UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended June 30, 2001
[ ] Transition Report under Section 13 or 15 (d) of the Exchange Act
For the transition period from__________ to _____________
Commission file Number 1-4591
FAIRMOUNT CHEMICAL CO., INC.
(Exact name of registrant as specified in its charter.)
New Jersey 22-0900720
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
117 Blanchard Street, Newark, NJ 07105
(Address of principal executive offices) (Zip Code)
(973)-344-5790
(Issuer's Telephone Number, Including Area Code)
Indicate by check mark whether the 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 practical date:
Common Stock, $1 Par Value - 8,292,866 shares as of August 13, 2001
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
INDEX
PAGE
PART I FINANCIAL INFORMATION
Item 1
Statements of Operations
Three months and six months ended
June 30, 2001 and 2000 3
Balance Sheets
June 30, 2001 and December 31, 2000 4
Statement of Changes in Stockholders' (Deficit)
Equity and Comprehensive (Loss) Income for the
six months ended June 30, 2001 and 2000 5
Statements of Cash Flows
Six months ended June 30, 2001 and 2000 6
Notes to Financial Statements 7 - 10
Item 2.
Management's Discussion and Analysis of
Financial Condition and Results of Operation 11 - 14
Item 3.
Quantitative and Qualitative Disclosures about
Market Risks 14
PART II OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 4. Submission of Matters to Vote of Security Holders 15
Item 6. Exhibits and Reports on Form 8-K 15
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
FAIRMOUNT CHEMICAL CO., INC.
Statements of Operations
For The Three Months and Six Months Ended June 30, 2001 and 2000
(Unaudited)
Three Months Ended Six Months Ended
------------------------------ ---------------------------------
June 30, 2001 June 30, 2000 June 30, 2001 June 30, 2000
-------------- ------------- ------------- --------------
Net sales $3,198,400 $3,070,400 $ 5,982,400 $6,534,500
Cost of goods sold 3,027,100 2,393,000 5,887,100 5,101,400
---------- ---------- ----------- ----------
Gross profit 171,300 677,400 95,300 1,433,100
Research and development 100,400 103,800 202,900 205,200
Selling, general and
administrative expense 508,600 489,700 1,029,300 1,028,300
---------- ---------- ----------- ----------
Operating (loss) income (437,700) 83,900 (1,136,900) 199,600
Interest expense (84,500) (45,900) (114,600) (88,900)
Insurance proceeds 53,100 233,100 53,100 333,100
Foreign currency exchange
Income (loss) 600 -- (50,200) --
Other income, net 44,600 28,800 34,600 44,100
---------- ---------- ----------- ----------
(Loss) income before income
taxes (423,900) 299,900 (1,214,000) 487,900
Income taxes -- -- -- --
---------- ---------- ----------- ----------
Net (loss) income $ (423,900) $ 299,900 $(1,214,000) $ 487,900
========== ========== =========== ==========
(Loss) income per common share
Basic $ (.05) $ .04 $ (.15) $ .06
========== ========== =========== ==========
Diluted $ (.05) $ .02 $ (.15) $ .03
========== ========== =========== ==========
Common shares and equivalents
outstanding
Basic 8,292,866 8,292,866 8,292,866 8,292,866
========== ========== =========== ==========
Diluted 8,292,866 14,259,000 8,292,866 14,243,000
========== ========== =========== ==========
See accompanying notes to financial statements.
3
FAIRMOUNT CHEMICAL CO., INC.
