shipping and handling in cost of goods sold, also disclose the
amounts of your actual costs for shipping and handling excluded
from
cost of goods sold for each period presented as required by
paragraph
6 of EITF 00-10.
23. Disclose the nature of the amounts included in Other
Investments
including how you account for these amounts.
Revenue Recognition, page 19
24. You disclose that revenues are generally recorded when
products
are shipped. Please disclose in your revenue recognition policy:
* Whether your stated shipping terms are FOB shipping point or FOB
destination pursuant to your sales agreements;
* Your customers` rights of inspection, acceptance, and return;
and
* When title passes from you to your customer.
Unless obvious, please explain to us why sales recognition is
appropriate upon shipment, rather than upon delivery to and
acceptance by the customer. Note that even if your sales
agreements
state that title passes upon shipment, customer acceptance
provisions
or a history of your replacing goods damaged or lost in transit
may
make the recognition of revenue upon delivery to and acceptance by
the customer GAAP. See the Interpretive Response to Question 3 of
SAB
Topic 13:A.3.b.
25. You state that generally sales are recorded at the time the
products are shipped. Expand your disclosure to state what you
mean
by "generally." For those sales which you do not record sales at
the
time of shipment, state when you do record these sales.
Stock Based Compensation, page 19
26. We note that you did not adopt fair value accounting for
employee
stock options under SFAS 123. Regardless of the method used to
account for stock-based employee compensation arrangements, your
financial statements should include the disclosures specified in
paragraphs 45 through 47 of SFAS 123.
Note F - Commitments and Contingencies, page 21
27. Please disclose how you account for (a) step rent provisions
and
escalation clauses and (b) capital improvement funding and other
lease concessions, which may be present in your leases. If, as we
assume, they are taken into account in computing your minimum
lease
payments and the minimum lease payments are recognized on a
straight-
line basis over the minimum lease term, the note should so state.
If
our assumption is incorrect, please tell us how your accounting
complies with SFAS 13 and FTB 88-1. Paragraph 5.n. of SFAS 13, as
amended by SFAS 29, discusses how lease payments that depend on an
existing index or rate, such as the consumer price index or the
prime
interest rate, should be included in your minimum lease payments.
Note I - Income per Common Share, page 23
28. In accordance with paragraph 40.c. of SFAS 128, please
disclose
the securities that could potentially dilute basic EPS in the
future
that are not included in the computation of diluted EPS because to
do
so would have been antidilutive for the periods presented.
Note L - Sales Information and Major Customers, page 24
29. Three single major customers in 2004 accounted for 44.18% of
your
sales. Please disclose the amount of revenues from each customer
that accounted for 10% or more of your consolidated revenues.
Refer
to paragraph 39 of SFAS 131.
Note N - Long-Term Debt (Prior Years), page 25
30. Tell us how you accounted for the spin-off of Starbiz
including
how you determined the amounts to be reflected on the statement of
shareholders` equity related to the spin-off. Please cite the
accounting literature used to determine the appropriate
accounting.
In addition, help us understand why you did not report
discontinued
operations related to Starbiz in accordance with SFAS 144.
31. Tell us how you accounted for the redemption of the Notes on
June
26, 2003 and November 11, 2003. Please cite the accounting
literature used to determine the appropriate accounting, including
EITF 96-19.
Note O - Subsequent Events, page 27
32. You entered into a letter of intent with The Best Group on
October 7, 2004. Please tell us and expand your disclosure to
provide an updated status of this proposed transaction as well as
to
discuss the specific terms of the letter of intent to merge 100%
of
Best Candy and Tobacco Co. into Flamemaster Corporation. In this
regard, clearly state the consideration, if any, to be received by
your shareholders. Also, please tell us how you will account for
this transaction. Please cite the accounting literature you will
use.
Exhibit 11
33. Please present your earnings per share calculations for each
period for which an income statement is presented as required by
paragraph 40 of SFAS 128.
Exhibit 31
34. Please file an amendment to your Form 10-KSB to include a
certification that conforms to the format provided in Item
601(b)(31)
of Regulation S-B. See SEC Release 33-8238, which became
effective
August 14, 2003. In doing so, please refile the Form 10-KSB in
its
entirety.
* * * *
Please respond to these comments within 10 business
days,
or tell us when you will provide us with a response. Please
provide
us with a supplemental response letter that keys your responses to
our comments and provides any requested supplemental information.
Detailed letters greatly facilitate our review. Please file your
supplemental response on EDGAR as a correspondence file. Please
understand that we may have additional comments after reviewing
your
responses to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filings reviewed by the staff to
be
certain that they have provided all information investors require
for
an informed decision. Since the company and its management are in
possession of all facts relating to a company`s disclosure, they
are
responsible for the accuracy and adequacy of the disclosures they
have made.
In connection with responding to our comments, please
provide,
in writing, a statement from the company acknowledging that:
* the company is responsible for the adequacy and accuracy of the
disclosure in their filings;
* staff comments or changes to disclosure in response to staff
comments do not foreclose the Commission from taking any action
with
respect to the filing; and
* the company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in our review of your filing or in
response to our comments on your filing.
If you have any questions regarding these comments, please
direct them to Marie Trimeloni, Staff Accountant, at (202) 942-
1860
or Nudrat Salik, Review Accountant at (202) 942-7769, in their
absence, to the undersigned at (202) 942-1774.
Sincerely,
Rufus Decker
Accounting Branch Chief
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Mr. Joseph Mazin
February 7, 2005
Page 8 of 8
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-0510
DIVISION OF
CORPORATION FINANCE