SEC Company Response from FLAMEMASTER CORP (CIK 0000037358) — Apr 5, 2005
FLAMEMASTER CORP (CIK 0000037358)
Date: April 5, 2005 · CIK: 0000037358 · Accession: 0001072613-05-000864
AI Filing Summary & Sentiment
Referenced dates: February 7, 2005
Letter
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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 sh
Show Raw Text
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<TEXT>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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 sh