<PAGE>
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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
(MARK ONE)
<TABLE>
<C> <S>
/X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934.
</TABLE>
FOR THE QUARTERLY PERIOD ENDED FEBRUARY 27, 2000.
OR
<TABLE>
<C> <S>
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE EXCHANGE
ACT
</TABLE>
FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NO. 0-16401
------------------------
ADVANCED MATERIALS GROUP, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
NEVADA 33-0215295
(State or other jurisdiction (I.R.S. Employer
of Identification No.)
incorporation or organization)
</TABLE>
20211 S. SUSANA ROAD, RANCHO DOMINGUEZ, CALIFORNIA 90221
(Address of principal executive offices)
(310) 537-5444
Registrant's telephone number
------------------------
Check whether the registrant (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 / /
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, 8,551,555 SHARES AS OF February 27, 2000.
- --------------------------------------------------------------------------------
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<PAGE>
ADVANCED MATERIALS GROUP, INC.
FORM 10-Q
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C>
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Statements of Operations for the three months
ended February 27, 2000 and 1999 (unaudited)................ 3
Consolidated Balance Sheets at February 27, 2000 (unaudited)
and November 30, 1999....................................... 4
Consolidated Statements of Cash Flows for the three months
ended February 27, 2000 and 1999 (unaudited)................ 5
Notes to Consolidated Financial Statements.................. 6
Management's Discussion and Analysis of Financial Condition
ITEM 2. and Results of
Operations.................................................. 8
Quantitative and Qualitative Disclosures about Market
ITEM 3. Risk........................................................ 11
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings........................................... 12
ITEM 6. Exhibits and Reports on Form 8-K............................ 12
Signatures.................................................. 13
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM I -- CONSOLIDATED FINANCIAL STATEMENTS
ADVANCED MATERIALS GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FEBRUARY 27,
-----------------------
2000 1999
---------- ----------
<S> <C> <C>
Net sales................................................... $9,481,000 $7,380,000
Cost of sales............................................... 8,003,000 6,534,000
---------- ----------
Gross profit................................................ 1,478,000 846,000
---------- ----------
Operating expenses:
Selling, general and administrative....................... 1,051,000 1,096,000
Depreciation and amortization............................. 66,000 49,000
---------- ----------
Total operating expenses.................................... 1,117,000 1,145,000
Income (loss) from operations............................... 361,000 (299,000)
Other income (expense):
Interest expense.......................................... (119,000) (83,000)
Foreign exchange gain..................................... 11,000 11,000
Other, net................................................ (2,000) (19,000)
---------- ----------
Total other income and expenses......................... (110,000) (91,000)
Income (loss) before income taxes........................... 251,000 (390,000)
Income tax expense.......................................... -- --
---------- ----------
Net income (loss)........................................... 251,000 (390,000)
Basic earnings (loss) per common share...................... $ 0.03 $ (0.05)
========== ==========
Diluted earnings (loss) per common share.................... $ 0.03 $ (0.05)
========== ==========
Basic weighted average common shares outstanding............ 8,548,222 8,651,622
========== ==========
Diluted weighted average common shares outstanding.......... 8,828,941 8,651,622
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE>
ADVANCED MATERIALS GROUP, INC.