Balance Sheets
June 30, December 31,
2001 2000
---------- ----------
(Unaudited)
Assets
Current Assets:
Cash 1,724,200 2,093,900
Accounts receivable, less allowance
for doubtful accounts of $20,600
in 2001 and 2000 2,189,100 1,913,400
Inventories 3,003,600 2,700,100
Prepaid expenses 197,300 124,100
Other current assets 16,400 11,300
---------- ----------
Total Current Assets 7,130,600 6,842,800
Property, plant and equipment
Less accumulated depreciation of
$6,086,800 and $5,756,800 in 2001
and 2000, respectively 3,654,000 3,938,900
Other assets 700 700
---------- ----------
Total Assets 10,785,300 10,782,400
========== ==========
Liabilities and Stockholders' Equity
Current Liabilities:
Short-term bank borrowings 700,000 200,000
Accounts payable 2,439,200 1,590,400
Accrued compensation 54,600 136,400
Accrued pension liability 108,600 153,000
Other accrued liabilities 531,400 399,600
---------- ----------
Total Current Liabilities 3,833,800 2,479,400
Promissory notes to affiliated parties 1,571,600 1,571,600
Accrued pension liability 9,200 146,700
Redeemable convertible Preferred stock,
par and liquidation value $1 per share:
Authorized - 10,000,000 shares: 5,400,000
shares issued and outstanding (liquidation
value $5,400,000) 5,400,000 5,400,000
Commitments and contingencies
Stockholders' (Deficit) Equity:
Common stock, par value $1 per share:
Authorized - 15,000,000 shares; 8,293,366
shares issued and outstanding in 2001 and 2000 8,293,400 8,293,400
Less: Treasury stock (at cost) - 500 shares (500) (500)
Capital in excess of par value 7,316,000 7,316,000
Accumulated deficit (15,460,800) (14,246,800)
Accumulated other comprehensive loss -
additional minimum pension liability (177,400) (177,400)
---------- ----------
Total Stockholders' (Deficit) Equity (29,300) 1,184,700
---------- ----------
Total Liabilities and Stockholders' (Deficit) Equity 10,785,300 10,782,400
========== ==========
See accompanying notes to financial statements.
4
FAIRMOUNT CHEMICAL CO., INC.
Statement of Changes in Stockholders' (Deficit) Equity
And
Comprehensive (Loss) Income
For Six Months Ended June 30, 2001 and 2000
(Unaudited)
2001 2000
---------------------------- -----------------------------
Comprehensive Comprehensive
Loss Income
------------- -------------
Common stock:
Balance at June 30, 8,293,400 8,293,400
(8,293,366 shares)
Capital in excess of par value: 7,316,000 7,316,000
Balance at June 30,
Accumulated deficit:
Balance at January 1, (14,246,800) (13,574,700)
Net (loss) income (1,214,000) (1,214,000) 487,900 487,900
----------- -----------
Balance at June 30, (15,460,800) (13,086,800)
Accumulated other comprehensive
loss:
Balance at January 1, (177,400) (97,200)
----------- ---------
Comprehensive (loss) income $(1,214,000) $ 487,900
----------- -----------
Balance at June 30, (177,400) (97,200)
Treasury stock:
Balance at June 30, (500) (500)
(500 shares)
----------- -----------
Total Stockholders' (Deficit) Equity $ (29,300) $ 2,424,900
=========== ===========
See accompanying notes to financial statements
5
FAIRMOUNT CHEMICAL CO., INC.
