================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
/X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
FOR THE QUARTERLY PERIOD ENDED FEBRUARY 28, 2001.
OR
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NO. 0-16401
---------------------------
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 S. SUSANA ROAD, RANCHO DOMINGUEZ, CALIFORNIA 90221
(Address of principal executive offices)
(310) 537-5444
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 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. X Yes No
--- ---
Indicate the number of shares outstanding of each of the issuer's class of
common equity, as of the latest practicable date:
COMMON STOCK, $.001 PAR VALUE, 8,671,272 SHARES AS OF April 13, 2001.
================================================================================
ADVANCED MATERIALS GROUP, INC.
FORM 10-Q
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS: Page
Consolidated Statements of Operations for the three months
ended February 28, 2001 and February 27, 2000 ...................................... 3
Consolidated Balance Sheets at February 28, 2001 and November 30, 2000 .............. 4
Consolidated Statements of Cash Flows for the three months ended
February 28, 2001 and February 27, 2000 ............................................. 5
Notes to Consolidated Financial Statements .......................................... 6
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations .......................................................................... 8
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk .......................... 11
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings ................................................................... 11
ITEM 6. Exhibits and Reports on Form 8-K .................................................... 11
Signatures .......................................................................... 12
2
PART I - FINANCIAL INFORMATION
ITEM I - CONSOLIDATED FINANCIAL STATEMENTS
ADVANCED MATERIALS GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED
FEBRUARY 28, 2001 FEBRUARY 27, 2000
------------------- --------------------
Net sales $ 9,949,000 $ 9,481,000
Cost of sales 8,859,000 8,003,000
------------------- --------------------
Gross profit 1,090,000 1,478,000
------------------- --------------------
Operating expenses:
Selling, general and administrative 1,233,000 1,051,000
Depreciation and amortization 80,000 66,000
------------------- --------------------
Total operating expenses 1,313,000 1,117,000
------------------- --------------------
Income (loss) from operations (223,000) 361,000
Other income (expense):
Interest expense (159,000) (119,000)
Foreign exchange gain 30,000 11,000
Other, net (17,000) (2,000)
------------------- --------------------
Total other income and expenses (146,000) (110,000)
------------------- --------------------
Income (loss) before income taxes (369,000) 251,000
Income tax expense (24,000) ----
------------------- --------------------
Net income (loss) $ (393,000) $ 251,000
=================== ====================
Basic ( loss ) earnings per common share $ (0.05) $ 0.03
=================== ====================
Diluted ( loss ) earnings per common share $ (0.05) $ 0.03
=================== ====================
Basic weighted average common shares outstanding 8,671,272 8,548,222
=================== ====================
Diluted weighted average common shares outstanding 8,671,272 8,828,941
=================== ====================
See accompanying notes to consolidated financial statements
3
ADVANCED MATERIALS GROUP, INC.
CONSOLIDATED BALANCE SHEETS
FEBRUARY 28, 2001 AND NOVEMBER 30, 2000
ASSETS
2001 2000
--------------- -------------
(UNAUDITED)
Current assets:
Cash and cash equivalents $ 851,000 $ 1,101,000
Accounts receivable, net 7,151,000 7,753,000
Inventories, net 5,318,000 4,962,000
Income tax receivable 32,000 32,000
Deferred income taxes 337,000 337,000
Prepaid expenses and other 380,000 364,000
--------------- -------------
Total current assets 14,069,000 14,549,000
--------------- -------------
Property and equipment, net 2,953,000 3,007,000
Goodwill, net 435,000 451,000
Deferred income taxes 206,000 206,000
Other assets 304,000 152,000
--------------- -------------
Total assets $ 17,967,000 $ 18,365,000
=============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 6,011,000 $ 5,952,000
Accrued liabilities 1,230,000 1,210,000
Deferred income 314,000 273,000
Line of credit 3,540,000 3,585,000
Current portion of long-term obligations 333,000 360,000
--------------- -------------
Total current liabilities 11,428,000 11,380,000
Term loan 830,000 892,000
Convertible debentures 405,000 405,000
Deferred compensation, net of current protion 1,056,000 1,056,000
Capital leases, net of current portion 350,000 341,000
--------------- -------------
Total liabilities 14,069,000 14,074,000
--------------- -------------
Stockholders' equity:
Preferred stock-$.001 par value; 5,000,000 shares authorized
no shares issued and outstanding --- ---
Common stock-$.001 par value; 25,000,000 shares authorized;
8,671,272 shares issued and outstanding at February 28,
2000 and November 30, 2000, respectively 9,000 9,000
Additional paid-in capital 7,083,000 7,083,000
Accumulated deficit (3,194,000) (2,801,000)
--------------- -------------
Total stockholders' equity 3,898,000 4,291,000
