<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------------------------------
FORM 8-K/A
AMENDMENT NO. 1
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT: OCTOBER 18, 1999
(Date of earliest event reported)
POLYMER SOLUTIONS INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Nevada. U.S.A 0-18583 88-0360526
- ---------------------------------------------------------------------------------------------------------------------
(State or other jurisdiction of incorporation) (Commission file number) (IRS Employer Identification No.)
</TABLE>
1569 Dempsey Road, North Vancouver, British Columbia, CANADA V7K 1S8
- --------------------------------------------------------------------------------
(Address of Principal Executive Office) (Zip Code)
Registrant's telephone number, including area code (604) 683-3473
------------------------------
not applicable
- -------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE> 2
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
Polymer Solutions, Inc. (the "Registrant"), a Nevada corporation, hereby amends
its Current Report on Form 8-K dated October 18, 1999. The report, originally
filed with the Securities and Exchange Commission on November 2, 1999, relates
to the acquisition of U.S. Cellulose Co. ("USC" or the "Company") by
Alternative Material Technology, Inc., a wholly owned subsidiary of the
Registrant effective October 18, 1999 (the "Acquisition"). The Registrant is
filing this amendment for the purpose of including the required financial
statements and pro forma financial information with respect to the Acquisition
in accordance with the requirements of Form 8-K.
(a) Financial Statements of Business Acquired
The Financial Statement information required pursuant to the Rules of
Regulation S-X for USC as of June 30, 1999 is filed herewith. See index
to Financial Statements at page F-1 for a list of Financial Statements
(b) Unaudited Pro Forma Financial Information
Pro forma information required pursuant to Article 11 of Regulation S-X
as of March 31, 1999 is filed herewith. See Index to Financial
Statements at page F-1 for a list of Financial Statements
(c) Exhibits
Not applicable
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
POLYMER SOLUTIONS, INC.
Date December 28, 1999 /s/ Gordon Ellis
----------------------------------------
Gordon L. Ellis, Chairman of the Board
<PAGE> 3
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of PriceWaterhouseCoopers, Independent Accountants...........................F-1
Audited Balance Sheet for USC as at June 30, 1999...................................F-2
Audited Statement of Operations and Changes in Retained
Earnings for USC for the year ended June 30, 1999..................................F-3
Audited Statement of Cash Flows for USC for the year ended June 30, 1999............F-4
Notes to Financial Statements for USC...............................................F-5
Introduction to Unaudited Pro Forma Financial Information...........................F-9
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of March 31, 1999......F-10
Unaudited Pro Forma Condensed Consolidated Statement of Operations
for the fiscal year ended March 31, 1999..........................................F-11
Notes to the Unaudited Condensed Consolidated Pro Forma Financial Statements.......F-11
</TABLE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of Polymer Solutions, Inc.
In our opinion, the accompanying balance sheet and the related statements of
operations and changes in retained earnings and of cash flows present fairly, in
all material respects, the financial position of U.S. Cellulose Co. (the
Company) at June 30, 1999, and the results of its operations and its cash flows
for the year ended June 30, 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 audit. We conducted our audit 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 audit provides a
reasonable basis for the opinion expressed above.
November 19, 1999
F - 1
<PAGE> 4
U.S. CELLULOSE CO.
BALANCE SHEET AS OF JUNE 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash $ 22,990
Accounts receivable, net 368,625
Inventories 527,214
Prepaid expenses 34,350
Deferred income taxes, current 56,301
----------
Total current assets 1,009,480
Fixed assets, net 71,891
Other assets 47,318
Deferred income taxes 5,283
----------
Total assets $1,133,972
==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable $ 208,821
Accrued liabilities 122,410
Income and other taxes payable 54,025
----------
Total liabilities 385,256
----------
Commitments and contingencies (Note 8)
Stockholder's equity:
Common stock, par value $1 per share; 75,000 shares
authorized; 26,250 shares issued and outstanding 26,250
Additional paid-in capital 8,750
Retained earnings 713,716
----------
Total stockholder's equity 748,716
----------
Total liabilities and stockholder's equity $1,133,972
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F - 2
<PAGE> 5
U.S. CELLULOSE CO.
STATEMENT OF OPERATIONS AND CHANGES IN RETAINED EARNINGS
FOR YEAR ENDED JUNE 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Net sales $3,307,824
Cost of sales 2,090,441
----------
Gross profit 1,217,383
Selling, general and administrative 1,104,731
----------
Income before income taxes 112,652
Income tax expense 38,946
----------
Net income 73,706
Retained earnings, June 30, 1998 640,010
----------
Retained earnings, June 30, 1999 $ 713,716
==========
</TABLE>
The accompanying notes are an integral part of these financial statements
F - 3
<PAGE> 6
U.S. CELLULOSE CO.
STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 73,706
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 27,495
Provision for bad debts (9,927)
Deferred income taxes (36,044)
Increase (decrease) in cash from changes in operating assets and liabilities:
Accounts receivable, net (9,741)
Inventories (64,110)
Prepaid expenses (281)
Other assets (4,260)
Accounts payable (48,992)
Accrued liabilities 106,891
---------
Net cash provided by operating activities 34,737
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (11,403)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt (18,482)
---------
Net increase in cash 4,852
Cash, beginning of the period 18,138
---------
Cash, end of the period $ 22,990
---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Income taxes $ 52,501
=========
</TABLE>
The accompanying notes are an integral part of these financial statements
F - 4
<PAGE> 7
U.S. CELLULOSE CO.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. NATURE OF OPERATIONS
U.S. Cellulose Co. ("Company"), is engaged in the development, production
and sale of water-based and other coatings to industrial users primarily in
California.
2. SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
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, for which credit risk is limited due to the large number of
customers.
ACCOUNTS RECEIVABLE
Revenue from the sale of products is recognized upon shipment. The Company
analyzes the collectibility of accounts receivable and provides a reserve
against accounts that are deemed uncollectable. At June 30, 1999, the
allowance for doubtful accounts was $38,484.
INVENTORIES
Inventories are valued at the lower of cost or market. Cost includes
material, labor and applicable manufacturing overhead and is determined by
the first-in, first-out method. The Company maintains an allowance for
slow-moving or obsolete inventory as well as the related disposal costs.
FIXED ASSETS
Equipment is carried at cost and depreciated using the straight-line method
over the assets' estimated useful lives ranging from 3 to 10 years.
Improvements related to office space leased from the shareholder (Note 8)
are amortized on a straight-line basis over the estimated useful life
ranging from 10 to 20 years.
Repair and maintenance costs are charged against operations while renewals
and improvements, which extend the useful lives of the plant and equipment,
are capitalized as additions to the related assets. Retirements, sales and
disposals of assets are recorded by removing the cost and accumulated
depreciation from the asset and accumulated depreciation accounts with any
resulting gain or loss reflected in operations.
OTHER ASSETS
The Company maintains life insurance policies on key management of which
the Company is the beneficiary. The cash surrender value of these policies
is included in other assets.
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 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.
ENVIRONMENTAL COSTS
Environmental costs are expensed unless the expenditures extend the
economic useful life of the assets. Costs that extend the economic life of
the assets are capitalized and depreciated over the remaining life of such
assets. Liabilities are recorded when environmental contamination and/or
remedial efforts are probable and the cost can be reasonably estimated.
F - 5
<PAGE> 8
ADVERTISING COSTS
The Company advertises primarily through the local phone directory. All
advertising expenses are expensed as incurred and amounted to $3,373 for
the year ended June 30, 1999.
RELATED PARTY TRANSACTIONS
The Company enters into transactions with related parties. In management's
opinion, these transactions have been conducted on terms which are fair and
equitable; however, the transactions are not necessarily on the same terms
as those which have been made between wholly unrelated parties.
3. INVENTORIES
Inventories at June 30, 1999, consisted of the following:
<TABLE>
<S> <C>
Raw materials $ 204,232
Finished goods 324,656
Allowance for slow-moving or obsolete inventory (1,674)
---------
$ 527,214
=========
</TABLE>
4. FIXED ASSETS
Fixed assets at June 30, 1999, consisted of the following:
<TABLE>
<S> <C>
Manufacturing equipment $ 131,816
Office Equipment 31,246
Vehicles 138,469
Leasehold Improvements 84,276
---------
385,807
Less accumulated depreciation (313,916)
---------
$ 71,891
=========
</TABLE>
5. ACCRUED LIABILITIES
Accrued liabilities at June 30, 1999, consisted of the following:
<TABLE>
<S> <C>
Accrued environmental liability $ 87,000
Accrued salaries payable 21,041
Accrued vacation 14,369
--------
$122,410
========
</TABLE>
6. DEFINED CONTRIBUTION PENSION PLAN
The Company has a money purchase pension plan (the Plan) subject to the
provisions of the Employee Retirement Income Security Act of 1974. The Plan
covers all employees who are 21 years of age or older and have completed one
year of service. Under the terms of the Plan, the Company is required to
make annual contributions equal to 2% of eligible participants'
compensation. Eligible employees, who are not allowed to make contributions,
fully vest over a six-year period. Upon termination of the Plan, eligible
participants become fully vested. For the year ended June 30, 1999, the
Company's required contribution amounted to $13,200.