CONSOLIDATED BALANCE SHEETS
FEBRUARY 27, 2000 AND NOVEMBER 30, 1999
<TABLE>
<CAPTION>
2000 1999
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 625,000 $ 496,000
Accounts receivable, net.................................. 6,525,000 7,238,000
Inventories, net.......................................... 4,053,000 3,857,000
Income tax receivable..................................... 261,000 261,000
Deferred income taxes..................................... 337,000 337,000
Prepaid expenses and other................................ 108,000 172,000
----------- -----------
Total current assets.................................... 11,909,000 12,361,000
=========== ===========
Property and equipment, net................................. 2,507,000 2,507,000
Goodwill, net............................................... 499,000 514,000
Deferred income taxes....................................... 473,000 473,000
Other assets................................................ 184,000 237,000
----------- -----------
Total assets............................................ $15,572,000 $16,092,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 4,207,000 $ 4,448,000
Income taxes payable...................................... 308,000 308,000
Accrued liabilities....................................... 840,000 1,130,000
Discontinued operations................................... 642,000 677,000
Deferred income........................................... 302,000 337,000
Line of credit............................................ 130,000 --
Current portion of long-term obligations.................. 298,000 282,000
----------- -----------
Total current liabilities............................... 6,727,000 7,182,000
Line of credit............................................ 3,482,000 3,823,000
Term loan................................................. 360,000 396,000
Convertible debentures.................................... 405,000 405,000
Deferred compensation..................................... 1,086,000 1,056,000
Other..................................................... 238,000 243,000
----------- -----------
Total liabilities....................................... 12,298,000 13,105,000
----------- -----------
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; 8,551,555 and 8,519,055 shares issued and
outstanding at February 27, 2000 and November 30, 1999,
respectively............................................ 9,000 9,000
Additional paid-in capital................................ 7,024,000 6,987,000
Accumulated deficit....................................... (3,759,000) (4,009,000)
----------- -----------
Total stockholders' equity.............................. 3,274,000 2,987,000
----------- -----------
Total liabilities and stockholders' equity................ $15,572,000 $16,092,000
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE>
ADVANCED MATERIALS GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FEBRUARY 27,
------------------------
2000 1999
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $ 251,000 $(390,000)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation.............................................. 241,000 211,000
Amortization.............................................. 15,000 16,000
Provision for bad debts................................... -- 1,000
Provision for obsolete inventories........................ (28,000) --
Discontinued operations................................... (35,000) --
Interest and other on deferred compensation............... 62,000 30,000
Deferred income........................................... (35,000) (26,000)
Changes in operating assets and liabilities:
Accounts receivable - trade............................. 713,000 (344,000)
Income taxes receivable................................. -- --
Inventories............................................. (168,000) (319,000)
Prepaid expenses and other.............................. 64,000 (113,000)
Other assets............................................ 79,000 11,000
Accounts payable and accrued liabilities................ (530,000) 367,000
Deferred income taxes................................... -- --
Income taxes payable.................................... -- (16,000)
--------- ---------
Net cash provided by (used in) operating activities....... 629,000 (572,000)
--------- ---------
Cash flows from investing activities:
Purchases of property and equipment....................... (241,000) (463,000)
--------- ---------
Net cash used in investing activities..................... (241,000) (463,000)
--------- ---------
Cash flows from financing activities:
Purchase and retirement ofcommon stock.................... -- (173,000)
Exercise of common stock options.......................... 9,000 --
Net borrowings (repayments) under line of credit.......... (211,000) 700,000
Borrowings under term loan................................ (36,000) 150,000
Proceeds received from capitalized financing.............. 25,000 --
Payments on capital lease obligations..................... (15,000) (5,000)
Payments on deferred compensation......................... (27,000) (33,000)
Payments on capitalized financing......................... (4,000) (6,000)
--------- ---------
Net cash provided by (used in) financing activities....... (259,000) 633,000
--------- ---------
Net change in cash and cash equivalents................... 129,000 (402,000)
Cash and cash equivalents, beginning of period.............. 496,000 528,000
--------- ---------
Cash and cash equivalents, end of period.................... $ 625,000 $ 126,000
========= =========
Supplemental disclosures of cash flow information Cash paid
during the period for:
Interest.................................................. $ 120,000 $ 65,000
--------- ---------
</TABLE>
See accompanying notes to consolidated financial statements
5
<PAGE>
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/A.