Statements of Cash Flows
For The Six Months Ended June 30, 2001 and 2000
(Unaudited)
2001 2000
----------- -----------
Cash Flow from Operating Activities:
Net (loss) income $(1,214,000) $ 487,900
Adjustments to reconcile net (loss)
earnings to net cash used
operating activities
Depreciation 330,000 330,000
Insurance proceeds (53,100) (333,100)
Increase (decrease) from changes in:
Accounts receivable-trade (275,700) (987,400)
Inventories (303,500) (750,400)
Prepaid expenses (73,200) 39,800
Other assets (5,100) 300
Accounts payable 848,800 766,800
Accrued compensation (81,800) 27,000
Other liabilities (50,000) 109,900
----------- -----------
Cash Flow Used In
Operating Activities (877,600) (309,200)
Cash Flow Provided by (Used In)
Investing Activities:
Capital expenditures (45,200) (654,800)
Insurance proceeds 53,100 333,100
----------- -----------
Net Cash Provided by (Used In)
Investing Activities 7,900 (321,700)
Cash Flow Provided by
Financing Activities:
Bank borrowing 500,000 170,000
----------- -----------
Cash Flow Provided by
Financing Activities 500,000 170,000
----------- -----------
Decrease in Cash (369,700) (460,900)
Cash at Beginning of Period 2,093,900 2,481,100
----------- -----------
Cash at End of Period $ 1,724,200 $ 2,020,200
=========== ===========
Supplemental Disclosure of Cash Flow Information:
Interest paid $ 114,600 $ 88,900
=========== ===========
Income taxes paid $ -- $ --
=========== ===========
See accompanying notes to financial statements
6
FAIRMOUNT CHEMICAL CO., INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 2001
Note 1. Summary of Significant Accounting Policies
ORGANIZATION
The accompanying financial statements, which should be read in conjunction
with the financial statements of Fairmount Chemical Co., Inc. (the "Company")
included in the 2000 Annual Report filed on Form 10-KSB, are unaudited but have
been prepared in the ordinary course of business for the purpose of providing
information with respect to the interim period. The Company believes that all
adjustments (none of which were other than normal recurring accruals) necessary
for a fair presentation for such periods have been included. The Company's
interim results of operations are not necessarily indicative of what may be
expected for the full year.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the 2001
presentation.
REVENUE
Revenue is recognized upon shipment of product. The Company's terms are FOB
shipping point and accordingly title for goods pass to the customer when product
is shipped. Sales are final, without a right of return. If the product does not
meet specifications, the Company may accept returns.
ACCOUNTS RECEIVABLE
Trade accounts receivable are recorded at the invoice amount. Potential
uncollectable amounts are recognized when in the judgment of management
collection is in doubt. There were no provisions for bad debts recorded in 2001
and 2000.
INCOME TAXES
The Company accounts for income taxes in accordance with the asset and
liability method. Under the asset and liability method, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled.
The Company, as a result of net operating losses utilized, has recorded no
provisions for income taxes. A valuation allowance has been recorded at June 30,
2001 and June 30, 2000 for that portion of deferred tax assets that are not
presently considered more likely than not to be realized.
Note 2. Earnings Per Share
Basic earnings per share is based on the net earnings of the Company since
there were no preferred dividends paid in the periods ended June 30, 2001 and
2000. Basic (loss) earnings per share is calculated by dividing the net (loss)
earnings by the average number of common shares outstanding. Diluted earnings
per share is calculated by dividing the net earnings of the Company
7
Notes to Financial Statements (Continued)
by the weighted average number of shares outstanding adjusted for dilutive
common share equivalents including, preferred stock and shares granted under
stock option arrangements. Due to the Company reporting a loss for the three
months and six months ended June 30, 2001, the exercise of options and
conversion of the preferred stock is not assumed, as the results would be
anti-dilutive. As of June 30, 2001, 1,059,000 stock options were outstanding,
59,000 with an exercise price of $1.00 per share, and 1,000,000 with an exercise
price of $.11 per share. As of June 30, 2000, 1,072,500 stock options were
outstanding, 72,500 with an exercise price of $1.00 per share, and 1,000,000
with an exercise price of $.11 per share.
Diluted common shares and equivalents outstanding as of June 30, 2001:
Three Months Ended Six Months Ended
June 30, 2001 June 30, 2001
----------------------- ------------------------
Shares Earnings Shares Earnings
Outstanding Per Share Outstanding Per Share
----------- --------- ----------- ---------
Common shares out standing 8,292,900 $ .04 8,292,900 $ .06
Preferred stock 5,400,000 5,400,000
Common share equivalents:
Stock options 566,100 550,100
---------- ----- ---------- -----
Total diluted 14,259,000 $ .02 14,243,000 $ .03
========== ===== ========== =====
Note 3. Long Term Promissory Notes to Affiliated Parties
All promissory notes have similar terms and conditions. Interest is payable
at the corporate base rate posted by Citibank, N. A. (or its successor) on the
last banking day of the previous calendar year. Interest payable from January 1,
2001 through December 31, 2001 is at the rate of 9.5 % per annum. All of the
promissory notes are subordinated to the Company's line of credit financing with
Fleet Bank (formerly Summit Bank) and are collateralized by security agreements
on the Company's accounts receivable, inventories and personal property. All
promissory notes are due January 1, 2005. Interest paid on promissory notes to
affiliated parties during the six months ended June 30, 2001 was $74,600 and
$66,800 during the six months ended June 30, 2000.
