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**SECURITIES AND EXCHANGECOMMISSION****WASHINGTON, D.C. 20549**

**FORM 10- QSB**

**QUARTERLY REPORT UNDER SECTION 13 or 15 (d)OF THE SECURITIES EXCHANGE ACT OF 1934**

| FORQUARTER ENDED: | **JUNE 30, 2003** |   | COMMISSIONFILE NO: | **0-2172** |
|-------------------|-------------------|--------|--------------------|------------|
|              | ****              |   |               | ****       |

  

| **THE FLAMEMASTER CORPORATION**                       |
|-------------------------------------------------------|
| ****                                                  |
| (Exact name ofRegistrant as specified in its Charter) |

  

| **NEVADA**                                                    | **95-2018730**                      |
|---------------------------------------------------------------|-------------------------------------|
| ****                                                          | ****                                |
| (State or otherjurisdiction of incorporation or organization) | (IRS Employeridentification Number) |

  

| **11120 SHERMAN WAY, SUN VALLEY, CALIFORNIA 91352** |
|-----------------------------------------------------|
|                                                     |
| (Addressof Principal Executive Office)              |

  

| Registrant's telephone number including areacode: | **(818) 982-1650** |   |
|---------------------------------------------------|--------------------|--------|
|                                              | ****               |   |
| Registrant's facsimile number including areacode: | **(818) 765-5603** |   |
|                                              | ****               |   |

Indicate bycheck mark whether registrant (1) has filed all reports required to be filed bySection 13 or 15 (d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. 

| YES ýNO o
Indicate thenumber of shares outstanding of each of the issuer’s classes of common stock,as of the latest practicable date: 
June 30, 2003 1,394,366
Item 1 Financial InformationItem 1 Financial Statement 

**THE FLAMEMASTER CORPORATION AND SUBSIDIARY********CONDENSED CONSOLIDATED BALANCE SHEET**
June 30,2003(Unaudited) **A S S E T S :**    **Current Assets:**  Cash and cash equivalents  $  2,214,630 Marketable securities   3,191,621 Accounts receivable, less allowance  of $5,000   627,345 Reserve for returned material   (22,000)Notes Receivable   74,198 Inventories   1,135,012 Prepaid expenses   53,493 Deferred income taxes   247,346 **Total current assets:**   7,521,645  Machinery & improvements, net of  accumulated depreciation   182,857 License agreement, net of accumulated  amortization   25,017 **TOTAL ASSETS**  $7,729,519 **LIABILITIES AND STOCKHOLDERS’ EQUITY:**  **Current Liabilities:**  Accounts payable  $317,975 Accrued liabilities   19,485 Income taxes payable   81,109 Deferred tax liability   12,856 **Total current liabilities:**   431,425  Long-term liabilities:  Notes payable   1,700,600 **Total Liabilities:**   2,132,025  Minority interest   1,900  **SHAREHOLDERS’ EQUITY:**   **Common Stock**, par value, $.01 per share,   authorized 6,000,000 shares; issued and outstanding  1,394,366 shares at 06/30/03.   13,899 Additional paid-in Capital   3,248,236 Retained earning   2,621,168 Allowance for marketable securities   (287,709)**TOTAL STOCKHOLDERS’ EQUITY**  $  5,595,594 **TOTAL LIABILITY AND EQUITY**  $  7,729,519 
See notes to condensed financialstatements. 

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Item 1  Financial Statements (continued) 

**THE FLAMEMASTER CORPORATION AND SUBSIDIARYCONDENSED CONSOLIDATED STATEMENTS OF INCOME(UNAUDITED)THREE MONTHS ENDED JUNE 30,**
2003 2002Net sales  $  1,478,940 $  1,329,107 Royalties   2,399  435 Interest and Other Income   114,633  55,846 Total Revenues   1,595,972  1,385,388 Costs and expenses:     Cost of sales   765,362  630,169    Selling   94,717  95,785    General and administrative   167,374  170,403    Laboratory costs   106,590  99,331    Other expenses   33,008  28,475 Total costs and expenses:   1,167,051  1,024,163 Income before income taxes   428,921  361,225 Income taxes   180,943  178,523 Net  income   247,978  182,702 Other comprehensive income    Net of income tax  Unrealized Holding Gains (Losses)   (121,450) (17,107)Comprehensive Income  $    126,528 $    165,595 Net income per share, basic  $        .18 $        .13 Net income per share, diluted  $        .16  **** Weighted average shares outstanding:     Basic   1,396,474  1,434,123    Diluted   1,651,323  1,477,663 
****   Dilutedearnings per share are not presented, as effect of the assumed conversion ofNotes Payable is anti-dilutive. 

See notes to condensed financialstatements. 

