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2000
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, 2000
[ ] 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 8,855,939
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 [X] No [ ]
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. [ ]
The aggregate market value of the voting stock (Common Shares) held by
non-affiliates of the Registrant on May 9, 2000 was Cdn$9,215,376 and
US$5,316,563, computed by reference to the closing sale price of the Common
Shares on the Canadian Venture Exchange and Over the Counter Bulletin Board,
respectively on such date. The aggregate number of Common Shares outstanding on
May 9, 2000 was 8,860,939.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement prepared for the Company's Annual General and
Special Meeting of Shareholders to be held August 2, 2000 are incorporated by
reference in Part III of this Form 10-K.
The Exhibit Index is located on page 35.
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POLYMER SOLUTIONS, INC.
Annual Report on Form 10-K
For the Fiscal Year Ended March 31, 2000
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE
NUMBER NUMBER
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<S> <C> <C>
PART I
1. Description of Business......................................... 3
2. Properties...................................................... 10
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......................................... 11
7. Management's Discussion and Analysis of Financial Condition
and Results of Operation...................................... 12
7A. Quantitative and Qualitative Disclosures About Market Risk...... 16
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............................................................. 34
EXHIBIT INDEX.......................................................... 35
</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" or "The Company") develops,
manufactures and distributes paints, coatings and adhesives to various
industries, primarily in California and neighboring states. Two years ago PSI
leased a new state of the art, highly automated production facility in Chico,
California. This facility and related processing equipment gives PSI the unique
ability to make any type of water or solvent-based coating the market demands
now and into the foreseeable future. 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. These factors combine to allow the Company significant growth
opportunities.
The Company conducts all of its product development, manufacturing and
marketing/sales through its wholly owned operating subsidiary, Alternative
Materials Technology, Inc. ("AMT USA"). The corporate and manufacturing
facilities are based in Chico, California. AMT USA also has two laboratory and
distribution facilities located in the major customer base areas of Los Angeles
and San Jose, California. These satellite facilities are staffed with sales
engineers and technical service personnel.
Public-company management and regulatory reporting for the Registrant is the
responsibility of corporate headquarters located at 312 Otterson Drive, Suite H,
Chico, California, 95928. The telephone number is (530) 894-3585. The Company
also has a web site at "polysolutions.com".
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.
On October 18, 1999, AMT purchased all the stock of U.S. Cellulose Co., ("USC")
a California corporation. USC is engaged in the business of development,
production and sale of paints and coatings in markets parallel to those of the
Company. Effective November 24, 1999 USC merged into AMT.
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 $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 includes California, Nevada,
Oregon, Washington and Arizona. There are about 250 paint companies operating in
this region with combined revenue estimated at $3.4 billion. The profile of a
company in this industry ranges from the multi-million dollar company with 500
or more employees, to the cottage industry company with revenue of several
hundred thousand dollars and fewer than 10 employees. Revenue per company in
these five western states is estimated to average $13.5 million.
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PSI's growth strategy is twofold: First, to identify and acquire several
companies that have profitable revenue in complementary product lines with
established distribution channels over the next several years. The first phase
of this strategy was deployed with the fiscal year 2000 successful purchase of
U.S. Cellulose, a San Jose-based paint manufacturer with annual revenues of
approximately $3.3 million. Management believes this growth strategy accretes to
margins, which, due to PSI's size, provides 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.
Over the past ten years, PSI has developed and produced a unique suite of high
performance, low VOC, and environmentally sound products that have performance
characteristics that meet or exceed the traditional products used in the
coatings industry. 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 due to government regulation and
market demand. The Company is in a position to benefit from these trends,
because of the technological lead and notoriety it has in this market place. The
PSI products supplied to this customer base are low VOC product formulations
based on proprietary polymer chemistry. 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 because of increasing environmental
concerns regarding the polluting effects of highly volatile organic compounds.
