<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
FOR THE FISCAL YEAR ENDED MARCH 31, 1999
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the transition period from ____________ to ____________ .
COMMISSION FILE NUMBER 0-18583
POLYMER SOLUTIONS, INC.
(Exact name of registrant as specified in its charter)
Nevada, U.S.A. 88-0360526
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
1569 Dempsey Road
North Vancouver, British Columbia
Canada V7K 1S8
Telephone: (604) 683-3473
(Address of principal executive offices)
Securities registered pursuant to Section 12(b) of the Act: None Securities
registered pursuant to Section 12(g) of the Act:
TITLE OF EACH CLASS: NO. OF SHARES:
Common Shares, par value $0.001 6,410,833
Indicate by checkmark 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 [ ] No [X]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock (Common Shares) held by
non-affiliates of the Registrant on June 24, 1999 was Cdn$3,911,596 and
US$1,856,770 computed by reference to the closing sale price of the Common
Shares on the Vancouver Stock Exchange and the Over the Counter Bulletin Board,
respectively, on such date. The aggregate number of Common Shares outstanding
on June 24, 1999 was 6,475,785.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement prepared for the Company's Annual General
Meeting of Shareholders to be held are incorporated by reference in Part III.
The Exhibit Index is located on page 37.
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POLYMER SOLUTIONS, INC.
Annual Report on Form 10-K
For the Fiscal Year Ended March 31, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE
NUMBER NUMBER
<S> <C> <C>
PART I
1. Description of Business........................................................ 3
2. Properties..................................................................... 9
3. Legal Proceedings..............................................................10
4. Submission of Matters to a Vote of Security Holders............................10
PART II
5. Market for Registrant's Common Equity and Related Stockholder Matters..........11
6. Selected Financial Data........................................................12
7. Management's Discussion and Analysis of Financial Condition and Results of
Operation......................................................................13
8. Financial Statements and Supplementary Data....................................16
9. Changes in and Disagreements With Accountants on Accounting and Financial
Disclosure.....................................................................32
PART III
10. Directors and Executive Officers of the Registrant.............................32
11. Executive Compensation.........................................................32
12. Security Ownership of Certain Beneficial Owners and Management.................32
13. Certain Relationships and Related Transactions.................................32
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K...............32
SIGNATURES.............................................................................36
EXHIBIT INDEX..........................................................................37
</TABLE>
Unless otherwise indicated, all dollar amounts in this report are U.S. dollars.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Polymer Solutions, Inc. (the "Registrant" or "PSI") develops, manufactures and
distributes paints, coatings and adhesives to various industries, primarily in
California. During the past year, PSI constructed a new production facility in
Chico, California that allows the Company significant growth opportunities both
internally and by way of acquisition. Presently, the new facility has excess
production capacity and with the addition of a minor amount of capital equipment
and some additional labor, capacity can be increased to over $50 million per
year.
The Registrant conducts all of its product development, manufacturing and
marketing/sales through its wholly-owned operating subsidiary, Alternative
Materials Technology, Inc. ("AMT USA"), which is based in Chico, California.
Additionally, public-company management and regulatory reporting for the
Registrant has been the responsibility of its office located at 1569 Dempsey
Road, North Vancouver, British Columbia V7K 1S8. The telephone number is (604)
683-3473 or toll-free 1-800-377-8323. The Company also has a web site at
"polysolutions.com". During fiscal year 1999, these activities were partially
transferred to the new corporate headquarters in Chico, California.
The Registrant holds its investment in AMT USA through two British
Columbia-resident holding companies, AMT Environmental Products Inc. ("AMT") and
PSI Acquisitions Corp. ("PAC"). PSI is a Nevada corporation incorporated in July
1996. By a reorganization completed February 26, 1997, PSI acquired all
11,752,907 common shares of the issued share capital of AMT in consideration for
the issue of 3,762,505 common shares of PSI and 155,130 preferred shares of
PSI's 99.9% owned subsidiary, PSI Acquisitions Corp., a British Columbia
corporation.
The purpose of the reorganization was to consolidate the issued share capital on
a 1:3 basis and to redomicile the publicly-listed parent company from British
Columbia, Canada to the United States. PSI and PAC were organized by AMT for
purposes of the reorganization and had no businesses or operations of their own
prior thereto. Shareholders approved the reorganization at a Special Meeting
held on November 12, 1996.
The Registrant and its subsidiaries, PAC, AMT and AMT USA are herein referred to
together as "Polymer Solutions, Inc.", "PSI" or the "Company".
The market for paints and coatings in the USA is estimated at US$17.2 billion
and the market is expected to track the growth of US GDP. The Company's primary
target market is the five western states, which include California, Nevada,
Oregon, Washington and Arizona. There are about 250 paint companies operating in
this region with combined revenue estimated at US$3.4 billion. Revenue per
company ranges from the multi-million dollar company with 500 or more employees,
to the cottage industry companies with revenue of several hundreds of thousand
dollars and fewer than 10 employees. Revenue per company in these five western
states is estimated to average US$13.5 million.
PSI's growth strategy is twofold. First, to identify and acquire several
companies that have profitable revenue in complimentary product lines with
established distribution channels. In addition, management believes that this
growth strategy will accrete to margins, which, due to PSI's size, should
provide an above average industry level of EBITDA.
And, second, the growth rate of the Company's high-performance low volatile
organic compound (VOC) coating products is expected to accelerate due to a
number of environmental issues that these proprietary products address and
satisfy.
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Over the past ten years, PSI has developed and produced a suite of high
performance low VOC compliant products with high quality and performance
characteristics. These products satisfy specific environmental requirements and
they compete with industry standard solvent-based products that have much higher
levels of VOCs. Management's assessment of the environmental arena is that the
trend towards reduction or elimination of VOCs and certain hazardous solvents
will accelerate in the next few years. The Company is in position to benefit, as
its low VOC products are formulations based on proprietary polymer chemistry.
These products are established in the marketplace and it is expected that the
growth rate of this market segment will be much higher than traditional coating
products and much higher than the GDP growth rate.
THE COMPANY
PSI develops and manufactures proprietary coatings and adhesives and markets
them to a wide range of users. The Company utilizes polymer chemistry and
in-house developed techniques. The primary thrust of the technology is to
provide competitively priced products that meet or exceed all proposed
governmental clean-air regulations, while delivering performance characteristics
equal or superior to existing products.
The Company's focus is the refinement and marketing of its low VOC coatings in
the five-state western region. The product group consists of stains, sealers and
a wide variety of topcoats suitable for use by industrial and retail customers.
The Company also produces a water-based adhesive, which is sold to the aerospace
and motor home industries.
The Company's 45 employees operate out of a fully integrated new manufacturing
plant located in Chico, California. The facility is capable of producing and
shipping 4.8 million gallons of coatings per year. This equates to revenue in
excess of US$50 million per annum.
PSI's products have demonstrated superior performance and gained significant
market share in targeted California markets. PSI's team of chemists continues to
extend the Company's lead in new developments in the industry through advanced
research.
THE INDUSTRY
Worldwide paints and coatings shipments are valued at approximately $50 billion,
with sales in the USA of $17.2 billion. The adhesive and sealant markets are
valued at $18 billion, with the USA generating a third of all sales, or about $6
billion. The Original Equipment Manufacturing (OEM) segment typically includes
the higher value-added products within this diverse industry.
OEM coatings and adhesives products are performance-driven markets. The
successful products are designed to provide a particular combination of
properties at acceptable costs and application ease. PSI expects the markets for
many of its performance coatings to grow at 15-25% per year.
The Company's depth of knowledge in polymer chemistry has enabled it to develop
its current line of low VOC high-performance coatings applicable to several
media including wood, metal, glass and aggregate. In addition, it is developing
leading edge coatings and adhesives ahead of the industry's largest,
most-established firms. The Company's formulated coating and adhesive products
are significant intellectual property assets. This proprietary position reflects
a technology and expertise that enables the Company to provide products that
meet and exceed customer and regulatory expectations, especially where
competitors have been unsuccessful.
THE PRODUCTS
High VOC solvent-based coatings have been the accepted standard within the wood
furnishings industry for decades, despite their high solvent content. However,
water-based coatings and drastically VOC
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reduced solvent-based coatings offer a higher solids content, with the water or
very low VOC solvents, rather than traditional high VOC solvents, acting as the
carrier for these solids. PSI's low VOC coatings and water-based products means
that less material evaporates during spray or brush-on applications and the
materials that do evaporate are much less hazardous than traditional
solvent-based products.
PSI's research chemists have developed products that satisfy expected government
environmental guidelines while maintaining important quality standards. The
Company's low-VOC products offer several additional advantages such as increased
yield per gallon, more durability with better clarity and decreased health risks
to employees.
The Company's line of water-based and low-VOC wood coatings includes first coat
stains, sealers and topcoats for furniture manufactures. The Company also
produces and markets water-based industrial adhesives and a line of metal and
concrete coatings. Several other coating formulations are in the development
stage, such as polymeric coatings suitable for a variety of plastic substrates,
polymer-based floor coatings and ultra-violet curable coatings.
The Company markets its products under the trade marked brand name AMT.
