UNITED STATES SECURITIES AND EXCHANGE COMMISSION ~~Washington, D.C. 20549~~

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

ýx QUARTERLY REPORT ~~PURSUANT TO~~ UNDER SECTION 13 OR 15(dD) OF THE SECURITIES EXCHANGE ACT OF 1934. FOR THE QUARTERLY PERIOD ENDED FEBRUARY 28, 2009

~~For~~o ~~the~~TRANSITION ~~quarterly~~REPORT ~~period~~UNDER SECTION ~~ended~~13 ~~August~~OR 15(D) OF THE EXCHANGE ACT FOR THE TRANSITION PERIOD ~~31,~~FROM_________________ ~~2003~~TO__________________

ORCOMMISSION FILE NO. 0-16401

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File No. 0-16401

ADVANCED MATERIALS GROUP, INC.

(Exact name of registrant as specified in its charter)

Nevada		33-0215295
NEVADA		33-0215295
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
20211 S. Susana Road, Rancho Dominguez, California 90221
(Address of principal executive offices)(Zip code)
(310) 537-5444
(Registant’s telephone number, including area code)

~~Indicate by check~~2364 ~~mark~~MERRITT ~~whether~~DRIVE, ~~the~~SUITE ~~registrant:~~A, (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports)GARLAND, ~~and (2) has been subject to such filing requirements for the past 90 days. ý Yes o No~~TEXAS 75041

~~Indicate by check mark whether the registrant is an accelerated filer~~ (~~as defined in rule 12b-2~~Address of ~~the~~principal ~~Exchange~~executive ~~Act.~~offices) (Zip ~~oYes ý No~~code)

~~Indicate~~(469) ~~the number of shares outstanding of each of the issuer’s class of common equity, as of the latest practicable date:~~246-4100

~~COMMON STOCK,~~(Registrant's ~~$.001~~telephone ~~PAR VALUE~~number, ~~8,671,272~~including ~~SHARES~~area ~~OUTSTANDING AS OF OCTOBER 10, 2003.~~code)

3303 Lee Parkway, Suite 105, Dallas, TX 75219

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities 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 þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o		Accelerated filer o		Non-accelerated filer o		Smaller reporting company þ
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

State the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: Common Stock, $.001 par value, 12,346,026 shares outstanding as of April 6, 2009.

ADVANCED MATERIALS GROUP, INC.

FORM 10-Q

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
ITEM 1.	Financial Statements:
ITEM 1. Financial Statements:
	Condensed Consolidated Statements of Operations for the three and nine months ended August 31, 2003 and 2002 (unaudited)
Consolidated Statements of Income (unaudited) for the three months ended February 28, 2009 and February 29, 2008		3
	Condensed Consolidated Balance Sheets at August 31, 2003 and November 30, 2002 (unaudited)
Consolidated Balance Sheets as of February 28, 2009 (unaudited) and November 30, 2008		4
	Condensed Consolidated Statements of Cash Flows for the nine months ended August 31, 2003 and 2002 (unaudited)
Consolidated Statements of Cash Flows (unaudited) for the three months ended February 28, 2009 and February 29, 2008		5
	Notes to Condensed Consolidated Financial Statements (unaudited)
Notes to Consolidated Financial Statements (unaudited)		6
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		8
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk
ITEM 3. Controls and Procedures		11
ITEM 4.	Controls and Procedures
PART II. OTHER INFORMATION
ITEM 1.	Legal Proceedings
ITEM 1. Legal Proceedings		12
ITEM 2.	Changes in Securities and Use of Proceeds
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds		12
ITEM 3.	Defaults Upon Senior Securities
ITEM 3. Defaults Upon Senior Securities		12
ITEM 4.	Submission of Matters to a Vote of Security Holders
ITEM 4. Submission of Matters to a Vote of Security Holders		12
ITEM 5.	Other Information
ITEM 5. Other Information		12
ITEM 6.	Exhibits and Reports on Form 8-K
ITEM 6. Exhibits		12
Signatures	~~Signatures~~	13
Certifications

Table of Contents

PART I - FINANCIAL INFORMATION

ITEM 1. –- FINANCIAL STATEMENTS.

ADVANCED MATERIALS GROUP, INC.

~~CONDENSED~~ CONSOLIDATED STATEMENTS OF ~~OPERATIONS~~INCOME

(~~Unaudited~~UNAUDITED)

Net sales	$	2,587,000		$	7,100,000		12,175,000			$	20,274,000
	Three Months Ended
Cost of sales	2,296,000			6,459,000			10,980,000			18,602,000
	February 28, 2009				February 29, 2008
Gross profit	291,000			641,000			1,195,000			1,672,000
Net sales	$	2,689,190			$	3,037,193
Operating expenses:
Cost of sales		1,891,174				2,313,217
Selling, general and administrative	279,000			426,000			998,000			1,427,000
Gross profit		798,016				723,976
Depreciation and amortization	53,000			56,000			158,000			173,000
Operating expenses:
Total operating expenses	332,000			482,000			1,156,000			1,600,000
Selling, general and administrative		742,090				587,520
Income (loss) from continuing operations	(41,000		)	159,000			39,000			72,000
Depreciation and amortization		9,078				11,216
Other income (expense):
Total operating expenses		751,168				598,736
Interest expense	(44,000		)	(106,000		)	(211,000		)	(300,000		)
Income from operations		46,848				125,240
Other, net	—			(42,000		)	(36,000		)	(115,000		)
Other income (expense):
Total other expenses, net	(44,000		)	(148,000		)	(247,000		)	(415,000		)
Interest expense		(24,278	)			(28,530	)
Income (loss) from continuing operations before income taxes	(85,000		)	11,000			(208,000		)	(343,000		)
Other, net		--				(8,290	)
Income tax expense	—			—			—			—
Total other expense, net		(24,278	)			(36,820	)
Net income (loss) from continuing operations	(85,000		)	11,000			(208,000		)	(343,000		)
Income tax benefit		5,168				7,108
Discontinued operations:
Net income	$	27,738			$	95,528
Income (loss) from operations of AML-Ireland	(70,000		)	16,000			(40,000		)	(26,000		)
Basic and diluted net income per share	$	0.00			$	0.01
Net income (loss)	$	(155,000	)	$	27,000		$	(248,000	)	$	(369,000	)
Weighted average common shares outstanding:
Basic and diluted loss per common share:
Basic		12,346,026				12,146,026
Income (loss) from continuing operations	$	(0.01	)	$	—		$	(0.02	)	$	(0.04	)
Diluted		12,420,788				12,361,481
Income (loss) from discontinued operations	(0.01		)	—			—			—
Basic and diluted loss per common share	$	(0.02	)	$	0.00		(0.02		)	$	(0.04	)
Basic and diluted weighted average common shares outstanding	8,671,272			8,671,272			8,671,272			8,671,272

See accompanying notes to ~~condensed~~ consolidated financial statements.

Table of Contents

ADVANCED MATERIALS GROUP, INC.

~~CONDENSED~~ CONSOLIDATED BALANCE SHEETS

(Unaudited)

	February 28, 2009 (unaudited)			November 30, 2008

ASSETS
Current assets:
Cash and cash equivalents	$	885,475		$	353,189
Accounts receivable, net		2,426,017			3,163,751
Inventories, net		1,877,006			1,765,610
Current portion of deferred tax asset		46,997			46,997
Prepaid expenses and other		273,268			130,904
Total current assets		5,508,763			5,460,451

Property and equipment, net		774,964			774,407
Deferred tax assets		828,090			822,922
Other assets		59,931			59,931
Total assets	$	7,171,748		$	7,117,711

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	420,517		$	351,133
Accrued liabilities		70,852			161,313
Line of credit		2,459,000			2,399,000
Current portion of term notes		41,816			41,816
Current portion of capital lease obligations		61,000			61,000
Total current liabilities		3,053,198			3,014,262

Term notes, net of current portion		117,464			130,039
Capital lease obligations, net of current portion		29,028			44,278
Total liabilities		3,199,677			3,188,579

Commitments and contingencies

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; 12,346,026 shares issued and outstanding at February 28, 2009 and November 30, 2008		12,346			12,346
Additional paid-in capital		8,617,441			8,602,240
Accumulated deficit		(4,657,716	)		(4,685,454	)
Total stockholders' equity		3,972,071			3,929,132
Total liabilities and stockholders' equity	$	7,171,748		$	7,117,711

	August 31, 2003			November 30, 2002
ASSETS
Current assets:
Cash and cash equivalents	$	64,000		$	639,000
Accounts receivable, net of allowance of $89,000 and $69,000 at August 31, 2003 and November 30, 2002, respectively	1,514,000			4,284,000
Inventories, net	1,570,000			2,310,000
Prepaid expenses and other	193,000			136,000
Discontinued operations	601,000			1,690,000
Total current assets	3,942,000			9,059,000
Property and equipment, net	1,407,000			1,683,000
Other assets	54,000			58,000
Total assets	$	5,403,000		$	10,800,000
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	1,259,000		$	3,081,000
Accrued liabilities	313,000			367,000
Restructuring reserve, current	378,000			378,000
Deferred income	—			97,000
Line of credit	1,044,000			3,701,000
Convertible debentures	405,000			-
Current portion of long-term obligations	493,000			599,000
Total current liabilities	3,892,000			8,223,000
Convertible debentures	—			405,000
Deferred compensation, net of current protion	1,094,000			1,094,000
Restructuring reserve, net of current portion	196,000			504,000
Capital leases, net of current portion	38,000			143,000
Total liabilities	5,220,000			10,369,000
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 August 31, 2003 and November 30, 2002	9,000			9,000
Additional paid-in capital	7,083,000			7,083,000
Accumulated deficit	(6,909,000		)	(6,661,000		)
Total stockholders’ equity	183,000			431,000
Total liabilities and stockholders’ equity	$	5,403,000		$	10,800,000

See accompanying notes to consolidated financial statements

See accompanying notes to condensed consolidated financial statements.

