U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
Commission file number 0-27230
Industrial Flexible Materials, Inc.
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(Exact name of small business issuer as specified in its charter)
New York 11-3023097
- -------------------------------------- -------------------------------------
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
436 Haltom Road, Fort Worth, Texas 76117
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(Address of principal executive offices)
817-831-3294
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(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the 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 |_|
The number of shares of the Registrant's Common Stock outstanding as of
October 1, 1996 was 5,582,094 shares.
<PAGE>
INDUSTRIAL FLEXIBLE MATERIALS, INC.
INDEX
Part 1. Financial Information
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets
September 30, 1996 (unaudited) and December 31, 1995................ 3
Consolidated Statements of Income:
September 30, 1996 and 1995 (unaudited)............................. 4
Consolidated Statements of Cash Flows
September 30, 1996 and 1995 (unaudited)............................. 5
Notes to Consolidated Financial Statements (unaudited)............. 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations .......................................... 7
Part II. Other Information
Item 1. Legal Proceedings................................................... 9
Item 2. Changes in Securities............................................... 9
Item 3. Defaults Upon Senior Securities..................................... 9
Item 4. Submission of Matters to a Vote of Security Holders................. 9
Item 5. Other Information................................................... 9
Item 6. Exhibits and Reports on Form 8-K.................................... 9
Signature.................................................................... 10
2
<PAGE>
Industrial Flexible Materials, Inc. and Subsidiaries
Consolidated Balance Sheets
September 30, 1996 (unaudited) and December 31, 1995
Assets
9/30/96 12/31/95
----------- ------------
CURRENT ASSETS:
Cash and cash equivalents $ 147,425 $ 151,777
Accounts receivable trade 252,248 254,810
Inventories 1,192,665 1,560,135
Other 47,567 29,711
----------- -----------
Total current assets 1,639,905 1,996,433
PROPERTY, PLANT AND EQUIPMENT:
Property plant and equipment, at cost 5,895,169 5,863,095
Accumulated depreciation 2,540,747 2,266,336
----------- -----------
Net Property plant and equipment 3,354,422 3,596,759
OTHER ASSETS 183,642 216,892
----------- -----------
$ 5,177,969 $ 5,810,084
=========== ===========
Liabilities and Shareholders' Equity
CURRENT LIABILITIES:
Current maturities of long-term debt
and capitalized leases $ 92,665 $ 75,534
Notes payable due within one year 290,000 --
Accounts payable 632,946 294,282
Accrued expenses 417,965 408,828
----------- -----------
Total current liabilities 1,433,576 778,644
LONG-TERM DEBT, net of current maturities 380,000 399,662
CAPITAL LEASE OBLIGATION, net of current
maturities 115,510 157,547
----------- -----------
Total liabilities 1,929,086 1,335,853
COMMITMENTS -- --
STOCKHOLDERS' EQUITY
Preferred stock - $0.01 par value;
5,000,000 shares authorized; none issued -- --
Common stock - $0.001 par value;
25,000,000 shares authorized;
5,582,094 shares issued and outstanding 5,582 5,650
Additional paid-in-capital 8,582,480 8,582,412
Accumulated deficit (5,339,179) (4,113,831)
----------- -----------
Total stockholders' equity 3,248,883 4,474,231
----------- -----------
$ 5,177,969 $ 5,810,084
=========== ===========
The accompanying notes are an integral part of this statement.