THE MARKET
There has been resistance to change among long time users of solvent-based
coatings. Their concerns are similar to almost every industry that has been
doing things in a given way for a long time. They have a reluctance to try
something new when what they have works well for their purposes, even if what
they now use provokes environmental, health or safety concerns. Also, other
manufacturers have presented numerous sub-standard and relatively poorly
performing low VOC and water-based products to the market during the past
decade. The negative environmental and health aspects of traditional
solvent-based products have not been enough of an incentive to encourage
manufacturers and users to change technologies.
The wood coatings market is just one segment of the multi-billion dollar paint
and coatings industry. This industry can be characterized as changing rather
than growing, as more research and development effort is spent on water-based
coatings, high-solid liquid finishes, 100% solids powder coatings and radiation
curable materials for a variety of end uses including machinery, aluminum
products and wood furnishings.
The competitive nature of the paint industry results in continual acquisitions
and consolidations. The total number of US companies within the industry has
decreased steadily from 1,977 to an estimated less than 1,400 companies today.
The ten largest producers have over 50% of the U.S. market for coatings. There
are several companies, such as PPG Industries, DuPont and BASF, with national
distribution but, generally, the paint and coatings industries remain a highly
regional business.
THE GROWTH STRATEGY
The primary reason for the historical growth of the Company has been due to the
dynamics of the Company's marketing, manufacturing operations and growth
strategy. As revenues increase the incremental cost of goods sold decreases,
which positively impacts on the gross margins of incremental revenue.
PSI has historically limited its marketing and sales activities primarily to
California area but is now in position to implement a more aggressive growth
strategy. The Company is now planning the expansion of its marketing and sales
efforts to extend the market focus for its state-of-the-art coatings products to
new markets. The Company's wood coating markets include manufacturers of solid
and laminate wood furniture, rattan, cabinets, doors, windows, moldings, signs,
sporting goods and sundry smaller articles such as picture frames. The total
available target market within the California region is estimated at over US$100
million. This market can be serviced by both of PSI's Chico and El Monte
locations.
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Competitive forces and environmentally driven changes will decrease the number
of competitors in the coatings industry (particularly the mid-size companies).
The survivors will be companies that can operate globally and focus their
efforts directly on regional markets.
There are just under 1,400 firms in the United States that make paint and
coatings. Almost two-thirds of the plants are located east of the Mississippi
River. Manufacturers are typically close to population centers due to logistics.
The top 15 companies accounted for more than 60% of the US domestic coatings
market by volume in 1994.
There are many companies with revenues of less than US$15 million operating in
the marketplace. The paint business traditionally has had very few barriers to
entry and it was relatively easy to start a regional, fully integrated paint
company. However, recently introduced environmental legislation has made the
entry into the coatings business a more strenuous and expensive proposition.
These regulations are being applied to existing small manufacturers who face the
expense of upgrading their operations. In many cases, the businesses are too
small or have limited growth opportunities to offset the cost of upgrading the
manufacturing facility to achieve regulatory compliance. This economic fact
provides PSI with an opportunity to purchase existing businesses as the owners
have limited exit strategies.
There are about 215 companies that have fewer than 50 employees in the Company's
target market. These companies share some common elements such as outdated
facilities, older coating technologies and lack of growth opportunities.
Combined, however, they also have established significant distribution channels
and a large diversified customer base.
THE COMPETITION
AMT USA's major domestic competitors include AKZO Nobel, The Sherwin-Williams
Company, Guardsman/Lilly Industries, U.S. Cellulose Company, Inc., MacLac,
Cardinal Paints, Rudd Coatings, Performance Coatings, Triangle Paints and Kelly
Moore.
SALES BREAKDOWN BY MAJOR CATEGORIES OF ACTIVITY
<TABLE>
<CAPTION>
Other
For the Fiscal Year Ended Wood Coatings Total
March 31 Coatings Adhesives and Misc. Sales
<S> <C> <C> <C> <C>
1999 $7,123,214 $ 167,553 $ 516,524 $7,807,291
1998 $6,640,785 $ 142,459 $ 545,703 $7,328,947
1997 4,325,930 248,587 421,458 4,995,975
1996 2,989,015 198,527 210,771 3,398,313
1995 2,175,861 170,461 168,639 2,514,961
1994 531,747 169,366 127,894 829,007
1993 89,444 161,460 38,633 289,537
</TABLE>
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RAW MATERIALS
AMT USA's raw materials are widely available from a number of sources; thus the
Company is not dependant upon any one supplier. AMT USA carries on a program of
continual evaluation of new or improved raw materials in order to ensure that
the Company is aware of any new technology or raw material offering, improved
performance or a more cost effective way of making its products.
SEASONALITY OF THE U.S. FURNITURE INDUSTRY
Furniture manufacturers traditionally produce most of their furniture during the
period from May to October, immediately following the Spring furniture buyers'
shows in North Carolina and California.
GOVERNMENT REGULATIONS
In 1970 the U.S. Federal Government created the Environmental Protection Agency
("EPA"). The EPA was formed from the combination of existing government agencies
including the Departments of Interior, Health, Education and Welfare and Public
Welfare. The EPA administers some fourteen different statues, each of which
mandates some form of pollution control and abatement. Two of the key statutes
that affect the coatings and adhesive industries are the 1990 Clean Air Act and
the Toxic Substance Control Act.
The above-mentioned legislation applies on a U.S. national level resulting in
the establishment of National Ambient Air Quality Standards ("NAAQS"), which in
turn produced ceilings for VOC emissions. A region not complying with the NAAQS
is classified as a Non-Attainment Area and is required to develop rules that
limit emissions.
A state which contains a Non-Attainment Area receives the Control Technology
Guidelines issued by the EPA and must submit a State Implementation Plan
("SIP"), for approval by the EPA, which outlines the state's plan to meet NAAQS
emission standards. The EPA has the authority to withhold federal transfer
payments for state highway construction if the emission standards are not met.
There are 51 regions in the United States which have been classified as
Non-Attainment Areas, the most significant of which is the Los Angeles Basin in
California. The Los Angeles Basin is a major manufacturing, industrial and
population center which, in combination with its topographic and atmospheric
characteristics, produces an inversion layer conducive to retaining pollutants
(i.e. "smog"). The South Coast Air Quality Management District ("SCAQMD") was
created by the California State Legislature in 1977 with a mandate to restrict
the emissions of photochemically-reactive, smog-producing chemicals and
solvents. These chemicals and solvents often contain VOCs.
Rule 1136 was adopted in 1983 by the SCAQMD to regulate users of wood coatings
containing VOCs. The Rule describes specific grams per liter and pounds per
gallon limits for each type of coating: top coats, stains(undercoats) and
sealers. These limits were to have decreased over a six-year period from July 1,
1990 to July 1, 1996. Effective June 14, 1996, the Board of the SCAQMD resolved
to amend the timing of the implementation of reductions in allowable levels of
VOCs in top coats from July 1, 1996 to July 31, 1997, in favor of an incentive
program to reward furniture and cabinet manufacturers who make the switch to
compliant coatings in advance of the new date. Similar limits pertaining to
sealers (undercoats) and stains will also become effective July 31, 2005.
Rule 1401 was adopted during 1990 by the SCAQMD and lists six solvents typically
used in wood finishes as carcinogenic air contaminants. As such, the use of
these six substances is permitted only on a case-by-case basis. This restricts
the end user's ability to expand production using traditional solvent-based
coatings.
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RESEARCH AND DEVELOPMENT
The Company's current research and development activities include product
refinement and color development, analyzing and testing of new and competitive
products, and identification of new applications.
The Company expenses research and development costs as they are incurred. During
the fiscal year ended March 31, 1999, the Company incurred research and
development costs of $507,643 (1998 - $332,066; 1997 - $428,682 ; 1996 -
$443,592).
PRODUCT PROTECTION
The Company develops and manufactures products of a proprietary nature, as
management believes that the Company's future growth and profitability will be
closely linked to its research and development capabilities. The Company
therefore strictly maintains policies and procedures including, but not limited
to; strict internal confidentiality, patent protection (where appropriate) and
binding non-disclosure agreements. During the course of customer testing and
where total non-disclosure is not practicable, secrecy agreements are used for
further protection. AMT USA has one registered trademark WaterMaster(TM),
related to its water-based wood coating products.
MANAGEMENT
At the end of fiscal 1998, the Company's Board of Directors made strategic
organizational changes and key senior management additions to the Company in
order to provide an infrastructure of experienced management professionals
dedicated to maximizing shareholder value. Their tasks include strengthening
controls and achieving profitability with the present Company base, along with
growing the Company externally through joint ventures, acquisitions, product
licenses, new product development, synergistic strategic alliances and other
opportunities that could result in a meaningful increase in shareholder value.
Chairman of the Board - Gordon Ellis
Mr. Ellis is a Professional Engineer and Economist with a Master in Business
Administration in finance. He has over 21 years experience in development,
finance and management of diversified companies and projects.
CEO and President - E. Laughlin Flanagan
Mr. Flanagan is a senior management executive with over 20 years of broad
technology company experience, from start-up to a Fortune 500 subsidiary to a
$250 million publicly traded company. His background includes CFO, COO and CEO
positions at several leading-edge firms including National Micronetics, Inc. and
ITT Corporation. His experience encompasses the acquisition of capital and
financing, the expansion of firms through internal growth, strategic alliances
and acquisitions.