Table of Contents

ADVANCED MATERIALS GROUP, INC.

~~CONDENSED~~ CONSOLIDATED STATEMENTS OF CASH FLOWS

(~~Unaudited~~UNAUDITED)

	Nine Months Ended
	Three Months Ended
	August 31, 2003			August 31, 2002
	February 28, 2009				February 29, 2008
Cash flows from operating activities:
Net loss from continuing operations	$	(208,000	)	$	(343,000	)
Net income	$	27,738			$	95,527
Adjustments to reconcile net loss to net cash (used in) provided by operating activities
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization	~~383,000~~	30,690		~~385,000~~		32,695
Provision for bad debt	—			18,000
Deferred tax assets		(5,168	)			(7,107	)
Interest on deferred compensation	48,000			109,000
Stock based compensation		15,201				20,907
Changes in operating assets and liabilities:
Accounts receivable	~~3,253,000~~	737,734		~~266,000~~		(5,192	)
Inventories	~~740,000~~	(111,396	)	~~(155,000~~		)(18,513	)
Prepaid expenses and other	~~(47,000~~	(142,364	)	~~(25,000~~		)(99,500	)
Accounts payable and accrued liabilities	~~(1,876,000~~	(21,077	)	~~(960,000~~		)153,493
Restructuring reserve	(308,000		)	(306,000		)
Net cash provided by operating activities		531,358				172,310
Deferred income	(97,000		)	(137,000		)
Cash flows from investing activities:
Net cash provided by (used in) operating activities	1,888,000			(1,148,000		)
Purchases of property and equipment		(31,247	)			(11,252	)
Cash flows from investing activities:
Net cash used in investing activities		(31,247	)			(11,252	)
Purchases of property and equipment	(108,000		)	(207,000		)
Cash flows from financing activities
Net cash used in investing activities	(108,000		)	(207,000		)
Net borrowings under line of credit		60,000				168,750
Cash flows from financing activities:
Repayments of long-term obligations		(27,825	)			(17,022	)
Net borrowings (repayments) under line of credit	(2,657,000		)	930,000
Net cash provided by financing activities		32,175				151,728
Repayments of other long-term obligations	(260,000		)	(236,000		)
Net change in cash and cash equivalents		532,286				312,786
Net cash (used in) provided by financing activities	(2,917,000		)	694,000
Cash and cash equivalents, beginning of period		353,189				462,701
Net change in cash and cash equivalents from continuing operations	(1,137,000		)	(661,000		)
Cash and cash equivalents, end of period	$	885,475			$	775,487
Cash provided by discontinued operations	1,045,000			485,000
Supplemental disclosures of cash flow information
Cash and cash equivalents, beginning of period	156,000			275,000
Cash paid during the period for:
Cash and cash equivalents, end of period	$	64,000		$	99,000
Interest	$	24,278			$	28,530
Supplemental disclosures of cash flow information
Income taxes	$	--			$	(7,108	)
Cash paid during the period for:
Interest	$	220,000		$	305,000
Income taxes	$	—		$	—

See ~~accompanying~~ accompanying notes to ~~condensed~~ consolidated financial statements.

Table of Contents

ADVANCED MATERIALS GROUP, INC.

NOTES TO ~~CONDENSED~~ CONSOLIDATED FINANCIAL STATEMENTS

1) BASIS OF PRESENTATION

The accompanying unaudited ~~condensed~~ consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission and therefore do not include all information and footnotes necessary for a complete presentation of financial position, results of operations and cash flows in conformity with accounting principles ~~generally~~ generally accepted in the United States of America.

The unaudited ~~condensed~~ consolidated financial statements do, however, reflect all adjustments, consisting of only normal recurring adjustments, which are, in the opinion of management, necessary to state fairly the financial position as of February ~~August 31~~28, ~~2003~~2009 and ~~November 30, 2002 and~~ the results of operations and cash flows for the ~~related~~ interim periods ended ~~August~~February 3128, ~~2003~~ 2009 and February ~~2002~~29, 2008. However, these results are not necessarily indicative of results for any other interim period or for the year. It The ~~is suggested that the~~ accompanying ~~condensed~~ consolidated financial statements should be read in conjunction with the Company’'s audited consolidated financial statements and accompanying notes thereto included in the Company’'s Annual Report on Form 10-KKSB for the fiscal year ended November 30, ~~2002~~2008.

~~The Company~~Principles has incurred substantial losses from operations, has a working capital deficit and has not been in compliance with minimum net income and minimum book net worth covenants, and therefore was in technical default under the compliance provisions of ~~its bank line of credit and term loan. This bank line of credit and term loan~~ ~~expired in September 2003 and were subsequently paid in full with funds from new borrowings.~~ Consolidation

InThe ~~October~~consolidated ~~2003,~~financial ~~the~~statements ~~Company~~include ~~entered~~the ~~into~~accounts ~~a line~~ of ~~credit~~Advanced ~~agreement with another~~Materials ~~lender~~Group, ~~providing~~Inc. ~~for~~("AM" ~~borrowings~~or upthe ~~to $3,250,000, as defined. The~~ "Company") ~~entered~~and ~~into~~its awholly ~~term~~owned ~~loan~~subsidiary, ~~for~~Advanced ~~$368~~Materials,~~000~~ ~~with~~Inc. ~~the same lender~~("AM"). ~~The~~All ~~line of~~significant ~~credit~~intercompany ~~and~~accounts ~~the term loan bear interest at prime plus 1.5%, expire in October~~and ~~2005~~transactions ~~and~~have ~~are~~been ~~secured by substantially all of the assets of the Company~~eliminated.

~~As described~~Use ~~in Notes 10 and 11, the Company has recently signed a non-binding letter~~ of ~~intent to sell its subsidiary in Ireland and has amended the~~ structure of its manufacturing agreement in Singapore. These transactions, if consummated, are expected to generate proceeds of approximately $1,100,000 and significantly reduce the Company’s liabilities and increase its book net worth. The Company anticipates these funds along with existing cash, cash from operations and existing lines of credit will supply sufficient cash for its short- and long-term projected needs for operations. Estimates

~~2) INVENTORIES~~The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates.

~~Inventories are stated at the lower of cost (determined on the first-in, first-out method~~2) orEARNINGS ~~market. Inventories consisted~~PER ~~of the following:~~SHARE

	August 31, 2003			November 30, 2002
	(unaudited)
Raw Materials	$	556,000		$	965,000
Work-in-process	52,000			162,000
Finished Goods	1,047,000			1,424,000
	1,655,000			2,551,000
Less allowance for obsolete inventory	(85,000		)	(241,000		)
	$	1,570,000		$	2,310,000

The Company has adopted the provisions of Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"). SFAS 128 requires the presentation of basic and diluted net income per share. Basic earnings per share exclude dilution and are computed by dividing net income by the weighted average of common shares outstanding during the period. Diluted earnings per share reflect the potential dilution that would occur if securities or other contracts to issue common stock were exercised or converted into common stock. Potential common share equivalents including stock options have been excluded for the three month periods ended February 28, 2009 and February 29, 2008, as their effect would be antidilutive.

There were approximately 283,000 and 208,000 potentially dilutive options outstanding at February 28, 2009 and February 29, 2008, respectively, that were not included in the computation of net income per share because the impact would be anti-dilutive.

3) STOCK BASED COMPENSATION

On December 1, 2006, the Company adopted Statement of Financial Accounting Standard No. 123(R), Share-Based Payment (“SFAS 123(R)”), and has elected to use the modified prospective method, which requires the application of the accounting standard to all share-based awards issued on or after December 1, 2006 and any outstanding share-based awards that were issued but not vested as of December 1, 2006.

For the three-month periods ended February 28, 2009 and February 29, 2008, FAS 123(R) resulted in stock-based compensation expense of $15,201 and $20,907, respectively. This amount includes compensation expense related to stock options granted prior to, but not yet vested as of December 1, 2006, based on the grant date fair value estimated in accordance with the pro-forma provisions of SFAS 123. Stock compensation expense has been recorded as selling, general and administrative expense in the accompanying consolidated statements of income.

