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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: MARCH 31, 2004 COMMISSION FILE NO: 0-2172
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THE FLAMEMASTER CORPORATION
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(Exact name of Registrant as specified in its Charter)
NEVADA 95-2018730
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(State or other jurisdiction of (IRS Employer
incorporation or organization) identification Number)
11120 SHERMAN WAY, SUN VALLEY, CALIFORNIA 91352
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(Address of Principal Executive Office)
Registrant's telephone number including area code: (818) 982-1650
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Registrant's facsimile number including area code: (818) 765-5603
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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
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
March 31, 2004 1,612,195
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Item 1 Financial Information
Item 1 Financial Statement
THE FLAMEMASTER CORPORATION
CONDENSED BALANCE SHEET
MARCH 31,
2004
(UNAUDITED)
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ASSETS:
CURRENT ASSETS:
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Cash and cash equivalents $ 1,913,153
Marketable securities 49,340
Accounts receivable, less allowance of $5,000 704,795
Notes Receivable 31,022
Income tax receivable 9,705
Inventories 1,100,523
Prepaid expenses 36,964
Deferred income taxes 19,334
Other investment 303,713
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TOTAL CURRENT ASSETS: 4,168,549
Machinery & improvements, net of Accumulated
depreciation 142,503
License agreement, net of accumulated Amortization 17,389
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TOTAL ASSETS $ 4,328,441
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LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
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Accounts payable $ 277,242
Accrued liabilities 70,195
Deferred tax liability 20,577
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TOTAL CURRENT LIABILITIES: 368,014
SHAREHOLDERS' EQUITY:
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COMMON STOCK, par value, $.01 per share,
authorized 6,000,000 shares; issued and
outstanding 1,612,195 shares at 03/31/04 16,132
Additional paid-in Capital 3,788,161
Retained earning 159,834
Allowance for marketable securities (3,700)
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TOTAL STOCKHOLDERS' EQUITY $ 3,960,427
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TOTAL LIABILITY AND EQUITY $ 4,328,441
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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 MARCH 2004
2004 2003
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Net sales $ 1,224,709 $ 1,163,147
Royalties 124 110
Interest and Other Income 6,307 68,701
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Total Revenues 1,231,140 1,231,958
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Costs and expenses:
Cost of sales 647,131 623,373
Selling 78,116 97,257
General and administrative 212,381 184,639
Laboratory costs 101,204 102,400
Other expenses 15,206 30,768
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Total costs and expenses: 1,054,038 1,038,437
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Income before income taxes 177,102 193,521
Income taxes 53,357 69,483
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Net income 123,745 124,038
Other comprehensive income
Net of income tax
Unrealized Holding Gains (Losses) 330 (551,533)
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Comprehensive Income $ 124,075 $ (427,495)
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Net income per share, basic $ .08 $ .09
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Weighted average shares outstanding:
Basic 1,612,197 1,448,557
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Diluted N/A 1,492,097
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See notes to condensed financial statements.
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Item 1 Financial Statements (continued)
THE FLAMEMASTER CORPORATION
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
SIX MONTHS ENDED MARCH 31,
2004 2003
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Net Sales $ 2,281,333 $ 2,275,030
Royalties 798 189
Interest and Other Income 23,570 133,196
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Total Revenues 2,305,701 2,408,415
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Costs and expenses:
Cost of Sales 1,206,676 1,219,999
Selling 157,230 186,708
General and administrative 383,059 350,992
Laboratory 222,758 198,196
Other (income)/ Expenses, Net 25,689 19,336
Interest on Convertible Notes 7,314 39,718
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Total Costs and Expenses 2,002,726 2,014,949
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Income before income taxes 302,975 393,466
Income taxes 106,536 139,618
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Net income 196,439 253,848
Other comprehensive income
Net of income taxes
Unrealized holding gains (losses) (3,700) (551,533)
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Comprehensive Income $ 192,739 $ (297,685)
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Net income per share, basic $ .13 $ .18
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Weighted average shares outstanding:
Basic 1,573,815 1,402,126
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Diluted N/A 1,656,975
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See notes to condensed financial statements
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Item 1 Financial Statements (continued)
THE FLAMEMASTER CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED MARCH 31,
2004
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Net cash provided (used) by operating activities: $ 179,478
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment & improvements 21,342
Net purchases and sales of investment securities (4,893)
Other Investments (303,713)
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NET CASH USED IN INVESTING ACTIVITIES: (287,264)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of Company's Common Stock 1,574,821
Dividends paid (118,387)
Notes Payable (913,500)
Minority interest (1,900)
Issuance of Preferred Restricted Stock (742,000)
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NET CASH USED IN FINANCING ACTIVITIES (200,966)
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NET INCREASE, (DECREASE), IN CASH (308,752)
Cash, beginning of period 2,221,905
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Cash, end of period $ 1,913,153
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Cash paid during period for income taxes $ 130,000
Cash paid during period for interest expense $ 7,314
See notes to Condensed Financial Statements.
