FLAMEMASTER CORPORATION
11120 Sherman Way
Sun Valley, CA 91352
Phone -818-982-1650
IRS Employer ID - 95-2018730
Commission File No. - 0-2712
April 5, 2005
Mr. Rufas Decker
Accounting Branch Chief
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549-0510
RE: FORM 10-KSB FOR THE YEAR ENDED SEPTEMBER 30, 2004
Dear Mr. Decker,
In reply to your comment letter dated February 7, 2005, below please find our
responses to your requests. Please let me know if additional information and/or
explanation are needed. We are also looking forward to working with you to
ascertain that we are incompliance with the applicable disclosure requirements
of our filing.
1. We will re-file the Form 10-KSB for fiscal year ended September 30,
2004 of the Flamemaster Corporation as you recommended. All revisions
stated herein will also be included in our future filings.
2. Item 307-Controls and Procedures and Item 308-Internal Control Over
Financial Reporting will be added to the amended 10KSB as Item 8A as
follows:
Item 8a
Controls and Procedures
An evaluation was performed under the supervision and with the
participation of the Company's management, including our Chief
Executive Officer and Chief Financial Officer, Joseph Mazin, of the
effectiveness of the design and operation of the Company's disclosure
controls and procedures within 90 days before the filing date of this
report. Based on that evaluation, the Company's management, including
the CEO and CFO, concluded that the Company's disclosure controls and
procedures were effective. There have been no significant changes in
the Company's internal controls or in other factors that could
significantly affect internal controls subject to their evaluation.
Mr. Rufas Decker
April 5, 2005
Page 2 of 11
The nature of the business and the size of the Company have prevented
the Company from being able to employ sufficient resources to enable
it to have an adequate segregation of duties within its internal
control system. This condition is considered a reportable condition
and has been discussed with the audit committee. The Company will
continue to monitor and assess the costs and benefits of additional
staffing in the accounting area.
Item 5. Market for Registrant's Common Equity and Related Shareholder
---------------------------------------------------------------------
Matters. Page 6
---------------
3. Our ticker symbol has temporarily changed from "FAME" to "FAMEC"
pending merger partner qualifying for NASDAQ listing. We will revise
our ticker symbol to FAMEC on our amended 10-KSB.
4. Below is the adjusted High/Low Bid table to retroactively reflect for
all stock splits, including those occurred after the close of the
period but before the issuance of the financial statements. We will
provide the proper disclosure to indicate that these stock splits have
been reflected in the table in our amended 10-KSB.
Low Bid High Bid
---------- ----------
October-December 2003 $ 50.93 ** $ 62.58 **
January-March 2004 $ 40.00 ** $ 54.22 **
April-June 2004 $ 32.20 * $ 51.00 *
July-September 2004 $ 29.20 * $ 40.60 *
October-December 2002 $ 54.49 ** $ 67.73 **
January-March 2003 $ 54.84 ** $ 58.22 **
April-June 2003 $ 55.47 ** $ 62.22 **
July-September 2003 $ 54.31 ** $ 61.78 **
* Adjusted to reflect 1 for 10 stock split effective October 26,
2004.
** Adjusted to reflect 9 for 8 stock split effective May 7, 2004
and 1 for 10 stock split effective October 26, 2004.
Mr. Rufas Decker
April 5, 2005
Page 3 of 11
Management's Discussion and Analysis
------------------------------------
Financial Condition and Liquidity, page 7
-----------------------------------------
5. In reply to your comment, management feels that the Company has
sufficient liquidity to meet any future requirements or to cope with
any unforeseen events or uncertainties over the next 12-month period.
Management does not know of any material event that would have a
material impact on either short-term or long-term liquidity, other than
the proposed merger with The Best Group.
Subsequent to Year End, page 8
------------------------------
6. The title of this section will be revised to "Subsequent to Fiscal 2003"
in our amended 10-KSB.
