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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: JUNE 30, 2004 COMMISSION FILE NO: 0-2172
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: June 30, 2004 1,800,632
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Item 1 Financial Information
Item 1 Financial Statement
THE FLAMEMASTER CORPORATION
CONDENSED BALANCE SHEET
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JUNE 30,
2004
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(UNAUDITED)
ASSETS:
CURRENT ASSETS:
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Cash and cash equivalents $ 2,102,725
Marketable securities 59,012
Accounts receivable, less allowance of $5,000 667,768
Notes receivable 15,612
Inventories 1,079,132
Prepaid expenses 51,367
Deferred income taxes 19,651
Other investments 328,713
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TOTAL CURRENT ASSETS: 4,323,980
Machinery & improvements, net of
accumulated depreciation 132,494
License agreement, net of accumulated
amortization 16,779
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TOTAL ASSETS $ 4,473,253
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LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
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Accounts payable $ 281,704
Accrued liabilities 13,398
Income taxes payable 68,600
Deferred tax liability 19,934
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TOTAL CURRENT LIABILITIES: 383,636
SHAREHOLDERS' EQUITY:
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COMMON STOCK, par value, $.01 per share,
authorized 6,000,000 shares; issued and
outstanding 1,800,632 shares at 06/30/04 16,000
Additional paid-in Capital 3,760,480
Retained earning 316,956
Allowance for marketable securities (3,819)
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TOTAL STOCKHOLDERS' EQUITY $ 4,089,617
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TOTAL LIABILITY AND EQUITY $ 4,473,253
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See notes to condensed financial statements.
Item 1 Financial Statements (continued)
THE FLAMEMASTER CORPORATION
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED JUNE 2004
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2004 2003
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Net sales $ 1,346,686 $ 1,478,940
Royalties 438 2,399
Interest and Other Income 73,726 112,433
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Total Revenues 1,420,850 1,593,772
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Costs and expenses:
Cost of sales 707,337 765,362
Selling 83,767 94,717
General and administrative 208,080 166,814
Laboratory costs 101,377 106,590
Other expenses 13,983 37,755
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Total costs and expenses: 1,114,544 1,171,238
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Income before income taxes 306,306 422,534
Income taxes 125,463 180,943
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Net income 180,843 241,591
Other comprehensive income
Net of income tax
Unrealized Holding Gains (Losses) 193 (121,450)
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Comprehensive Income $ 181,036 $ 120,141
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Net income per share, basic $ .11 $ .15
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Net income per share, diluted NA $ .13
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Weighted average shares outstanding:
Basic 1,721,705 1,595,970
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Diluted NA 1,850,819
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See notes to condensed financial statements.
Item 1 Financial Statements (continued)
THE FLAMEMASTER CORPORATION
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
NINE MONTHS ENDED JUNE 30,
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2004 2003
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Net Sales $ 3,628,019 $ 3,753.970
Royalties 1,237 2,588
Interest and Other Income 97,296 245,629
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Total Revenues 3,726,552 4,002,187
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Costs and expenses:
Cost of Sales 1,914,014 1,985,362
Selling 240,997 281,425
General and administrative 591,138 517,806
Laboratory 324,135 304,786
Other (income)/ Expenses, Net 39,672 40,232
Interest on Convertible Notes 7,314 59,576
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Total Costs and Expenses 3,117,270 3,189,187
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Income before income taxes 609,282 813,000
Income taxes 231,999 320,561
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Net income 377,283 492,439
Other comprehensive income
Net of income taxes
Unrealized holding gains (losses) (3,819) (121,450)
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Comprehensive Income $ 373,464 $ 370,989
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Net income per share, basic $ .23 $ .31
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Net income per share, diluted NA $ .28
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Weighted average shares outstanding:
Basic 1,618,301 1,600,298
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Diluted NA 1,800,335
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See notes to condensed financial statements
Item 1 Financial Statements (continued)
THE FLAMEMASTER CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED JUNE 30, 2004
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Net cash provided (used) by operating activities: $ 307,241
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CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in notes receivable 397,407
Purchase of equipment & improvements (6,639)
Net purchases and sales of investment securities 642,828
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NET CASH USED IN INVESTING ACTIVITIES: 1,033,596
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CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in notes payable (913,500)
Issuance of Company's common stock 1,397,597
Purchase of Company's common Stock 125,790
Dividends paid (761,442)
Redemption of preferred stock (741,590)
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NET CASH USED IN FINANCING ACTIVITIES (893,145)
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NET INCREASE, (DECREASE), IN CASH 447,692
Cash, beginning of period 1,655,033
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Cash, end of period $ 2,102,725
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Cash paid during period for income taxes $ 178,000
Cash paid during period for interest expense $ 7,314
See notes to Condensed Financial Statements.