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Item 1  Financial Statements (continued) 

**THE FLAMEMASTER CORPORATION AND SUBSIDIARYCONDENSED CONSOLIDATED STATEMENTS OF INCOME(UNAUDITED)NINE MONTHS ENDED JUNE 30,**
2003 2002Net Sales  $  3,753,970 $  3,711,461 Royalties   2,588  6,865 Interest and Other Income   247,829  222,283 Total Revenues   4,004,387  3,940,609 Costs and expenses:    Cost of Sales   1,985,362  1,946,928   Selling   281,425  274,115   General and administrative   518,366  481,524   Laboratory   304,786  279,593   Other (income)/ Expenses, Net   35,485  86,120   Interest on Convertible Notes   59,576  -- Total Costs and Expenses   3,185,000  3,068,280 Income before income taxes   819,387  872,329 Income taxes   320,561  358,514 Net income   498,826  513,815 Other comprehensive income    Net of income taxes  Unrealized holding gains (losses)   (121,450) 36,882 Comprehensive Income  $    377,376 $    550,697 Net income per share, basic  $        .36 $        .36 Net income per share, diluted  $        .33  *** Weighted average shares outstanding:     Basic   1,400,261  1,443,005    Diluted   1,655,019  1,484,845 
****   Dilutedearnings per share are not presented, as effect of the assumed conversion ofNotes Payable is anti-dilutive. 

See notes to condensed financialstatements. 

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Item 1  Financial Statements (continued) 

**THE FLAMEMASTER CORPORATION AND SUBSIDIARYCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)NINE MONTHS ENDED JUNE 30,**
2003Net cash provided (used) by operating activities:  $    729,472   CASH FLOWS FROM INVESTING ACTIVITIES:  Purchase of equipment & improvements   (23,561)Net purchases and sales of investment securities   (231,944) NET CASH USED IN INVESTING ACTIVITIES:   (255,505) CASH FLOWS FROM FINANCING ACTIVITIES:  Increase in notes payable   -0- Purchase of Company's Common Stock   (113,883)Dividends paid   (89,638)Minority interest   1,900  NET CASH USED IN FINANCING ACTIVITIES   (201,621)  NET INCREASE, (DECREASE), IN CASH   272,346  Cash, beginning of period   1,942,284  Cash, end of period  $  2,214,630  Cash paid during period for income taxes  $    199,000  Cash paid during period for interest expense  $     59,576  
See notes tocondensed financial statements 

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Item 1  Financial Statements (continued) 

**THE FLAMEMASTER CORPORATION AND SUBSIDIARYNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)JUNE 30, 2003**
Note 1: ** ****Forward-Lookingand Cautionary Statements** ** **  ** **The Company and its representatives may from time to time make written or oralforward-looking statements, including statements contained in the Company’sfilings with Securities and Exchange Commission and its reports to stockholders.In connection with the “safe harbor” provisions of the PrivateSecurities Litigation Reform Act of 1995, the Company is hereby identifyinginformation that is forward-looking, including, without limitations, statementsregarding the Company’s future financial performance, the effect ofgovernment regulations, national and local economic conditions, the competitiveenvironment in which the Company operates, results or success of discussionswith other entities on mergers, acquisitions, or alliance possibilities andexpansion of product offerings. Actual results may differ materially from thosedescribed in the forward-looking statement. The Company cautions that theforegoing list of important factors is not exclusive. The Company does notundertake to update any forward-looking statements that may be made from time totime by or on behalf of the Company. 
 
Note 2: ** ****Basis ofPresentation:** ** **  ** **The accompanying unaudited condensed financial statements have been prepared inaccordance with generally accepted accounting principles for interim financialinformation and with the instructions to Form 10-QSB and Article 10 ofRegulation S-X. Accordingly, they do not include all of the information andfootnotes required by generally accepted accounting principles for completefinancial statements. In the opinion of management, all adjustments (consistingof normal recurring accruals), considered necessary for a fair presentation havebeen included. Operating results for the nine months ended June 30, 2003 are notindicative of the results that may be expected for the year ending September 30,2003.   ** **For further information, refer to the consolidated financial statements andfootnotes thereto included in the Company’s annual report on Form 10-KSBfor the year ended September 30, 2002. 
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Item 1  Financial Statements (continued) 