Financial Statement Schedules, page 11
--------------------------------------
7. We erroneously listed Schedule II as a financial statement schedule.
We are no longer required to submit this schedule. We will omit it
from the table of contents in our amended 10-KSB. However, we will add
the disclosure of Allowance of Doubtful Accounts to Item 6 -
Management's discussion and analysis of financial condition and
results of operations as follows:
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
The Company evaluates the collectibility of its accounts receivable
and provides an allowance for estimated losses that may result from
customers' inability to pay. Historically, bad debt experience has
been very minimal and the reserve amount has been consistent with
prior years. If the estimates are not correct, we might have to write
off accounts receivable in excess of the bad debt reserve, which would
be charged against earnings.
Exhibits, page 11
- -----------------
8. The Statement regarding Computation of Per Share Earnings will be
labeled "EXHIBIT 11" in our amended 10KSB.
Statement of Income Page 15
- ---------------------------
9. The computations of basic and diluted earnings per share have been
revised to the amended 10KSB. Please see attached updated financial
statements.
Mr. Rufas Decker
April 5, 2005
Page 4 of 11
10. Net Sales were listed as a separate item to Gross Revenues, which
included royalties, interest and other income as a separate line item.
However, income from operations includes interest and other income,
which income and cash resources were used to finance operating
activities, including sales. No interest expense was booked to offset
the funding.
11. Royalties are paid on only one series of products derived from a
Permapol Polymer. We buy the raw material from the same supplier that
we pay the royalty to. The raw material may be used for products that
are made for samples, or products we submit for testing and
qualifications, which amounts could be significant. For supplier audit
purposes, it is more appropriate and efficient to address the
royalties paid as a separate line item. When we are audited by some of
our major customers, such as Lockheed, booking royalties as a separate
line item makes it easier for them to identify it.
Statement of Comprehensive Income, page 16
- ------------------------------------------
12. We inadvertently left out the reclassification adjustment amount. The
amended 10KSB will be revised to reflect reclassification adjustments.
Please see attached updated financial statements.
Statement of Shareholders Equity, page 17
- -----------------------------------------
13. The Flamemaster Corporation classified and recorded this May 2004
stock transaction as a 9 for 8 stock split.
14. The one for ten reverse stock splits, which was effective on October
29, 2004 are adjusted retroactively in the balance sheet for all
periods presented in the amended 10 KSB. It also includes the
appropriate cross-referenced notes and explanations to such
retroactive treatment as well as the date the change became effective.
Please see attached updated financial statements. However, the seven
for one stock split, which was effective on January 7, 2005 will not
be reflected retroactively in the balance sheet because it occurred
after the issuance of the financial statements.
15. The basic and diluted EPS are adjusted in the amended 10KSB
retroactively for all periods presented to reflect the one for ten
reverse stock splits. However, the seven for one stock split, which
was effective on January 7, 2005 will not be reflected retroactively
in the balance sheet because it occurred after the issuance of the
financial statements.
16. The item "Marketable Security Allow, Divestiture" was inadvertently
titled and is removed from the amended 10KSB. Please see attached
updated financial statements.
Mr. Rufas Decker
April 5, 2005
Page 5 of 11
Statement of Cash Flows, page 18
- --------------------------------
17. The amended 10KSB will report and disclose the issuance of preferred
restricted stock in the notes conversion as well as the conversion of
the preferred stock into common stock as a non-cash investing and
financing activities.
18. The financial statements were revised to agree the cash dividends
amounts from cash flows from financing activities to statement of
shareholders' equity. Please see attached updated financial
statements.
19. Notes Receivable consisted of a promissory note issued to a regular
employee, (not an officer or director or related to any officer or
director), for a loan and to a customer for past due sales invoices.
Therefore, the changes of these amounts are classified as cash flows
from operating activities.
Note A - Summary of Significant Accounting Policies, page 19
- ------------------------------------------------------------
General
- -------
20. The 12.5% or 9 for 8 stock splits, which was effective on May, 2004
and the one for ten reverse stock splits, which was effective on
October 29, 2004 will be adjusted retroactively in the balance sheet
for all periods presented in the amended 10 KSB. It will also include
the appropriate cross-referenced notes and explanations to such
retroactive treatment as well as the date the change became effective.