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Item 1 Financial Statements (continued)
THE FLAMEMASTER CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2004
Note 1: FORWARD-LOOKING AND CAUTIONARY STATEMENTS
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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:
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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 six months ended March 31,
2004 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.
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Item 1 Financial Statements (continued)
THE FLAMEMASTER CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2004
Note 3: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
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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 March
31, 2004 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.
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Item 1 Financial Statements (continued)
THE FLAMEMASTER CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 2004
Note 4: Inventories are summarized as follows:
March 31,
2004
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Raw materials $ 548,953
Shipping materials 158,691
Finished goods 392,879
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$1,100,523
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Note 5: During the three months ended March 31, 2004, the Company purchased 14
shares of its outstanding common stock at a cost of $74.
Note 6: MARKETABLE SECURITIES:
Marketable securities classified as current assets at March 31, 2004
include the following:
Fair Value Cost
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Corporate debt securities $ 2,885 $ 9,544
Mortgage backed securities 25,486 25,000
Marketable equity securities 20,969 20,952
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$ 49,340 $ 55,496
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The contractual maturities of debt securities available for sale at
March 31, 2004 is as follows:
Fair Value Cost
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Not due at single maturity date $ 2,885 $ 9,544
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$ 2,885 $ 9,544
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Gross unrealized holding gains and losses at March 31, 2004 were $503 and
$6,659, respectively. There were no gains and losses from the sale of securities
for the three months ended March 31, 2004.
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Item 1 Financial Statements (continued)
THE FLAMEMASTER CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2004
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.
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THE FLAMEMASTER CORPORATION
Item 2: Management's Discussion and Analysis of Financial Condition and
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Results of Operations:
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March 31, 2004 compared to September 30, 2003 and
March 31, 2004 compared to March 31, 2003.
FINANCIAL CONDITION AND LIQUIDITY:
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The Company's financial condition is strong with current assets of $4,168,549
compared to current liabilities of $368,014 at March 31, 2004 for a current
ratio of more than 11.3 to 1. Working capital stood at $3,800,535 on March 31,
2004 compared to $7,008,375 at September 30, 2003. The decrease is attributable
to the divestiture of StarBiz in the form of a stock dividend. Accounts
receivable increased moderately to $704,795 from $640,047 in the prior year's
quarter ended March 31, 2003. Inventories were up modestly to $1,100,523 from
$1,032,856 on March 31, 2003 and $1,004,240 at year-end September 30, 2003 in
order to handle the increased order flow.
Revenues for the March 31, 2004 quarter remained steady at $1,231,140 from the
$1,231,958 in the year earlier period. For the six months period ended March 31,
2004 revenues were $2,305,701 as compared to $2,408,415 the modest decline were
attributable to lower interest and investment income. Sales of aircraft sealant
expanded slightly, while 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 .023 dividend in the Company's common stock during the
quarter, however future dividends will be adjusted to reflect the 12.5% stock
dividend paid on May 7, 2004.
RESULTS OF OPERATIONS:
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For the three months ended March 31, 2004, net income remained steady at
$123,745 compared to $124,038 in the year earlier period. For the six-month
period, net income declined to $196,439 from $253,848 or $.13 per share vs. $.18
per share in the prior year's period. The decline in earnings was due to higher
health insurance costs and increased reporting requirements of the SEC and
NASDAQ. Laboratory costs, including Research and Development for the quarter
were steady at $101,204 from $102,400 in the year earlier quarter, but for the
six months Laboratory expenses rose moderately to $222,758 from $198,196 the
year before, due to increased product development costs and testing costs for
new qualifications. General and Administrative expenses also increased
moderately to $212,381 in the quarter from $184,639 of the prior year, while the
six months G & A expense climbed to $383,059 from $350,992 in the 2003 period.
The increases were due to increased salaries and rent expense.
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SIGNATURES:
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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
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(Registrant)
DATE: May 7, 2004 /s/ JOSEPH MAZIN
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(Signature)
Joseph Mazin, President and Chairman
and Chief Executive Officer and Chief
Financial Officer
DATE: May 7, 2004 /s/ MARY KAY EASON
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(Signature)
Mary Kay Eason, Treasurer and Secretary
DATE: May 7, 2004 /s/ DONNA MAZIN
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(Signature)
Donna Mazin, Director
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