~~3) BASIC~~Table ~~AND DILUTED~~of ~~LOSS PER COMMON SHARE~~Contents

~~Basic~~The ~~and~~following ~~diluted loss per share~~ is ~~computed~~a insummary ~~accordance with Statement~~ of ~~Financial~~ ~~Accounting~~all ~~Standards~~stock ~~(“SFAS”) No.~~option ~~128.~~transactions ~~In the computations~~ for the three ~~and nine-month periods ended~~months ~~August~~ended ~~31,~~February ~~2003 and 2002~~28, ~~common equivalent shares are excluded from diluted loss per share as their effect is antidilutive.~~ 2009:

4) SEGMENT REPORTING

	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value
Outstanding at November 30, 2008		453,200	$	0.57
Granted		40,000	$	0.46
Outstanding at February 28, 2009		493,200	$	0.56		6.87	$	37,700
Options exercisable at February 28, 2009		423,200	$	0.58		7.03	$	32,200

~~The~~As ~~Company’s foreign~~of ~~operations~~February ~~consist~~28, of2009 athere ~~sales~~was ~~joint~~$2,267 ~~venture~~of ~~located~~total inunrecognized ~~Singapore~~stock ~~which began~~based ~~operations~~compensation inrelated ~~fiscal 1998. All of the sales are made~~ to ~~unaffiliated~~nonvested ~~customers. The~~share-based ~~following~~compensation isawards agranted ~~summary of selected financial information by entities within~~under ~~geographic areas for~~ the ~~three~~stock ~~and~~option ~~nine~~plans. ~~months~~This ~~ended~~cost ~~August~~is ~~31,~~expected ~~2003~~to ~~and~~be ~~2002. Income~~recognized ~~(loss)~~over ~~from~~a ~~discontinued~~weighted ~~operations~~average ~~are~~period ~~included~~of inapproximately ~~the~~six ~~amounts for AMG-US Operations~~months.

	AMG-US Operations			AMI-US Operations			AMI-Singapore			Consolidated
Three Months Ended August 31, 2003 and 2002
Revenue:
2003	$	—		$	2,173,000		$	414,000		$	2,587,000
2002	$	—		$	4,020,000		$	3,080,000		$	7,100,000
Segment Income (Loss):
2003	$	(209,000	)	$	—		$	54,000		$	(155,000	)
2002	$	(298,000	)	$	102,000		$	223,000		$	27,000
Corporate Allocation (1):
2003	$	140,000		$	(98,000	)	$	(42,000	)	$	—
2002	$	314,000		$	(178,000	)	$	(136,000	)	$	—
Net Income (Loss):
2003	$	(69,000	)	$	(98,000	)	$	12,000		$	(155,000	)
2002	$	16,000		$	(76,000	)	$	87,000		$	27,000

The Company used the Black-Scholes Option Pricing Model (“BSOPM”) to determine the fair value of option grants. During the first quarter of fiscal 2009, the Company granted 40,000 fully vested options to directors at an exercise price of $0.46. The options were valued using the BSOPM and the following assumptions: stock price on date of grant - $0.46, exercise price - $0.46, expected life – 5 years, volatility – 97%, dividend rate – 0% and a risk free rate of 1.44%. The calculated fair value of each option was approximately $0.34. During the first quarter of fiscal 2008, the Company granted 40,000 fully vested options to directors at an exercise price of $0.65. The options were valued using the BSOPM and the following assumptions: stock price on date of grant - $0.65, exercise price - $0.65, expected life - 5 years, volatility - 97%, dividend rate – 0% and a risk free rate of 2.71%. The calculated fair value of each option was approximately $0.48.

4) 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, 2009		November 30, 2008
	(unaudited)
Raw Materials	$	818,402	$	876,757
Work-in-process		72,280		136,646
Finished Goods		1,020,477		788,207
		1,911,159		1,801,610
Less allowance for obsolete inventories		34,153		36,000
	$	1,877,006	$	1,765,610

5) SINGAPORE ROYALTY AGREEMENT

On or about November 20, 2007, the Company filed suit in the Superior Court of the State of California, County of Orange, Central Justice Center, against Foamtec (Singapore) Pte. Ltd., a private limited company incorporated in Singapore, and Foamex Asia Ltd., a private company incorporated in Thailand (collectively, “Foamtec”). In December of 1998, the Company and Foamtec entered into a Manufacturing Agreement, whereby the Company and Foamtec agreed to work cooperatively to manufacture and sell certain foam components to Hewlett Packard Company and certain other buyers. As part of the Manufacturing Agreement, Foamtec agreed to act as fiduciary agent for the Company in distributing the manufactured product to Hewlett Packard, its successors and assigns. The term of the Manufacturing Agreement was for ten years, which could be extended by either party for an additional five years. Foamtec had the option to purchase the Company’s interest in the Manufacturing Agreement by paying a price to be calculated on the profits expected under the entire remaining term which, by definition, included its entire term, including the additional five years if the Company exercised its extension right. In 2006, the Company gave notice to Foamtec of its election to extend the term of the Manufacturing Agreement for an additional five years in accordance with its rights under the Manufacturing Agreement. Thereafter, Foamtec gave notice of its election to purchase the Company’s interest in the Manufacturing Agreement, and tendered certain funds in claimed discharge of its payment obligations thereunder. Foamtec asserted that this payout right only applied to the initial term, and not the extended term, and therefore remitted funds that represented the expected profits through the end of the initial term. The Company therefore sued Foamtec for breach of contract for Foamtec’s failure to pay the Company the amount of expected profits for the extended term. The Company is seeking compensatory damages in excess of $1,000,000, interest as provided by law and costs associated with the suit.

	AMG-US Operations			AMI-US Operations			AMI-Singapore			Consolidated
Nine Months Ended August 31, 2003 and 2002
Revenue:
2003	$	—		$	7,821,000		$	4,354,000		$	12,175,000
2002	$	—		$	10,941,000		$	9,333,000		$	20,274,000
Segment Income (Loss):
2003	$	(699,000	)	$	56,000		$	395,000		$	(248,000	)
2002	$	(973,000	)	$	(187,000	)	$	791,000		$	(369,000	)
Corporate Allocation (1):
2003	$	659,000		$	(342,000	)	$	(317,000	)	$	—
2002	$	947,000		$	(512,000	)	$	(435,000	)	$	—
Net Income (Loss):
2003	$	(40,000	)	$	(286,000	)	$	78,000		$	(248,000	)
2002	$	(26,000	)	$	(699,000	)	$	356,000		$	(369,000	)
Total Assets: As of August 31, 2003 and November 30, 2002
2003	$	501,000		$	4,699,000		$	203,000		$	5,403,000
2002	$	1,856,000		$	6,912,000		$	2,032,000		$	10,800,000

Table of Contents

(16) ~~Corporate allocation represents amounts allocated for general~~ ~~corporate~~ACCOUNTING ~~expenses including costs for management, professional services, insurance and interest.~~ CHANGES

5In September 2006, the FASB issued Statement of Financial Accounting Standard (“SFAS”) No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair ~~CONTINGENT~~value, ~~LIABILITIES~~establishes a market-based framework or hierarchy for measuring fair value, and expands disclosures about fair value measurements. SFAS 157 is applicable whenever another accounting pronouncement requires or permits assets and liabilities to be measured at fair value. SFAS 157 does not expand or require any new fair value measures; however the application of this statement may change current practice. The requirements of SFAS 157 are first effective for our fiscal year beginning December 1, 2008. However, in February 2008 the FASB decided that an entity need not apply this standard to nonfinancial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis until the subsequent year. Accordingly, our adoption of this standard on December 1, 2008 is limited to financial assets and liabilities. The initial adoption of SFAS 157 did not have a material effect on our financial condition or results of operations. However, we are still in the process of evaluating this standard with respect to its effect on nonfinancial assets and liabilities and therefore have not yet determined the impact that it will have on our financial statements upon full adoption.

~~Material legal~~ITEM ~~proceedings~~2 ~~to which the Company is a party are discussed in Part 1, Item 3, in the Company’s latest Annual Report on Form 10~~-KMANAGEMENT'S ~~and~~DISCUSSION inAND ~~Part~~ANALYSIS ~~II,~~OR ~~Item~~PLAN ~~1 of~~OF ~~this Form 10-Q.~~ OPERATIONS

~~6) DEBT~~The following discussion should be read in conjunction with the unaudited consolidated financial statements and the related notes that appear elsewhere in this report.

AsThis document ofcontains ~~August~~forward-looking ~~31,~~statements ~~2003,~~that ~~the~~involve ~~Company~~risks ~~had~~and uncertainties athat ~~revolving~~could ~~line~~cause the results of ~~credit~~the Company and its consolidated ~~agreement~~subsidiaries ~~with~~to adiffer ~~bank,~~materially ~~which~~from ~~provided~~those ~~for~~expressed ~~borrowings~~or upimplied toby $4such forward-looking statements. These risks include,~~500,000,~~ but asare not limited ~~defined.~~to, the ~~The~~timely ~~line~~development, ~~bore~~production ~~interest~~and atdelivery ~~prime~~of ~~plus~~new ~~3.25%~~products; ~~(7.5%~~the challenge atof ~~August~~managing 31asset levels, including inventory and trade receivables; ~~2003). The~~the ~~line~~difficulty of ~~credit~~keeping ~~was~~expense ~~secured~~growth at modest levels while increasing byrevenues ~~substantially~~and ~~all~~other ofrisks ~~the~~described ~~assets~~from oftime to time in the Company~~. This~~'s ~~line~~filings with ofthe ~~credit~~Securities ~~expired~~and onExchange ~~September 30~~Commission, ~~2003~~including ~~and~~but ~~was~~not limited to the ~~subsequently~~Annual ~~paid~~Report inon ~~full~~Form ~~with~~10-KSB ~~funds~~for ~~from~~the ayear ~~new~~ended ~~line~~November of30, ~~credit~~2008 ~~discussed~~and in "Factors That Could Affect Future Results" below.