--------------- -------------
Total liabilities and stockholders' equity $ 17,967,000 $ 18,365,000
=============== =============
See accompanying notes to consolidated financial statements
4
ADVANCED MATERIALS GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
FEBRUARY 28,2001 FEBRUARY 27,2000
------------------- -----------------
Cash flows from operating activities:
Net ( loss ) Income $ (393,000) $ 251,000
Adjustments to reconcile net loss
to net cash provided by operating activities
Depreciation 202,000 241,000
Amortization 16,000 15,000
Provision for obsolete inventory (9,000) (28,000)
Discontinued operations --- (35,000)
Interest on deferred compensation 39,000 62,000
Deferred income 41,000 (35,000)
Changes in operating assets and liabilities:
Accounts receivable - trade 602,000 713,000
Inventories (347,000) (168,000)
Prepaid expenses and other assets (168,000) 143,000
Accounts payable and accrued liabilities 79,000 (530,000)
------------------- ---------------
Net cash provided by operating activities 62,000 629,000
------------------- ---------------
Cash flows from investing activities:
Purchases of property and equipment (148,000) (241,000)
------------------- ---------------
Net cash used in investing activities (148,000) (241,000)
------------------- ---------------
Cash flows from financing activities:
Purchase and retirement of common stock --- ---
Exercise of common stock options --- 9,000
Net repayments under line of credit (75,000) (211,000)
Repayments under term loan (32,000) (36,000)
Proceeds received from capitalized financing --- 25,000
Payments on capital lease obligations (30,000) (19,000)
Payments on deferred compensation (27,000) (27,000)
------------------- ---------------
Net cash used in financing activities (164,000) (259,000)
------------------- ---------------
Net change in cash and cash equivalents (250,000) 129,000
Cash and cash equivalents, beginning of period 1,101,000 496,000
------------------- ---------------
Cash and cash equivalents, end of period $ 851,000 $ 625,000
=================== ===============
Supplemental disclosures of cash flow information Cash
paid during the period for:
Interest $ 160,000 $ 120,000
=================== ===============
Income taxes $ 5,000 $ ---
=================== ===============
See accompanying notes to consolidated financial statements
5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) BASIS OF PRESENTATION
These accompanying consolidated financial statements and related notes are
unaudited. However, in the opinion of management, all adjustments necessary
for a fair presentation of these interim statements have been included and
are of a normal and recurring nature. These interim financial statements have
been prepared pursuant to the rules and regulations for reporting on Form
10-Q. The interim statements should be read in conjunction with the audited
consolidated financial statements and notes thereto included in the Company's
latest Annual Report on Form 10-K.
2) INVENTORIES
Inventories are stated at the lower of cost (determined on the first-in,
first-out method) or market. Inventories consisted of the following:
FEBRUARY 28, 2001 NOVEMBER 30, 2000
----------------- -----------------
Raw Materials $ 3,042,000 $ 3,091,000
Work-in-process 315,000 204,000
Finished Goods 2,108,000 1,823,000
----------------- -----------------
5,465,000 5,118,000
Less allowance for obsolete inventory (147,000) (156,000)
----------------- -----------------
$ 5,318,000 $ 4,962,000
================= =================
3) BASIC AND DILUTED INCOME (LOSS) PER COMMON SHARE
Basic and Diluted income (loss) per share is computed in accordance with
Statement of Financial Accounting Standards No. 128 ("SFAS No. 128"). In the
February 28, 2001 computation, common equivalent shares are excluded from
diluted loss per share as their effect is antidilutive. Basic and Diluted
income (loss) for the three months ended February 28 and February 27 are as
follows:
THREE MONTHS ENDED
-----------------------------------------
FEBRUARY 28, 2001 FEBRUARY 27, 2000
---------------------- -----------------
BASIC EPS:
Net ( loss ) income $ (393,000) $ 251,000
Denominator: Weighted average common shares outstanding 8,671,272 8,548,222
---------------------- -----------------
Net ( loss ) income per share (basic) $ (0.05) $ 0.03
====================== =================
DILUTED EPS:
Net ( loss ) income $ (393,000) $ 251,000
---------------------- -----------------
Denominator: Weighted average common shares outstanding 8,671,272 8,548,222
Common equivalent shares outstanding (options and warrants) --- 897,217
Hypothetical shares repurchased at average market price
with proceeds of exercise --- (616,498)
---------------------- -----------------
Total shares 8,671,272 8,828,941
---------------------- -----------------
Net ( loss ) income per share (diluted) $ (0.05) $ 0.03
====================== =================
6
4) SEGMENT REPORTING
The Company's foreign operations include both manufacturing and sales. The
manufacturing facility is located in Ireland and the sales joint venture is
located in Singapore. Both facilities began operations in fiscal 1998. All of
the sales are made to unaffiliated customers. The following is a summary of
selected financial information by entities within geographic areas for the first
quarter and three months ended February 28, 2001 and February 27, 2000.
