<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Check One)
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
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OF 1934. For the quarterly period ended February 22, 1996.
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
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ACT OF 1934. For the transition period from to .
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0-16401
(Commission File Number)
ADVANCED MATERIALS GROUP, INC.
(Exact name of small business issuer as specified in its charter)
NEVADA 33-0215295
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
20211 SOUTH SUSANA ROAD, RANCHO DOMINGUEZ, CALIFORNIA 90221
(Address of principal executive offices)
(310)537-5444
(Issuer's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or such shorter
period that the issuer 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 class of
common stock, as of the latest practicable date:
COMMON STOCK, $.001 PAR VALUE, 10,450,316 SHARES AS OF FEBRUARY 29, 1996.
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PART I - FINANCIAL INFORMATION
ADVANCED MATERIALS GROUP, INC.
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
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($ in thousands except per share amounts)
<TABLE>
<CAPTION>
Three Months
Ended February 29/28
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1996 1995
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<S> <C> <C>
Net Sales $3,810 $3,645
Cost of Sales 3,188 3,169
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Gross Profit 622 476
Operating Expenses:
Selling, General and
Administrative 719 650
Research, Development
and Engineering 17 18
Intangible Asset Amortization 74 87
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Total Operating Expenses 810 755
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Operating Loss (188) (279)
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Other Income (Expense):
Interest Expense (221) (193)
Gain on Sale of Stock 1,279 ----
Other, Net (7) 25
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1,051 (168)
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Earnings (Loss) Before Income
Taxes 863 (447)
Income Tax Provision 4 3
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Earnings (Loss) After Income
Taxes $859 ($450)
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Earnings (Loss) per Share of
Common Stock $0.08 ($0.05)
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Weighted Average Number of Common and
Common Stock Equivalent Shares outstanding 10,452,582 9,173,541
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</TABLE>
The accompanying notes are an integral part of this financial statement.
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<PAGE>
<TABLE>
<CAPTION>
ADVANCED MATERIALS GROUP, INC.
CONSOLIDATED BALANCE SHEETS
FEBRUARY 29, 1996 AND NOVEMBER 30, 1995
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($ in thousands)
February 29, November 30,
1996 1995
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<S> <C> <C>
ASSETS
Current Assets:
Cash $356 $66
Available-for-sale securities 132 88
Accounts and notes receivable 1,729 1,484
Inventories 1,536 2,096
Prepaid expenses 131 108
Other 1,576 154
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Total Current Assets 5,460 3,996
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Fixed assets, net of accumulated
depreciation of $1,423 and $1,270 at
February 29, 1996 and November 30,1995
respectively 2,353 2,480
Goodwill, net 2,728 2,783
Available-for-sale securities 1,748 3,322
Other assets 458 485
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$12,747 $13,066
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $916 $1,524
Accrued expenses 798 955
Notes payable 959 1,119
Current portion of long-term debt 447 466
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Total Current Liabilities 3,120 4,064
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Long-Term Debt:
Notes payable and other long-term debt 3,535 3,555
Deferred compensation 1,312 1,283
Convertible debentures 535 535
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Total Long-Term Debt 5,382 5,373
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Shareholders' equity:
Preferred stock - $.001 par value;
5,000,000 shares authorized; no shares
issued or outstanding ---- ----
Common stock - $.001 par value;
25,000,000 shares authorized;
10,450,316 and 9,173,541 shares
issued and outstanding at February 29,
1996 and November 30, 1995
respectively 7 7
Paid in capital 10,195 9,495
Accumulated deficit (7,046) (7,904)
Unrealized holding gain on available-for-sale
securities 1,089 2,031
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Total Shareholders' Equity 4,245 3,629
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$12,747 $13,066
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</TABLE>
The accompanying notes are an integral part of this financial statement.
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ADVANCED MATERIALS GROUP, INC.
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
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($ in thousands)
<TABLE>
<CAPTION>
Three Months
Ended February 29/28
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1996 1995
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $859 ($450)
Adjustments to net income (loss) (1,061) 253
Net changes in assets and liabilities (1,887) (1,109)
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NET CASH USED BY OPERATING
ACTIVITIES (2,089) (1,306)
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CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (27) (81)
Proceeds from sales of securities 1,877 ---
Other 0 1,509
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NET CASH PROVIDED BY INVESTING
ACTIVITIES 1,850 1,428
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CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of common stock, net
of offering costs 700 (62)
Net change in short-term borrowings (131) 678
Payments of debt (39) (759)
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NET CASH PROVIDED (USED) BY FINANCING
ACTIVITIES 530 (143)
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NET INCREASE (DECREASE) IN CASH 291 (21)
CASH AT BEGINNING OF PERIOD 66 50
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CASH AT END OF PERIOD $357 $29
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during the period for:
Interest $172 $156
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Income Taxes $2 $2
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</TABLE>
The accompanying notes are an integral part of this financial statement.