CEO & President, AMT - William A. Maligie
Mr. Maligie has a Bachelor of Science, Polymer Technology from California State
University, Chico, California and a Masters in Business Administration from the
University of Texas, Dallas. Prior to joining the Company in 1989, he managed
product development, marketing and sales for Texas Instruments and the Dynachem
Division of Morton Thiokol.
Ryan Oates, General Manager
Mr. Oates is one of PSI's leading chemists. His knowledge and ability in the
development and adaptation of wood coatings to specific situations is excellent
and has greatly contributed to PSI's product line expansion
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Craig Pollock, Vice President Marketing & Sales
Craig has over 14 years of sales management experience including Duckback
Products, Inc. and Olympic Stain. He was responsible for the establishment of
national distributor programs which helped in increasing volume by almost
10-fold in less than 6 years.
Wade Potter, Director of Research & Development
Wade Potter has both a Bachelors and a Masters degree in Chemistry and Polymer
Chemistry respectively, from the State University of New York in Syracuse, New
York. In addition, he has 19 years experience in development and market
application chemistry, including extended periods in the well-established
laboratories of Morton Thiokol Inc. and Ablestik Laboratories. Mr. Potter is
responsible for directing PSI's research and development efforts.
PSI also has additional technical sales support, manufacturing, research and
development and logistical support staff in the offices in Chico.
Secretary/Treasurer - Darryl Jones
Darryl F. Jones is a Chartered Accountant and has many years of experience in
financial management, and reporting. Mr. Jones has been on the Board of
Directors for the Company and its predecessor since January 1994. Previously,
Mr. Jones was President, CEO and a Director of a publicly-held company, listed
on the NASDAQ, which manufactures and sells absorbent products for the
industrial and animal care markets. In early 1997, Mr. Jones became Vice
President, Finance for a technology company which developments and operates a
computer network providing EDI and electronic financial services to financing
institutions.
1.12 Personnel
As of June 11, 1999, the Company has 45 full-time employees. The Company and its
subsidiaries also contract a small number of temporary employees and contractors
to provide administration or marketing services on specific, short-term
projects.
ITEM 2. PROPERTIES
Chico, CA - New Manufacturing and Administration Facility
In fiscal year 1999, AMT USA relocated to a new leased state-of-the-art
manufacturing and administrative facility in Chico, California. The facility as
presently configured approximates 50,000 square feet. This new facility brings
the capacity of the Company to approximately $50 million of revenue per year,
with adequate room to expand at this location. This facility houses operations,
materials management, research, finance and administrative functions. The lease
requires monthly payments of $17,145 to $20,307 during the ten-year term.
During fiscal year 1999, the Company sold the 20,000 square foot facility in
Chico, California, which formerly housed the manufacturing, laboratory and
administration functions of the Company.
Los Angeles, CA - Sales & Technical Service Facility
AMT USA has leased an office and warehouse unit of approximately 5,300 square
feet in South El Monte, California, which is located within the County of Los
Angeles. The facility has easy access to interstate highways.
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This facility serves as a warehouse, regional sales office and laboratory for
minor color matching/shading as required by wood coating customers. This
facility has improved the Company's turn-around time in development of samples
for test runs on customers' equipment. The lease has a term which expires August
31, 2001, with an option held by AMT USA to continue for an additional five-year
term at prevailing rental rates. Monthly lease payments of approximately $3,450
are required.
Vancouver, Canada Principal Executive Office
The Registrant shares 1,250 square feet of office space with related companies
at 1569 Dempsey Road, North Vancouver, British Columbia, Canada, V7K 1S8. The
terms of the rental agreement call for total monthly payments of Cdn$1,000,
which includes the use of office equipment and furniture. (See Part III, Item 13
"Certain Relationships and Related Transactions").
ITEM 3. LEGAL PROCEEDINGS
At the present time there are no material pending legal proceedings to which the
Company or any of its subsidiaries is a party, or of which any of their
properties is the subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended March 31, 1999.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
The Common Shares of the Company are listed on the OTC Bulletin Board under the
trading symbol PYSU, and on the Vancouver Stock Exchange ("VSE") under the
trading symbol PYM. The trading volumes of the Company's shares on the OTC
Bulletin Board have been very small. The VSE is the principal trading market.
Shown below are the high and low sale prices for the Common Shares for each of
the fiscal years ending March 31, 1999, 1998, and 1997, adjusted to a
post-reorganization basis (i.e. 1 new share for 3 old shares; completed February
26, 1997).
Canadian Dollars:
<TABLE>
<CAPTION>
FISCAL 1999 FISCAL 1998 FISCAL 1997
HIGH LOW HIGH LOW HIGH LOW
<S> <C> <C> <C> <C> <C> <C>
First quarter $1.05 $0.75 $1.00 $0.70 $3.57 $2.13
Second quarter $1.00 $0.60 $1.12 $0.70 $3.15 $2.13
Third quarter $0.70 $0.40 $1.25 $0.71 $2.97 $1.80
Fourth quarter $0.89 $0.40 $1.00 $0.70 $2.00 $1.00
</TABLE>
SHAREHOLDERS
The Company has 455 registered shareholders as at June 17, 1999. The articles
and by-laws of the Company do not contain any restrictions on the right to hold
or vote the Company's Common Shares.
DIVIDENDS
The Company has not paid any dividends to its common shareholders since
inception. The decision to pay dividends and the amount thereof is at the
discretion of the Board of Directors of the Company and will be governed by such
factors as earnings, capital requirements and the operating and financial
condition of the Company. Upon achieving profitability, the Company intends to
retain its earnings to finance growth of its business and, thus, does not intend
to pay dividends in the foreseeable future.
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ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data regarding the Company's
consolidated operating results and financial position. This data has been
derived from the Company's consolidated financial statements which have been
prepared in accordance with accounting principles generally accepted in the
United States. THE FOLLOWING SELECTED FINANCIAL DATA IS QUALIFIED IN ITS
ENTIRETY BY, AND SHOULD BE READ IN CONJUNCTION WITH, THE CONSOLIDATED FINANCIAL
STATEMENTS AND NOTES THERETO (PART II, ITEM 8 FINANCIAL STATEMENTS), AND THE
MANAGEMENT'S DISCUSSION AND ANALYSIS (PART II, ITEM 7) INCLUDED ELSEWHERE IN
THIS ANNUAL REPORT ON FORM 10-K.
<TABLE>
<CAPTION>
Year ended March 31
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Sales revenue $ 7,807,291 $ 7,328,947 $ 4,995,975 $ 3,398,313 $ 2,514,961
Cost of goods sold (5,750,127) (5,904,797) (3,768,510) (2,602,423) (1,844,067)
----------- ----------- ----------- ----------- -----------
2,057,164 1,424,150 1,227,465 795,890 670,894
Corp./Admin. expenses 2,377,592 (2,102,042) (2,029,422) (1,982,965) (1,462,186)
Loss from operations (320,428) (677,892) (801,957) (1,187,075) (791,292)
Interest expense (net) (280,456) (189,382) (96,335) (81,611) (11,822)
Other items 74,594 (2,816) (19,890) -- --
Reorganization costs (185,449)
Loss for the year (526,290) (870,090) (1,103,631) (1,268,686) (803,114)
Loss per share (.09) (0.21) (0.31) (0.40) 0.32)
Dividends per share -- -- -- -- --
Working capital 926,847 501,292 477,034 875,706 438,875
Total assets 3,206,480 3,271,130 2,368,291 2,220,570 1,276,183
Long term debt/loans 1,815,542 1,474,506 1,126,423 400,437 157,711
Shareholders' equity (deficit) (197,874) (206,837) (439,146) 651,075 275,395
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS FROM OPERATIONS
Sales revenues for the fiscal year ended March 31, 1999 were $7,807,289, an
increase of almost 7% over the fiscal 1998 total of $7,328,947, which was an
increase of 47% over the fiscal 1997 total of $4,995,975. The increases in both
fiscal 1999 and 1998 were due to the continued growth in the number of customers
converting to the Company's wood coating products, to continued market
acceptance of the Company's new water-based mill work primer products, to
increases in sales of the traditional, well-accepted higher-VOC (volatile
organic compounds) wood coatings, and to increases in sales of the Company's
other products. The lower percentage increase from fiscal 1998 to fiscal 1999
was the result of focusing on relocation to the Company's new manufacturing
facility and improving manufacturing margins.
Gross profit for the fiscal year ended March 31, 1999 increased to $2,057,164
from $1,424,150 for fiscal 1998. This increase in gross profit was due to the
aforementioned sales increase, which accounted for an approximate $98,664
increase in margins; an approximate $624,620 of material cost reductions, and
hence, improved margins, which were achieved through a combination of negotiated
material purchase price reductions and reformulation of the Company's products;
and were offset somewhat by the increase in manufacturing overhead due to the
higher costs of the new building, by approximately $90,272. Gross profit for the
fiscal year ended March 31, 1998 increased to $1,424,150 from $1,227,465 for
fiscal 1997. This increase in gross profit was due to the aforementioned sales
increase, offset to some extent by several factors. First, a $246,925 reserve
for excess and obsolete inventory was established in accordance with prudently
conservative inventory management practices being implemented by the Company.