FY 01 CURRENT THREE MONTHS VERSUS FY 00
REVENUE:
AMI-US OPERATIONS AMI-SINGAPORE AMI IRELAND CONSOLIDATED
----------------- ------------- ----------- ------------
2001................................... $5,353,000 $2,433,000 $2,163,000 $9,949,000
2000................................... $5,668,000 $2,274,000 $1,539,000 $9,481,000
NET INCOME (LOSS):
AMI-US OPERATIONS AMI-SINGAPORE AMI IRELAND CONSOLIDATED
----------------- ------------- ----------- ------------
2001................................... $ (718,000) $ 210,000 $ 116,000 $ (393,000)
2000................................... $ (156,000) $ 370,000 $ 37,000 $ 251,000
ASSETS: AS OF FEBRUARY 28, 2001 AND NOVEMBER 30, 2000
AMI-US OPERATIONS AMI-SINGAPORE AMI IRELAND CONSOLIDATED
----------------- ------------- ----------- ------------
2001................................... $ 11,212,000 $ 2,850,000 $3,905,000 $17,967,000
2000................................... $ 11,681,000 $ 3,648,000 $3,036,000 $18,365,000
5) CONTINGENT LIABILITIES
Legal proceedings to which the Company is a party are discussed in Part 1 Legal
Proceedings, in the latest Annual Report on form 10-K.
6) RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes account and
reporting standards for derivative instruments and requires recognition of all
derivatives as assets or liabilities in the statement of financial position and
measure of those instruments at fair value. SFAS No. 133, as amended by SFAS No.
137, is effective for all fiscal quarters of fiscal years beginning after June
15, 2000. ADMG adopted the standard during the first quarter of fiscal year
2001. The Company currently does not engage in derivative or hedging activities,
and accordingly, there has been no impact to its consolidated financial
statements.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, Revenue Recognition in Financial Statements ("SAB
101"). SAB 101 summarizes certain areas of the Staff's views in applying
generally accepted accounting principles to revenue recognition in financial
statements. The Company believes that its current revenue recognition policies
comply with SAB 101.
7
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF INTERIM FINANCIAL INFORMATION
(UNAUDITED).
The following discussion should be read in conjunction with the consolidated
financial statements and the related notes that appear elsewhere in this
document.
This document contains forward-looking statements that involve risks and
uncertainties that could cause the results of the Company and its consolidated
subsidiaries to differ materially from those expressed or implied by such
forward-looking statements. These risks include the timely development,
production and delivery of new products; the challenge of managing asset levels,
including inventory and trade receivables; the difficulty of keeping expense
growth at modest levels while increasing revenues; and other risks described
from time to time in the Company's filings with the Securities and Exchange
Commission, including but not limited to the Annual Report on Form 10-K for the
year ended November 30, 2000.
Forward-looking statements reflect the current views of the Company with respect
to future events and are subject to certain risks, uncertainties and
assumptions. Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, actual results may vary
materially from those described herein as anticipated, believed, estimated or
expected.
RESULTS OF OPERATIONS
FY 01 CURRENT THREE MONTHS VERSUS FY 00
Net revenue for the first quarter ended February 28, 2001 was $9,949,000,versus
$9,481,000 for the same period of fiscal 2000, an increase of 4.9%. The increase
in net revenues for the first quarter of fiscal 2001 is primarily attributable
to higher international sales volumes.