F - 6
<PAGE> 9
7. INCOME TAXES
Income tax expense for the year ended June 30, 1999, consisted of the
following components:
<TABLE>
<S> <C>
Federal:
Current $ 58,038
Deferred (29,380)
--------
28,658
--------
State:
Current 16,952
Deferred (6,664)
--------
10,288
--------
Income tax expense $ 38,946
========
</TABLE>
A reconciliation between the Company's effective tax rate and the federal
statutory rate was as follows for the year ended June 30, 1999:
<TABLE>
<S> <C>
Federal statutory tax rate 34.0%
Effect of graduated tax rate (6.4)
State taxes, net of federal benefit 6.1
Other tax benefit 0.9
------
Effective tax rate 34.6%
======
</TABLE>
Deferred tax assets are reflected on a net basis in the current and
non-current classifications of the accompanying balance sheet. Significant
components of the Company's deductible temporary differences at June 30,
1999, were as follows:
<TABLE>
<S> <C>
Depreciation $ 5,670
Allowance for bad debts 14,947
Accrued vacation 5,581
Accrued environmental liability 33,791
State taxes and other 1,595
-------
Net deferred tax assets $61,584
=======
</TABLE>
Management has determined, based on the Company's history of prior operating
earnings and its expectations for the future, that operating income of the
Company will more likely than not be sufficient to fully recognize deferred
tax assets.
8. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases certain facilities, including office space from the
stockholder, under non-cancelable arrangements that contain renewal options
and provide for periodic cost of living adjustments. Rent expense under such
leases amounted to $217,119 for the year ended June 30, 1999. The Company's
operating lease for one of its warehouse facilities includes an option to
purchase the facility through the end of its renewal option period.
F - 7
<PAGE> 10
Future minimum rental commitments under non-cancelable operating leases,
with initial or remaining lease terms in excess of one year, are as follows:
<TABLE>
<CAPTION>
Related
Party Other Total
-------- -------- --------
<S> <C> <C> <C>
Year ending June 30:
2000 $ 90,000 $ 19,216 $109,216
2001 15,000 -- 15,000
-------- -------- --------
$105,000 $ 19,216 $124,216
======== ======== ========
</TABLE>
LEGAL MATTERS
Through the normal course of business, the Company is subject to legal
actions. At June 30, 1999, management believes that its legal issues will be
resolved without significant financial impact.
ENVIRONMENTAL MATTER AND SUBSEQUENT EVENT
The Company, along with seventy-nine other local, regional and multinational
businesses, has been named as a potentially responsible party in the
California Superfund site known as the Bay Area Drum site. The Company was
identified as a potentially responsible party because it sent drums during
limited periods between 1978 and 1982 to Bay Area Drum for recycling. The
business operations of Bay Area Drum resulted in significant releases of
hazardous substances to the environment. The State's claim against all the
potentially responsible parties is estimated at approximately $10 million.
Subsequent to year-end, the acquiring entity (discussed in footnote 9)
performed an environmental analysis of the Bay Area Drum issue. The analysis
showed a probable liability for clean-up and legal and
administrative-related costs from the Bay Area Drum site. Based on this
information, the acquiring entity intends to negotiate a settlement with the
administration of the Bay Area Drum site.
Management has assessed these new facts and now believes the impact on the
Company's year-end financial position could range from $87,000 to $133,000.
In management's opinion, no liability in the range is more probable than any
other at this stage; therefore, an $87,000 reserve has been accrued at June
30, 1999.
9. SUBSEQUENT EVENTS
On October 15, 1999, the Company was purchased in a stock purchase agreement
for $1,000,000 cash and the assumption of certain liabilities. In connection
with the purchase, the Company adopted a US Cellulose Co. Employee Severance
Plan, which has been guaranteed by the new owner. This severance plan
entitles employees to receive up to a total of approximately $400,000.
The June 30, 1999, financial statements are prepared in accordance with
generally accepted accounting principles and contain assumptions and
estimates that the Company will continue normal operations. These
financial statements do not give effect to any changes in the Company's
operations or financial estimates which may result from this change in
ownership.
F - 8
<PAGE> 11
INTRODUCTION TO UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited condensed consolidated pro forma financial data is based
on the audited historical financial statements of Polymer Solutions, Inc. (the
"Registrant") for the year ended March 31, 1999, and the audited historical
financial statements of US Cellulose Co. (the "Company") for the year ended June
30, 1999. The unaudited pro forma condensed consolidated financial information
should be read in conjunction with the audited historical consolidated financial
statements and related notes included in the Registrant's Annual Report on Form
10-K for the period ended March 31, 1999, which report is incorporated herein by
reference.