Second, a $96,063 non-recurring product warranty expense was incurred. Third,
$292,571 was expended for production contract labor, primarily in solvent-based
coatings.
Marketing and sales expenses in fiscal 1999 represent an 8% increase to $934,019
over the fiscal 1998 total of $864,739. This increase was caused by an
additional $38,341 in commissions expense and an additional $30,939 in
additional compensation, travel and other expenses related to the increase in
the Company's marketing and sales efforts.
Marketing and sales expenses for the fiscal year ended March 31, 1998 totaled
$864,739, an increase of 10% from the fiscal 1997 total of $784,158. The
increase was due primarily to rising commissions expense due to the increase in
sales volume.
General and administrative expenses were $935,930 for the year ended March 31,
1999 versus $905,237 in fiscal 1998 and $816,582 in fiscal 1997. The increase in
fiscal 1999 and fiscal 1998 were due primarily to one-time costs of amalgamating
personnel into one location during fiscal 199 and associated with bringing
aboard a new CEO/President for the Company and higher audit and legal fees in
fiscal 1998.
Research and development expenses were $507,643 for fiscal year ending March 31,
1999 versus $332,066 for 1998 and $428,682 in fiscal 1997. The $175,577 increase
in fiscal 1999 was due principally to additional headcount and the efforts
associated with reformulation of the Company's products to achieve higher
manufacturing margins. The 23% decrease in fiscal 1998 was due primarily to a
reallocation of personnel to customer services, combined with a greater focus on
expanding the customer base with existing products.
Interest expense, net of interest income, totaled $280,456 for the fiscal year
ended March 31, 1999 compared to $189,382 in fiscal 1998 and $96,335 in fiscal
1997. The increase in fiscal year 1999 was caused by the increase in the use of
the Company's line of credit and an increase in capital lease obligations
related to the new credit facility; these higher interest costs were offset
somewhat by the significantly lower interest rate and other charges on the new
credit facility. The increase in fiscal 1998
Page 13
<PAGE> 14
was due to the increased use of the Company's operating line of credit obtained
in the beginning of fiscal 1996, and the addition of capital lease obligations
in fiscal 1998.
Other income of $74,594 for 1999 was obtained through the sale of the Company's
previous manufacturing and administration facilities. Losses in fiscal 1998
and fiscal 1997 of $2,816 and $19,890 respectively were due to the sale of
equipment disposed of at a loss.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1999, the Company had $39,303 in cash compared to $1,177 at the end
of fiscal 1998. Cash flow used in operating activities totaled $660,371 in
fiscal 1999 versus $850,261 in fiscal 1998 and $704,225 in fiscal 1997. These
requirements in fiscal 1999 were financed primarily from Private Placements of
$244,722, increased borrowing on the Company's line of credit of $406,506, the
settlement of debt reached by creditors, including related parties, of $289,785
in consideration for common shares of the Company and additional capital lease
financing of $239,127, offset by repayment of debt.
The Company expects to complete equity financing of at approximately $1,100,000
during the first quarter (ended June 30) of fiscal 2000. The Company's reliance
upon equity issues will continue until sales revenues have reached a consistent
level where adequate positive cash flow is generated from operations.
The Company has a positive working capital of $926,847 at March 31, 1999, versus
$501,292 at the end of fiscal 1998. The current ratio at March 31, 1999 was
1.7:1 and 1.3:1 for the fiscal 1998 year-end ratio. Increases in cash and
accounts receivable and a reduction in inventories and accounts payable were the
primary reasons for the increase in working capital position and current ratio,
which was mostly due to the renegotiated raw material prices, increased sales
volume and increased inventory turnover.
Capital additions during the year ended March 31, 1999 consisted of $440,459
offset by proceeds from disposal of the old facility of $346,517. This compares
to fiscal 1998 in which there was $72,610 in purchases of fixed assets along
with $488,992 of equipment acquired under capital leases, for a total of
$561,602, and a total of $159,137 in fiscal 1997. The investments in fiscal 1999
and 1998 were associated with the new plant.
ACQUISITION OF U.S. CELLULOSE AND RELATED FINANCING
The Company, through its subsidiary, AMT USA, has entered into a Letter of
Intent to acquire all the issued and outstanding shares of U.S. Cellulose Co.,
Inc. ("USC") a California-based company for consideration of (US)$1 million in
cash, plus a commitment by the Company to negotiate an employment severance
and/or benefit program, not to exceed (US)$400,000, for the current employees of
USC (excluding the owners). The acquisition price was determined as a result of
arm's length negotiations between the parties.
The Company intends to acquire USC for its existing customer base, the goodwill
and brand recognition of its products, and USC's established distribution
networks. As a result of the acquisition, the Company expects to benefit from
overall cost synergies. The Company will continue to sell USC's products under
the USC brand name because of their product recognition, at least for the short
term, and will further utilize the distribution network obtained from USC to
increase the placement of its own line of products. USC's sales, marketing,
administration and operational staff will be absorbed by the Company and
streamlined with respect to any redundancy.
To finance the transaction, the Company repriced certain warrants to encourage
exercise. In addition, on June 16, 1999, the Company signed an offering
agreement to issue up to 800,000 shares at Cdn$.80 with transferable warrants.
The Company is concurrently working on a private placement of up to 1,250,000
shares at Cdn$.80 with nontransferable warrants.
Page 14
<PAGE> 15
OUTLOOK
At the end of fiscal 1998, the Company's Board of Directors made strategic
organizational changes and key senior management additions to the Company in
order to provide an infrastructure of experienced management professionals
dedicated to maximizing shareholder value. Their tasks include strengthening
controls and achieving profitability with the present Company base, along with
growing the Company externally through joint ventures, acquisitions, product
licenses, new product development, synergistic strategic alliances and any other
opportunities that could result in a meaningful increase in shareholder value.
YEAR 2000
Certain computerized systems have historically used two digits rather than four
to define a year, which could result in the recognition of "00" as the year 1900
rather than the year 2000. This could result in system failures and
miscalculations. This is generally referred to as the "year 2000 issue".
With regard to the state of readiness regarding the year 2000 issue, the Company
has finished the evaluation and risk assessment relating to the potential impact
of the Year 2000 issue in the areas of plant systems, external parties and
information technology. As to plant systems, it has been determined that none of
the Company's plant operating machinery is triggered by date, with the exception
of the time clock. With regard to external parties, the Company has surveyed its
key suppliers and service providers to determine their year 2000 readiness and
their ability to provide raw materials and supplies and services without
interruption and continually accessing the potential risk. With regard to
information technology, the Company has upgraded its plant operation system
software and accounting system software to year 2000 compliant. The Company
believes that with these computer system software upgrades, the Year 2000 issue
will not pose significant plant operation system or accounting system problems.
The production Company has utilized both internal and external resources to
implement the aforementioned upgrades and has manual back-up systems available
to implement.
The total cost of the Company's year 2000 activities, including the
aforementioned computer system software upgrades, did not exceed $20,000. Future
additional costs are not expected to be material to the Company's operations,
liquidity or capital resources.
Failure to address a year 2000 issue could result in business disruptions that
may materially affect the company's operations, liquidity, or capital resources.
The Company continues to access contingency plans to address year 2000 issues
which may have a material effect. Typically these contingency plans address the
results of single events while the scope of year 2000 issues may cause multiple
events for longer durations. It is not possible for the Company to anticipate
all multiples of events which may occur. The Company will plan for multiple
events to the best of its ability and resources.
There is still uncertainty about the scope of the year 2000 issues. At this time
the Company cannot quantify the potential impact of these failures. The
Company's year 2000 program and contingency plans are being developed to address
issues within the Company's control. The program minimizes, but does not
eliminate the issues of external parties.
Note to Readers
Certain statements identified as "forward-looking statements" in this Annual
Report on Form 10-K are not based on historical facts, but are instead based
upon a number of assumptions concerning future conditions that may ultimately
prove to be inaccurate. Actual events and results may materially differ from
anticipated results described in such statements. The Company's ability to
achieve such results is subject to certain risks and uncertainties, including
but not limited to, adverse business conditions in the industries served by the
Company and the general economy, competition, new laws and regulations impacting
the products that the Company provides, and other risk factors affecting the
Company's business beyond the Company's control.
Page 15
<PAGE> 16
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX
<TABLE>
<S> <C>
Consolidated Financial Statements:
Report of Independent Accountants Page 18
Consolidated Balance Sheets Page 19
Consolidated Statements of Operations Page 20
Consolidated Statements of Shareholders' Deficit Page 21
Consolidated Statements of Cash Flows Page 22
Notes to Consolidated Financial Statements Page 23
</TABLE>
Page 16
<PAGE> 17
POLYMER SOLUTIONS, INC.
CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
Page 17
<PAGE> 18
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of Polymer Solutions, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of shareholders' deficit and of cash
flows present fairly, in all material respects, the financial position of
Polymer Solutions, Inc. and its subsidiaries at March 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the three years in
the period ended March 31, 1999 in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/PricewaterhouseCoopers, LLP
Sacramento, California
June 16, 1999
Page 18
<PAGE> 19
POLYMER SOLUTIONS, INC.
