Advanced Materials Group Announces Closure of Condor Utility Products Subsidiary and Preliminary Fourth- Quarter Results.

RANCHO DOMINGUEZ, Calif.--(BUSINESS WIRE)--Dec. 21, 1998-- Advanced Materials Group Inc. (Nasdaq:ADMG) Monday announced that effective Dec. 11, 1998, the company closed the operations of its Condor Utility Products subsidiary.

Condor represented 2.9 percent and 3.8 percent of the company's net sales in fiscal 1998 and fiscal 1997, respectively.

As previously announced, a judgment was rendered against Condor in the amount of $382,500. Interest on the judgment amount is expected to exceed $260,000, and a motion for plaintiff's attorneys' fees has been filed in amount in excess of $330,000.

The lawsuit had been filed prior to Advanced Materials Group's acquisition of Condor in 1993, and Advanced Materials Group had negotiated an indemnification agreement with one of the sellers of the business. As a result of the unexpectedly large amount of the judgment, the company now believes that it will not be able to collect any amount under the indemnification agreement.

Commenting on the subsidiary closure, Advanced Materials' president and chief executive officer, Steve Scott, said: "We did not expect that Condor would lose this lawsuit, and we certainly did not anticipate a judgment of this magnitude. We explored a possible appeal, but in the end we cannot justify continuing to run up legal expenses.

"The plain fact is that Condor's operations simply cannot support the amount of this claim. At this time, the only realistic avenue that is open to Condor is to wind up its operations as expeditiously as possible."

In connection with the closure, the company will recognize a charge, in the fiscal 1998 fourth quarter, for discontinued operations totaling $229,000, net of income taxes of $153,000. The company will also recognize a charge of $614,000 for the write-off of Condor goodwill.

Advanced Materials also announced that it would record special noncash charges totaling $1.4 million in the fiscal 1998 fourth quarter. The company will write off start-up costs associated with the company's Ireland subsidiary totaling $380,000.

In addition, the company will write off the $160,000 balance of the license fee paid to Innovative Technologies Ltd. (IT) for exclusive worldwide rights to manufacture, use and sell a line of waterproof, breathable fabrics utilizing proprietary polymers and processes. IT's management has recently changed, and development of these products is no longer a key priority.

Advanced Materials will also write off $910,000 of goodwill associated with the company's purchase of certain assets of Wilshire Technologies Inc.'s OEM Medical Products Division.

The Medical Products Division continues to represent a strong share of the company's sales, but the customers and products have evolved significantly over the four years since acquisition. Management determined that maintaining goodwill on the books was no longer warranted under generally accepted accounting principles.

Scott commented on the fiscal impact of Monday's announcement, saying: "The judgment and the charges to shut down the Condor subsidiary counteract what had been a profitable year for Advanced Materials, in spite of the Asian-induced slowdown.

"Recognition of the Condor charges and the several other one-time charges will result in $290,000 of annual savings. We believe that this will position Advanced Materials for future earnings growth."

Advanced Materials expects to report revenues in the range of $7.4 million to $7.5 million for the fiscal 1998 fourth quarter, ended Nov. 30, 1998, and $29.7 million to $29.8 million for the fiscal year ended Nov. 30, 1998.

As a result of the Condor closure and special charges, the company expects to post losses in the range of $3.4 million to $3.7 million for the fiscal 1998 fourth quarter and $2.2 million to $2.5 million for the fiscal year.

The statements regarding estimated results are preliminary and incomplete, subject to the company's management review and completion of annual audit procedures by the company's independent accountants. The company expects to announce its actual results for fiscal 1998 fourth quarter and total year in late January 1999.

Advanced Materials Group is a leading manufacturer and fabricator of specialty foams, foils, films and pressure-sensitive adhesive components for a broad base of customers in the computer, medical, automotive and aerospace industries both in the United States and abroad.

Some statements contained in this news release are forward- looking statements that involve a number of risks and uncertainties. In addition to the factors discussed, the following are among other factors that could cause actual results to differ materially: general business conditions, competitive factors, concentration of sales in markets and customers, concentration of raw-materials suppliers, delays or cancellations in orders, fluctuations in margins, timing of significant orders, and other risks and uncertainties outlined by management in the company's most recent Form 10-KSB.