**THE FLAMEMASTER CORPORATION AND SUBSIDIARYNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)JUNE 30, 2003**
Note 3: ** ****Summary ofSignificant Accounting Policies:** ** **  ** ****Investment in Debt and EquitySecurities:**The Company adopted Statement of Financial Accounting Standards No: 115(“SFAS No: 115”), Accounting for Certain Investments in Debt andEquity Securities, effective January 1,1995. Management determines theappropriate classification of its Investments in debt and equity securities atthe time of purchase and reevaluates such determination at each balance sheetdate. Debt securities for which the Company does not have the intent or abilityto hold to maturity are classified as available for sale, along with theCompany’s investment in equity securities. Securities available for saleare carried at fair value, with the unrealized gains and losses reported in aseparate component of shareholders’ equity net of income taxes, untilrealized. At June 30, 2003 the Company had no investments that qualified astrading or held to maturity. The amortized cost of zero-coupon debt securitiesclassified as available for sale is adjusted for accretion of discounts tomaturity. Such amortization and interest are included in interest income.Realized gains and losses are included in other income or expense. The cost ofsecurities sold is based on specific identification method. 
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Item 1  Financial Statements (continued) 

**THE FLAMEMASTER CORPORATION AND SUBSIDIARYNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)JUNE 30, 2003**
Note 4: ** **Inventories are summarized as follows: June 30,2003Raw materials  $503,996 Shipping materials   225,474 Finished goods   405,541    $ 1,135,011 
 
Note 5: ** **During the three months ended June 30, 2003, the Companypurchased 3,828 shares of its outstanding common stock at a cost of $24,983. 
 
Note 6: ** **MARKETABLE SECURITIES:Marketable securities classified as current assets at June 30, 2003 include the following: 
 
Fair ValueCostU.S. Treasury obligations  $   288,209 $   253,290 Other Government Bonds   49,668  44,374 Corporate debt securities   313,119  338,262 Mortgage backed securities   136,925  123,791 Marketable equity securities   2,403,700  2,957,678    $ 3,191,621 $ 3,707,395 The contractual maturities of debt  securities available for sale at  June 30, 2003 is as follows:  Fair ValueCostDue within one year  $69,895 $74,710 Due after one year thru 5 years   121,416  151,205 Due after 5 years thru 10 years   119,427  100,315 Due after 10 years   467,896  418,880 Not due at single maturity date   9,286  14,606    $   787,920  759,716 
Gross unrealized holdinggains and losses at June 30, 2003 were $322,209 and $847,984, respectively.Realized gains and losses from the sale of securities for the three months endedJune 30, 2003 were $64,720 and $19,609 respectively. 

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**THE FLAMEMASTER CORPORATION**Item 2: Management’s Discussion and Analysis of Financial Condition and Results ofOperations:

June 30, 2003 compared to September 30, 2002 and June 30,2003 compared to June 30, 2002.

**FINANCIAL CONDITION AND LIQUIDITY:**

The Company’s financialcondition is strong with current assets of $7,521,645 compared to current liabilities of$431,425 at June 30, 2003, for a current ratio of more than 17.4 to 1. Working capitalincreased to $7.090,220 on June 30, 2003, compared to $6,584,369 at September 30, 2002.Cash, cash equivalents, and marketable securities stood at $5,406,251. Accounts receivableexpanded to $627,345 from $616,178 in the prior year’s quarter ended June 30, 2002due to the increase level of business the Company is experiencing. Inventories grewmoderately to $1,135,012 on June 30, 2003 from $1,080,285 at September 30, 2002, in linewith an increase in production. Revenues for the June 30, 2003 quarter increased to$1,595,972 compared to $1,385,388 in the year earlier quarter. Sales from operationsexpanded to $1,478,940 for the June 30, 2003 quarter, compared to $1,329,107 in the yearearlier period. 

Management believes that futureworking capital requirements will be provided primarily from operations and that theCompany’s liquidity and working capital requirements are adequate for the next 12months of operation. Management believes that the Company’s creditworthiness insubstantial relative to its size. 

The Company paid a $.032 cashdividend on its company stock in May 2003.

**RESULTS OF OPERATIONS:**

For the three months ended June 30,2003, income before income taxes expanded to $428,921 compared to $361,225 in the prioryear. Net income after taxes rose to $247,978 or $.18 per share compared to $182,702 or$.13 per share for the June 30, 2002 quarter. Laboratory costs including research anddevelopment for the quarter increased to $106,590 from $99,331 in the year ago period. TheCompany has expanded its development efforts for more high end products in its coreaircraft sealants market. General and Administration expenses remained steady at $167,374.

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Signatures: 

Pursuant to therequirements of the Securities Exchange Act of 1934, the Registrant has dulycaused this report to be signed on its behalf by the undersigned hereunto dulyauthorized. 
 **THE FLAMEMASTER CORPORATION**           (Registrant)   DATE: JOSEPH MAZIN August 7, 2003          (Signature)  Joseph Mazin, President and Chairman  And Chief Executive Officer and Chief Financial Officer   DATE: MARY KAY EASON August 7, 2003          (Signature)  Mary Kay Eason, Treasurer and Secretary     DATE: DONNA MAZIN August 7, 2003          (Signature)  Donna Mazin, Director 
 

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