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
(U.S. DOLLARS)
<TABLE>
<CAPTION>
MARCH 31,
1999 1998
<S> <C> <C>
ASSETS
Current assets:
Cash $ 39,303 $ 1,177
Accounts receivable, net 1,143,919 976,201
Inventories, net 1,009,754 1,267,751
Prepaid expenses 97,647 33,841
============ ============
2,290,623 2,278,970
Fixed assets, net 907,533 982,774
Other assets 8,324 9,386
------------ ------------
$ 3,206,480 $ 3,271,130
============ ============
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 992,532 $ 1,426,843
Salaries and commissions payable 244,332 262,035
Current portion of capital lease obligations 126,912 67,738
Current portion of mortgage payable -- 21,062
------------ ------------
1,363,776 1,777,678
Long-term liabilities:
Operating line of credit 1,286,473 879,967
Capital lease obligations 482,719 402,456
Due to related parties 46,350 88,895
Convertible note payable -- 72,000
Mortgage payable -- 31,188
------------ ------------
3,179,318 3,252,184
------------ ------------
Minority interest 225,036 225,783
============ ============
Commitments (Note 9)
Shareholders' deficit:
Preferred stock, $0.001 par value;
Authorized - 4,000,000 shares; issued and outstanding - nil
Common stock, $0.001 par value;
Authorized - 20,000,000 shares; issued and outstanding,
1999 - 6,410,833 and 1998 - 5,344,617 shares 6,410 5,345
Additional paid-in capital 10,309,361 9,775,173
Accumulated deficit (10,513,645) (9,987,355)
------------ ------------
(197,874) (206,837)
------------ ------------
$ 3,206,480 $ 3,271,130
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 19
<PAGE> 20
POLYMER SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
(U.S. DOLLARS)
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
1999 1998 1997
<S> <C> <C> <C>
Sales revenue $ 7,807,291 $ 7,328,947 $ 4,995,975
Costs of goods sold (5,750,127) (5,904,797) (3,768,510)
----------- ----------- -----------
2,057,164 1,424,150 1,227,465
----------- ----------- -----------
Corporate and administrative expenses:
Marketing and sales 934,019 864,739 784,158
General and administrative 935,930 905,237 816,582
Research and development 507,643 332,066 428,682
----------- ----------- -----------
2,377,592 2,102,042 2,029,422
----------- ----------- -----------
Loss from operations (320,428) (677,892) (801,957)
Interest expense (280,456) (189,382) (96,335)
Other income (expense) 74,594 (2,816) (19,890)
Reorganization costs -- -- (185,449)
----------- ----------- -----------
Loss before provision for income taxes (526,290) (870,090) (1,103,631)
Provision for income taxes -- -- --
----------- ----------- -----------
Net loss $ (526,290) $ (870,090) $(1,103,631)
=========== =========== ===========
Basic and diluted net loss per share $ (.09) $ (.21) $ (.31)
=========== =========== ===========
Weighted average basic and diluted number
of shares outstanding 5,711,797 4,182,591 3,561,118
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 20
<PAGE> 21
POLYMER SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
- --------------------------------------------------------------------------------
(U.S. DOLLARS)
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
1999 1998 1997
COMMON COMMON COMMON
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C> <C> <C>
COMMON STOCK:
Balance, beginning of year 5,344,617 $ 5,345 3,762,505 $ 3,763 3,755,943 $ 3,756
Shares issued, pursuant to -
Private placement 432,000 432 960,500 961 -- --
Exercise of warrants -- -- -- -- 6,562 7
Conversion of debt for common
stock 633,883 633 424,324 424 -- --
Acquisition of limited partnership -- -- 142,857 143 -- --
Minority interest shareholder
exchange of shares 333 -- 54,431 54 -- --
------------ ------------ ------------ ------------ ------------ ------------
Balance, end of year 6,410,833 6,410 5,344,617 5,345 3,762,505 3,763
------------ ------------ ------------ ------------ ------------ ------------
ADDITIONAL PAID-IN CAPITAL:
Balance, beginning of year -- 9,775,173 -- 8,674,356 -- 8,660,953
Shares issued, pursuant to -
Exercise of warrants -- -- -- -- -- 13,403
Private placement -- 244,289 -- 679,159 -- --
Limited partnership investment -- -- -- (91,562) -- --
Conversion of debt for common stock -- 289,152 -- 299,812 -- --
Acquisition of limited partnership -- -- -- 91,419 -- --
Minority interest shareholder
exchange of shares -- 747 -- 121,989 -- --
------------ ------------ ------------ ------------ ------------ ------------
Balance, end of year -- 10,309,361 -- 9,775,173 -- 8,674,356
------------ ------------ ------------ ------------ ------------ ------------
DEFICIT:
Balance, beginning of year -- (9,987,355) -- (9,117,265) -- (8,013,634)
Net loss -- (526,290) -- (870,090) -- (1,103,631)
------------ ------------ ------------ ------------ ------------ ------------
Balance, end of year -- (10,513,645) -- (9,987,355) -- (9,117,265)
------------ ------------ ------------ ------------ ------------ ------------
TOTAL SHAREHOLDERS' DEFICIT 6,410,833 $ (197,874) 5,344,617 $ (206,837) 3,762,505 $ (439,146)
============ ============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 21
<PAGE> 22
POLYMER SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
(U.S. DOLLARS)
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
1999 1998 1997
<S> <C> <C> <C>
Cash flows used in operating activities:
Net loss $ (526,290) $ (870,090) $(1,103,631)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 243,777 111,157 83,581
Writedown of other assets -- -- 21,229
(Gain) loss on disposals of fixed assets (74,594) 2,816 19,890
Changes in operating assets and liabilities:
Accounts receivable (167,718) (281,269) 63,342
Inventories 257,997 (174,558) (356,543)
Prepaid expenses and other assets (62,744) (13,263) 50,297
Accounts payable (313,096) 369,661 441,828
Salaries and commissions payable (17,703) 5,285 75,782
----------- ----------- -----------
Net cash used in operating activities (660,371) (850,261) (704,225)
----------- ----------- -----------
Cash flows provided by (used in) investing activities:
Purchase of fixed assets (201,332) (72,610) (159,137)
Proceeds from disposals of fixed assets 346,517 12,519 --
----------- ----------- -----------
Net cash provided by (used in) investing activities 145,185 (60,091) (159,137)
----------- ----------- -----------
Cash flows provided by financing activities:
Proceeds from issuance of stock 244,722 680,120 13,410
Proceeds from issuance of convertible debt 8,403 72,000 --
Proceeds from due to related parties, net 45,621 98,729 267,980
Payments on mortgage payable (52,250) (19,256) (17,605)
Borrowings on operating line of credit, net 406,506 96,196 469,957
Payment of capital lease obligations (99,690) (18,798) --
----------- ----------- -----------
Net cash provided by financing activities 553,312 908,991 733,742
----------- ----------- -----------
Increase (decrease) in cash 38,126 (1,361) (129,620)
Cash, beginning of year 1,177 2,538 132,158
----------- ----------- -----------
Cash, end of year $ 39,303 $ 1,177 $ 2,538
=========== =========== ===========
Supplemental schedule of non-cash investing
and financing activities:
Conversion of debt for common stock $ 289,785 $ 300,236 $ --
=========== =========== ===========
Minority interest shareholder exchange of shares $ 747 $ 122,043 $ --
=========== =========== ===========
Acquisition of equipment under capital leases $ 239,127 $ 488,992 $ --
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 22
<PAGE> 23
POLYMER SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. NATURE OF OPERATIONS
Polymer Solutions, Inc. ("PSI" or "Company") is a Nevada corporation
incorporated in 1996. Through its wholly-owned subsidiary, Alternative
Materials Technology, Inc. ("AMT USA"), PSI is engaged in the development
and sale of advanced polymer-based coatings, sealants and adhesives to
industrial users in primarily California and neighboring states, including
manufacturers of furniture, cabinets, doors and moldings.
2. SIGNIFICANT ACCOUNTING POLICIES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
The consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States. Differences
with respect to accounting principles generally accepted in Canada are
disclosed in Note 14.
BASIS OF CONSOLIDATION
The Company's consolidated financial statements include its wholly-owned
active subsidiary, AMT USA; wholly-owned inactive subsidiary, AMT
Environmental Products Inc. ("AMT"); and 99.9%-owned subsidiary, PSI
Acquisitions Corp. ("PAC"). Intercompany transactions and accounts are
eliminated in consolidation.
FINANCIAL STATEMENT PRESENTATION
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions which affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and revenues and expenses during the period reported.
Actual results could differ from those estimates.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist primarily of trade accounts
receivable from wood coatings customers, which is limited due to the large
number of customers. The Company, and its lender of the operating line of
credit, perform credit evaluations of its customers' financial condition
and generally do not require collateral on accounts receivable. The Company
maintains an allowance for doubtful accounts on its receivables based on
expected collectibility. Allowance for doubtful accounts was $5,000 and
$41,530 at March 31, 1999 and 1998, respectively.