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<PAGE>
NOTES TO FINANCIAL STATEMENTS
1 The accompanying unaudited interim financial statements have been prepared
pursuant to the rules and regulations for reporting on Form 10-QSB.
Accordingly, certain information and footnotes required by generally accepted
accounting principles for complete financial statements are not included
herein. The interim statements should be read in conjunction with the
financial statements and notes thereto included in the Company's latest
Annual Report on Form 10-KSB.
Interim statements are subject to possible adjustments in connection with
the annual audit of the Company's accounts for the full fiscal year 1996;
in the Company's opinion, all adjustments necessary for a fair
presentation of these interim statements have been included and are of a
normal and recurring nature.
2 On December 22, 1995 the Company issued 1,260,807 shares of its common stock
valued at $0.55 per share to a lender/shareholder for $700,000 in cash. In
conjunction with the transaction, the Company granted the shareholder
warrants to acquire an additional 30,000 shares of its common stock at an
exercise price of $0.75 per share, expiring December, 2000.
3 On December 22, 1995 a line of credit with a lender/shareholder was amended
to increase the maximum borrowings to $1,000,000, and to increase the
interest rate to 5% per annum over the prime rate as published by the Wall
Street Journal. The termination date of the line was also extended to
June 30, 1997. The collateral held by the lender/shareholder was increased
from 800,000 shares of Innovative Technologies, Inc. ("IT") to 1,000,000
shares.
4 In December, 1995 the Company sold 16 shares of Time Release Sciences, Inc.
to an unrelated individual for $32,000. The Company had previously recorded
a loss of $256,000 in fiscal year 1994 to write off the investment.
5 On January 30, 1996 the Company sold 250,000 shares of IT for an aggregate
price of $402,567. On February 28, 1996 the Company sold an additional
1,000,000 shares of IT for an aggregate price of $1,431,337. On the February
29, 1996 consolidated balance sheet, the Company classified this receivable
as other in current assets. These sales reduce the number of IT shares held
as an investment to 1,254,504, of which 1,000,000 shares are held as
collateral under a line of credit with a lender/shareholder. See note 3.
6 In accordance with Statement of Financial Accounting Standards No. 115, the
Company has classified its investments as available-for-sale. At
December 1, 1995 the net unrealized gain associated with available-for-sale
investments of $2,031,000 was included in Retained earnings. The net
unrealized gain included in retained earnings at February 29, 1996
amounted to $1,089,000. During the three-month period ended February 29,
1996, $1,037,000 of gain was realized on the IT transactions and $95,000
of unrealized gain on the remaining available-for-sale investments was
recorded.
7 Legal proceedings to which the Company is a party are discussed in Part 1
Legal Proceedings, in the Annual Report on Form 10-KSB. During the three-
month period ended February 29, 1996 the Company settled its portion of a
class action lawsuit originally brought against Wilshire Technologies, Inc.
that had been expanded to include the Company in August 1994. Under the
settlement, the Company was released from all past or potential future claims
brought by the plaintiffs and was not required to pay any cash, stock or
other monetary consideration.
8 Earnings (loss) per common share equals net earnings (loss) divided
by the weighted average number of common shares outstanding, after giving
effect to dilutive stock options and warrants. The 7 1/2% convertible
debentures were determined, at the time of issuance, to not be common stock
equivalents, and accordingly, are not included in earnings (loss) per share
calculations for either period. Stock options and warrants are not included
in the loss per share calculation for the three-month period ended
February 28, 1995 because they would have been anti-dilutive. Primary and
fully diluted earnings per share for the three-month period ended February
29, 1996 were approximately the same.
9 The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 123 "ACCOUNTING FOR STOCK BASED COMPENSATION"
("Statement 123"). Statement 123 is primarily a disclosure standard for
the Company because the Company will continue to account for employee stock
options under Accounting Principle Board Opinion No. 25. The disclosure
requirements for the Company required by Statement 123 are effective for
financial statements issued after fiscal year 1996.