However, the seven for one stock split, which was effective on January
7, 2005 will not be reflected retroactively in the financial
statements because it occurred after the issuance of the financial
statements.
21. As part of Cost of Goods Sold line item we include Manufacturing Cost,
which consists of, direct labor (payroll), raw materials, shipping
materials, finished goods, and outside production. We also include as
Cost of Goods Sold line item Factory Overhead expenses such as
temporary labor, factory payroll taxes, factory workers compensation
insurance, freight inbound from our suppliers, factory portion of the
rent based on square footage, factory portion of property taxes,
factory portion of utilities, factory depreciation, Uniforms, factory
repair & maintenance of machinery, small tools purchased for factory
use, non-inventory shipping supplies such as dry ice, factory auto
expense, factory travel expense, all licenses & permits that are
required by governing agencies over shipping and manufacturing, other
outside services such as fire alarm agencies, dues & subscriptions
pertaining to the factory , and other miscellaneous charges such as
periodic medical testing. Purchasing and receiving are done by factory
employees and become part of factory labor cost. We do not have any
inspection costs, warehousing costs or internal transfer costs due to
the small size of our business.
Mr. Rufas Decker
April 5, 2005
Page 6 of 11
The types of expenses we include in the selling and administrative expenses line
item are as follows:
Selling Expense Administrative Expenses
- --------------- -----------------------
Temporary Labor Temporary Labor
Sales Salaries G & A Salaries
Salesmen commission Payroll Taxes
Payroll Taxes associated with sales employees Workers Comp Ins.
Workers Comp. Insurance for sales employ Group Insurance
Sales Dept. portion of building rent Employee Benefits
Sales Dept. portion of prop. Tax Profit Sharing
Sales Dept. portion of Utilities Building rent
Depreciation of sales equipment Property Taxes
Office supplies Utilities
Repairs & Maintenance Insurance
Advertising Depreciation
Freight Out Office Supplies
Samples Repairs & Maintenance
Auto Expense Auto Expense
Travel Expense Travel Expense
Business Promotion Business Promotion
Consulting fee Consulting Fee
Sales Portion of Telephone, Fax, Net Telephone, Fax, Internet
License & Permit License & Permits
Postage Postage
Dues & Subscription Legal & Audit
Miscellaneous Other Outside Services
Director Fees
Xmas Expense
Shareholder Expense
Dues & Subscriptions
Donations & Contributions
Miscellaneous
All our distributors are independent and are also our customers. They take
responsibility and ownership of the material shipped to them with no
recourse of returning material that they do not sell.
22. We send most of our shipments collect to the customers, however, in
the case of a government shipment Flamemaster pays for the freight.
These charges are recorded as a sales expense, freight out. If the
customer requests the freight charge to be added to his invoice, this
reduces our freight out expense. We ship by outside common carrier,
Federal Express, United Parcel, etc. Only the actual cost of shipping
is recorded.
Mr. Rufas Decker
April 5, 2005
Page 7 of 11
23. There are two items accounted under Other Investment - Investment in
Cyberhotline, and Investment in StarBiz Corporation. Investment in
Cyberhotline represents an interest-bearing note of $25,000. StarBiz
Corporation was Flamemaster's investment and management service
affiliate. This investment was $303,713.
Revenue Recognition, page 19
- ----------------------------
24. Most of our products are sold as FOB Origin, and we bill when the item
is picked up by a common carrier. Our customers either choose the
freight company or provide their own customer pick-up.
We operate an industry that requires third party accreditation;
therefore, our products are inspected and approved both by our own
laboratory and an outside testing facility, Performance Review
Institute (PRI). PRI provides our company with National Accreditation
(NADCAP). However many of our products do have a limited shelf life
and some of our government customers do buy our sealants and warehouse
them. On some occasions they do not rotate their stock properly and
upon testing several months later might require a fresh replacement,
but this is an insignificant amount to our overall government sales.