Item 1 Financial Statements (continued)
THE FLAMEMASTER CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 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. Comparative
amounts for 2003 have been restated to reflect the activities of
the Company, exclusive of its previously consolidated subsidiary.
Operating results for the nine months ended June 30, 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-KSBA for the year ended September 30, 2003.
Item 1 Financial Statements (continued)
THE FLAMEMASTER CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 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 June 30, 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.
Item 1 Financial Statements (continued)
THE FLAMEMASTER CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 2004
NOTE 4: INVENTORIES ARE SUMMARIZED AS FOLLOWS:
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June 30,
2004
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Raw materials $ 543,676
Shipping materials 140,486
Finished goods 394,970
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$ 1,079,132
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NOTE 5: During the three months ended June 30, 2004, the Company purchased
13,158 shares of its outstanding common stock at a cost of $
51,536.
NOTE 6: MARKETABLE SECURITIES:
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Marketable securities classified as current assets at June 30, 2004
include the following:
Fair Value Cost
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U.S. Treasury obligations $ 0 $ 0
Other Government Bonds 0 0
Corporate debt securities 2,600 9,544
Mortgage backed securities 24,537 25,000
Marketable equity securities 31,875 30,815
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$ 59,012 $ 65,359
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The contractual maturities of debt securities available for sale at
June 30, 2004 is as follows:
Fair Value Cost
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Due within one year $ 0 $ 0
Due after one year thru 5 years 0 0
Due after 5 years thru 10 years 0 0
Due after 10 years 24,537 25,000
Not due at single maturity date 2,600 9,544
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$ 27,137 $ 34,544
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Gross unrealized holding gains and losses at June 30, 2004 were $1,415 and
$7,761, respectively. There were no realized gains and losses from the sale of
securities for the three months ended June 30, 2004.
Item 1 Financial Statements (continued)
THE FLAMEMASTER CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2004
NOTE 7: DIVIDENDS
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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.
THE FLAMEMASTER CORPORATION
Item 2: Management's Discussion and Analysis of Financial Condition
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and Results of Operations:
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June 30, 2004 compared to September 30, 2003 and
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June 30, 2004 compared to June 30, 2003.
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FINANCIAL CONDITION AND LIQUIDITY:
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The Company's financial condition is strong with current assets of $4,323,980
compared to current liabilities of $383,636 at June 30, 2004, for a current
ratio of more than 11.2 to 1. Working capital stood at $3,940,344 on June 30,
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 expanded moderately to $667,768 from $627,345 in the prior year's
quarter ended June 30, 2003. Inventories grew moderately to $1,079,132 from
$1,135,012 on June 30, 2003.
Revenues for the June 30, 2004 quarter declined to $1,420,850 from the
$1,593,772 in the year earlier period. The year earlier period included a
significant increase in military requirements to meet the needs of the armed
services for combat. For the nine-month period ended June 30, 2004 revenues were
$3,726,552 as compared to $4,002,187 in the prior year's period. The decline was
due to lower interest and investment income, as well as a return to more normal
military procurement levels.
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 12.5% stock dividend during the quarter and has declared a
$.023 cash dividend to be paid August 10, 2004.
RESULTS OF OPERATIONS:
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For the three months ended June 30, 2004 net income was $180,843 compared to
$241,591 in the year earlier quarter. For the nine month period, net income
declined to $377,283 from $492,439 or $.23 per share vs. $.31 per share basic
and $.28 fully diluted adjusted for the 12.5% stock dividend in the prior year's
period. The decline in earnings was due to higher costs associated with
increased reporting requirements of the SEC and NASDAQ, as well as higher health
insurance premiums. Laboratory costs, including research and development for the
quarter were steady at $101,377 from $106,590 in the year ago period, but were
up moderately for the nine-month period to $324,135 from $304,786 in the nine
months ended June 30, 2003 due to increased product development costs. General
and administrative expenses increased substantially for the quarter ended June
30, 2004 to $208,080 from $166,814 in the quarter ended June 30, 2003. The
increase is attributable to increased regulatory requirements. The nine-month
period reflected a similar increase in general and administrative expenses to
$591,138 for June 30, 2003 and $517,806 in 2003. Again due to increased
regulatory requirements.
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:
August 11, 2004 /s/ JOSEPH MAZIN
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(Signature)
Joseph Mazin, President and
Chairman And Chief Executive
Officer And Chief Financial
Officer
DATE:
August 11, 2004 /s/ MARY KAY EASON
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(Signature)
Mary Kay Eason, Treasurer
and Secretary
DATE:
August 11, 2004 /s/ DONNA MAZIN
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(Signature)
Donna Mazin, Director