PSI's products are established in the marketplace and the company is poised to
continue its historical growth, which for the past 5 years has exceeded
approximately 50 percent.
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 to provide competitively priced products that meet
or exceed all proposed governmental clean-air regulations, while delivering
performance characteristics superior to existing products.
The Company's focus is the continued product development, refinement and
marketing of its low VOC coatings in the five-state western region. The product
group consists of over 100 specialized coatings designed to provide
manufacturing concerns with a wide variety of coating systems that uniquely meet
the design requirements of industrial and retail customers. The Company also
produces a water-based adhesive, which is sold to the aerospace and general
industrial-manufacturing firms.
Thirty-two of the Company's employees operate out of PSI's new fully integrated
and automated manufacturing plant located in Chico, California. PSI also has 22
employees located in San Jose and Los Angeles distribution and technical service
centers. The main production facility in Chico, CA is capable of producing and
shipping 4.8 million gallons of coatings per year. This equates to potential
revenue in excess of $50 million per annum.
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. Products
that are successful in these markets must possess a particular combination of
properties at an acceptable cost to the end user and be easily applied by the
end user. PSI expects the markets for many of its performance coatings to grow
at 15-25% per year because of superior product quality and more aggressive
marketing.
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The Company's depth of knowledge in polymer chemistry has enabled it to develop
products suitable for a wide variety of OEM firms in several industrial
segments. These segments include firms whose processes demand the application of
coatings to several substrate types including wood, metal, glass and aggregate.
The uniqueness of PSI's products in this market place is related to the
Company's ability to produce these high performance coatings with greatly
reduced VOC content. AMT has succeeded in developing these 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
In the past, high VOC solvent-based coatings have been the accepted standard by
which manufacturers have been applying coatings or surface protection to their
products for decades. However, the Company's water-based and low VOC
solvent-based coatings provide these manufacturers with environmentally sound
alternatives to the regulated high VOC content coatings. Manufacturers who use
PSI products produce a superior end product while drastically reducing the
amount of pollution that is generated during their manufacturing process.
PSI's research chemists have developed products that satisfy government mandated
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 MARKET
There has been resistance to change among long-time users of solvent-based
coatings. They have a reluctance to try new products when their current products
produce a satisfactory result. This holds true even though current use provokes
environmental, health or safety concerns. 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.
Historically, some manufacturers have presented sub-standard and relatively poor
performing low VOC products to the market during the past decade.
AMT USA's major domestic competitors include AKZO Nobel, The Sherwin-Williams
Company, Guardsman/Lilly Industries, MacLac, Cardinal Paints, Rudd Coatings,
Performance Coatings, and Triangle Paints.
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. Government and environmental regulations are driving research and
development efforts toward coating systems that allow manufacturers to reduce
the amount of pollution generated during their manufacturing process. Most of
this research and development is directed toward environmentally safe products
that will meet the needs of manufacturers requiring coating for wood, metal,
plastic and glass for protection or cosmetic value. PSI coatings fill the needs
of these manufacturers.
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, Sherwin Williams, Lilly
Guardsman, Akzo Nobel, and
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Velspar with national distribution, but generally, the paint and coatings
industry remains a highly regional business.
THE GROWTH STRATEGY
The primary reasons for the historical growth of the Company have 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.
The Company has historically limited its marketing and sales activities
primarily to the 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 $100 million. This market can be serviced by all three of
PSI's Chico, San Jose and El Monte locations.
Competitive forces and environmentally driven changes will decrease the number
of competitors in the coatings industry (particularly the mid-size companies).
The successors will be companies that can operate globally and focus their
efforts directly on regional markets.
Almost two-thirds of the 1,400 paint and coatings 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 $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 due to the
extensive capital investment needed in research & development and modern plant
equipment capable of allowing a company to meet the environmental and market
requirements. 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.