Promissory Notes:
Leistner Trust $ 491,600
Leistner Trust $ 648,000
DaMota Family Partnership $ 224,600
Glen DaMota $ 142,600
Lynn DaMota $ 64,800
----------
$1,571,600
==========
Note 4. Bank Borrowings
The Company has a $1,250,000 line of credit from Fleet Bank, $1,083,600 of
which was available, and $700,000 was outstanding as of June 30, 2001. As of
June 30, 2000 Fairmount's line of credit was $1,250,000 of which $170,000 was
outstanding. The bank has been given a first security interest in the accounts
receivable, inventories and personal property of the Company. The line of credit
is subject to an annual review for renewal. Fleet Bank has extended the line of
credit to August 31, 2001 and has advised Fairmount that it will not renew the
line of credit. Fairmount is seeking to find a commercial bank lender and is
also negotiating with various lenders and believes that it will be able to
refinance the Fleet Bank outstanding loan shortly, however there can be no
assurance financing will be available or on terms acceptable to the Company.
Commercial banks expressed little interest in refinancing Fairmount, because of
its
8
Notes to Financial Statements (Continued)
size, its losses and the small amount of the line of credit. Fairmount is
negotiating with asset- based lenders, who traditionally charge higher fees and
interest. In addition there are more restrictions and the lender exercises more
control over the borrower.
Note 5. Inventories
Inventories at June 30, 2001 and December 31, 2000 consisted of the
following:
June 30, 2001 December 31, 2000
------------- -----------------
Finished goods $ 2,794,300 $ 2,481,500
Raw materials 209,300 218,600
----------- -----------
$ 3,003,600 $ 2,700,100
=========== ===========
Note 6. Insurance Proceeds
On November 10, 1999, a fire destroyed certain equipment and a portion of
the roof in one of the production buildings. The Company received $333,100 from
its property insurance carrier during the six months ended June 30, 2000 in
partial settlement for its property losses caused by the fire. During 2001,
Fairmount received insurance proceeds of $53,100, for property damaged caused by
a delivery truck.
Note 7. New Accounting Pronouncements
Effective January 1, 2001, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and
Hedging Activities" as amended by SFAS No. 137 and SFAS No. 138. This statement
requires the recognition of derivative financial instruments on the balance
sheet as assets or liabilities, at fair value. Gains or losses resulting from
changes in the value of derivatives are accounted for depending on the intended
use of the derivative and whether it qualifies for hedge accounting. The
implementation of this standard did not have a material effect on the Company's
financial statements because the Company did not have any financial instruments
entered into for trading or hedging purposes during the quarter and six months
ended June 30, 2001, nor does the Company currently have any derivative
financial instruments or derivative commodity instruments outstanding at June
30, 2001.
Note 8. Major Customer
One of Fairmount's major customers is having serious financial problems and
the loss of this customer would have a material adverse effect on the Company.
During the first six months of 2001, sales to this customer were $736,000 and
$945,000 during the same period in 2000. For the twelve months ended December
31, 2000 sales to this customer were $1,850,000.