INVENTORIES
Inventories are valued at the lower of cost, determined on the first-in
first-out basis, and net realizable value. The Company maintains a reserve
for slow-moving or obsolete inventory as well as the related disposal
costs.
FIXED ASSETS
Equipment is recorded at cost and depreciated on a straight-line basis over
its estimated life, which varies between five and seven years. Building and
related improvements are recorded at cost and amortized on a straight-line
basis over an estimated life of thirty-nine years. In fiscal year 1999,
land and building facilities related to the Company's former manufacturing
location were sold.
Repair and maintenance costs are charged against income while improvements
are capitalized as additions to the related assets. Retirements, sales and
disposals of assets are recorded by removing
Page 23
<PAGE> 24
POLYMER SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
the costs and accumulated depreciation from the asset and accumulated
depreciation accounts with any resulting gain or loss reflected in other
income.
OTHER ASSETS
Other assets consist of patent and trademark costs, representing the costs
incurred for the related acquisition. Capitalized costs are amortized on a
straight-line basis over seven years commencing with production of related
products. When it is determined that a particular technology will no longer
be used, or a patent application is abandoned, related unamortized costs
are written off.
LONG-LIVED ASSETS
Long-lived assets are recorded at the lower of amortized cost or fair
value. As part of an ongoing review of the valuation of long-lived assets,
management assesses the carrying value of such assets if facts and
circumstances suggest they may be impaired. If this review indicates that
the carrying value of these assets may not be recoverable, as determined by
a nondiscounted cash flow analysis over the remaining useful life, the
carrying value would be reduced to its estimated fair value. There have
been no material impairments recognized in these financial statements.
STOCK OPTIONS
The Company accounts for its stock option plan in accordance with the
intrinsic value method, under which no compensation expense is recognized
in the financial statements except where the fair market value of the stock
exceeds the exercise price of the options granted on the date of the grant.
The pro forma disclosures of the compensation expense under the fair value
method of Statement of Financial Accounting Standard No. 123, "Accounting
for Stock-Based Compensation" are included in Note 12.
NET LOSS PER SHARE
The Company computes basic net loss per share on the weighted average
number of common shares outstanding during each period. Diluted net loss
per share is the same as basic net loss per share because the diluted
weighted average shares outstanding do not include stock options and
warrants because they are anti-dilutive.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred.
REVENUE RECOGNITION
Revenue from the sale of products is recognized upon shipment.
FOREIGN CURRENCY TRANSLATION
The Company's operations are primarily conducted in the United States and
the United States dollar is the Company's functional currency. The Company
and its subsidiaries are considered integrated operations and the accounts
are translated as follows:
Monetary assets and liabilities at the rates of exchange in effect at the
balance sheet date; non-monetary assets at historical rates; revenue and
expense items (except depreciation and amortization) at the average rates
for the period; depreciation and amortization at the same rates as for the
assets to which they relate. The net effect of the foreign currency
translation is included in current operations.
Page 24
<PAGE> 25
POLYMER SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
INCOME TAXES
The Company uses the liability method of accounting for income taxes.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to temporary differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of the operating line of credit approximates carrying value
due to the floating rate interest terms. The fair value of the mortgage
payable approximates carrying value as its interest rate approximates
market for borrowings with similar terms. The fair value of Due to related
parties cannot be estimated because of the nature of the relationships
involved.
RECLASSIFICATIONS
Certain prior year balances have been reclassified to conform to the 1999
presentation.
3. INVENTORIES
<TABLE>
<CAPTION>
MARCH 31,
1999 1998
<S> <C> <C>
Raw materials and supplies $ 605,288 $ 830,174
Finished goods 603,250 684,502
Less allowance for slow-moving inventory (198,784) (246,925)
----------- -----------
$ 1,009,754 $ 1,267,751
=========== ===========
</TABLE>
Page 25
<PAGE> 26
POLYMER SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
4. FIXED ASSETS
<TABLE>
<CAPTION>
1999
ACCUMULATED
COST DEPRECIATION NET
<S> <C> <C> <C>
Laboratory equipment $ 104,440 $ 72,539 $ 31,901
Office equipment 126,574 87,784 38,790
Production equipment 439,009 283,954 155,055
Leasehold improvements 135,829 12,327 123,502
Capital leases 716,017 157,732 558,285
---------- ---------- ----------
$1,521,869 $ 614,336 $ 907,533
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
1998
ACCUMULATED
COST DEPRECIATION NET
<S> <C> <C> <C>
Land $ 110,000 $ -- $ 110,000
Laboratory equipment 84,830 63,298 21,532
Office equipment 113,567 70,766 42,801
Production equipment 386,409 217,974 168,435
Building and improvements 177,935 13,426 164,509
Leasehold improvements 43,419 362 43,057
Capital leases 455,992 23,552 432,440
---------- ---------- ----------
$1,372,152 $ 389,378 $ 982,774
========== ========== ==========
</TABLE>
5. OPERATING LINE OF CREDIT
On October 30, 1998, the Company replaced its short-term $1,000,000 line of
credit with a revolving line of credit that provides funds up to
$1,800,000. Funds available to be advanced are limited to 85% of eligible
accounts receivable and 50% of eligible inventories. At March 31, 1999, the
maximum available borrowing under the line was $1,469,656 of which
$1,286,473 was outstanding. Interest is payable on funds advanced at the
rate of prime plus 2.75% (10.5% at March 31, 1999). The line of credit is
collateralized by accounts receivable, inventories, equipment and other
assets. The line of credit expires on October 30, 2000. Terms of the line
of credit require repayment from collections of accounts receivable. The
line of credit provides for various financial and non-financial covenants
including minimum working capital, net worth, capital expenditures and
compensation limitations and is subject to certain other provisions.
Page 26
<PAGE> 27
POLYMER SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
6. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Long-term debt at March 31, consisted of the following:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Capital lease obligations bearing interest ranging from 11.97%
to 24.58%, payable in monthly principal and interest payments
and secured by the related equipment $609,631 $470,194
Mortgage payable, paid in June 1999 -- 52,250
Convertible note, paid in December 1999 -- 72,000
-------- --------
609,631 594,444
Less current portion 126,912 88,800
-------- --------
$482,719 $505,644
======== ========
</TABLE>
Future minimum principal payments under long-term debt obligations are as
follows:
<TABLE>
<S> <C>
2000 $126,912
2001 145,318
2002 149,771
2003 142,552
2004 45,078
--------
$609,631
========
</TABLE>
7. RELATED PARTY TRANSACTIONS
During fiscal year 1999, the Company converted $153,064 of debt to officers
and directors to 334,815 shares of common stock. During fiscal 1999 and
1998, directors and officers received 250,000 and 580,250 warrants and 0
and 548,000 stock options for services rendered.
Operating expense of $54,712, $79,305, $68,665 in fiscal 1999, 1998 and
1997 were incurred on a cost plus approximately 10% markup basis from a
corporation owned by an officer and director of the Company.
8. INCOME TAXES
The Company and its subsidiaries have operating loss carry-forwards in
excess of $6,000,000 expiring at various dates through 2014, as well as
federal and state tax credits of $221,000 and $104,000, which are
indefinite. These operating loss carry-forwards and tax credits are
available for offset against future taxable income arising from Canadian
and United States operations. There are no other material temporary
differences. Considering the Company's cumulative losses, the Company has
provided a valuation allowance of 100% against all available loss
carry-forwards and tax credits.
Page 27
<PAGE> 28
POLYMER SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
9. COMMITMENTS AND SUBSEQUENT EVENTS
ACQUISITION OF U.S. CELLULOSE COMPANY, INC.
In February 1999, the Company entered into a non-binding letter of intent
to acquire all of the outstanding common stock of another company in the
coatings industry for $1,000,000. The Agreement includes a provision for
the Company to pay up to $400,000 in involuntary termination compensation
to U.S. Cellulose employees. The Company anticipates closing the
transaction in June 1999.
To finance the transaction, the Company repriced certain warrants to
encourage exercise as disclosed in Note 12. In addition, on June 16, 1999,
the Company signed an offering agreement to issue up to 800,000 shares at
Cdn$.80 with transferable warrants. The Company is concurrently working on
a private placement of up to 1,250,000 shares at Cdn$.80 with
nontransferable warrants.
OPERATING LEASES
The Company leases certain facilities under arrangements which contain
renewal options and provide for periodic cost of living adjustments. The
Company's operating lease for its primary operating facility includes an
option to purchase the facility which can be exercised prior to February 1,
2000. Rental expense was $237,024, $54,400, and $41,400 for each of the
three years in the period ended March 31, 1999, respectively.
Future minimum rental commitments as of March 31, 1999, under noncancelable
operating lease are as follows:
<TABLE>
<S> <C>
2000 $ 249,342
2001 255,948
2002 234,108
2003 223,788
2004 226,212
Thereafter 895,965
----------
$2,085,363
==========
</TABLE>
10. PREFERRED STOCK
AUTHORIZED
The Company is authorized to issue up to 4,000,000 shares of preferred
stock, which is divided into four series of 1,000,000 shares each. With
respect to each series, the Company's Board of Directors determines all
rights and preferences including rights related to dividends, conversion,
and voting.