The unaudited condensed consolidated pro forma financial data has been prepared
to present, on a pro forma basis, the consolidated results of the operations of
the Registrant and the Company. An unaudited consolidated pro forma balance
sheet has been prepared as of March 31, 1999, and an unaudited pro forma
statement of operations has been prepared for the year then ended. The unaudited
consolidated pro forma statements of operations give effect to the acquisition
as if it had been completed on April 1, 1998, the first day of the Registrant's
1999 fiscal year.
The pro forma condensed consolidated financial statements are provided for
illustrative purposes only and do not purport to represent the actual results of
operations of the Registrant that would have been obtained if the acquisition
had been consummated on the date specified nor is it necessarily indicative of
the results of operations that may be achieved in the future. The pro forma
financial data is based on certain assumptions and adjustments described in the
notes thereto and should be read in conjunction therewith.
The Registrant purchased the Company on October 18, 1999, for a total purchase
price of $1,000,000 in cash. This purchase price has been allocated to assets
and liabilities based on the estimated fair market values at the date of
acquisition. Final valuations will be made and included in the Registrant's Form
10-q for the quarter ended December 31, 1999.
To finance the transaction, the Registrant sold common shares as follows:
On July 5, 1999, the Registrant issued 800,000 shares at $0.54 (Cdn$0.80) with
transferable warrants to purchase an aggregate of 400,000 common shares. Two
warrants entitle the holder to purchase a common share at $0.60 (Cdn$0.90) up to
June 30, 2000. In accordance with the Agency Agreement, the Registrant issued
50,000 common shares as a finance fee, paid 8% commission in cash and provided
warrants entitling the Agent to purchase 160,000 common shares at a price of
$0.60 (Cdn$.90) for one year.
On July 30, 1999, the Registrant completed a private placement and issued
1,127,750 common shares at $0.54 (Cdn$.80) with non-transferable warrants to
purchase an aggregate of 1,127,750 common shares. Each warrant entitles the
holder to purchase a common share at $0.60 (Cdn$0.90) for one year to July 30,
2000 and at $0.84 (Cdn$1.25) for one year and expiring July 30, 2001. In
accordance with the Agency Agreement a commission of $17,644 was paid in cash
and warrants were issued to purchase 66,165 common shares under the same terms
as offered.
During the quarters ended June 30, and September 30, 1999, the Registrant issued
313,500 shares on the exercise of warrants, at an exercise price of $0.52
(Cdn$0.76) per share.
F - 9
<PAGE> 12
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1999
<TABLE>
<CAPTION>
Unaudited
Registrant The Company Pro Forma
March 31, June 30, Pro Forma March 31,
1999 1999 Adjustments 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash $ 39,303 $ 22,990 $ -- $ 62,293
Accounts receivable, net 1,143,919 368,625 12,000 1,524,544 B
Inventories, net 1,009,754 527,214 (187,278) 1,349,690 C
Prepaid expenses 97,647 34,350 -- 131,997
Deferred income taxes, current -- 56,301 -- 56,301
------------ ------------ ------------ ------------
2,290,623 1,009,480 (175,278) 3,124,825
Fixed assets, net 907,533 71,891 (30,117) 949,307 D
Other assets 8,324 47,318 (19,725) 35,917 E
Goodwill -- -- 1,169,506 1,169,506 A
Deferred income taxes -- 5,283 -- 5,283
------------ ------------ ------------ ------------
$ 3,206,480 $ 1,133,972 $ 944,386 $ 5,284,838
============ ============ ============ ============
LIABILITIES & SHAREHOLDERS' (DEFICIT) EQUITY
Current liabilities:
Accounts payable & accrued liabilities $ 992,532 $ 331,231 $ 693,102 $2,016,865 F,G,H
Payroll related &commissions payable 244,332 -- -- 244,332
Income & other taxes payable -- 54,025 -- 54,025
Current portion of capital lease obligations 126,912 -- -- 126,912
------------ ------------ ---------- ------------
1,363,776 385,256 693,102 2,442,134
Capital lease obligations 482,719 -- -- 482,719
Operating line of credit 1,286,473 -- -- 1,286,473
Due to related parties 46,350 -- -- 46,350
------------ ------------ ---------- ------------
3,179,318 385,256 693,102 4,257,676
Minority Interest 225,036 -- -- 225,036
------------ ------------ ---------- ------------
Shareholders' (Deficit) Equity:
Preferred stock, $0.001 par value;
Authorized - 4,000,000 shares; issued
& outstanding - nil
Common stock, $0.001 par value;
Authorized - 20,000,000 shares; issued
& outstanding 8,262,684 6,410 26,250 (24,398) 8,262 I