Note 9. Contingencies
The Company has received notice from the New Jersey Department of
Environmental Protection ("NJDEP") that the NJDEP is investigating whether any
material from the Company has caused or contributed to the contamination
detected at the Ciuba landfill property in Newark. The NJDEP alleges that there
is a possibility that during the 1970's the Company disposed of waste generated
at the Company's facility through contracts with certain garbage removal
companies located at the Ciuba landfill. The Company has also received notice
from the United States Environmental Protection Agency ("USEPA") that the USEPA
has information indicating that hazardous substances from the Company may have
been discharged into the Passaic River. It is the Company's understanding that
these allegations by the USEPA are related to historical
9
Notes to Financial Statements (Continued)
rather than present events. The Company believes that its material neither
caused nor contributed to the contamination of the Passaic River and that it has
not discharged hazardous substances into the Passaic River. In both cases, it is
possible that potentially responsible parties will bring claims against the
Company alleging that it is at least partially responsible for the
contamination. To date, no litigation has commenced with respect to these
matters.
It is the Company's policy to accrue and charge against earnings,
environmental cleanup costs when it is probable that a liability has been
incurred and an amount is reasonably estimable. These accruals are reviewed
periodically and adjusted, if necessary, as additional information becomes
available. These accruals can change substantially due to such factors as
additional information on the nature or extent of the contamination, methods of
remediation required and other actions by government agencies or private
parties. Cash expenditures often lag behind the period in which an accrual is
recorded by a number of years. The Company has not accrued costs associated with
the above two matters, because the amounts cannot be reasonably estimated.
Management does not believe that the resolution of such matters will have a
material adverse affect on the financial position of the Company but could be
material to the results of operations and cash flow of the Company in any one
accounting period.
A bodily injury claim was filed against the Company on December 2, 1998 in
the Superior Court of New Jersey Law Division, Hudson County. The plaintiff
alleges that on March 25, 1997, the date of an explosion at the Company's plant,
the force of the explosion threw him backward and resulted in injuries. The
plaintiff was an invitee upon the adjoining property to the Company. This claim
was settled on July 20, 2000, for an immaterial amount.
On May 13, 1999, a toxic tort case was brought against the Company and
other defendants by former employees, family members of the former employees or
heirs of deceased former employees of La Gloria and Gas Company and the La
Gloria Refinery located in Tyler, Texas. The claimants contend that the employee
plaintiffs and their families were exposed to a number of toxic chemicals by
working in and around them or with them at the La Gloria Plant and by
second-hand exposure occurring as a result of the toxic substance being brought
home on the clothing and bodies of the employee plaintiffs. Plaintiffs have sued
the employer defendants and numerous manufacturers, suppliers, and distributors
of chemicals, solvents and products supplied to the La Gloria Plant. The Company
sold a hydrazine blend to La Gloria during 1990 and 1991. On October 21, 1999,
the Federal Court granted defendants' motion to dismiss because of lack of
subject matter jurisdiction. Claimants re-filed this cause of action in Texas
state court in the District Court of Harrison County, Texas on December 15,
1999. Claimants' allegations in the state court petition are identical to the
allegations discussed above. The Company's commercial general liability and
commercial umbrella insurance carrier was defending the Company in that action.
This claim was settled on June 26, 2001, for an immaterial amount.
On October 10, 2000, a breach of contract claim was brought against the
Company in the Worcester Superior Court of the Commonwealth of Massachusetts.
The plaintiff alleges that a defective component chemical used in the
plaintiff's manufacturing process was supplied by Fairmount. This action has
been moved from Worcester Superior Court to the Federal District Court for the
Western District of Massachusetts. The Company is in the process of exchanging
documents. The Company intends to contest the case vigorously. The Company's
commercial general liability and commercial umbrella insurance carrier was
defending the Company in that action. This claim was settled on July 9, 2001,
for an immaterial amount.
The Company is subject to various claims, and other routine litigation
arising in the normal course of its business. Management believes that the
resolution of such matters will not have a material adverse affect on the
financial position of the Company but could be material to the results of
operations and cash flow of the Company in any one accounting period.
10
FAIRMOUNT CHEMICAL CO., INC.
