================================================================================
FORM 10-QSB
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, 2003
-----------------
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 (IRS Employer
incorporation or organization) 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 [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, 2003 1,612,209
------------------------------------
================================================================================
Item 1 Financial Information
Item 1 Financial Statement
THE FLAMEMASTER CORPORATION
CONDENSED BALANCE SHEET
DECEMBER 31,
2003
(UNAUDITED)
------------
ASSETS:
CURRENT ASSETS:
- --------------
Cash and cash equivalents $ 2,052,990
Marketable securities 2,846
Accounts receivable, less
allowance of $5,000 461,502
Notes Receivable 38,669
Inventories 983,930
Prepaid expenses 30,591
Deferred income taxes 19,426
Other Investments 303,713
------------
TOTAL CURRENT ASSETS: 3,893,667
Machinery & improvements, net
of accumulated depreciation 154,304
License agreement, net of
accumulated amortization 18,303
------------
TOTAL ASSETS $ 4,066,274
============
LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
- -------------------
Accounts payable $ 116,704
Accrued liabilities 9,176
Income taxes payable 43,959
Deferred tax liability 23,446
------------
TOTAL CURRENT LIABILITIES: 193,285
SHAREHOLDERS' EQUITY:
- --------------------
COMMON STOCK, par value, $.01 per
share, authorized 6,000,000 shares;
issued and outstanding 1,612,209
shares at 12/31/03 16,132
Additional paid-in Capital 3,788,195
Retained earning 72,692
Allowance for marketable securities (4,030)
------------
TOTAL STOCKHOLDERS' EQUITY $ 3,872,989
------------
TOTAL LIABILITY AND EQUITY $ 4,066,274
============
See notes to condensed financial statements.
2
Item 1 Financial Statements (continued)
THE FLAMEMASTER CORPORATION
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED DECEMBER 31,
2003 2002
------------ ------------
Net Sales $ 1,056,624 $ 1,111,883
Royalties 675 78
Interest and Other Income 17,260 64,495
------------ ------------
Total Revenues 1,074,559 1,176,456
============ ============
Costs and expenses:
Cost of Sales 559,545 596,627
Selling 79,114 89,451
General and administrative 188,981 166,353
Laboratory 103,251 95,796
Other (income)/ Expenses, Net 10,483 8,426
Interest on Convertible Notes 7,314 19,859
------------ ------------
Total Costs and Expenses 948,688 976,512
------------ ------------
Income before income taxes 125,871 199,944
Income taxes 53,179 70,135
------------ ------------
Net income 72,692 129,809
Other comprehensive income
Net of income taxes
Unrealized holding gains (losses) (4,030) 540,457
------------ ------------
Comprehensive Income $ 68,662 $ 670,266
============ ============
Net income per share, basic $ .05 $ .09
============ ============
Weighted average shares outstanding:
Basic 1,551,921 1,404,254
============ ============
Diluted N/A 1,659,103
============ ============
See notes to condensed financial statements
3
Item 1 Financial Statements (continued)
THE FLAMEMASTER CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED DECEMBER 31,
2003
------------
Net cash provided (used) by operating activities: $ 233,887
------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment & improvements 23,970
Net purchases and sales of investment securities 40,718
Other investments (303,713)
------------
NET CASH USED IN INVESTING ACTIVITIES: (239,025)
------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in notes payable (913,500)
Issuance of Company's Common Stock 1,574,930
Dividends paid (81,307)
Minority Interest (1,900)
Repurchase of preferred restricted stock (742,000)
------------
NET CASH USED IN FINANCING ACTIVITIES (163,777)
------------
NET INCREASE, (DECREASE), IN CASH (168,915)
Cash, beginning of period 2,221,905
------------
Cash, end of period $ 2,052,990
============
Cash paid during period for income taxes $ 20,000
Cash paid during period for interest expense $ 7,314
Non cash investing and financing activities
Issuance of subsidiary stock as dividend $ 3,515,400
See notes to Condensed Financial Statements.
4
Item 1 Financial Statements (continued)
THE FLAMEMASTER CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
DECEMBER 31, 2003
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 three months ended December
31, 2003 are not indicative of the results that may be expected for
the year ending September 30, 2004.
For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's annual
report on Form 10-KSB for the year ended September 30, 2003.
5
Item 1 Financial Statements (continued)
THE FLAMEMASTER CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
DECEMBER 31, 2003
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, 2003 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.