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:
<TABLE>
<CAPTION>
FEBRUARY 27, 2000 NOVEMBER 30, 1999
----------------- -----------------
<S> <C> <C>
Raw Materials........................................ $2,732,000 $2,700,000
Work-in-process...................................... 740,000 624,000
Finished Goods....................................... 719,000 699,000
---------- ----------
4,191,000 4,023,000
Less allowance for obsolete inventories.............. (138,000) (166,000)
---------- ----------
$4,053,000 $3,857,000
========== ==========
</TABLE>
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, 1999 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 27 are as follows:
<TABLE>
<CAPTION>
2000 1999
---------- ----------
<S> <C> <C>
BASIC EPS:
Net income (loss)........................................... $ 251,000 $ (390,000)
Denominator: Weighted average common shares outstanding..... 8,548,222 8,651,622
---------- ----------
Net income (loss) per share (basic)......................... $ 0.03 $ (0.05)
========== ==========
DILUTED EPS:
Net income.................................................. $ 251,000 $ (390,000)
Denominator: Weighted average common shares outstanding..... 8,548,222 8,651,622
Common equivalent shares outstanding (options and
warrants)................................................. 897,217 --
Hypothetical shares repurchased at average market price with
proceeds of exercise...................................... (616,498) --
---------- ----------
Total shares................................................ 8,828,941 8,651,622
Net income (loss) per share (diluted)....................... $ 0.03 $ (0.05)
========== ==========
</TABLE>
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
6
<PAGE>
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 ended February 27, 2000 and February 28,1999.
REVENUE:
<TABLE>
<CAPTION>
AMI-US OPERATIONS AMI-SINGAPORE AMI IRELAND CONSOLIDATED
----------------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
2000................................. $5,668,000 $2,274,000 $1,539,000 $9,481,000
1999................................. $5,287,000 $1,734,000 $ 359,000 $7,380,000
</TABLE>
NET INCOME (LOSS):
<TABLE>
<CAPTION>
AMI-US OPERATIONS AMI-SINGAPORE AMI IRELAND CONSOLIDATED
----------------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
2000................................. $(156,000) $370,000 $ 37,000 $ 251,000
1999................................. $(300,000) $ 70,000 $(160,000) $(390,000)
</TABLE>
ASSETS:
<TABLE>
<CAPTION>
AMI-US OPERATIONS AMI-SINGAPORE AMI IRELAND CONSOLIDATED
----------------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
2000................................ $10,362,000 $2,931,000 $2,279,000 $15,572,000
1999................................ $ 9,273,000 $2,835,000 $1,176,000 $13,284,000
</TABLE>
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 10K/A.
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. The statement, as amended, is
effective for fiscal years beginning after June 15, 2000. ADMG will adopt the
standard no later than the first quarter of fiscal year 2001 and is in the
process of determining the impact that adoption will have on its consolidated
financial statements.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements." The
staff accounting bulletin is effective no later than the first quarter of ADMG's
fiscal year 2001. ADMG is in the process of determining the impact that adoption
will have on its consolidated financial statements.
7
<PAGE>
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, 1999.
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
Net revenue for the first quarter ended February 27, 2000 was $9,481,000, an
increase of 28.5% from the same period of fiscal 1999.The increase in net
revenues for the first quarter of fiscal 2000 is primarily attributable to
higher volumes.
Cost of sales as a percentage of net revenue was 84.4 percent for the first
quarter of fiscal 2000, compared to 88.5 percent for the first quarter of fiscal
1999, a 4.1 percentage point decrease. The actual increase in cost of sales
dollars for the first three months of fiscal 2000, compared to the first three
months of fiscal 1999, is primarily due to volume increases, the addition of
manufacturing fixed costs as a result of the Company's expansion in Ireland and
the gross profit sharing agreement with the Company's strategic manufacturing
partner in Singapore. The increases are partially offset by cost savings from
capacity reductions in the U.S.
Operating expenses as a percentage of net revenue were 11.8 percent for the
first quarter of fiscal 2000, compared to 15.5 percent for the first quarter of
fiscal 1999, a 3.7 percentage point decrease. Operating expenses were
essentially unchanged for the first quarter of fiscal 2000, compared to
operating expenses for the first quarter of fiscal 1999. Increases in operating
expenses at the Company's Ireland subsidiary, for the first quarter of fiscal
2000, compared to the first quarter of fiscal 1999, were offset by decreases in
the U.S. 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 2000 was $119,000, an
increase of $36,000, compared to the first quarter of fiscal 1999. The increase
is attributable to higher interest rates and higher average loan balances.
Net income for the first quarter of fiscal 2000 was $251,000, compared to
net loss of $390,000 for the first quarter of 1999. Basic income per share for
the first quarter of fiscal 2000 was three cents per share on a weighted average
of 8.5 million shares, compared to basic loss per share of five cents on a
weighted average of 8.7 million shares for the first quarter of fiscal 1999.