Item 2 MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
June 30, 2001
Liquidity and Capital Resources
To meet its liquidity requirements, including its capital program,
Fairmount accesses funds generated from operations, its available cash balances,
and its bank line of credit with Fleet Bank (formerly Summit Bank) in
Hackensack, New Jersey. The line of credit is subject to an annual review for
renewal. Fleet Bank has extended the line of credit to August 31, 2001 and has
advised Fairmount that it will not renew the line of credit. Fairmount is
negotiating with various lenders and believes that it will be able to refinance
the Fleet Bank outstanding loan shortly, however there can be no assurance
financing will be available or on terms acceptable to the Company. Commercial
banks have so for expressed little interest in refinancing Fairmount, because of
its size, its losses and the small amount of the line of credit. Fairmount is
seeking to find a commercial bank lender and is also negotiating with
asset-based lenders, who traditionally charge higher fees and interest. In
addition there are more restrictions and the lender exercises more control over
the borrower. If Fairmount cannot refinance the Fleet Bank loan timely, and the
loan is called, Fairmount would have to use its funds to repay Fleet while
trying to secure financing from other sources. This would have an adverse effect
on Fairmount's operations. The bank has been given a first security interest in
the accounts receivable, inventories and personal property of the Company. As of
June 30, 2001, Fairmount's borrowing availability was $1,083,600, of which
Fairmount had borrowed $700,000. As of June 30, 2000 Fairmount's line of credit
was $1,250,000 of which $170,000 was outstanding. In the event that management
does not obtain additional financing, management believes that it has sufficient
financial resources to fund its operations for a reasonable period of time,
although, no assurance can be provided.
In addition, one of Fairmount's major customers is having serious financial
problems and the loss of this customer would have a material adverse effect on
the Company. During the first six months of 2001, sales to this customer were
$736,000 and $945,000 during the same period in 2000. For the twelve months
ended December 31, 2000 sales to this customer were $1,850,000.
The working capital, defined as current assets less current liabilities,
was $3,296,800 at June 30, 2001 and $4,363,400 at December 31, 2000, a decrease
of $1,066,600. The decrease in working capital was due in part to net losses,
higher accounts payable of $848,800, and increased borrowings of $500,000. The
decrease was partially offset by higher accounts receivable of $275,700, and
higher inventories of $303,500.
On November 10, 1999, a fire destroyed some equipment and a portion of the
roof in one of the production buildings. No employees were injured. The fire had
an adverse effect on operations during the fourth quarter of 1999, and first
half of 2000. Production returned to normal levels in the second half of 2000.
Fairmount incurred approximately $17,500 in professional cost related to the
fires and wrote-off approximately $22,000 of net capitalized equipment and
building improvements damaged or destroyed by the fire.
Fairmount's insurance carrier notified Fairmount that when its property and
boiler insurance policy expired on February 1, 2000, it would not be renewed
because of adverse loss experience. Fairmount has obtained coverage through
another carrier, though at a substantially higher premium.
11
Results of Operations
Net sales for the three months ended June 30, 2001 were $3,198,400, an
increase of $128,000 or 4.2 % as compared to 2000.
Three Months Ended June 30,
-------------------------------------
2001 2000 Change
---------- ---------- ---------
Imaging & photographic
chemicals $ 469,200 $ 884,700 $(415,500)
Hydrazine blends 532,900 631,500 (98,600)
Hydrazine derivatives 1,119,900 270,300 849,600
Plastic additives 582,100 833,400 (251,300)
Specialty chemicals 494,300 450,500 43,800
---------- ---------- ---------
Total $3,198,400 $3,070,400 $ 128,000
========== ========== =========
Net sales for the six months June 30, 2001 were $5,982,400, a decrease of
$551,500 or 8.5 % as compared to 2000.