Even though PSI is still considered a small manufacturer, the Company has
superceded these obstacles through the development and refinement of
environmentally compliant products and the move to a new state-of-the-art
manufacturing facility. In addition, this strategic advantage provides PSI with
an opportunity to purchase existing businesses whose 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 Company's recent acquisition of U.S. Cellulose was designed to provide PSI
with a vehicle to introduce its advanced OEM coating formulations to the
consumer. The U.S. Cellulose business is comprised of approximately 50% OEM and
50% consumer. PSI plans on using the established consumer brand name of U.S.
Cellulose to greatly expand the sales of its product to this market place. In
particular PSI's wood-coating products are extremely well suited for these
distribution channels. They have wide market appeal because of their superior
performance and reduced VOC content. This makes them much more suitable for the
consumer market than the toxic products presently being sold into this market
place. PSI has had great success with large industrial OEM producers of redwood
and cedar wood products. The product that PSI is selling to these customers has
been tested against the commercially available retail
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products and proven to out perform those products in long-term weatherabilty
testing. PSI is increasing the overall revenue of the Company by building upon
these factors and delivering these products to the consumer market through the
Company's distribution channels.
PSI is currently pursuing several acquisition candidates that already have
established market share in this segment of the wood coatings industry.
SALES BREAKDOWN BY MAJOR CATEGORIES OF ACTIVITY
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR WOOD OTHER COATINGS TOTAL
ENDED MARCH 31 COATINGS ADHESIVES AND MISC. SALES
<S> <C> <C> <C> <C>
2000 $12,071,406 $250,634 $799,336 $13,121,376
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
</TABLE>
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 that 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 photo chemically reactive, smog-producing chemicals and
solvents. These chemicals and solvents often contain VOCs.
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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.
RESEARCH AND DEVELOPMENT
The Company's current research and development activities include new product
development and refinement, analyzing and testing of new and competitive
products, and identification of new applications.
PRODUCT PROTECTION
The Company develops and manufactures products of a proprietary nature.
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, PSI -- 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.
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CEO & President, AMT USA -- 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.
CFO, AMT USA & Controller, PSI - Charlene Bellante
Ms. Bellante is a Certified Public Accountant with 18 years of financial
reporting experience and six years of experience as controller of a
multi-million dollar international manufacturing company.
General Manager, AMT USA -- Ryan Oates
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
Vice President Marketing & Sales, AMT USA -- Craig Pollock
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 to increase volume by almost 10-fold
in less than 6 years.
Director of Research & Development, AMT USA -- Wade Potter
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, PSI - 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 develops and operates a
computer network providing EDI and electronic financial services to financing
institutions.
PERSONNEL
As of May 9, 2000, the Company has 54 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.
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ITEM 2. PROPERTIES
CHICO, CA -- MANUFACTURING AND ADMINISTRATION FACILITY
In fiscal year 1999, AMT USA relocated to a leased state-of-the-art
manufacturing and administrative facility in Chico, California. The facility as
presently configured approximates 50,000 square feet. This 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.
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 turnaround time in development of samples
for test runs on customers' equipment. The lease has a term that 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.
SAN JOSE, CA -- SALES, WAREHOUSE & MANUFACTURING FACILITY
AMT USA leases an office and warehouse unit of approximately 10,000 square feet
in San Jose, California, which is located within the County of Santa Clara. The
facility was previously operated by U.S. Cellulose. This facility serves as a
warehouse, regional sales office, manufacturing, and a small laboratory. The
lease has a term that expires September 30, 2002, with no option. Monthly lease
payments of approximately $6,000 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 actual or 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 fiscal year
ended March 31, 2000.
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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 new Canadian Venture Exchange ("CDNX"), under
the trading symbol PYM. CDNX is the result of a merger between the Vancouver
Stock Exchange ("VSE") and the Alberta Stock Exchange ("ASE"), which commenced
operations on November 29, 1999. The Company's listed shares were transferred to
CDNX as a result of the merger. The trading volumes of the Company's shares on
the OTC Bulletin Board have been very small. CDNX is the Company's principal
trading market. Effective March 2000, CDNX implemented a two-tier system. The
Company has been classified as a Tier 1 Issuer, which is considered a more
advanced tier, where higher financial requirements must be maintained. Shown
below are the high and low sale prices for the Common Shares for each of the
fiscal years ended March 31, 2000, 1999 and 1998.