Because of the stringent testing of our material that is done before
it is shipped, the title passes from us to our customer upon shipment
of material. Because of the critical nature of our material and its
relative short shelf life, many of our customers keep a large supply
of our material available. Of course, if an error does occur, the
customer may return the material after our laboratory check the
retains (samples of the shipped material) that are held here and upon
the approval of our sales department.
25. Sales are always recorded at the time the products are shipped, and
title passes to our customers at the same time.
Stock Based Compensation, page 19
- ---------------------------------
26. Note G includes the disclosures specified in paragraph 45 through 47
of SFAS 123. Please note these granted options have not been exercised
since granted date, April 2000 and have a five-year term expiring
April of this year.
Note F - Commitments and Contingencies, page 21
- -----------------------------------------------
27. We will include that the lease payments are subjected to an annual
flat rate increase of 3.5% and do not depend on any existing index or
rate.
Mr. Rufas Decker
April 5, 2005
Page 8 of 11
Note I - Income per Common Share, page 23
- -----------------------------------------
28. There were no securities that could potentially dilute basic EPS that
are not included in the computation of diluted for the periods
presented.
Note L - Sales Information and Major Customers, page 24
- -------------------------------------------------------
29. During the fiscal year ended September 30, 2004, an agency (General
Services Administration) of the United States Government accounted for
$1,114,386 (22.47%) of sales as compared to $1,504,442 (31.37%) in
2003. There were three other major customers in 2004 that accounted
for $1,157,652 (23.34%), $537,321 (10.83%), and $496,325 (10.01%) of
sales. No other single customer accounted for 10% or more of sales.
For confidentially, we do not disclose the names of our commercial
customers.
Note N - Long Term Debt (Prior Years) page 25
- ---------------------------------------------
30. The spin-off of Starbiz was accounted for as a property dividend to
the shareholders of Flamemaster based on the guidance of APB 29,
paragraph 23. This paragraph calls for Nonreciprocal Transfers to
Owners for the distribution of non-monetary assets in a spin-off to be
based on the recorded amount (after reduction, if appropriate, for an
indicated impairment of value) of the non-monetary asset. It was
determined, at the time of the dividend that no impairment of value
existed. As such, the dividend was recorded as a reduction in Other
Investments, and a corresponding reduction in Additional Paid In
Capital and Retained Earnings.
The operations of Starbiz were not reported as discontinued operations
in accordance with SFAS 144 due to the nature of the entity. Starbiz
was a separate Corporation set up to hold investments in equity
securities previously held by Flamemaster. This was organized so as to
provide protection for corporate assets, minimize exposure to risks
associated with the chemical operation, as well as to facilitate the
ultimate spin-off. Management believed this spin-off to be necessary
in order to avoid contentions by the Internal Revenue Service that
Flamemaster was accumulating excess earnings.
According to paragraph 5, SFAS 144 does not apply to investments in
equity securities accounted for under the cost or equity method. For
this reason, the Starbiz operations were not reported as discontinued
operations.
31. The redemptions of Notes on June 26, 2003 and November 11, 2003 were
accounted for as exchanges of substantially similar debt instruments
with no reporting of gain or loss. This is in keeping with the
provisions of EITF 96-19 which indicate that if cash flows are not
substantially different after the
Mr. Rufas Decker
April 5, 2005
Page 9 of 11
conversion from one debt instrument to another, no gain or loss must
be recognized.
In the first paragraph of page 888A, it is established that in any
exchange of debt instruments whose discounted cash flows are less than
10% different, the debt instruments are not considered to be
substantially different, and thus no gain or loss must be reported. In
each of the referenced debt exchanges, the effect of the change in
interest rate, along with the change in maturity date, and the costs
of conversion, resulted in a discounted cash flow improvement of less
than 10.00%. Falling under this threshold, these exchanges of debt
instruments are not required to be reported under the provisions of
Paragraph 16 of FAS 125.