Six Months Ended June 30,
-------------------------------------
2001 2000 Change
---------- ---------- -----------
Imaging & photographic
chemicals $1,247,400 $1,734,300 $ (486,900)
Hydrazine blends 978,900 1,212,000 (233,100)
Hydrazine derivatives 1,604,300 482,900 1,121,400
Plastic additives 1,370,400 2,238,900 (868,500)
Specialty chemicals 781,400 866,400 (85,000)
---------- ---------- -----------
Total $5,982,400 $6,534,500 $ (552,100)
========== ========== ===========
The demand for certain types of chemicals used in photographic films is
expected to decrease during the coming years as the market for film diminishes
due in part to new digital imaging technologies. Fairmount is aware of this
possibility and is taking steps to substitute new products that are used in
making photographic paper and increase its market share of existing products by
broadening its customer base.
Sales of plastics additives decreased from $833,400 in the second quarter
of 2000 to $582,100 in the second quarter of 2001, a decrease of $251,300 or
30.2 %. For the six months ended June 30, 2001, sales were $1,370,400 compared
to $2,238,900 for the six months ended June 30, 2000, a decrease of $868,500 or
38.8 %. The decrease in plastic additive sales is due to lower shipments to a
major European customer and an Asia customer. The sales decrease also reflects
the negative effect of the weak EURO during the first quarter of 2001. To meet
competition, Fairmount sales are at a fixed EURO price and the Company is
therefore subject to currency exchange rate changes. Fairmount sells at a fixed
EURO price for competitive reasons. As in prior years, Fairmount expects the
downward pressure on plastic additive prices to continue.
Hydrazine blend sales decreased from $631,500 during the second quarter of
2000 to $532,900, a decrease of $98,600. Sales for the six months ended June 30,
2001 were $978,900 compared to $1,212,000 during the same period in 2000, a
decrease of $233,100. The decrease in hydrazine blend sales is mainly due to the
loss of customers and customer's demand was lower.
12
Hydrazine derivatives increased from $270,300 during the second quarter of
2000 to $1,119,900 during the second quarter of 2000, an increase of $849,600.
Sales for the six months ended June 30, 2001 were $1,604,300 compared to
$482,900 for the same period in 2000, an increase of $1,121,400. This increase
is due to a new customer and Fairmount expects shipments to this customer to
remain at the first quarter level for the balance of 2001.
Each class of similar products contributed the following percentage of
total sales in each of the following periods:
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
2001 2000 2001 2000
----- ----- ----- -----
Imaging & photographic chemicals 14.7% 28.80% 20.9% 26.5%
Hydrazine blends 16.7% 20.6% 16.4% 18.5%
Hydrazine derivatives 35.0% 8.8% 26.8% 7.4%
Plastic additives 18.2% 27.1% 22.9% 34.3%
Specialty chemicals 15.4% 14.7% 13.0% 13.3%
----- ----- ----- -----
100.0% 100.0% 100.0% 100.0%
===== ===== ===== =====
The gross profit for the three months of June 30, 2001 was $171,300, a
decrease of $506,100 compared to the same period in 2000. As a percent of sales
the gross margin was 5.4 % compared to 22.1 % during 2000.
The gross profit for the six months ended June 30, 2001 was $95,300, a
decrease of $1,337,800 compared to 2000. As a percent of gross sales, the gross
margin during the first six months of 2000 was 1.6 % compared to 21.9 % during
2000. This decrease was due in part to lower sales volume and the products sold
had a lower gross profit compared the products sold in 2000. In addition,
production was lower, but production expenses were higher in 2001 compared to
the same period in 2000
Selling, general and administrative expenses increased by $18,900 in the
second quarter of 2001 compared to the same period in 2000. Selling expenses
increased $27,700, and general and administrative expenses decreased by $8,800
in the second quarter of 2001 compared to the second quarter of 2000 There was
no material change in selling, general and administrative expenses from the six
months ended June 30,200 compared to the same period in 2000.
Operating income was $83,900 in the three months ended June 30, 2000
compared to a loss of $437,700 in 2001. For the six months ended June 30, 2000
the operating income was $199,600 compared to an operating loss of $1,136,900 in
the same period in 2001.
Interest expense was higher in the three month and six month period ended
June 30, 2001 versus the same period in 2000, due to the increased interest rate
on the remaining debt owed to affiliated parties per the promissory note
agreements and increased interest on bank borrowings.