Canadian Dollars:
<TABLE>
<CAPTION>
FISCAL 2000 FISCAL 1999 FISCAL 1998
HIGH LOW HIGH LOW HIGH LOW
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
First quarter $0.85 $0.65 $1.05 $0.75 $1.00 $0.70
Second quarter $0.95 $0.73 $1.00 $0.60 $1.12 $0.70
Third quarter $1.15 $0.95 $0.70 $0.40 $1.25 $0.71
Fourth quarter $1.35 $1.05 $0.89 $0.40 $1.00 $0.70
</TABLE>
SHAREHOLDERS
The Company has 427 registered shareholders as at May 9, 2000. 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. The Company intends to retain any earnings to finance
growth of its business and, thus, does not intend to pay dividends in the
foreseeable future.
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.
Page 11
<PAGE> 12
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31
2000(1) 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C>
Sales revenue $13,121,376 $7,807,291 $7,328,947 $4,995,975 $3,398,313
Cost of goods sold (9,028,728) (5,750,127) (5,904,797) (3,768,510) (2,602,423)
----------- ---------- ---------- ---------- ----------
Gross Profit 4,092,648 2,057,164 1,424,150 1,227,465 795,890
Corp./Admin. expenses (3,204,516) (2,377,592) (2,102,042) (2,029,422) (1,982,965)
Income (loss) from
operations 888,132 (320,428) (677,892) (801,957) (1,187,075)
Income (loss) per share
from operations .11 (.06) (0.16) (0.23) (0.37)
Interest expense (net) (287,695) (280,456) (189,382) (96,335) (81,611)
Income tax benefit 470,000 -- -- -- --
Income (loss) for the
year 1,105,337 (526,290) (870,090) (1,103,631) (1,268,686)
Income (loss) per share .14 (.09) (0.21) (0.31) (0.40)
Dividends per share -- -- -- -- --
Working capital 2,711,092 888,821 501,292 477,034 875,706
Total assets 6,649,093 3,206,480 3,271,130 2,368,291 2,220,570
Long term obligations 2,484,334 1,769,192 1,474,506 1,126,423 400,437
Shareholders' equity
(deficit) 2,101,967 (197,874) (206,837) (439,146) 651,075
</TABLE>
---------------
(1) The Company finalized the acquisition of USC on October 18, 1999 and as a
result of the merger, USC was fully integrated into AMT during the last half
of fiscal 2000. The results for the fiscal year end 2000 reflect the
amalgamation. See Item 8 -- Note 6 to the Consolidated Financial Statements
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The Company develops, manufactures and distributes paints, coatings and
adhesives to various industries, primarily in California and neighboring states.
In 1998, PSI leased 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 significantly.
On October 18, 1999, the Company acquired USC for $1,000,000 in cash and the
assumption of certain liabilities. To finance the cash portion of the
transaction, the Company repriced certain warrants to encourage exercise and
conducted two private placements. The Company assumed responsibility for an
Employee Severance Plan, which obligates the Company to pay up to $384,400 in
severance pay to former USC employees over the next six years. USC has annual
revenues of approximately $3.3 million.
Management continues to actively seek acquisition candidates with financial and
geographic profiles consistent with the Company's growth objectives.
Page 12
<PAGE> 13
RESULTS FROM OPERATIONS
Sales revenues for the fiscal year ended March 31, 2000 were $13,121,376, an
increase of 68% over the fiscal 1999 total of $7,807,291, which was an increase
of 7% over the fiscal 1998 total of $7,328,947. The increase in fiscal 2000 is
due both to the acquisition of U.S. Cellulose and the continued growth in the
number of customers and the volume of sales to existing customers covering all
of the Company's wood-coating products lines.