3
<PAGE>
Industrial Flexible Materials, Inc. and Subsidiaries
Unaudited Statements of Operations
<TABLE>
<CAPTION>
Three Months Ending Nine Months Ending
-------------------------- --------------------------
9/30/96 9/30/95 9/30/96 9/30/95
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Sales $ 513,016 $ 686,649 $ 945,981 $1,775,382
Cost of goods sold 764,405 537,352 1,596,664 1,417,722
----------- ---------- ----------- ----------
Gross profit (loss) (251,389) 149,297 (650,683) 357,660
Administrative and selling expenses 133,654 91,387 530,481 263,494
----------- ---------- ----------- ----------
Operating Income (loss) (385,043) 57,910 (1,181,164) 94,166
Interest expense 25,994 36,394 44,184 86,522
----------- ---------- ----------- ----------
Net loss $ (411,037) $ 21,516 $(1,225,348) $ 7,644
=========== ========== =========== ==========
Weighted average shares outstanding 4,616,073 4,650,000 4,638,690 3,416,666
=========== ========== =========== ==========
Income (Loss) per share $ (0.09) $ 0.01 $ (0.26) $ --
=========== ========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
Industrial Flexible Materials, Inc. and Subsidiaries
Unaudited Consolidated Statements of Cash Flows
Nine Months Ending September 30, 1996 and 1995
1996 1995
----------- -----------
Operating activities
Net loss $(1,225,348) $ 7,644
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 391,115 247,136
Changes in operating assets and liabilities:
Accounts receivable - trade 2,562 (459,028)
Inventories 367,470 (365,209)
Other (17,856) 34,367
Accounts payable and accrued expenses 347,801 (40,528)
----------- -----------
Net cash used in operating activities (134,256) (575,618)
Investing activities
Proceeds for sale of equipment 19,000 20,541
Purchase of property and equipment (134,528) (52,328)
----------- -----------
Net cash used in investing activities (115,528) (31,787)
Financing activities
Proceeds from issuance of notes 290,000 380,000
Payments of notes and capital leases (44,568) (2,735,170)
Proceeds from issuance of common stock -- 2,544,166
----------- -----------
Net cash provided (used) by financing
activities 245,432 188,996
----------- -----------
Net increase (decrease) in cash and cash
equivalents (4,352) (418,409)
Cash and cash equivalents at beginning of year 151,777 952,177
----------- -----------
Cash and cash equivalents at end of period $ 147,425 $ 533,768
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 25,994 $ 86,522
=========== ===========
The accompanying notes are an integral part of these statements.
5
<PAGE>
Industrial Flexible Materials, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 1996
NOTE A - BASIS OF PRESENTATION
The accompanying financial statements include the accounts of Industrial
Flexible Materials, Inc. (the "Company") and its wholly-owned subsidiaries.
All intercompany accounts and transactions have been eliminated in
consolidation.
The consolidated financial statements contained herein have been prepared by
the Company pursuant to the rules and regulations of the Securities and
Exchange Commission. In the opinion of management, all adjustments necessary
for a fair presentation of the consolidated financial position as of
September 30, 1996, and the consolidated results of operations for the nine
months ended September 30, 1996 and 1995 and the consolidated cash flows for
the nine months ended September 30, 1996 and 1995 have been made. In
addition, all such adjustments made, in the opinion of management, are not
necessarily indicative of the results to be expected for the full fiscal
year.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the interim reporting
rules of the Securities and Exchange Commission. The interim consolidated
financial statements should be read in conjunction with the audited
consolidated financial statements and related notes for the year ended
December 31, 1995, included in the Company's 1995 Annual Report on Form
10-KSB.
NOTE B - INVENTORIES
Inventories are carried at the lower of cost (first-in, first-out) or market
and consist of the following:
9/30/96 12/31/95
---------- ----------
Raw Materials:
Tires to be shredded $ 308,758 $ 308,758
Tire chips 120,367 426,021
Buff rubber 6,220 146,126
Other 87,425 70,190
Finished goods 669,895 609,040
---------- ----------
$1,192,665 $1,560,135
========== ==========
Tire chips are scrap tires shredded by the Company in accordance with a
recycling program controlled by the State of Texas. Shredded tires are used
by the Company as one of the raw materials from which it produces granulated
rubber products.
6
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations:
Nine months ended September 30, 1996 compared with the nine months ended
September 30, 1995.
Net Sales for the first nine months of 1996 declined by $829,401 when compared
with the first nine months of 1995. This low level of sales resulted from the
overall lower level of shipments of granulated rubber to the Company's
industrial customers and the lack of shipments for construction of roadways. The
repeal of the U.S. Government mandate for States to use rubber modified asphalt
in road surfacing significantly reduced the demand for the Company's products.
The Company also was faced with strong price competition from new granulated
rubber producers in certain markets.
The Company's revenues in the first nine months of both 1996 and 1995 were
further limited by the lack of recycling fees paid by the State of Texas under
the State's Scrap Tire Recycling Program. The Company has historically
participated in this Program and anticipates doing so in the future. The Company
incurred expenses in the form of depreciation and maintenance on equipment that
is designed to collect and process scrap tire pursuant to this Program with no
related revenues generated.
The Company's cost of sales has been negatively impacted by its limited volume
of activity and the continued reduction of the Company's Tire Derived Fuel
("TDF") inventories at depressed market values. During the first nine months of
1996, the Company operated its granulated rubber manufacturing facility at
approximately thirty (30) percent of its designed capacity. A major portion of
the Company's manufacturing costs are fixed and could not be reduced in direct
proportion to the level of manufacturing required to meet market conditions. If
the Company returns to more acceptable levels of operation, the Company
anticipates that cost of sales will return to a more acceptable ratio to sales.
