Mail Stop 0510
April 19, 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 your response to our
letter dated February 7, 2005 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. We note your proposed disclosure in response to our prior
comment
2. The conclusions regarding the effectiveness of your controls
and
procedures should be as of the end of the period covered by the
report rather than within 90 days before the filing date of the
report. Please revise and include in an amendment to your Form
10-
KSB. See Item 307 of Regulation S-B for guidance.
Financial Statements
Statement of Income, page 15
3. We note your response to prior comment 10. It is not clear how
you determined it is appropriate to include interest as well as
other
income and expense in income from operations. Please present
interest and other non-operating items below income from
operations
before income taxes in an amendment to your Form 10-KSB.
Statement of Shareholders` Equity, page 17
4. We note your response to prior comment 13. As previously
requested, 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.
5. We note your response to prior comment 14. It does not appear
that the one for ten reverse stock split is reflected in the
revised
balance sheet provided with your response. We remind you that
changes to common stock resulting from stock splits (including
reverse stock splits) which occur after the close of the period
but
before issuance of the financial statements should be reflected
retroactively in the latest balance sheet. Refer to SAB Topic
4:C.
Statement of Cash Flows, page 18
6. We note your change to the statement of cash flows in response
to
prior comment 17. The disclosure in Note N of your financial
statements indicates that the preferred restricted stock was
issued
during the year ended September 30, 2003 in exchange for
outstanding
debt. Given this, it is not clear why you are continuing to
present
this as a cash transaction on your statement of cash flows.
Please
advise. Please also disclose your non-cash transactions either in
a
narrative form or summarized in a schedule pursuant to paragraph
32
of SFAS 95.
7. We note your response to prior comment 19. Given the guidance
of
paragraphs 15 through 17 of SFAS 95, it is not clear how you
determined it is appropriate to include cash flows related to
loans
provided to employees in cash flows from operating activities.
Please advise or revise in an amendment to your Form 10-KSB.
Note A - Summary of Significant Accounting Policies, page 19
8. We note your response to prior comment 21. Please also
disclose
the types of expenses that are included in the cost of goods sold
line item and the types of expenses included in the selling and
administrative expenses line item.
9. We note your response to prior comment 22. It appears that
amounts billed to customers for shipping costs are recorded as a
reduction of selling expenses instead of as revenue. Please
clarify
and tell us how your accounting of shipping costs billed to
customers
complies with paragraph 5 of EITF 00-10. Please also disclose the
amount of shipping costs included in the selling and
administrative
expenses line item as required by paragraph 6 of EITF 00-10.
10. We note your response to prior comment 23. Please disclose
how
you are accounting for the investment in Starbiz Corporation. In
this regard, it is unclear why you have an investment in a former
subsidiary that was spun off to your shareholders as discussed in
Note N.
Revenue Recognition, page 19
11. We note your responses to prior comments 24 and 25. Please
revise your revenue recognition policy to incorporate your
responses
to these comments.
Note I - Income per Common Share, page 23
12. We note your response to prior comment 28. Given that there
were
no securities that could potentially dilute EPS that are excluded
from your calculation of diluted EPS, please tell us how your
outstanding stock options are reflected in the EPS calculations
provided in response to prior comment 33.
Note L - Sales Information and Major Customers, page 24
13. We note your response to prior comment 29. Please disclose
the
amount of revenues from each customer that accounted for 10% or
more
of your consolidated revenues in accordance with paragraph 39 of
SFAS
131.
Note N - Long Term Debt (Prior Years), page 25
14. We note your response to prior comment 30. You state that
Starbiz was set up as a separate corporation to hold investments
in
equity securities. It remains unclear why you did not report
Starbiz
as a discontinued operation. Tell us how you determined Starbiz
did
not qualify as a component of an entity as defined by paragraph 41
of
SFAS 144.
Note O - Subsequent Events, page 27
15. We note your response to prior comment 32 as well as your Form
8-
K filed on April 1, 2005. As previously requested, tell us how
you
will account for the transaction with The Best Group. Please cite
the accounting literature you will use.
Exhibit 11
16. We note your response to prior comment 33. Your proposed
disclosure only presents the information for the year ended
September
30, 2004. In this regard, please revise to present your earnings
per
share calculations for each period for which an income statement
is
presented as required by paragraph 40 of SFAS 128.
FORM 10-QSB FOR THE PERIOD ENDED DECEMBER 31, 2004
Comment applicable to your overall filing
17. Please address the comments above in your interim filings as
well.
Item 3. Controls and Procedures
18. The conclusions regarding the effectiveness of your controls
and
procedures should be as of the end of the period covered by the
report rather than within 90 days before the filing date of the
report. Please revise and include in an amendment to your Form
10-
QSB. See Item 307 of Regulation S-B for guidance.
19. Given that your certification filed as Exhibit 31 includes the
introductory language in paragraph 4, which refers to the
certifying
officers` responsibility for establishing and maintaining internal
controls over financial reporting, as well as paragraph 4(b), we
would expect to see all of the disclosures required by Item 308 of
Regulation S-B. Please either remove the introductory language in
paragraph 4 as well as paragraph 4(b) or provide all of the
disclosures required by Item 308 of Regulation S-B. Refer to SEC
Release No. 33-8392.
* * * *
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.
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
April 19, 2005
Page 2 of 5
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-0510
DIVISION OF
CORPORATION FINANCE