~~The~~Forward-looking ~~Company~~statements ~~also~~reflect ~~had~~the ancurrent ~~outstanding~~views ~~term loan~~ of ~~$180,000~~the asCompany ofwith ~~August~~respect ~~31,~~to future ~~2003. The~~events ~~term~~and ~~loan~~are ~~bore~~subject ~~interest~~to ~~at prime~~certain ~~plus~~risks, ~~3.25%~~uncertainties (7and assumptions.5% atShould one ~~August~~or ~~31,~~more ~~2003). The~~of ~~term~~these ~~loan~~risks ~~was~~or ~~secured~~uncertainties bymaterialize, ~~substantially~~or ~~all~~should ofunderlying assumptions ~~the~~prove ~~assets~~incorrect, ofactual ~~the Company~~results ~~and~~may ~~expired~~vary onmaterially ~~September~~from ~~30, 2003.~~ those ~~The~~described ~~loan~~herein ~~was~~as ~~payable~~anticipated, tobelieved, ~~the~~estimated ~~same~~or ~~bank~~expected. asAdvanced Materials ~~the~~Group, ~~Company’s~~Inc. ~~line~~undertakes ofno ~~credit and~~obligation ~~was~~to ~~subsequently~~publicly ~~paid~~update inor ~~full~~revise ~~with~~any forward-looking ~~funds~~statements, ~~from~~whether as a ~~new~~result ~~term~~of ~~loan~~new ~~discussed~~information, future ~~below~~events or otherwise.

RESULTS OF OPERATIONS THREE MONTHS ENDED FEBRUARY 28, 2009 COMPARED TO THE THREE MONTHS ENDED FEBRUARY 29, 2008

Net sales for the quarter ended February 28, 2009 were $2,689,190 versus $3,037,193 for the same period of fiscal 2008, a decrease of $348,003 or 11%.

The decrease in sales is due to lower demand of products produced from its customer base. The Miss Oops licensed products have also realized a sharp decline in sales due to decreased sales traffic in the retail outlets where the product is sold.

Cost of goods sold for the quarters ended February 28, 2009 and February 29, 2008 were $1,891,174 and $2,313,217, respectively. The Company's gross profit margin was 30% in the first quarter of 2009 and 24% in the first quarter of 2008. The decrease in costs of goods sold is a direct relation to the decrease in revenue for the quarter. The Company’s primary products are foam products which represent a high cost of goods sold due to the raw material costs.

Selling, general and administrative expenses for the first quarter of fiscal 2009 and 2008 were $742,090 and $587,520, respectively, representing an increase of $154,570 or 26%. The increase in costs was due to the addition of the Miss Oops license agreement in 2008 and the staff needed to promote and grow the Miss Oops brand.

Interest expense for the first quarter of fiscal 2009 and 2008 was $24,278 and $28,530, respectively. Interest expense relates primarily to bank borrowings and will increase or decrease based on interest rate fluctuations.

The Company recorded an income tax benefit of $5,168 in the first quarter of 2009 and $7,108 in the first quarter of 2008. These benefits were mainly a result of the Company recording a deferred tax asset related to stock based compensation.

Net income for the first quarter of fiscal 2009 was $27,738 compared to $95,528 for the first quarter of fiscal 2008. Basic and diluted net income per share for the first quarter of fiscal 2009 was $0.00 per share, compared to $0.01 per share for the first quarter of fiscal 2008.

InTable ~~October 2003, the Company entered into a line~~ of ~~credit~~ agreement with another lender providing for borrowings up to $3,250,000, as defined. The Company entered into a term loan for $368,000 with the same lender. The line of credit and the term loan bear interest at prime plus 1.5%, expire in October 2005 and are secured by substantially all of the assets of the Company.Contents

~~7) RESTRUCTURING~~LIQUIDITY AND ~~CHARGES~~CAPITAL RESOURCES

InAs ~~May 2001, the Company announced the closure~~ of ~~its~~ ~~manufacturing~~February ~~facility in Dallas~~28, ~~Texas and its distribution centers in Portland~~2009, ~~Oregon~~we ~~and~~had ~~Parker,~~working ~~Colorado.~~capital ~~The closure~~ of the two distribution centers was completed during the third quarter and the closure of the Texas facility was completed by the end of the fourth quarter of fiscal 2001. The Company closed these facilities in order to consolidate its U.S. operations into its plant in Rancho Dominguez$2,455,565 ~~California~~compared ~~and reduce overhead costs in response~~ to ~~its lower domestic sales.~~ working ~~During~~capital ~~the three month period ended August 31, 2003, approximately $93,000 in lease costs were charged against the reserve. The remainder~~ of ~~the restructuring reserve consists of lease abandonment costs of~~ $~~574~~2,~~000 (net of probable lease revenue of $240~~446,~~000),~~189 ~~which~~at ~~have been substantially classified as a long-term liability since the lease payments will be made through~~ November ~~2005~~30, 2008.

~~8) DEFERRED~~Cash ~~COMPENSATION~~and cash equivalents were $885,475 at February 28, 2009, compared with $353,189 at November 30, 2008. Operating activities provided $531,358 of cash during the three months ended February 28, 2009, compared with cash provided of $172,310 in the corresponding period of fiscal 2008. The cash provided by operating activities in the three months ended February 28, 2009 resulted primarily from net income of $27,738 plus non-cash charges of $40,723, a decrease in accounts receivable of $737,734, an increase in inventory of $111,396, an increase in prepaid expenses of $142,364 and a decrease in accounts payable and accrued liabilities of $21,077.

~~The Company had previously made monthly payments~~Capital ~~aggregating~~expenditures ~~approximately~~were $831,~~000~~247 for tothe ~~two~~three ~~former~~months ~~employees~~ended inFebruary ~~conjunciton with a liability it had assumed in a business combination in 1992. As of March 2003~~28, ~~the Company ceased making~~2009, ~~payments~~compared to ~~these~~$11,252 for ~~individuals as~~ the ~~Company believes it has fulfilled its~~ ~~obligation. The~~corresponding ~~Company~~period ~~is currently~~ in ~~discussions~~ ~~with~~fiscal ~~the parties involved regarding its obligations per the underlying agreement~~2008. ~~As of August 31, 2003, it had not reversed the reserve for deferred compensation of $1,251,000.~~

~~9) RECENT~~The Company ~~ACCOUNTING~~uses ~~PRONOUNCEMENTS~~short- and long-term borrowings to supplement internally generated cash flow. Activity related to short- and long-term borrowings in the three months ended February 28, 2009 resulted in cash provided by financing activities of $32,175 compared to cash provided by financing activities of $151,728 in the same period of 2008.

On ~~July~~March 1, 302007, ~~2002~~AMG, ~~the~~ ~~Financial~~through ~~Accounting~~its ~~Standards~~wholly-owned ~~Board~~subsidiary ~~(“FASB”)~~AMI, ~~issued~~obtained ~~SFAS~~a ~~No. 146~~$2,000,000 ~~“Accounting~~credit ~~for~~facility ~~Costs~~from ~~Associated~~JPMorgan ~~with~~Chase ~~Exit~~Bank, ~~or Disposal Activities~~N.~~” SFAS~~A. No(“Lender”). ~~146~~The ~~requires~~Credit ~~companies to recognize~~Facility ~~costs~~was ~~associated~~established ~~with~~pursuant ~~exit~~to ~~or disposal activities when they are incurred rather than at the date of~~ a ~~commitment~~Credit toAgreement anbetween ~~exit~~AMI ~~or disposal plan. Examples of costs covered by the standard include lease termination costs~~ and ~~certain~~Lender ~~employee severance costs that are~~and ~~associated~~evidenced ~~with~~by a ~~restructuring,~~Line ~~discontinued~~of ~~operation,~~Credit ~~plant~~Note ~~closing~~executed orby ~~other exit or disposal activity~~AMI. ~~SFAS~~This ~~No.~~Line ~~146~~of ~~replaces~~Credit ~~the~~Note ~~prior guidance that~~ was ~~provided~~amended byon ~~Emerging~~July ~~Issues~~14, ~~Task~~2008 ~~Force~~to ~~Issue~~extend ~~No.~~the ~~94-3~~credit ~~“Liability~~facility ~~Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity~~ (~~Including~~the ~~Certain~~“Credit ~~Costs Incurred in a Restructuring).~~Facility” ~~SFAS No. 146 is to be applied prospectively~~) to ~~exit or disposal activities initiated after December 31~~$2, ~~2002~~500,000. ~~Management~~ The ~~currently~~proceeds ~~believes~~under ~~that~~ the ~~adoption~~ ofCredit ~~SFAS~~Facility ~~No. 146~~ will ~~not~~be ~~have~~used primarily afor ~~material~~working ~~impact~~capital onneeds in the ~~Company’s financial~~ordinary ~~statements~~course of business.