Additional paid in capital 10,309,361 8,750 989,398 11,307,509 I
Accumulated deficit (10,513,645) 713,716 (713,716) (10,513,645) I
------------ ------------ ---------- ------------
(197,874) 748,716 251,284 802,126
------------ ------------ ---------- ------------
$ 3,206,480 $ 1,133,972 $ 944,386 $ 5,284,838
============ ============ ========== ============
</TABLE>
F - 10
<PAGE> 13
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
Unaudited
Registrant The Company Pro Forma
Year ended Year ended Year ended
March 31, June 30, Pro Forma March 31,
1999 1999 Adjustments 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sales revenue $ 7,807,291 $ 3,307,824 $ -- $ 11,115,115
Cost of goods sold (5,750,127) (2,090,441) -- (7,840,568)
------------ ------------ ------------ ------------
2,057,164 1,217,383 -- 3,274,547
------------ ------------ ------------ ------------
Corporate & administrative expenses:
Marketing & sales 934,019 134,065 -- 1,068,084
General & administrative 935,930 967,738 73,751 1,977,419 J
Research & development 507,643 -- -- 507,643
------------ ------------ ------------ ------------
2,377,592 1,101,803 73,751 3,553,146
------------ ------------ ------------ ------------
(Loss) income from operations (320,428) 115,580 (73,751) (278,599)
Interest expense (280,456) (2,928) -- (283,384)
Other income 74,594 -- -- 74,594
------------ ------------ ------------ ------------
(Loss) income before provision for income taxes (526,290) 112,652 (73,751) (487,389)
Provision for income taxes -- (38,946) -- (38,946)
------------ ------------ ------------ ------------
Net income (loss) $ (526,290) $ 73,706 $ (73,751) $ (526,335)
============ ============ ============ ============
Weighted average basic & diluted number
of common shares outstanding 5,711,797 7,563,649
============ ============
Basic & diluted net loss per share $ (0.09) $ (0.07)
------------ ------------
</TABLE>
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
A. Adjustment to reflect the excess of acquisition cost over the estimated fair
value of net assets acquired (goodwill). The purchase price, preliminary
purchase-price allocation, and stock financing of the transaction up to the
$1,000,000 purchase price are summarized as follows:
<TABLE>
<S> <C> <C>
Purchase consideration paid as :
Common stock $ 1,852
Paid in capital 998,148
Professional services costs 247,102
----------
Total purchase consideration $1,247,102
==========
Allocated to:
Historical book value of
Company's assets and liabilities $ 748,716
Adjustments to increase (decrease) assets
and (increase) decrease liabilities to fair value:
Accounts receivable 12,000
Inventory (187,278)
Fixed assets (30,117)
Other assets (19,725)
Accruals (446,000)
----------
Total allocation 77,596
----------
Excess purchase price over allocation to identifiable
assets and liabilities (goodwill) $1,169,506
----------
</TABLE>
F - 11
<PAGE> 14
B. Adjustment to reflect a change in estimate from the Company's general
reserve method to the Registrant's specific identification reserve method
for calculating the accounts receivable reserve.
C. Adjustment to reflect a change in estimate from the Company's specific
identification method to the Registrant's general reserve method.
D. Adjustment to reflect the write down of fixed assets based on the
Registrant's physical inspection and assessment of each asset's remaining
useful life.
E. Adjustment to reflect tenant deposits that will not be recovered because of
required maintenance repairs.
F. Adjustment to reflect the capitalization of $247,102 in legal, accounting
and other professional services related to the acquisition.
G. Adjustment to reflect the Company's adoption of an Employee Severance Plan
in October 1999, which provides for an estimated $400,000 in benefits to the
Company's employees.
H. Adjustment to reflect a $46,000 additional accrual for probable
administrative and legal costs related to the California Superfund site
liability known as the Bay Area Drum site. Note that the impact of this
transaction is not reflected in the pro forma income statement, but
appropriately reflected in the pro forma balance sheet.
I. Adjustment to reflect the Registrant's sales of stock to obtain funds for
the $1,000,000 purchase price, reflect the elimination of the Company's
equity accounts, and record goodwill on acquisition.
J. Adjustment to reflect the pro forma effect of the amortization of
acquisition goodwill on a straight-line basis over a 15-year life ($77,967),
and to reflect a change in fixed asset depreciation resulting from the
write-down of certain fixed assets.
F - 12