Page 28
<PAGE> 29
POLYMER SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
11. COMMON STOCK
REORGANIZATION
By a reorganization completed February 26, 1997, the Company acquired all
11,752,907 common shares of the issued share capital of AMT in
consideration for the issue of 3,762,505 common shares of the Company and
155,130 preferred shares of PSI's 99.9% owned subsidiary, PAC. The purpose
of the reorganization was to consolidate the issued share capital on a 1:3
basis and to redomicile the publicly-listed parent company from British
Columbia, Canada to the United States. PSI and PAC were organized by AMT
for purposes of the reorganization and had no business or operations of
their own prior thereto. The reorganization was accounted for in a manner
similar to a pooling of interests.
MINORITY INTEREST
In completing the Reorganization, the Company consolidated its shares on
the basis of one common share of PSI, in exchange for three previously
existing common shares of AMT. Canadian shareholders holding 465,388 common
shares of AMT elected to receive 155,130 non-transferable preferred shares
of PAC in order to defer the tax consequences of receiving a U.S. security.
The preferred shares of PAC are convertible or redeemable into common
shares of PSI on a 1:1 basis at any time and have certain rights and
benefits of PSI common shares, particularly relating to the declaration of
dividends and proceeds from liquidation, dissolution or wind-up of the
Company. PAC preferred shares are non-voting and the Company may redeem the
PAC preferred shares for common shares of PSI at any time after September
1, 2001. During fiscal 1999 and 1998, 333 and 54,431 preferred shares were
exchanged or redeemed for 333 and 54,431 shares of the Company's common
stock.
FOUNDERS' SHARES
An aggregate of 197,774 of "Founders' shares" are held in escrow by the
Company's transfer agent at March 31, 1999. These shares are releasable
from escrow at various times based on requirements of the Vancouver Stock
Exchange. The founders have all rights related to these shares except the
right to transfer the shares without the permission of the Vancouver Stock
Exchange.
12. STOCK OPTION PLANS AND WARRANTS AND SUBSEQUENT EVENT
No options were granted in fiscal year 1999. The current options are all
vested and expire in fiscal year 2001.
The following table summarizes the activity for the stock options:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
UNDERLYING EXERCISE PRICE
SHARES CDN U.S.
<S> <C> <C> <C>
Stock options outstanding, March 31, 1997 -- $ -- $ --
Granted 750,000 1.00 .72
-------- -------- --------
Stock options outstanding, March 31, 1998 750,000 1.00 .72
Forfeited (11,200) 1.00 --
-------- -------- --------
Stock options outstanding, March 31, 1999 738,800 $ 1.00 $ .72
======== ======== ========
</TABLE>
Page 29
<PAGE> 30
POLYMER SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
In 1999 and 1998, the Company granted warrants to purchase 296,000 and
1,080,250 common shares at an exercise price of Cdn$1.00 per share for the
first year and Cdn$1.25 the second year. In addition, during 1999, the
Company issued warrants for 350,000 shares at US$.65. During 1999, the
296,000 warrants issued in connection with the fiscal 1999 private
placement were repriced to Cdn$.76 through July 15, 1999. The warrants
outstanding at March 31, 1999, are as follows:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
UNDERLYING EXERCISE PRICE EXPIRATION
SHARES CDN U.S. DATES
<S> <C> <C> <C> <C>
Warrants outstanding March 31, 1997 -- -- --
Issued 1,080,250 $ 1.41 $ 1.02 October 1999 to
December 2003
--------- --------- ---------
Warrants outstanding March 31, 1998 1,080,250 $ 1.41 $ 1.02
Issued 646,000 .84 .60 July 2000 to
December 2003
--------- --------- ---------
Warrants outstanding March 31, 1999 1,726,250 $ 1.27 $ .91
========= ========= =========
</TABLE>
On May 27, 1999, the Vancouver Stock Exchange approved the Board of
Director's request to reduce the exercise price of 214,750 warrants issued
in fiscal 1998 from Cdn$1.25 to Cdn$.76. The repriced warrants will be
subject to a mandatory exercise or forfeiture provision if the Company's
stock trading price exceeds Cdn$.91 for ten consecutive trading days.
For purposes of the pro forma disclosures required by SFAS 123, the
estimated fair value of options and warrants is recognized as expense upon
issuance as the options are immediately vested. The fair value of each
option and warrant grant is estimated at the date of grant using the
Black-Scholes option pricing model. The Black-Scholes model was developed
for use in estimating the fair value of traded options that have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly sensitive assumptions, including the
expected stock price volatility, which are subject to change from time to
time. For this reason, the resulting pro forma compensation costs are not
necessarily indicative of costs to be expected in future years.
Pro forma unaudited net loss and pro forma basic and diluted unaudited net
loss per share in fiscal year 1999 would not have been significantly
different than reported if the Company had accounted for its stock options
and warrants using the fair value based method of accounting established by
SFAS 123. The following weighted average assumptions were used in the
option pricing model to determine the fair value of the options: dividend
yield of 0%, expected volatility of 103%, risk-free interest rate of 5.11%
and expected lives of 3 years.
Page 30
<PAGE> 31
POLYMER SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
13. AMT I MARKETING LIMITED PARTNERSHIP
Pursuant to an Asset Purchase Agreement dated March 1, 1998 between the
Company and a Joint Venture formed in 1995 between AMT I Marketing Limited
Partnership (the "Partnership") and the Company, the Company agreed to
purchase the Assets of the Partnership. An evaluation was obtained and the
assets were determined to have a fair market value of Cdn$130,000. The
Partnership accepted this appraisal and agreed, with regulatory approval,
to receive 142,857 common shares of PSI at US$.64 (Cdn$0.91) in exchange
for the partnership assets.
The Partnership was originally created as a special purpose entity to
assist in a marketing campaign. The Partnership incurred the marketing and
administrative costs of $241,985 in 1996 on behalf of the Company, which
was recorded as additional paid-in capital.
14. DIFFERENCES BETWEEN UNITED STATES AND CANADIAN ACCOUNTING PRINCIPLES AND
PRACTICES
The consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States ("U.S.
basis") which differ in certain respects from those principles and
practices that the Company would have followed had its consolidated
financial statements been prepared in accordance with accounting principles
and practices generally accepted in Canada ("Canadian basis").
Had the Company followed the Canadian basis, $198,694 of reorganization
expenses, which were charged to income in fiscal years 1998 and 1997 under
the U.S. basis, would have been treated as a capital transaction and
charged to paid-in-capital for Canadian purposes.
Page 31
<PAGE> 32
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning the Company's directors and executive officers and
regarding compliance with Section 16 of the Securities and Exchange Act of 1934,
required by this Item, is incorporated by reference to the Company's Proxy
Statement prepared for the Annual General Meeting of Shareholders to be held
August 17, 1999.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to the
Company's Proxy Statement prepared for the Annual General Meeting of
Shareholders to be held August 17, 1999.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIALOWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to the
Company's Proxy Statement prepared for the Annual General Meeting of
Shareholders to be held on August 17, 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference to the
Company's Proxy Statement prepared for the Annual General Meeting of
Shareholders to be held August 17, 1999.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) The following documents are filed as a part of this Report.
(i) FINANCIAL STATEMENTS
See Index to Financial Statements on page 16 of this Annual Report
on Form 10-K.
(ii) FINANCIAL STATEMENT SCHEDULES
Schedule II - Valuation and qualifying accounts is located on page
34.
Schedule III - Supplementary financial information required by Item
302 of Regulations S-K is located on page 35
Financial Statement Schedules may have been omitted because they
are not applicable, are not required, or the information to be set
forth therein is included in the Consolidated Financial Statements
or Notes thereto.
Page 32
<PAGE> 33
(iii) EXHIBITS
The exhibits listed on the Exhibit Index at page 37 are filed as
part of this Annual Report on Form 10-K.
(B) REPORTS ON FORM 8-K - FILED BY EDGAR
<TABLE>
<CAPTION>
DATE OF REPORT ITEM # DESCRIPTION:
<S> <C> <C> <C>
1) September 23, 1998 5 The Company issued 432,000 common shares in
regards to a private placement of Special Warrants
2) December 8, 1998 5 The Company issued 633,883 commons
shares to purchasers for settlement of debt
totalling Cdn$443,718.
</TABLE>
Page 33
<PAGE> 34
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
For the Fiscal Year Ended March 31, 1999
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
DESCRIPTION BALANCE AT ADDITIONS DEDUCTIONS- BALANCE AT END
BEGINNING OF CHARGED TO DESCRIBE OF PERIOD
PERIOD COSTS AND
EXPENSES
<S> <C> <C> <C> <C>
Allowance
against
available
income
from:
net operating losses $2,273,921 $ 227,871 nil $2,501,792
federal and state
tax credits $ 275,000 $ 50,000 nil $ 325,000
</TABLE>
Note [1]: Considering the Company's cumulative losses, Management
has taken a conservative approach and chosen to provide a 100%
allowance. FAS 109 requires the Company to annually reassess this
allowance, taking into consideration the results from operations.