Diluted income per share for the first quarter of fiscal 2000 was three cents
per share on a weighted average of 8.8 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.
8
<PAGE>
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 interim financial statements. The reportable
segments disclosed in this Form 10-Q are based on the Company's internal
management responsibility.
AMI-U.S. OPERATIONS
Net revenue for the first quarter ended February 27, 2000 was $5,668,000, an
increase of 7.2% from the same period of fiscal 1999.The increase in net
revenues for the first quarter of fiscal 2000 is primarily attributable to
higher volumes offset by negative price variances in key customer accounts. Net
loss for the first quarter of fiscal 2000 was $156,000, compared to net loss of
$300,000 for the first quarter of 1999.
AMFSC-SINGAPORE
Net revenue for the first quarter ended February 27, 2000 was $2,274,000, an
increase of 31.1% from the same period of fiscal 1999.The increase in net
revenues for the first quarter of fiscal 2000 is primarily attributable to the
recovering economies in the Pacific Rim and 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 of fiscal 2000 was $370,000, compared to net income of $70,000 for
the first quarter of 1999.
AML-IRELAND
Net revenue for the first quarter ended February 27, 2000 was $1,539,000, an
increase of 328.7% from the same period of fiscal 1999.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 of fiscal 2000 was
$37,000, compared to net loss of $160,000 for the first quarter of 1999.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $625,000 at February 27, 2000 compared with
$496,000 at November 30, 1999. 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 $629,000 of cash in the first quarter of
fiscal 2000 compared with a cash use of $572,000 in the correspondingperiod in
fiscal 1999. The increase in cash generated in fiscal 2000 resulted primarily
from operations and collection of receivables offset by growth in inventory.
Inventory as a percentage of annualized revenue was 10.7% at February 27,
2000 compared with 9.7% at the end of the first quarter of fiscal 1999 and 11.1%
as of November 30, 1999, as a result of increased inventory levels to support
the sales growth in Ireland. Trade receivables as a percentage ofannualized
revenue was 17.2% at February 27, 2000 compared with 18.7% at the end of the
first quarter of fiscal 1999 and 20.8% as of November 30, 1999. The ratio at the
end of the first quarter of fiscal 2000 and at the end of fiscal 1999 reflect
higher sales volume levels.
Capital expenditures were $241,000 for the first three months of fiscal
2000, compared to $463,000 for the corresponding period in fiscal 1999. 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 2000 decreased by $231,000, as cash was used to pay down short- and
long-term debt. At February 27, 2000, the Company had unused committed borrowing
facilities totaling $2,328,000.
9
<PAGE>
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,
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 40% 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:
- Changes in a country or region's political or economic conditions,
- Trade protection measures,
- Import or export licensing requirements,
- The overlap of different tax structures,
- Unexpected changes in regulatory requirements,
- Problems caused by the conversion of various European currencies to the
Euro, and
- Natural disasters.
10
<PAGE>
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.
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:
- The Company's, our customer's or our competitor's announcement of new or
discontinued products,
- Quarterly increases or decreases of our earnings,
- Changes in revenue or earnings estimates by the investment community, and
- 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.
YEAR 2000
The information provided below constitutes a "Year 2000 Readiness
Disclosure" for purposes of the Year 2000 Information and Readiness Disclosure
Act.
The Company passed a number of critical "Year 2000" dates (September 9,
1999; January 1, 2000; and February 29, 2000) with no significant issues
anywhere in the world. We did not experience any significant Year 2000-related
issues that would have affected our ability to manufacture, ship, sell or
service our products.
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."
11
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Legal proceedings to which the Company is a party are discussed in Part 1
Legal Proceedings, in the latest Annual Report on Form 10K/A.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
27.01 Financial Data Schedule
(b) Reports on Form 8-K
None
12
<PAGE>
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.
<TABLE>
<S> <C> <C>
Dated: April 4, 2000 ADVANCED MATERIALS GROUP INC.
By: /s/ J. DOUGLAS GRAVEN
-----------------------------------------
J. Douglas Graven
Vice President and CFO
(Principal Financial Officer and Principal
Accounting Officer)
</TABLE>
13
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0
0
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