Cost of sales for the first quarter ended February 28, 2001 and February 27,
2000 was $8,859,000 and $8,003,000, respectively. Cost of sales as a percentage
of net revenue was 89% for the first quarter of fiscal 2001,compared to 84.4%
for the first quarter of fiscal 2000. The increase in cost of sales for the
first quarter of fiscal 2001, compared to the first quarter of fiscal 2000, is
primarily due to manufacturing fixed costs relating to the Company's expansion
in Ireland and the gross profit sharing agreement with the Company's strategic
manufacturing partner in Singapore.
Operating expenses for the first quarter of February 28, 2001 and February 27,
2000 was $1,313,000 and $1,117,000, respectively. The increase was due to
Company's expansion in Ireland. The Company continues to focus on the reduction
of operating expense ratios and optimization of manufacturing processes in order
to improve profitability.
Interest expense for the first quarter of fiscal 2001 was $159,000, an increase
of $40,000, compared to the first quarter of fiscal 2000. The increase is
attributable to higher interest rates and higher average loan balances.
Net loss for the first quarter of fiscal 2001 was $ (393,000), compared to net
income of $251,000 for the first quarter of 2000. Basic (loss) income per share
for the first quarter of fiscal 2001 was $(.05) per share on a weighted average
of 8.7 million shares, compared to $.03 on a weighted average of 8.5 million
shares for the first quarter of fiscal 2000. Diluted income per share for the
first quarter of fiscal 2001 was $(.05) per share on a weighted average of 8.7
million shares.
The Company has not received any notice of investigation, claim or proceeding
relating environmental liability nor is the Company aware of any environmental
litigation, investigation or unasserted claim involving the Company or its
subsidiaries.
SEGMENT INFORMATION
The following is a discussion of operating results for each of the Company's
business segments. Quarterly financial data for each segment can be found in
Note 4 to these consolidated financial statements. The reportable segments
disclosed in this Form 10-Q are based on the Company's internal management
responsibility.
8
AMI-U.S. OPERATIONS
Net revenue for the first quarter ended February 28, 2001 was $5,353,000,
compared to net revenue for the first quarter ended February 27, 2000 of
$5,668,000. Net loss for the first quarter ended February 28, 2001 was
$(718,000), compared to net loss for the first quarter of ended February 27,
2000 of $(156,000). The increase in net loss is primarily attributable to lower
net revenue volumes.
AMFSC-SINGAPORE
Net revenue for the first quarter ended February 28, 2001 was $2,433,000,
compared to net revenue for the first quarter ended February 27, 2000 of
$2,274,000. The increase in net revenues for the first quarter of fiscal 2000 is
primarily attributable to higher volumes of component sales to computer printer
manufacturers. Printer supply sales to key customer accounts reflected continued
growth in the installed base, growth in printing from the Internet and increased
usage of newly introduced products. Net income for the first quarter ended
February 28, 2001 was $210,000, compared to net income for the first quarter
ended February 27, 2000 of $370,000. Decrease in net income is primarily
attributable to the gross profit sharing agreement with the Company's strategic
manufacturing partner in Singapore.
AML-IRELAND
Net revenue for the first quarter ended February 28, 2001 was $2,163,000,
compared to net revenue for the first quarter ended February 27, 2000 of
$1,539,000. The increase in net revenues for the first quarter of fiscal 2001 is
primarily attributable to higher volumes of component sales to computer printer
manufacturers. Printer supply sales to key customer accounts reflected continued
growth in the installed base, growth in printing from the Internet and increased
usage of newly introduced products. Net income for the first quarter ended
February 28, 2001 was $116,000, compared to net income for the first quarter
ended February 27, 2000 of $37,000.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $851,000 at February 28, 2001, compared with
$1,101,000 at November 30, 2000. During the first quarter cash flows from
operating activities were used to pay down short- and long-term debt and
purchase property, plant and equipment.
Operating activities generated $62,000 of cash during the first quarter fiscal
2001, compared with $629,000 in the corresponding period in fiscal 2000. The
increase in cash generated from operating activities in fiscal 2001 resulted
primarily from operations and decrease in accounts receivables.
Inventory at February 28, 2001 was $5,318,000, compared to $4,962,000 at
November 30, 2000. Inventory levels increased primarily to support the sales
growth in Ireland.
Net trade receivables at February 28, 2001 were $7,151,000, compared to
$7,753,000 at November 30, 2000. Decrease due to reduction in net revenues.