Note O - Subsequent Events, page 27
- -----------------------------------
32. The transaction with Best Group is proceeding. The consideration to be
received by Flamemaster's shareholders is a 10% equity interest in
Best and the distribution of the current Flamemaster operations, upon
closing, to the shareholders of Flamemaster prior to the merger. The
new corporation, comprising of the current Flamemaster operations,
will become non-reporting. Our last certification from our transfer
agent shows 96 record-holders, and therefore, when the current
operations are spun-off, we will become a non-reporting corporation.
(See copy of certification from Registrar & Transfer).
The parties intend that the exchange qualify as a tax-free exchange
under Section 351 of the Code, as amended, and the parties will take
the position for all purposes that the exchange shall qualify under
such Section.
Exhibit 11
- ----------
33. The earnings per share calculations will be presented in the amended
10-KSB as follows:
Mr. Rufas Decker
April 5, 2005
Page 10 of 11
BASIC
- -----
Income from Operations $ 504,452
Preferred Dividends (4,788)
---------
Income Available To Common Shareholders $ 499,664
---------
Weighted Average Shares Outstanding
Common Stock - Average Outstanding 165,627
Common Stock Options --
---------
Weighted Average Shares Outstanding 165,627
---------
Basic Earnings per Share $ 3.02
=========
DILUTED
- -------
Income Available to Common Shareholders $ 499,664
Preferred Dividends 4,788
Interest from Convertible Notes, Net of Taxes 4,388
---------
Diluted Income $ 508,840
---------
Net Weighted Shares Outstanding
Common Stock - Average Outstanding 165,627
Preferred Stock 2,770
Convertible Notes --
---------
Net Weighted Shares Outstanding 168,397
---------
---------
Diluted Earnings per Share $ 3.02
=========
Exhibit 31
- ----------
34. A revised Exhibit 31 will be included in the amended Form 10KSB.
The Company acknowledges that:
o The Company is responsible for the adequacy and accuracy of the
disclosure in our filings;
o Staff comments or changes to disclosure in response to staff comments
do not foreclose the Commission from taking any action with respect to
the filing; and
Mr. Rufas Decker
April 5, 2005
Page 11 of 11
o The Company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the federal
securities laws of the United States.
Signed:
Joseph Mazin,
President, CEO, CFO
THE FLAMEMASTER CORPORATION
BALANCE SHEET
SEPTEMBER 30, 2004
2004
----------
ASSETS
- ------
CURRENT ASSETS:
Cash and Cash Equivalents $2,106,792
Marketable Securities (Note C) 74,009
Accounts Receivable, less Allowance
For Doubtful Accounts of $5,000 in 2004 691,395
Inventories (Note D) 1,034,287
Prepaid Expenses and Other Assets 53,300
Notes Receivable 7,853
Deferred Income Taxes (Note J) 40,130
Other Investments 328,713
----------
TOTAL CURRENT ASSETS 4,336,479
----------
EQUIPMENT AND IMPROVEMENTS, at cost
Machinery and Equipment 753,156
Furniture and Fixtures 149,325
Laboratory Equipment 82,745
Leasehold Improvements 135,375
Transportation Equipment 20,036
----------
1,140,637
Less Accumulated Depreciation (993,621)
----------
NET EQUIPMENT AND IMPROVEMENTS 147,016
----------
PRC LICENSE AGREEMENTS, net of
Accumulated Amortization of
$172,357 in 2004 (Note E) --
----------
TOTAL ASSETS $4,483,495
==========
See accompanying notes to financial statements.
THE FLAMEMASTER CORPORATION
BALANCE SHEET
SEPTEMBER 30, 2004
2004
----------
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Accounts Payable $ 203,455
Accrued Expenses 45,346
Income Taxes Payable 23,737
Deferred Tax Liability (Note J) 47,478
----------
TOTAL CURRENT LIABILITIES 320,016
----------
TOTAL LIABILITIES 320,016
----------
COMMITMENTS AND CONTINGENCIES (Note E, F and H)
SHAREHOLDERS' EQUITY (Notes A and G):
Common Stock, par value $.001 per share, authorized
6,000,000 shares; issued and outstanding
1,793,798 shares in 2004. 17,938
Additional Paid-In Capital 3,746,161
Retained Earnings 392,591
Allowance For Marketable Securities 6,789
----------
TOTAL SHAREHOLDERS' EQUITY 4,163,479
----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $4,483,495
==========
See accompanying notes to financial statements.