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<PAGE>
MANAGEMENT'S ANALYSIS OF INTERIM FINANCIAL INFORMATION
RESULTS OF OPERATIONS
Net income for the first quarter was $859,000, or $0.08 per share, versus a
net loss of $450,000, or $0.05 per share, for the first quarter of fiscal
year 1995. The results for the current quarter include a gain of 1,279,000
from the Company's sale of investments in securities. Excluding this
one-time gain, the Company incurred a net loss of $420,000 for the first
quarter of fiscal year 1996, a 7% improvement over the comparable quarter of
last year. Sales for the first quarter of fiscal year 1996 rose 5% to $3.8
million from $3.6 million in the same period a year ago.
The increase in sales came primarily through growth in existing customer
accounts, as customers completed reductions in their inventory levels and
began accepting deliveries at a higher rate.
The improvement in net income, excluding the one-time gains, was due largely
to the stabilization of raw materials prices. Gross profit margins increased
to 16.3% in the first quarter of fiscal year 1996 from 13.1% in the first
quarter of fiscal year 1995, reflecting a 31% increase in gross profit.
On March 4, 1996 the Company announced that its specialty materials
fabrication plants in Rancho Dominguez, California, and Tualatin, Oregon were
certified ISO 9002. All of the Company's specialty materials fabrication
plants have now received ISO 9002 certification.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 123 "ACCOUNTING FOR STOCK BASED COMPENSATION"
("Statement 123"). Statement 123 is primarily a disclosure standard for the
Company because the Company will continue to account for employee stock
options under Accounting Principle Board Opinion No. 25. The disclosure
requirements for the Company required by Statement 123 are effective for
financial statements issued after fiscal year 1996.
LIQUIDITY
The Company took several actions during the quarter to enhance its ability to
fund future growth in new and existing markets and strengthen its balance
sheet.
In a private placement, on December 22, 1995, to Trilon Dominion Partners,
L.L.C. ("Trilon"). Under the terms of the private placement, Trilon received
1,260,807 newly issued shares of stock plus equity warrants to acquire an
additional 30,000 shares of stock for an aggregate purchase price of
$700,000. On the same date, the company received an expansion of its existing
line of credit with Trilon from $700,000 to $1 million. In connection with
the credit line expansion, the Company granted warrants to acquire 60,000
shares of the Company's stock and warrants to acquire an additional 30,000
shares subject to certain loan payment provisions. As a result of these
transactions, Trilon now controls 34.5% of the Company.
In December, 1995 the Company sold 16 shares of Time Release Sciences, Inc.
to an unrelated individual for $32,000.
On January 30, 1996 the Company sold 250,000 shares of Innovative
Technologies, Inc. ("IT"), the Company's United Kingdom-based research and
development partner, for an aggregate price of $402,567. On February 28, 1996
the Company sold an additional 1,000,000 shares of IT for an aggregate price
of $1,431,337. The Company retains an equity position of 1,254,504, or 4.0% of
IT's outstanding shares, as well as the worldwide marketing rights to ISYS,
the breathable waterproofing fabric polymer coating the companies are jointly
developing and currently testing in the United Kingdom.
The Company used the proceeds from these transactions to increase working
capital and reduce its outstanding credit line debt.
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<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - None
(b) Reports - None
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ADVANCED MATERIALS GROUP, INC.
/s/ J. Douglas Graven
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Date: April 12, 1996 J. DOUGLAS GRAVEN
Vice President and CFO
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> FEB-29-1996
<CASH> 356
<SECURITIES> 132
<RECEIVABLES> 1,858
<ALLOWANCES> 129
<INVENTORY> 1,536
<CURRENT-ASSETS> 5,460
<PP&E> 3,776
<DEPRECIATION> 1,423
<TOTAL-ASSETS> 12,747
<CURRENT-LIABILITIES> 3,120
<BONDS> 632
<COMMON> 7
0
0
<OTHER-SE> 4,238
<TOTAL-LIABILITY-AND-EQUITY> 12,747
<SALES> 3,810
<TOTAL-REVENUES> 3,810
<CGS> 3,188
<TOTAL-COSTS> 3,188
<OTHER-EXPENSES> (471)<F1>
<LOSS-PROVISION> 9
<INTEREST-EXPENSE> 221
<INCOME-PRETAX> 863
<INCOME-TAX> 4
<INCOME-CONTINUING> 859
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 859
<EPS-PRIMARY> .08
<EPS-DILUTED> .08
<FN>
<F1>INCLUDES 1,279 GAIN ON SALE OF STOCK
</FN>
</TABLE>