During the first nine months of 1996, the Company liquidated $305,654 of TDF
inventories, resulting in a direct operating loss, including delivery costs.
The Company's selling and administrative expenses increased from $263,494 in the
first nine months of 1995 to $530,481 in the first nine months of 1996. This
increase may be attributed to an increase in sales and marketing personnel of
$44,000, an increase of $80,000 in professional fees relating to the Company's
auditors and investment bankers, and $146,000 of depreciation on equipment that
was not utilized by the Company during the first nine months of 1996. Similar
expenses were not incurred during the first nine months of 1995.
Three months ended September 30, 1996 compared with the three months ended
September 30, 1995.
Sales for the three months ended September 30, 1996 declined by $173,633 when
compared with the same period of 1995. This low level of sales resulted from the
lack of orders for the Company's granulated rubber, primarily for use in highway
construction and
7
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
maintenance. The Company continued to be faced with strong price competition
from competitors in this market segment during this period.
The Company's cost of sales during this period continued to be negatively
impacted by the limited volume of activity in the granulated rubber markets and
by the continued reduction of tire derived fuel inventories at depressed market
values. Please refer to comments above concerning fixed costs and the Texas
Scrap Tire Program.
The Company's administrative and selling expenses increased by $42,267 during
the three months ended September 30, 1996 when compared with the same period, of
1995. This increase may be attributed to an increase of $30,000 in professional
fees relating to the Company's auditors and investment bankers and $16,000 in
depreciation on equipment that was not utilized by the Company during the
period.
Liquidity and Financial Condition:
The Company's ratio of current assets to current liabilities was 1.1 to 1.0 at
September 30, 1996 compared with 2.6 to 1.0 at December 31, 1995 and 2.6 to 1.0
at September 30, 1995. The Company's assets exceeded its total liabilities by
$3,248,883 at September 30, 1996.
Inventories decreased by $365,000 during the first nine months of 1996. As of
September 30, 1996, the Company had $670,000 of finished goods inventory ready
to meet customer's requirements. This compares with a finished goods inventory
of $678,000 at September 30, 1995.
The Company's ratio of total liabilities to shareholders' equity was .52 to 1.0
at September 30, 1996 compared to .3 to 1.0 at December 31, 1995.
Agreement to Acquire a Tire Process Site
The Company has entered into a lease purchase agreement to acquire a
twenty-seven acre scrap tire processing site approximately twenty miles South of
Dallas, Texas. The site contains approximately 25,000 tons of shredded tire
material that will allow the Company to continue servicing its TDF customer,
while the Company files applications with the State of Texas to begin shredding
tires at the site. The Company anticipates that the site will become operational
in December, 1996.
8
<PAGE>
Industrial Flexible Materials, Inc.
Part II. Other Information
Item 1. Legal Proceedings
The Company is involved in various lawsuits with certain suppliers and
creditors. While the outcome of these matters cannot be predicted,
Management believes that the ultimate liability will not exceed the
amounts that have been recorded in the September 30, 1996 Financial
Statements.
Item 2. Changes in Securities
Not Applicable
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports of Form 8-K
(A) Not Applicable
(B) No reports on Form 8-K were filed during the first nine months of
1996.
9
<PAGE>
SIGNATURE
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 thereunto duly authorized.
Industrial Flexible Materials, Inc.
/s/ Donald K. Jury
---------------------------------
(Registrant)
11/8/96 /s/ Donald K. Jury
- --------------------------------- ------------------------------------
Date Donald K. Jury
President and Chief Financial Officer
(Duly Authorized Officer and Principal
Financial and Accounting Officer)
10
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 147,425
<SECURITIES> 0
<RECEIVABLES> 252,248
<ALLOWANCES> 0
<INVENTORY> 1,192,665
<CURRENT-ASSETS> 1,639,905
<PP&E> 5,895,169
<DEPRECIATION> 2,540,747
<TOTAL-ASSETS> 5,177,969
<CURRENT-LIABILITIES> 1,433,576
<BONDS> 0
0
0
<COMMON> 5,582
<OTHER-SE> 3,243,301
<TOTAL-LIABILITY-AND-EQUITY> 5,177,969
<SALES> 945,981
<TOTAL-REVENUES> 0
<CGS> 1,596,664
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 530,481
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 44,184
<INCOME-PRETAX> (1,225,348)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,225,348)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,225,348)
<EPS-PRIMARY> (.26)
<EPS-DILUTED> 0
</TABLE>