THE FLAMEMASTER CORPORATION
STATEMENT OF INCOME
FOR THE YEARS ENDED SEPTEMBER 30, 2004 AND 2003
2004 2003
----------- ----------
NET SALES (Note L) $ 4,959,929 $4,769,094
ROYALTIES 1,450 2,935
INTEREST AND OTHER INCOME 74,418 325,823
----------- ----------
5,035,797 5,097,852
----------- ----------
COSTS AND EXPENSES:
Cost of Goods Sold 2,618,751 2,579,394
Selling and Administrative 1,111,737 1,079,928
Laboratory Costs 427,096 408,725
Royalties, Interest and Other 62,269 126,465
----------- ----------
4,219,853 4,194,512
----------- ----------
INCOME FROM OPERATIONS
BEFORE INCOME TAXES 815,944 903,340
PROVISION FOR INCOME TAXES 311,492 364,821
----------- ----------
NET INCOME 504,452 538,519
PREFERRED STOCK DIVIDENDS (4,788) (5,745)
----------- ----------
NET INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS 499,664 532,774
PREFERRED STOCK DIVIDENDS 4,788 5,745
INTEREST ON CONVERTIBLE NOTES, NET OF TAX 4,388 46,059
NET INCOME ATTRIBUTABLE TO COMMON STOCK
----------- ----------
AND ASSUMED CONVERSIONS $ 508,840 $ 584,578
=========== ==========
----------- ----------
NET INCOME PER SHARE, BASIC (Note I) $ 3.02* $ 3.39**
=========== ==========
----------- ----------
NET INCOME PER SHARE, DILUTED (Note I): $ 3.02* $ 3.13**
=========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING 165,627* 157,313**
WEIGHTED AVERAGE SHARES OUTSTANDING
DILUTED 168,397* 187,024**
* Adjusted to reflect 1 for 10 stock split effective October 26, 2004.
** Adjusted to reflect 9 for 8 stock split effective May 7, 2004 and 1
for 10 stock split effective October 26, 2004.
See accompanying notes to financial statements.
THE FLAMEMASTER CORPORATION
STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED SEPTEMBER 30, 2004 AND 2003
2004 2003
----------- ----------
NET INCOME $ 504,452 $ 538,519
CHANGE IN UNREALIZED GAIN/ (LOSSES)
ON MARKETABLE SECURITIES, NET OF TAX 6,789 (267,032)
RECLASSIFICATION ADJUSTMENT (9,516) (97,566)
----------- ----------
COMPREHENSIVE INCOME/(LOSS) $ 501,725 $ 173,921
=========== ==========
See accompanying notes to financial statements.