AMI can borrow, pay and reborrow principal under the Credit Facility from time to time during its term, but the outstanding principal balance under the Credit Facility may not exceed the lesser of the borrowing base or $2,500,000. For purposes of the Credit Facility, “borrowing base” is calculated by adding 80% of AMI's eligible accounts receivable to 50% of the lower of cost or wholesale market value of all of AMI's eligible inventory.

The outstanding principal balance under the Credit Facility bears interest at the rate of interest per annum announced from time to time by the Lender as its prime rate, and will be computed on the unpaid principal balance from the date of each borrowing. Accrued interest payments on the unpaid principal balance under the Credit Facility are payable quarterly commencing on May 1, 2007, and all outstanding principal under the Credit Facility, together with all accrued but unpaid interest, is due at maturity, which has been extended until June 1, 2009.

The Credit Facility is secured by a first priority lien on all of AMI's currently owned and subsequently acquired accounts receivable, chattel paper, deposit accounts, documents, equipment, general intangibles, instruments, inventory, investment property and letter of credit rights pursuant to a Continuing Security Agreement between AMI and Lender.

The Credit Agreement contains certain covenants with which AMI must comply. Subject to Lender's consent, AMI is prohibited under the Credit Agreement from, among other things, declaring or paying dividends on its capital stock, issuing, selling or otherwise disposing of any shares of its capital stock and incurring, assuming or permitting to remain outstanding any indebtedness for borrowed money, subject to certain exceptions. Additionally, AMI is prohibited from engaging in any business activities substantially different from those in which it is currently engaged and from merging or consolidating with any other entity or selling any of its assets outside of the ordinary course of business.

The line of credit agreement requires the Company to maintain certain financial covenants including maintaining tangible net worth no less than $1,500,000 as of each fiscal quarter end.

If a default occurs under the Credit Agreement, the Line of Credit Note or any other related documents, Lender may declare all amounts outstanding under the Credit Facility immediately due and payable. In such event, Lender may exercise any rights and remedies it may be provided by law or agreement, including the ability to cause all or any part of the collateral under the Continuing Security Agreement to be transferred to Lender or registered in Lender's or any other designated entity's name. Any such event may materially impair AMI's and the Company's ability to conduct its business.

Borrowings outstanding under the Line of Credit at February 28, 2009 were $2,459,000.

InTable ~~December 2002, the FASB issued SFAS No. 148 “Accounting for Stock-Based Compensation, Transition and Disclosure, an Amendment~~ of FASB Statement No. 123.” SFAS No. 148 provides alternative methods of transition for an entity that voluntarily changes to the fair value based method of accounting for stock-based employee compensation. It also amends the disclosure provisions of SFAS No. 123 to require prominent disclosure about the effects on reported net income of an entity’s accounting policy decisions with respect to stock-based employee compensation. Finally, this statement amends Accounting Principles Bulletin Opinion (“APB”) No. 28, “Interim Financial Reporting,” to require disclosure about those effects in the interim financial information. The amendments to SFAS No. 123 that provide alternative methods of transition for an entity that voluntarily changes to the fair value based method of accounting for stock-based employee compensation are effective for financial statements for fiscal years ending after December 15, 2002. The amendment to SFAS No.123 relating to disclosure and the amendment to APB No.28 are effective for financial reports containing condensed financial statements for interim periods beginning after December 15, 2002. There was no compensation expense related to stock based compensation plans for any period presented.Contents

~~In May 2003, SFAS No. 150 “Accounting for Certain~~FACTORS ~~Financial~~THAT ~~Instruments~~COULD ~~with~~AFFECT ~~Characteristics~~FUTURE of Both Liabilities and Equity” was issued. This statement establishes standards for how an isuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. This statement is effective for financial instruments entered into or modified after May 31, 2003. The adoption of SFAS No.150 is not expected to have a significant effect on the Copmpany’s consolidated financial statements.RESULTS

~~10) DISCONTINUED~~COSTS OF ~~OPERATIONS~~PETROLEUM-BASED RAW MATERIALS

OnThe ~~June~~costs of ~~17,~~raw ~~2003~~materials, ~~the~~which ~~Company~~primarily ~~signed~~includes ~~a non~~petroleum-~~binding letter~~based ofproducts ~~intent~~such toas foam, ~~sell~~account ~~the~~for ~~stock~~an average of ~~its~~54% ~~wholly-owned~~or ~~subsidiary~~more inof ~~Ireland, Advanced~~our ~~Materials~~manufacturing ~~Ltd~~costs. ~~(“AML-Ireland”)~~We tohave experienced aincreases ~~group~~in ofraw ~~investors~~material ~~headed~~costs bysince the ~~management~~ middle of ~~AML-Ireland~~2002. ~~The~~ ~~sale is~~Our ~~expected~~ability to ~~close~~pass inon ~~October~~cost ~~2003~~increases ~~and~~may isbe ~~subject~~hindered toby ~~conditions,~~competition ~~including~~or selling ~~receipt~~price. Prices of ~~necessary~~raw ~~consents,~~materials ~~compliance~~are ~~with~~influenced ~~all~~by ~~applicable~~demand, ~~laws~~manufacturing capacity and ~~receipt~~oil and natural gas prices. Historically, the prices of raw materials have been cyclical and volatile and our suppliers of ~~financing~~raw bymaterials have increased the ~~buyer.~~price ~~The~~of ~~total~~raw ~~consideration~~materials ~~for~~several times over the ~~sale~~past isyears. ~~expected~~We tohave bebeen ~~approximately~~successful ~~$3.2~~in ~~million,~~implementing ~~consisting~~fixed ofprice ~~$2.1~~contracts ~~million~~for inraw ~~forgiveness~~materials offor our ~~debt~~largest customers and ~~$1.1~~retaining ~~million~~our incustomer ~~cash. The~~base; ~~sale~~however, we may not be able isto ~~expected~~pass along all costs to ~~close~~our customers in ~~October~~the ~~2003~~future, which could impact our profitability.

Operation results of AML-Ireland for the three and nine-month periods ended August 31, 2003 are shown separately in the accompanying consolidated statement of operations. The consolidated statement of operations for the three and nine-month periods ended August 31, 2002 have been restated and operating results of AML-Ireland are also shown separately as discontinued operations for those periods.BANKING

AMI obtained a Credit Facility in the second quarter of fiscal 2007. This credit agreement has been extended until April 1, 2009. The credit agreement evidencing the Credit Facility requires AMI to maintain certain financial covenants as outlined in the Credit Agreement. Failure to meet these financial covenants could result in increased borrowing costs. The Credit Facility is secured by a first priority lien on all of AMI's currently owned and subsequently acquired accounts receivable, chattel paper, deposit accounts, documents, equipment, general intangibles, instruments, inventory, investment property and letter of credit rights pursuant to a Continuing Security Agreement between AMI and Lender. If a default occurs under the documents evidencing the Credit Facility, Lender may declare all amounts outstanding under the Credit Facility immediately due and payable. In such event, Lender may exercise any rights and remedies it may be provided by law or agreement, including the ability to cause all or any part of the collateral under the continuing Security Agreement to be transferred to Lender or registered in Lender's or any other designated entity's name. Any such event may materially impair AMI's and the Company's ability to conduct its business.

CUSTOMER CONCENTRATION

The Company realizes approximately 61% of its revenues from five customers. Any loss of business from these customers could have a significant impact on the Company's financial position.

NEW PRODUCT INTRODUCTIONS

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, the Company must be able to manufacture sufficient volumes quickly at low enough costs. To do this it must accurately forecast volumes and mix of products. Customer orders have also been subject to dramatic swings from customer provided forecasts. Matching customers' demand and timing for particular products makes the process of planning production and managing inventory levels increasingly difficult. If the Company cannot continue to rapidly develop and manufacture innovative products that meet customer requirements for performance, price, quality and customer service, it may lose market share and future revenue, and earnings may suffer.

RELIANCE ON SUPPLIERS

The Company's manufacturing operations depend on its suppliers' ability to deliver quality raw materials and components in time for the Company to meet critical manufacturing and distribution schedules. The Company sometimes experiences 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, it 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 significant raw materials price increases could also cause future operating results to suffer if the Company is not able to increase its sales prices to account for the materials price increases. Any of these factors, if realized, could reduce the Company's profitability and operating results. On Wednesday, February 18, 2009, one of the Company’s major suppliers, Foamex, filed for Chapter 11 bankruptcy protection. The Company does not currently know the effect that this will have on their raw materials supply and is actively seeking other arrangements.

EARTHQUAKE

The AMI manufacturing division in California is located near major earthquake faults. The ultimate impact on the Company and its general infrastructure is unknown, but operating results could be materially affected in the event of a major earthquake. The Company is predominantly uninsured for losses and interruptions caused by earthquakes.