Page 34
<PAGE> 35
SCHEDULE III
SUPPLEMENTARY DATA
Supplementary financial information required by Item 302 of Regulations S-K
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
QTR ENDING QTR ENDING QTR ENDING QTR ENDING
JUNE 30 SEPT 30 DEC 31 MAR 31
<S> <C> <C> <C> <C>
1999
- ----
Net revenue $1,735,261 $1,957,047 $1,966,646 $2,148,337
Gross Profit 353,831 567,688 547,365 588,280
Income (loss) from operations(1)(2)(3) (159,114) (65,487) (80,275) (15,552)
Income (loss) before income taxes (236,700) (65,797) (151,400) (72,393)
Net income (loss)(1)(2)(3) (236,700) (65,797) (151,400) (72,393)
Net income (loss) per share - basic (0.04) (0.01) (0.02) (0.01)
1998
- ----
Net revenue $1,643,395 $1,921,258 $1,822,961 $1,941,333
Gross Profit(1) 298,819 367,724 363,654 393,953
Income (loss) from operations(2) (191,937) (113,769) (196,188) (175,998)
Income (loss) before income taxes (232,928) (156,925) (249,831) (230,406)
Net income (loss) (232,928) (156,925) (249,831) (230,406)
Net income (loss) per share - basic (0.07) (0.04) (0.06) (0.06)
</TABLE>
1999 ADJUSTED QUARTERLY FINANCIAL DATA FOR THE FISCAL YEAR ENDED.
(1) The first quarter ended June 30, 1999 reflects a change of $10,743 from
general and administrative expenses to interest expense.
(2) The second quarter ended September 30, 1999 shows a reclassification in the
amount of $74,594 for the gain on the sale of the building to other
interest expense from general and administrative expenses and reflects a
change of $15,987 from general and administrative expenses to interest
expense.
(3) The third quarter reflects a change of $45,687 from interest expense to
general and administrative expenses for loan fees and $500 for a gain on
the sale of fixed assets to other income from general and administrative
expenses.
1998 ADJUSTED QUARTERLY FINANCIAL DATA FOR THE FISCAL YEAR ENDED.
(1) Cost of goods sold has been restated to reflect the adjustment of
approximately $590,000 to reflect an adjustment in the fourth quarter of
fiscal year ended March 31, 1998.
(2) The last quarter has been adjusted to reflect the reclassification of loss
on sale of equipment of $2,816.
Page 35
<PAGE> 36
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on behalf
by the undersigned, thereunto duly authorized.
POLYMER SOLUTIONS, INC., a
Nevada, U.S.A. corporation
/s/ Gordon L. Ellis
----------------------------------
Chairman of the Board of Directors
Dated: June 28, 1999
Page 36
<PAGE> 37
EXHIBIT INDEX
Supplementary Data
<TABLE>
<S> <C>
EXHIBIT 2 PLAN OF ACQUISITION, REORGANIZATION, ARRANGEMENT, LIQUIDATION OR
SUCCESSION
2.1 [1] Plan of acquisition
EXHIBIT 13 ANNUAL REPORT TO SECURITY HOLDERS, FORM 10Q OR QUARTERLY REPORT
TO SECURITY HOLDERS
13.1 [1] 1999 Annual Report to Shareholders
13.2 [2] Form 10Q for the period ending June 30, 1998
13.3 [2] Form 10Q for the period ending September 30, 1998
13.4 [2] Form 10Q for the period ending December 31, 1998
EXHIBIT 21. SUBSIDIARIES OF THE REGISTRANT
21.1 [1] List of Subsidiaries of the Company
EXHIBIT 24. POWER OF ATTORNEY
24.1 [1] Power of Attorney
EXHIBIT 27. FINANCIAL DATA SCHEDULE
27.1 [1] Financial Data Schedule for Commercial and Industrial
Companies
</TABLE>
- --------------------------------------------------------------------------------
[1] Filed herewith.
[2] Incorporated by reference to the Form 10-Q filed with the Company's
Quarterly Report for the periods ended June 30, September 30, and
December 31, 1999.
<PAGE> 1
EXHIBIT 2.1 PLAN OF ACQUISITION
The Company has entered into a non-binding Letter of Intent and Term Sheet dated
February 22, 1999 between the Company's subsidiary, Alternative Materials
Technology, Inc. ("AMT USA") and U.S. Cellulose Co., Inc. ("USC"), whereby the
Company plans to acquire all of the issued and outstanding shares of USC in
consideration for $1,000,000 in cash (the "Acquisition"). USC is at arm's length
to the Company and AMT USA.
The closing of the transaction is subject to:
(i) The negotiation and execution of a definitive stock purchase
agreement and other required documents in connection therewith.
(ii) A satisfactory due diligence review by the Company, to be
completed within 90 days after the execution of the definitive
agreement and approval by the Company's auditors, legal counsel,
lenders and board of directors.
(iii) The Company raising sufficient capital to acquire all the
outstanding shares in cash.
(iv) The approval by USC of the terms of a severance benefit plan, not
to exceed $400,000,to be implemented by the Company for any of
USC's employees who are not retained by the Company after the
transaction.
The Company plans to primarily raise funds for the Acquisition through a Short
Form Offering Document and concurrently through private placement of additional
securities and the exercise by certain directors, officers and other persons of
previously issued warrants.
The Short Form Offering Document offers up to a total of 800,000 Units, at a
price of Cdn$0.80 per Unit, for maximum aggregate proceeds of Cdn$640,000, to
eligible qualified investors under the Securities Act ("British Columbia"). Each
Unit consists of one common share and one transferable purchase warrant. Two
such purchase warrants entitle a purchaser to acquire a further common share at
the price of Cdn$0.90 for twelve months following the date of issue. The
Offering will be conducted by Canaccord Capital Corporation, the Agent, on a
best efforts basis. The proposed private placement will proceed by way of
offering memorandum with the expected purchasers being eligible under the
Securities Act ("British Columbia") and of the Securities Rules ("British
Columbia"). The size of the private placement is to be up to 1,250,000 of units,
at a price of Cdn$0.80 per unit. Each unit will be comprised of one common share
and one non-transferable purchase warrant entitling the holder thereof to
acquire one additional common share at a price of Cdn$0.90 in the first year
following the closing of the private placement and at a price of Cdn$1.25 in the
second year following the closing of the private placement.
List of all omitted schedules
(i) Letter of Intent and Term Sheet
(ii) Agency Agreement
(iii) Short Form Offering Document
(iv) Offering Memorandum
The Company agrees that the aforementioned omitted schedules will be furnished.
upon written request by the United States Securities and Exchange Commission.
<PAGE> 1
EXHIBIT 21.1 SUBSIDIARIES OF THE REGISTRANT
List of Subsidiaries of the Company
<TABLE>
<CAPTION>
NAMES OF SUBSIDIARIES UNDER WHICH THEY DO BUSINESS: STATE OF INCORPORATION:
--------------------------------------------------- -----------------------
<S> <C>
AMT Environmental Products Inc. ("AMT") British Columbia, Canada
PSI Acquisitions Corp. ("PAC") British Columbia, Canada
Alternative Materials Technology, Inc. (AMT "USA") Chico, California
</TABLE>
<PAGE> 1
EXHIBIT 24.1 POWER OF ATTORNEY
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Gordon L. Ellis his attorney-in-fact, each with
the power of substitution, for him in any and all capacities, to sign any
amendments to this Report on Form 10-K, and to file same, with exhibits thereto
and other documents in connection therewith, with the U.S. Securities and
Exchange Commission, hereby ratifying and confirming all that said
attorney-in-fact, or his substitutes, may do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ Gordon L. Ellis Chairman of the Board of Directors June 28, 1999
- ---------------------------------
Gordon L. Ellis
/s/ E. Laughlin Flanagan CEO & President, Director June 28, 1999
- ---------------------------------
E. Laughlin Flanagan
/s/ William A. Maligie CEO & President AMT USA, Director June 28, 1999
- ---------------------------------
William A. Maligie
/s/ Stephen H. Silbernagel Director June 28, 1999
- ---------------------------------
Stephen H. Silbernagel
/s/ John J. Sutherland Director June 28, 1999
- ---------------------------------
John J. Sutherland
/s/ Darryl F. Jones Director, Secretary/ Treasurer June 28, 1999
- ---------------------------------
Darryl F. Jones
/s/ Gerald A. Habib Director June 28, 1999
- ---------------------------------
Gerald A. Habib
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 39,303
<SECURITIES> 0
<RECEIVABLES> 1,143,919
<ALLOWANCES> 0
<INVENTORY> 1,009,754
<CURRENT-ASSETS> 2,290,623
<PP&E> 907,533
<DEPRECIATION> 243,777
<TOTAL-ASSETS> 3,206,480
<CURRENT-LIABILITIES> 1,363,776
<BONDS> 0
0
0
<COMMON> 6,410
<OTHER-SE> 10,309,361
<TOTAL-LIABILITY-AND-EQUITY> 3,206,480
<SALES> 7,807,291
<TOTAL-REVENUES> 7,807,291
<CGS> 5,750,127
<TOTAL-COSTS> 2,377,592
<OTHER-EXPENSES> (74,594)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 280,456
<INCOME-PRETAX> (526,290)
<INCOME-TAX> 0
<INCOME-CONTINUING> (526,290)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (526,290)
<EPS-BASIC> (0.09)
<EPS-DILUTED> (0.09)
</TABLE>