THE FLAMEMASTER CORPORATION
STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 2003 AND 2004
UNREALIZED
ADDITIONAL GAIN/(LOSS) ON
PREFERRED STOCK COMMON STOCK PAID-IN RETAINED MARKETABLE
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS SECURITIES TOTAL
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
BALANCE, SEPTEMBER 30, 2002 -- $ -- 1,407,710 $ 14,077 $3,314,668 $2,259,256 $ (471,755) $5,116,246
REDEMPTION OF COMMON STOCK
WITH CASH (25,230) (255) (84,486) (73,708) -- (158,449)
CASH DIVIDENDS ON COMMON
STOCK $.032 PER SHARE -- (134,486) -- (134,486)
PREFERRED STOCK ISSUED IN
NOTES CONVERSION 41,038 410 -- -- 741,590 -- -- 742,000
CASH DIVIDENDS ON PREFFERED
STOCK $.56 PER SHARE -- (5,745) -- (5,745)
UNREALIZED GAIN/(LOSS) ON
SECURITIES, NET OF TAX 204,723 204,723
NET INCOME 538,519 -- 538,519
BALANCE, SEPTEMBER 30, 2003 41,038 410 1,382,480 13,822 3,971,772 2,583,836 (267,032) 6,302,808
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
CONVERSION OF PREFERRED
STOCK (41,038) (410) -- -- 410 -- --
CALL/CONVERSION OF NOTES 235,391 2,354 911,146 913,500
PROPERTY DIVIDENDS (1,085,715) (2,437,171) (3,522,886)
CASH DIVIDENDS FOR
FRACTIONAL SHARES (32,096) (32,096)
CASH DIVIDENDS ON PREFFERED
STOCK $.56 PER SHARE (4,788) (4,788)
CASH DIVIDEND ON COMMON
STOCK $.032 PER SHARE (44,423) (44,423)
CASH DIVIDEND ON COMMON
STOCK $.023 PER SHARE (78,799) (78,799)
REDEMPTION OF COMMON STOCK
WITH CASH (25,682) (254) (51,452) (96,404) (148,110)
STOCK SPLITS 201,609 2,016 (2,016) --
UNREALIZED GAIN/(LOSS) ON
SECURITIES, NET OF TAX 273,821 273,821
NET INCOME 504,452 504,452
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
BALANCE, SEPTEMBER 30, 2004 -- $ -- 1,793,798 $ 17,938 $3,746,161 $ 392,591 $ 6,789 $4,163,479
========== ========== ========== ========== ========== ========== ========== ==========
See accompanying notes to financial statements.
THE FLAMEMASTER CORPORATION
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 2004 AND 2003
2004 2003
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 504,452 $ 538,519
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and Amortization 69,300 56,543
(Increase)/decrease in Accounts Receivable (201,919) 44,215
(Increase)/decrease in Inventories (30,047) 76,045
(Increase)/decrease in Notes Receivable 59,035 (66,888)
(Increase)/decrease in Settlement Receivable -- 95
(Increase)/decrease in Prepaid Expenses and
Other Assets (13,372) (9,787)
(Increase)/decrease in Deferred Income Tax
Assets Due To Operations 31,815 292,344
Increase/(decrease) in Accounts Payable 94,733 (56,675)
Increase/(decrease) in Accrued Expenses 22,632 (35,450)
Increase/(decrease) in Income Taxes Payable 8,760 71,773
Increase/(decrease) in Deferred Income Tax
Liabilities Due To Operations 10,185 15,723
---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 555,574 926,457
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of Property, Plant and Equipment (6,483) (33,899)
(Increase)/decrease in Other Investments (328,713) 46,287
(Increase)/decrease in Investment Securities 3,497,511 (317,344)
---------- ----------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 3,162,315 (304,956)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Minority Interest (1,900) 1,900
Increase/(decrease) in Notes Payable -- (787,100)
Issurance/(repurchase) of Common Stock (148,110) (158,449)
Issurance/(repurchase) of Preferred Restricted
Stock -- 742,000
Property Dividends (3,522,886) --
Dividends Paid for Fractional Shares (32,096) --
Dividends Paid for Common Stock (123,222) (134,486)
Dividends Paid for Preferred Stock (4,788) (5,745)
---------- ----------
NET CASH USED IN FINANCING ACTIVITIES (3,833,002) (341,880)
---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (115,113) 279,621
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 2,221,905 1,942,284
---------- ----------
CASH AND CASH EQUIVALENTS, END OF YEAR $2,106,792 $2,221,905
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 7,314 $ 76,765
========== ==========
Income Taxes $ 279,000 $ 281,000
========== ==========
See accompanying notes to financial statements.
WE HEREBY CERTIFY that the following is a true and correct list of the
holders of:
COMMON stock of
FLAMEMASTER CORPORATION
with their names and addresses and the number of shares held by each, as shown
by the records in this office as of the close of business on February 18, 2005
Shares Issued and Number of
Outstanding: 2,149,658 Holders: 96
Registrar and Transfer Company
TRANSFER AGENT
By: /s/ Michel Lasichak
------------------------------
(Authorized Officer)