~~Assets~~Table ~~and liabilities~~ of ~~AML-Ireland to be disposed of consisted of the following at August 31, 2003 and November 30, 2002:~~Contents

	August 31, 2003		November 30, 2002
Cash	$	336,000	$	608,000
Accounts receivable, net	1,041,000		697,000
Inventories, net	1,579,000		1,146,000
Property, plant and equipment	647,000		802,000
Prepaids and other assets	149,000		148,000
Total assets	3,752,000		3,400,000
Accounts payable	2,706,000		1,305,000
Accrued liabilities	445,000		406,000
Total liabilities	3,151,000		1,711,000
Net assets of discontinued operations	$	601,000	$	1,690,000

INTELLECTUAL PROPERTY

~~Results~~The Company's success will depend, in part, on its ability to obtain and enforce intellectual property protection for our technology in both the United States and other countries. Although the Company has been issued certain patents, it has also filed patent applications in the United States Patent and Trademark Office with respect to certain patents that have not yet been issued. The Company cannot provide any assurance that patents will issue from these applications or that, with respect to any patents, issued or pending, the claims allowed are, or will be, sufficiently broad to protect the key aspects of ~~operations~~our technology, or that the patent laws will provide effective legal or injunctive remedies to stop any infringement of ~~AML-Ireland~~its ~~for~~patents. In addition, the ~~three~~Company cannot assure investors that any owned patent rights will not be challenged, invalidated or circumvented, that the rights granted under patents will provide competitive advantages, or that competitors will not independently develop or patent technologies that are substantially equivalent or superior to our technology. The Company's business plan assumes that it will obtain and ~~nine~~maintain comprehensive ~~month~~patent protection of its technologies. The Company cannot assure ~~periods~~investors ~~ended~~that ~~August~~such 31protection will be obtained, ~~2003~~or that, if obtained, it will withstand challenge. Furthermore, if an action is brought, a court may find that the Company has infringed on the patents owned by others. The Company may have to go to court to defend its patents, to prosecute infringements, or to defend infringement claims made by others. Patent litigation is expensive and time-consuming, ~~2002~~and ~~were~~well-funded ~~are~~adversaries ~~follows:~~can use such actions as part of a strategy for depleting the resources of a small company such as AMI. The Company cannot assure investors that we will have sufficient resources to successfully prosecute our interests in any litigation that may be brought.

	Three months ended August 31,					Nine months ended August 31,
	2003			2002		2003			2002
Revenues	$	2,648,000		$	2,454,000	$	7,286,000		$	7,197,000
Costs and expenses:
Cost of sales	2,173,000			2,015,000		5,889,000			6,118,000
General and administrative	545,000			416,000		1,406,000			1,123,000
Other	—			7,000		31,000			(18,000		)
Total costs and expenses	2,718,000			2,438,000		7,326,000			7,223,000
Income (loss) from discontinued Operations	$	(70,000	)	$	16,000	$	(40,000	)	$	(26,000	)

LIQUIDITY

~~11) CHANGE~~Our common INstock trades in the United States only on the Pink Sheets, which is a ~~SINGAPORE~~reporting ~~AGREEMENT~~service and not a securities exchange. We cannot assure investors that in the future our common stock will ever qualify for inclusion on any of the NASDAQ markets, the American Stock Exchange or any other national exchange or that more than a limited market will ever develop for our common stock. The lack of an orderly market for our common stock may negatively impact the volume of trading and market price for our common stock.

~~On June 20~~Historically, ~~2003, the Company signed an amendment to~~ ~~its manufacturing agreement in Singapore with Foamex Asia (“Foamex”) to change~~ the ~~vendor~~volume of ~~record~~trades for ~~the~~our ~~customer~~stock ~~supplied~~has ~~under~~been ~~the agreement from the Company to Foamex~~limited. ~~Although~~ ~~this~~Moreover, ~~change will~~thus ~~not~~far ~~affect~~ the ~~Company’s share of the profitability under the agreement,~~ itprices ~~will~~at ~~cause~~which aour ~~significant~~common ~~reduction~~stock inhas ~~its~~traded ~~future~~have ~~reported~~fluctuated ~~revenues. Previously,~~fairly ~~the~~widely ~~Company~~on ~~purchased the raw~~a ~~materials~~percentage ~~for~~basis. ~~the~~The ~~production~~trading ofactivity ~~product~~in ~~and~~our ~~billed~~common ~~the~~stock ~~end~~should ~~customer~~be ~~and~~considered ~~therefore recognized the gross sales and cost of sales on its financials. Under the amended agreement~~sporadic, itilliquid ~~will no longer purchase the raw materials or bill the end customer~~ and ~~will~~highly ~~only recognize its portion of profit as revenue~~volatile.

General market conditions and domestic or international macroeconomic factors unrelated to the Company's performance may also affect the 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.

ITEM 3 - CONTROLS AND PROCEDURES

We maintain “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable assurance of achieving the desired control objectives, and we necessarily are required to apply our judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures.

Our management, including our principal executive officer and principal financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of February 28, 2009 and concluded that the disclosure controls and procedures were not effective, because certain deficiencies involving internal controls constituted a material weakness as discussed in our Annual Report on Form 10-KSB for the year ended November 30, 2008, as filed with the Securities and Exchange Commission on February 27, 2009. The material weaknesses identified did not result in the restatement of any previously reported financial statements or any other related financial disclosure, nor does management believe that it had any effect on the accuracy of the Company’s financial statements for the current reporting period.

The material weaknesses in our internal control over financial reporting that we identified in our Annual Report on Form 10-KSB for the year ended November 30, 2008 relate to a lack of segregation of certain accounting duties due to the small size of our accounting staff and information technology controls over segregation of duties and access to financial reporting systems.

In order to mitigate these material weaknesses to the fullest extent possible, all financial reports are reviewed by the Chief Financial Officer, who has limited system access. In addition, regular meetings are held with the Board of Directors and the Audit Committee. If at any time we determine a new control can be implemented to mitigate these risks at a reasonable cost, it will be implemented as soon as possible.

~~Revenues~~Table as reported relating to the Singapore manufacturing agreement were $414,000 and $4,354,000 for the three- and nine-month periods ended August 31, 2003, respectively. Revenues as reported relating to the Singapore manufacturing agreement were $3,081,000 and $9,333,000 for the three- and nine-month periods ended August 31, 2002, respectively. Under the amended agreement, only the Company’s share of the profit would have been reported as revenue. The profits distributed to the Company pursuant to the Singapore manufacturing agreement were $54,000 for the three-month period ended August 31, 2003 and $395,000 for the nine-month period ended August 31, 2003. The profits distributed to the Company pursuant to the Singapore manufacturing agreement were $223,000 for the three-month period ended August 31, 2002 and $791,000 for the nine-month period ended August 31, 2002.Contents

~~12) STOCKHOLDERS’~~There were ~~EQUITY~~no changes in our internal control over financial reporting that occurred during the quarter ended February 28, 2009 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

~~In August 2003, the Company issued non-qualified stock~~PART ~~options~~II to its President to purchase up to 870,000 shares of the Company’s common stock at exercise prices ranging from $1.12 to $2.24. The options are subject to continued employment, vest ratably over a five-~~year~~ ~~period~~OTHER and expire in August 2008. Issuance of these options is pending shareholder approval of a new 2003 stock option plan (the “2003 Plan”) and, accordingly, any compensation expense will be determined if and when the 2003 Plan is so approved.INFORMATION

InITEM August 2003, the Company entered into two restricted stock purchase agreements with its President. All of the shares under the agreements are to be purchased with secured promissory notes payable in whole or in part at any time, secured by the underlying shares, and bearing interest at 5%. Under the terms of the agreements, the Company has the right to repurchase or cancel the purchase of the shares, as defined. One agreement is for the purchase of up to 435,000 shares of the Company’s common stock for $0.28 per share. One twelfth (1~~/12) of the shares under this agreement shall be released from the Company’s repurchase option on the first day of each month commencing September 1, 2003 and ending August 1, 2004~~. ~~The~~ ~~second~~LEGAL ~~agreement is for the purchase of up to 435,000 shares of the Company’s common stock for $0~~PROCEEDINGS.56 per share. One sixtieth (1/60) of the shares under this agreement shall be released from the Company’s repurchase option on the first day of each month commencing September 1, 2003 and ending August 1, 2008. Issuance of these shares is pending shareholder approval of the 2003 Plan and, accordingly, any compensation expense will be determined if and when the 2003 Plan is so approved.

The Company may from time to time be involved in other legal proceedings in the normal course of operations and are incidental to its business. Although the outcome of the proceedings cannot be determined, in the opinion of management, based on discussions with and advice of legal counsel, any resulting future liability from such proceedings, either individually or in the aggregate, will not adversely affect the Company.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

NONE

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

NONE

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

NONE

ITEM 5. OTHER INFORMATION.

NONE

ITEM 6. EXHIBITS

EXHIBIT NO. DESCRIPTION

31.1 Certifications Required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2 Certifications Required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1 Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2 Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

~~ITEM 2~~Table -of ~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.~~Contents

~~The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and the related notes that appear elsewhere in this report.~~SIGNATURES

~~This document contains~~Pursuant ~~forward-looking~~to ~~statements that involve risks and uncertainties that could cause~~ the ~~results~~requirements of the ~~Company~~Securities and ~~its~~Exchange ~~consolidated~~Act ~~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~~1934, ~~including inventory and trade receivables;~~ the ~~difficulty of keeping expense growth at modest levels while~~registrant ~~increasing~~has ~~revenues,~~duly ~~and~~caused ~~other~~this ~~risks~~report ~~described from time~~ to ~~time~~be insigned ~~the Company’s filings with the Securities and Exchange Commission, including but not limited to the Annual Report~~ on ~~Form~~its ~~10-K~~behalf ~~for~~by the ~~year ended November 30,~~undersigned ~~2002~~thereunto ~~and~~duly ~~in “Factors That Could Affect Future Results” below~~authorized.