During 2000, the Company received gross insurance proceeds of $333,100 as
partial settlement of the property losses sustained from a fire on November 10,
1999. During 2001, Fairmount received insurance proceeds of $53,100, for
property damaged caused by a delivery truck.
During the six months ended June 30, 2001 the Company recorded a foreign
exchange currency loss of approximately $50,200.
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The Company as a result of net operating losses utilized has recorded no
provisions for income taxes. A valuation allowance has been recorded at June 30,
2001 and 2000 for that portion of deferred tax assets, which are not presently
considered more likely than not to be realized.
Forward Looking Statements
This document contains forward-looking statements that involve risks and
uncertainties that could cause the results of Fairmount to differ materially
from those expressed or implied by such forward-looking statements. These risks
include the timely development, production and acceptance of new products and
services; competition; the flow of products into third-party distribution
channels; and other risks detailed from time to time in Fairmount's Securities
and Exchange Commission filings. The words "anticipates," "believes,"
"estimates," "expects," "intends," "will," and similar expressions, as they
relate to Fairmount or our management, may identify forward-looking statements.
Such statements reflect the current views of Fairmount with respect to future
events and are subject to certain risks, uncertainties and assumptions. Should
one or more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary from those described herein
as anticipated, believed, estimated or expected. Fairmount does not intend to
update these forward-looking statements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
In the normal course of operations, the Company is exposed to market risks
arising from adverse changes in interest rates. Market risk is defined for these
purposes as the potential change in the fair value of debt instruments resulting
from an adverse movement in interest rates. The Company's short-term working
capital borrowings have historically borne interest based on the prime rate. The
Company believes that its exposure to market risk relating to interest rate risk
is not material.
The Company has no derivative financial instruments or derivative commodity
instruments, nor does the Company have any financial instruments entered into
for trading or hedging purposes. To meet competition, the Company sales to one
European customer at a fixed EURO price and the Company is therefore subject to
currency exchange rate changes. Fairmount sells at a fixed EURO price for
competitive reasons.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
During the quarter ended June 30, 2001 the Company settled the toxic tort claim
filed against the Company on December 15, 1999. This claim was settled on June
26, 2001, for an immaterial amount. During the quarter ended June 30, 2001 the
Company settled the breach of contract claim filed against the Company on
October 10, 2000. This claim was settled on July 9, 2001 for an immaterial
amount. There were not other material changes in the potential claims reported
by the Company in its Annual Report on Form 10-KSB in "Item 1. Business -
Environmental Laws and Government Regulations".
Item 4. Submission of Matters to Vote of Security Holders
On June 7, 2001 the Company held its annual meeting of stockholders at its
offices, 117 Blanchard Street Newark, NJ 07105. There were two issues that
shareholders voted on; the election of the Board of Directors and the
appointment of independent auditors for 2001. There were 8,292,866 shares
eligible to vote. All five nominees were elected to the Board of Directors as
follows:
Nominee In Favor Withheld
------- -------- --------
Marshall Beil 6,593,228 1,597,703
Glen A. DaMota 8,189,628 1,303
Beno Hubler 8,189,628 1,303
Dr. Reidar T. Halle 6,593,228 1,597,703
Richard Mizrack 6,593,228 1,597,703
KPMG LLP was ratified as independent auditors for 2001 as follows:
In Favor: 8,178,906
Against: 1,250
Abstain: 10,775
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) No reports have been filed on Form 8-K during the quarter ended
June 30, 2001.
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FAIRMOUNT CHEMICAL CO., INC.
SIGNATURE
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 thereunto duly authorized.
FAIRMOUNT CHEMICAL CO., INC.
Registrant
August 15, 2001 /S/ Reidar Halle
- --------------- ------------------------
Date Reidar T. Halle
Chief Executive Officer &
President
August 15, 2001 /S/ William C. Kaltnecker
- --------------- -------------------------
Date William C. Kaltnecker
Controller
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