Capital expenditures were $148,000 for the first quarter of fiscal 2001,
compared to $241,000 for the corresponding period in fiscal 2000. The Company
has instituted a Company-wide program to reduce non-essential capital
expenditures, which are not specifically focused on revenue growth.
The Company uses short- and long-term borrowings to supplement internally
generated cash flow. Short- and long-term borrowings in the first quarter of
fiscal 2001 decreased by $107,000.
The Company had $851,000 of cash and cash equivalents at February 28, 2001.
The Company's operating credit line with its primary lenders has current
availability, as of April 12, 2001, of $1,460,000 with approximately
$3,540,000 currently outstanding. The Company has an outstanding term loan of
$940,000 as of February 28, 2001. The term loan bears interest at prime plus
1.25% and libor plus 1.0% (9.25% and 6.5% at February 28, 2001). The Company
anticipates that existing cash, cash from operations and existing lines of
credit will supply sufficient cash for its short and long term projected
needs for operations.
At February 28, 2001, the Company was not in compliance with minimum net income
and debt service coverage ratio and is in technical default under the compliance
provisions of the bank line of credit. The Company is currently in discussions
with the lender to amend the financial covenants. Management believes it will be
successful in such discussions, however, there can be no assurance of this
success nor that management would be successful in finding a replacement lender
with acceptable terms.
FACTORS THAT COULD AFFECT FUTURE RESULTS
Competition - We encounter aggressive competition in all areas of our business.
We have numerous competitors, ranging from several comparable-size companies to
many relatively small companies. The majority of our competitors are private,
closely held companies. We compete primarily on the basis of performance, price,
quality and customer service. Product life cycles are short,
9
with numerous small one-time customer orders. To remain competitive, the Company
must be able to quickly develop new products and enhance existing products in
response to customer demands. In particular, management anticipates a continuing
need to lower the prices of many of the Company's products to stay competitive
and effectively manage financial returns with resulting reduced gross margins.
In some of our markets, we may not be able to successfully compete against
current and future competitors, and the competitive pressures we face could harm
our business and prospects.
New Product Introductions - If the Company cannot continue to rapidly develop
and manufacture innovative products that meet customer requirements for
performance, price, quality and customer service, we may lose market share and
future revenue and earnings may suffer. The process of developing new products
and corresponding manufacturing processes is complex and uncertain. The customer
decision-making process can be lengthy and some raw materials have extremely
long lead times. These circumstances often lead to long delays in new product
introductions. After a product is developed, we must be able to manufacture
sufficient volumes quickly at low enough costs. To do this we must accurately
forecast volumes and mix of products. Customer orders have also been subject to
dramatic swings from customer provided forecasts. Thus, matching customers'
demand and timing for particular products makes the process of planning
production and managing inventory levels increasingly difficult.
Short Product Life Cycles - The short life cycles of many of the Company's
products pose a challenge for us to manage effectively the transition from
existing products to new products. If we do not manage the transition
effectively, our future revenue and earnings could suffer. Among the factors
that make a smooth transition from current products to new products difficult
are delays in the customer decision-making process, development of manufacturing
processes, long lead times for the delivery of raw materials and variations in
product costs. Our future revenues and earnings could also suffer due to the
timing and introduction of new product offerings, which compete directly or
indirectly with our customers' products and new product offerings by our
competitors.
Reliance on Suppliers - The Company's manufacturing operations depend on our
suppliers' ability to deliver quality raw materials and components in time for
us to meet critical manufacturing and distribution schedules. We sometimes
experience a short supply of certain raw materials as a result of supplier
out-of-stock situations or long manufacturing lead times. If shortages or delays
exist, the Company's future operating results could suffer. Furthermore, we may
not be able to secure enough raw materials at reasonable prices to manufacture
new products in the quantities required to meet customer demand. Sudden or large
raw materials price increases could also cause future operating results to
suffer.
International - Sales outside the United States make up more than 46% of the
Company's revenues. Manufacturing for these products are also located outside of
the United States. The Company's future earnings or financial position could be
adversely affected by a variety of international factors, including:
o Changes in a country or region's political or economic conditions,
o Trade protection measures,
o Import or export licensing requirements,
o The overlap of different tax structures,
o Unexpected changes in regulatory requirements,
o Problems caused by the conversion of various European currencies to the Euro,
and
o Natural disasters.