~~Forward-looking~~Dated: ~~statements~~April ~~reflect the current views of the Company with respect to future events and are subject to certain risks~~20, 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.2009

~~Critical~~ADVANCED MATERIALS ~~Accounting~~GROUP, ~~Policies~~INC.

~~The~~/s/ ~~Company~~Ricardo ~~prepares its consolidated financial statements in conformity with accounting principles generally accepted in the United States of America~~G. ~~Accordingly, the Company is~~ required to make estimates, judgments and assumptions that the Company believes are reasonable based upon the information available. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. The critical accounting policies which the Company believes are the most important to aid in fully understanding and evaluating its reported financial results include the following:Brutocao

~~Revenue~~Ricardo G. ~~Recognition~~Brutocao

~~The~~Chief ~~Company~~Executive ~~recognizes revenue upon shipment of product at which time title passes to the customer.~~Officer

~~Inventory~~ /s/ ~~Valuation~~William G. Mortensen

~~Inventories are stated at~~William ~~the lower of cost (first-in, first-out method) or market~~G. ~~Cost~~ includes raw materials, labor, manufacturing overhead and purchased products. Market is determined by comparison with recent purchases or net realizable value. Net realizable value is based on forecasts for sales of the Company’s products in the ensuing years. Should demand for the Company’s products prove to be significantly less than anticipated, the ultimate realizable value of the Company’s inventories could be substantially less than the amount shown on the accompanying consolidated balance sheets.Mortensen

~~Impairment~~President and ofChief ~~Long-Lived~~Financial ~~Assets~~Officer

The Company assesses the recoverability of its long-lived and certain intangible assets, including goodwill, by determining whether the related asset balance can be recovered through projected undiscounted cash flows. The amount of impairment, if any is measured based on projected discounted future cash flows (fair value) and charged to operations in the period in which impairment is determined by management.

Restructuring Reserve

Upon approval of a restructuring plan by management with the appropriate level of authority, the Company records restructuring reserves for certain costs associated with plant closures and business reorganization activities. Such costs are recorded as a current liability and primarily include employee severance and contractual obligations. These costs are not associated with nor do they benefit continuing activities. Inherent in the estimation of these costs are assessments related to the most likely expected outcome of the significant actions to accomplish the restructuring. Changing business conditions may affect the assumptions related to the timing and extent of facility closure activities. The Company reviews the status of restructuring activities on a quarterly basis, and if appropriate, records changes based on updated estimates.

Income Taxes

The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes” (“SFAS 109”). Under the asset and liability method of SFAS 109, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and

are measured using enacted tax rates expected to apply when the differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to amounts, which are more likely than not to be realized. The provision for income taxes is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities.

Results of Operations

FY 03 Current Three Months Versus FY 02

Net sales for the quarter ended August 31, 2003 were $2,587,000, versus $7,100,000 for the same period of fiscal 2002, a decrease of $4,513,000 or 64%. This decrease in net sales is attributable to lower sales in both the U.S. operations and in Singapore.

The lower sales for the U.S. operations of approximately $1.8 million are due to both lower sales prices and lower sales volumes. The Company has continued to face increased competition and to feel the effects of customers moving their manufacturing operations from the United States to Asia. For the shipping cost sensitive foam commodities that the Company primarily sells, it is very difficult to be competitive with the local fabricators in Asia.

The lower sales in Singapore of approximately $2.7 million are primarily attributable to lower sales prices and lower sales volumes for component sales to the customer in Singapore. Additionally, there was an amendment to the Company’s manufacturing agreement in Singapore with Foamex Asia (“Foamex”) to change the vendor of record for the customer supplied under the agreement from the Company to Foamex effective July 17, 2003. Although this change does not affect the Company’s share of the profitability under the agreement, it does cause a significant reduction in its reported revenues. See Note 11 of the Notes to Condensed Consolidated Financial Statements included herein.

Cost of sales for the quarters ended August 31, 2003 and 2002 were $2,296,000 and $6,459,000, respectively. Cost of sales as a percentage of net sales was 89% for the third quarter of fiscal 2003, compared to 91% for the third quarter of fiscal 2002. Cost of sales as a percentage of net sales decreased primarily due to lower labor and overhead costs due to the optimizing of manufacturing processes and consolidation of domestic operations. These cost reductions more than offset the price reductions noted above.

Selling, general and administrative expenses were $147,000 lower for the third quarter of fiscal 2003 compared to the same period in the prior year at $279,000 and $426,000, respectively. This decrease is due to a reduction in personnel costs.

Interest expense for the third quarters of fiscal 2003 and 2002 was $44,000 and $106,000, repectively. The reduction in interest expense is primarily due to lower balances outstanding on the Company’s line of credit and lower interest rates.

Net loss for the third quarter of fiscal 2003 was $155,000, compared to a net income of $27,000 for the third quarter of fiscal 2002. Basic and diluted loss per share for the third quarter of fiscal 2003 was $0.02 compared to $0.00 for the third quarter of fiscal 2002 on a weighted average of 8.7 million shares.

FY 03 Current Nine Months Versus FY 02

Net sales for the nine months ended August 31, 2003 were $12,175,000, versus $20,274,000 for the same period of fiscal 2002, a decrease of $8,099,000 or 40%. This decrease in net sales is attributable to lower sales in both the U.S. operations and in Singapore.

The lower sales for the U.S. operations of approximately $3.1 million are due to both lower sales prices and lower sales volumes. The Company has continued to face increased competition and to feel the effects of customers moving their manufacturing operations from the United States to Asia. For the shipping cost sensitive foam commodities that the Company primarily sells, it is very difficult to be competitive with the local fabricators in Asia.

The lower sales in Singapore of approximately $5.0 million are primarily attributable to lower sales prices and lower sales volumes for component sales to the customer in Singapore. Additionally, there was an amendment to the Company’s manufacturing agreement in Singapore with Foamex Asia (“Foamex”) to change the vendor of record for the customer supplied under the agreement from the Company to Foamex effective July 17, 2003. Although this change does not affect the Company’s share of the profitability under the agreement, it does cause a significant reduction in its reported revenues. See Note 11 of the Notes to Condensed Consolidated Financial Statements included herein.

Cost of sales for the nine-month periods ended August 31, 2003 and 2002 were $10,980,000 and $18,602000, respectively. Cost of sales as a percentage of net sales was 90% for the nine months ended August 31, 2003, compared to 92% for the nine months ended August 31, 2002. Cost of sales as a percentage of net sales decreased primarily due to lower labor and overhead costs due to the optimizing of manufacturing processes and consolidation of domestic operations. These cost reductions more than offset the price reductions noted above.

Selling, general and administrative expenses were $998,000 for the nine months ended August 31, 2003 compared to $1,427,000 for the same period in the prior fiscal year, a decrease of $429,000 or 30%. This decrease is due to cost reductions put in place during the third quarter of fiscal 2002, which have carried forward through fiscal 2003.

Interest expense for the nine months ended August 31, 2003 and 2002 was $211,000 and $300,000, repectively. The reduction in interest expense is primarily due to lower balances outstanding on the Company’s line of credit and lower interest rates.

Net loss for the nine months ended August 31, 2003 was $248,000, compared to a net loss of $369,000 for the nine months ended August 31, 2002. Basic and diluted loss per share for the nine-month period ended August 31, 2003 was $0.02 compated to a net loss of $0.04 per share for the nine-month period ended August 31, 2002, on a weighted average of 8.7 million shares.

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 the unaudited condensed consolidated financial statements included in this Form 10-Q. The reportable segments disclosed in this Form 10-Q are based on the Company’s internal management responsibility.

FY 03 Current Three Months Versus FY 02

AMI-U.S. Operations

Net sales for the quarter ended August 31, 2003 were $2,173,000, compared to net sales for the quarter ended August 31, 2002 of $4,020,000, a decrease of $1,847,000 or 46%. The decrease in net sales is primarily attributable to lower sales volumes, as some existing customers moved their operations to overseas locations which made it impractical for them to purchase their products from the Company. The segment income for the quarter ended August 31, 2003 was $0, compared to the segment income for the quarter ended August 31, 2002 of $102,000. The decrease in the segment income is primarily attributable to the lower sales, partially offset by lower operating costs and a reduction in the number of employees as the Company continues to focus on the reduction of operating expenses in order to improve profitability.

AMFSC-Singapore

Net sales for the quarter ended August 31, 2003 were $414,000, compared to net sales for the quarter ended August 31, 2002 of $3,080,000, a decrease of $2,666,000 or 87%. This decrease in net sales for the nine-month period ended August 31, 2003 is primarily attributable to lower sales prices and lower sales volumes for component sales to the customer in Singapore. Additionally, there was an amendment to the Company’s manufacturing agreement in Singapore with Foamex Asia (“Foamex”) to change the vendor of record for the customer supplied under the

agreement from the Company to Foamex effective July 17, 2003. Although this change does not affect the Company’s share of the profitability under the agreement, it does cause a significant reduction in its reported revenues. Previously, the Company purchased the raw materials for the production of product and billed the end customer and therefore recognized the gross sales and cost of sales on its financials. Under the amended agreement, it will no longer purchase the raw materials or bill the end customer and will only recognize its portion of profit as revenue.