6
Item 1 Financial Statements (continued)
THE FLAMEMASTER CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
DECEMBER 31, 2003
Note 4: Inventories are summarized as follows:
DECEMBER 31,
2003
------------
Raw materials $ 403,728
Shipping materials 171,777
Finished goods 408,425
------------
$ 983,930
============
Note 5: During the three months ended December 31, 2003, the Company purchased
9,901 shares of its outstanding common stock at a cost of $ 74,288.
Note 6: MARKETABLE SECURITIES:
Marketable securities classified as current assets at December 31,
2003 include the following:
FAIR VALUE COST
------------ ------------
Corporate debt securities $ 2,835 $ 9,544
Marketable equity securities 11
------------ ------------
$ 2,846 $ 9,544
============ ============
The contractual maturities of debt securities available for sale at
December 31, 2003 is as follows:
FAIR VALUE COST
------------ ------------
Not due at single maturity date $ 2,835 $ 9,544
------------ ------------
$ 2,835 $ 9,544
============ ============
Gross unrealized holding gains and losses at December 31, 2003 were $11 and
$6,709, respectively. Realized gains and losses from the sale of securities for
the three months ended December 31, 2003 were $10,279 and $763 respectively.
7
Item 1 Financial Statements (continued)
THE FLAMEMASTER CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
DECEMBER 31, 2003
Note 7: DIVIDENDS
On December 5, 2003, the Company declared the divestiture of its
investment and management subsidiary, StarBiz Corporation. The
divestiture of StarBiz takes the form of a stock dividend to
Flamemaster shareholders who received one StarBiz share for every 120
(one hundred and twenty) Flamemaster shares owned. This distribution
is included as changes against retained earnings of $2,409,259 and to
additional paid in capital of $1,106,141. No fractional shares were
issued. Fractional shares were paid in cash at $150 per share for
total cash dividends of $32,096.
8
THE FLAMEMASTER CORPORATION
Item 2:
Management's Discussion and Analysis of Financial Condition
- ------------------------------------------------------------
and Results of Operations:
- --------------------------
December 31, 2003 compared to September 30, 2003 and
December 31, 2003 compared to December 31, 2002.
FINANCIAL CONDITION AND LIQUIDITY:
- ----------------------------------
The Company's financial condition is strong with current assets of $3,893,667
compared to current liabilities of $193,285 at December 31, 2003 for a current
ratio of 20 to 1. Working capital stood at $3,700,382 on December 31, 2003
compared to $7,008,375 at September 30, 2003. The Decrease is attributable to
the spin-off of StarBiz in December of 2003 to the Company's shareholders
holding 120 shares or more, fractions were paid in cash. Cash and cash
equivalents and marketable securities decreased to $2,055,836 from $5,519,603 at
fiscal year end September 30, 2003, also as a result of the StarBiz spin-off.
Accounts receivable decreased moderately to $461,502 from $543,484 in the prior
year's quarter ended December 31, 2002. Inventories were also lowered moderately
to $983,930 from $1,046,252 on December 31, 2002 and $1,004,240 at year end
September 30, 2003 due to a faster turn over.
Revenues for the December 31, 2003 quarter declined to $1,074,559 from
$1,176,456 in the year earlier period. The spin-off of StarBiz accounted for a
decline in interest and investment income to $17,260 from $64,495 for the 2003
quarter to 2002 quarter comparison. Sales of Aircraft Sealants remained steady,
while flame retardant coatings declined slightly.
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.
Flamemaster paid a $.032 dividend on the Company's common stock during the
quarter, however, future dividends are expected to be adjusted to reflect the
spin-off of StarBiz.
RESULTS OF OPERATIONS:
- ----------------------
For the three months ended December 31, 2003, net income declined to $72,692
from $129,809 or $.05 per share vs $.09 per share in the year earlier period.
The decline in earnings was due to higher raw material costs, higher health
insurance costs and increased reporting requirements of the SEC and NASDAQ.
Laboratory costs, including Research and Development for the quarter increased
to $103,251 from $95,796 in the year earlier quarter due to increased product
development costs. General and Administrative expenses increased moderately to
$188,981 from $166,353 in the prior year due to increased salaries, while
selling expenses declined moderately to $79,114 from $89,451 in the year
earlier.
9
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 9, 2004 /s/ JOSEPH MAZIN
- ---------------- ---------------------------------------
(Signature)
Joseph Mazin, President and Chairman
And Chief Executive Officer And Chief
Financial Officer
DATE:
February 9, 2004 /s/ MARY KAY EASON
- ---------------- ---------------------------------------
(Signature)
Mary Kay Eason, Treasurer and Secretary
DATE:
February 9, 2004 /s/ DONNA MAZIN
- ---------------- ---------------------------------------
(Signature)
Donna Mazin, Director
10