Market Risk - The majority of the Company's sales are denominated in U.S.
dollars. All costs in Singapore and the majority of direct material costs in
Ireland are also denominated in U.S. dollars. However, the Company is exposed to
foreign currency exchange risk inherent in our sales commitments, anticipated
sales and assets and liabilities denominated in currencies other than the U.S.
dollar. See also "Item 7A. Quantitative and Qualitative Disclosures About Market
Risk" in the Company's 1999 Annual Report on Form 10-K for more detailed
information.
Earthquake - Our corporate offices and manufacturing division in California are
located near major earthquake faults. The ultimate impact on the Company and our
general infrastructure is unknown, but operating results could be materially
affected in the event of a major earthquake. We are predominantly uninsured for
losses and interruptions caused by earthquakes.
Environmental - Some of the Company's operations use substances regulated under
various federal, state and international laws governing the environment. It is
our policy to apply strict standards for environmental protection to sites
inside and outside the U.S., even when not subject to local government
regulations. THE COMPANY HAS NOT BEEN NOTIFIED OF ANY ENVIRONMENTAL INFRACTIONS.
Profit Margin - The Company's profit margins vary somewhat among our products
and geographic markets. Consequently, our overall profitability in any given
period is partially dependent on the product, customer and geographic mix
reflected in that period's net revenue.
10
Stock Price - The Company's stock price, like that of any other small-cap
company, can be volatile. Some of the factors that can affect our stock price
are:
o The Company's, our customer's or our competitor's announcement of new or
discontinued products,
o Quarterly increases or decreases of our earnings,
o Changes in revenue or earnings estimates by the investment community, and
o Speculation in the press or investment community.
General market conditions and domestic or international macroeconomic factors
unrelated to the Company's performance may also affect our stock price. For
these reasons, investors should not rely on recent trends to predict future
stock prices or financial results. In addition, following periods of volatility
in a company's securities, securities class action litigation against a company
is sometimes instituted. This type of litigation could result in substantial
costs and the diversion of management time and resources.
Earnings Fluctuations - Although management believes the Company has products
and resources needed for successful results, we cannot reliably predict future
revenue and margin trends. Actual trends may cause us to adjust our operations,
which could cause period-to-period fluctuations in our earnings.
The Company's common stock traded on the NASDAQ Small-Cap Stock Market
("NASDAQ") under the symbol "ADMG" from June 23, 1993 until December 13, 2000.
Effective as December 14, 2000, the Company's common stock was delisted from the
NASDAQ and has traded on the NASD-regulated OTC Bulletin Board ("Bulletin
Board") under the symbol "ADMG.OB." The high and low closing prices for the
common stock for the past two fiscal years as reported by NASDAQ and the
Bulletin Board are set forth in the forth in the following table. Such
quotations reflect inter-dealer prices, without retail mark-up, markdown or
commission, and may not represent actual transactions.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
A discussion of the Company's exposure to, and management of, market risk
appears in Item 2 of this Form 10-Q under the heading "Factors That Could Affect
Future Results."
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On September 14, 2000, the United States District Court for the Central
District of California entered a final judgment in favor of Advanced
Materials Group, Inc. (AMG) on the complaint filed by AMG for a judicial
declaration that it has no liability for any debts or obligations of Condor
Utilities Products, Inc. (Condor), a wholly owned subsidiary of AMG which
has now ceased operations. This includes a certain judgment obtained against
Condor in 1998 in favor of the former suppliers of Condor, Vern and Shirley
Auten, arising out of litigation which preceded the purchase of Condor by
AMG in 1993. Evidence presented to the Court indicated that Condor has no
other unpaid trade obligations or debts.
The Autens claimed that AMG was the "alter ego" of Condor, and therefore was
obliged to pay the outstanding judgment against Condor. The Court reviewed
extensive expert accounting testimony indicating that the financial and
corporate relationship between AMG and Condor was entirely proper and
complied with all corporate and accounting requirements. Based on this
evidence, the Court ruled that as a matter of law AMG has no financial
responsibility to pay the Auten judgment, or any other debt or obligation of
Condor.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
None
(b) Reports on Form 8-K
No reported 8-K developments submitted in quarter.
11
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: April 13, 2001 ADVANCED MATERIALS GROUP INC.
By: /s/ STEVE F. SCOTT
------------------
Steve F. Scott
President and CEO
(Chief Executive Officer)
/s/ GAYLE ARNOLD
----------------
Gayle Arnold
Vice President
(Chief Financial Officer)
(Principal Financial and Accounting Officer)
12