Management believes this change is beneficial to the Company as it will still maintain a share of the profits from the Singapore agreement, while significantly reducing its capital requirements since it will no longer need to purchase raw materials several months in advance of realizing sales.

Segment income for the quarter ended August 31, 2003 was $54,000, compared to segment income for the quarter ended August 31, 2002 of $223,000. The decrease in income is primarily attributable to the reduction in the sales and the reduction in the Company’s share of the gross profit per the original terms of the agreement with Foamex.

FY 03 Current Nine Months Versus FY 02

AMI-U.S. Operations

Net sales for the nine-month period ended August 31, 2003 were $7,820,000, compared to net sales for the nine-month period ended August 31, 2002 of $10,941,000, a decrease of $3,120,000 or 28%. The decrease in net sales is primarily attributable to lower sales volumes as some existing customers moved their operations to overseas locations which made it impractical for them to purchase their products from the Company. Additionally in late fiscal 2002, the Company ceased selling to certain customers with less than desireable profit margins. This reduced the Company’s sales, but helped improve the overall gross margin for the nine-month period ended August 31, 2003. The segment income for the nine-month period ended August 31, 2003 was $56,000, compared to the net loss for the nine-month period ended August 31, 2002 of $187,000. The improvement in segment income is primarily attributable to lower operating costs and a reduction in the number of employees as the Company continues to focus on the reduction of operating expenses in order to improve profitability.

AMFSC-Singapore

Net sales for the nine months ended August 31, 2003 were $4,354,000, compared to net sales for the quarter ended August 31, 2002 of $9,333,000, a decrease of $4,979,000 or 53%. This decrease in net sales for the nine-month period ended August 31, 2003 is primarily attributable to lower sales prices and lower sales volumes for component sales to the customer in Singapore. Additionally, there was an amendment to the Company’s manufacturing agreement in Singapore with Foamex Asia (“Foamex”) to change the vendor of record for the customer supplied under the agreement from the Company to Foamex effective July 17, 2003. Although this change does not affect the Company’s share of the profitability under the agreement, it does cause a significant reduction in its reported revenues. Previously, the Company purchased the raw materials for the production of product and billed the end customer and therefore recognized the gross sales and cost of sales on its financials. Under the amended agreement, it will no longer purchase the raw materials or bill the end customer and will only recognize its portion of profit as revenue.

Segment income for the nine-month period ended August 31, 2003 was $395,000, compared to segment income for the quarter ended August 31, 2002 of $791,000, a decrease of $396,000 or 50%. The decrease in income is primarily attributable to the reduction in the sales and the reduction in the Company’s share of the gross profit per the original terms of the agreement with Foamex.

Liquidity and Capital Resources

Cash and cash equivalents were $64,000 at August 31, 2003, compared with $639,000 at November 30, 2002. During the nine-month period ended August 31, 2003, cash flows from operating activities of $1,888,000 were used primarily to reduce the line of credit and make payments on long-term liabilities.

Operating activities generated $1,888,000 of cash during the nine-month period ended August 31, 2003 compared with using $1,140,000 in the corresponding period of fiscal 2002. The increase in cash generated from operating activities in fiscal 2003 resulted primarily from a decrease in accounts receivable and inventories of $3,253,000 and $740,000, respectively.

Net trade receivables at August 31, 2003 were $1,514,000, compared to $4,284,000 at November 30, 2002. The decrease is due to the lower sales volumes during the nine-month period ended August 31, 2003 compared to the period ended November 30, 2002.

Inventory at August 31, 2003 was $1,570,000, compared to $2,310,000 at November 30, 2002. The lower inventory amount is due to lower sales volumes.

Capital expenditures were $108,000 for the nine months ended August 31, 2003, compared to $207,000 for the corresponding period in fiscal 2002. The Company has instituted a Company-wide program to reduce non-essential capital expenditures that 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 nine months of 2003 decreased by $2,917,000.

The Company had $64,000 of cash and cash equivalents at August 31, 2003. As of August 31, 2003, the Company had a revolving line of credit agreement with a bank, which provided for borrowings up to $4,500,000, as defined. The line bore interest at prime plus 3.25% (7.5% at August 31, 2003). The line of credit was secured by substantially all of the assets of the Company. This line of credit expired on September 30, 2003 and has been subsequently paid in full with funds from a new line of credit discussed below.

The Company also had an outstanding term loan of $180,000 as of August 31, 2003. The term loan bore interest at prime plus 3.25% (7.5% at August 31, 2003). The term loan was secured by substantially all of the assets of the Company and expired on September 30, 2003. The loan was payable to the same bank as the Company’s line of credit and has been subseqently paid in full with funds from a new line of credit discussed below.

In October 2003, the Company entered into a line of credit agreement with another lender providing for borrowings up to $3,250,000, as defined. The Company entered into a term loan for $368,000 with the same lender. The line of credit and the term loan bear interest at prime plus 1.5%, expire in October 2005 and are secured by substantially all of the assets of the Company.

Factors That Could Affect Future Results

Competition – The Company encounters aggressive competition in all areas of its business. It has numerous competitors, ranging from several comparable-size companies to many relatively small companies. The majority of the competitors are private, closely held companies. There is also the risk that a supplier to the Company could become a competitor. The Company competes 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 some of its markets, the Company may not be able to successfully compete against current and future competitors, and the competitive pressures faced could harm the Company’s 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, it 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, the Company must be able to manufacture sufficient volumes quickly at low enough costs. To do this it 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 to the Company’s ability to effectively manage the transition from existing products to new products. If the Company does not manage the transition effectively, 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. The Company’s future revenues and earnings could also suffer due to the timing and introduction of new product offerings that compete directly or indirectly with its customers’ products and new product offerings by its competitors.

Reliance on Suppliers - The Company’s manufacturing operations depend on its suppliers’ ability to deliver quality raw materials and components in time for the Company to meet critical manufacturing and distribution schedules. The Company sometimes experiences 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, it 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 if the Company is not able to increase its sales prices to account for the materials price increases.

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 the sales commitments, anticipated sales and assets and liabilities denominated in currencies other than the U.S. dollar. See “Item 7A. Quantitative and Qualitative Disclosures About Market Risk” in the Company’s 2002 Annual Report on Form 10-K for more detailed information.

Earthquake - The corporate offices and manufacturing division in California are located near major earthquake faults. The ultimate impact on the Company and its general infrastructure is unknown, but operating results could be materially affected in the event of a major earthquake. The Company is 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 the Company’s 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 its products and geographic markets. Consequently, the overall profitability in any given period is partially dependent on the product, customer and geographic mix reflected in that period’s net sales.

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 the stock price are:

• The Company’s, its customers’ or its competitors’ announcement of new or discontinued products,

• Quarterly increases or decreases in 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 the 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, it cannot reliably predict future revenue and margin trends. Actual trends may cause it to adjust its operations, which could cause period-to-period fluctuations in earnings.

The Company’s common stock traded on The Nasdaq SmallCap Stock Market (“Nasdaq”) under the symbol “ADMG” from June 23, 1993 until December 13, 2000. Effective as of December 14, 2000, the Company’s common stock was delisted from Nasdaq and since that time has traded on the NASD-regulated OTC Bulletin Board under the symbol “ADMG.OB.” Investors may find it difficult to find quotations for or dispose of shares of the Company’s common stock.

ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

A discussion of the Company’s exposure to, and management of, market risk appears in Part I, Item 2 of this Form 10-Q under the heading “Factors That Could Affect Future Results” and in Part II, Item 7A of the Company’s 2002 Annual Report on Form 10-K for the fiscal year ended November 30, 2002. There have been no material changes in the Company’s market risks during the nine months ended August 31, 2003.

ITEM 4 – CONTROLS AND PROCEDURES.

The Company’s Chief Executive Officer and Chief Financial Officer (the Company’s principal executive officer and principal financial officer, respectively) have concluded, based on their evaluation as of August 31, 2003, that the design and operation of the Company’s “disclosure controls and procedures” (as defined in Rules 13a-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”) are effective to ensure that information required to be disclosed by the Company in the reports filed or submitted by the Company under the Exchange Act is accumulated, recorded, processed, summarized and reported to the Company’s management, including the Company’s principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding whether or not disclosure is required.

During the quarter ended August 31, 2003, there were no changes in the Company’s “internal controls over financial reporting” (as defined in Rule 13a-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

The Company is not a party to any material pending legal proceedings.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None.

ITEM 5. OTHER INFORMATION.

None.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

(a) Exhibits.

Exhibit No.		Description
31.1		Certifications Required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1		Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(b) Reports on Form 8-K

On July 17, 2003 the Company furnished a report on Form 8-K for July 16, 2003 regarding its earnings release for the second quarter of fiscal 2003. The report contained a press releaase under Item 7 – Financial Statements and Exhibits and a reference to the press release under Item 12 – Disclosure of Results of Operations and Finanical Condition.

SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Dated: October 20, 2003		ADVANCED MATERIALS GROUP, INC.
	By:		/s/ ROBERT E. DELK
			Robert E. Delk
			President and CEO
			/s/ GAYLE ARNOLD
			Gayle Arnold
			Chief Financial Officer

Filing Compare · Advanced Materials Group, Inc.