The company's low VOC solvent-based product revenue increased by 109% over the
previous fiscal year, and the water-based product revenue increased 38% for the
same period.
Gross profit for the fiscal year ended March 31, 2000 increased to $4,092,648
from $2,057,164 for fiscal 1999. This increase in gross profit was attributable
to the aforementioned volume increase in sales, as well as reductions in
material costs. This was achieved through a combination of negotiated raw
material purchase price reductions, reformulation of the Company's products, and
the effect of improved production efficiencies achieved by the operation of the
new facility. Gross profit for the fiscal year ended March 31, 1999 increased to
$2,057,164 from $1,424,150 for the fiscal year ended March 31, 1998. This
increase was also due to sales increases and material cost reductions.
Marketing and sales expenses in fiscal 2000 represent a 28% increase to
$1,200,576 over the fiscal 1999 total of $934,019. This is due to $103,912
commissions paid on increased sales and an additional $162,645 of wages and
travel expenses driven by the acquisition of U.S. Cellulose. Marketing and sales
expense in fiscal 1999 increased 8% over fiscal 1998 due to additional
compensation, travel and other expenses related to the increase in the Company's
marketing and sales efforts.
General and administrative expenses were $1,428,449 for the year ended March 31,
2000 versus $935,930 in fiscal 1999 and $905,237 in fiscal 1998. The 53%
increase in fiscal 2000 is associated mainly with the acquisition of U.S.
Cellulose and the related increases in wages, rent, and insurance as well as the
amortization of goodwill.
Research and development expenses were $575,491 for fiscal year ended March 31,
2000 versus $507,643 for fiscal 1999 and $332,066 in fiscal 1998. The $68,028
increase in fiscal 2000 was due to increased wages and the $175,577 increase in
fiscal 1999 was due principally to additional staff hired to reformulate the
Company's products to achieve higher manufacturing margins.
Interest expense totaled $287,695 for the fiscal year ended March 31, 2000
compared to $280,456 in fiscal 1999 and $189,382 in fiscal 1998. The marginal
increase in fiscal year 2000 was due to higher borrowing on the operating line
of credit. The increase in fiscal year 1999 was also caused by the increase in
use of the Company's line of credit and an increase in capital lease obligations
related to the new facility, but was offset somewhat by the significantly lower
interest rate on the new credit line.
Other income of $34,900 in fiscal 2000 is attributable to a settlement from the
Company's previous line of credit lender for approximately $23,000, due to a
dispute over early termination of that operating line of credit. The remaining
balance is bank interest. Other income of $74,594 for 1999 was generated through
the sale of the Company's previous manufacturing and administration facility.
INCOME TAXES
The Company has historically provided a valuation allowance of 100% against all
deferred tax assets, primarily comprised of loss carry-forwards and research and
development credits, because of historical losses over a ten-year period.
However, in fiscal year 2000, the Company generated $635,337 of pre-tax income
and utilized well over $3 million in federal and state loss carry-forwards.
Page 13
<PAGE> 14
<TABLE>
<CAPTION>
CATEGORY FEDERAL STATE
<S> <C> <C>
Net income before taxes $ 635,337 $ 635,337
Temporary differences:
UNICAP 156,000 156,000
Accounts receivable reserve 20,000 20,000
Inventory allowance 304,773 304,773
Bonus accrual 100,000 100,000
Vacation and sick leave 78,164 78,164
Nondeductible loss of subsidiary 380,000 0
Other 56,926 24,126
---------- ----------
Net taxable income $1,731,200 $1,318,400
Approximate utilized net operating loss $1,731,200 $1,318,400
</TABLE>
The current-year utilization of loss carry-forwards led management to reassess
its March 31, 2000 valuation allowance.
After carefully analyzing the factors that have contributed to the Company's
current-year profitability, management has reduced its valuation allowance by
$500,000. This assessment was determined after a review of factual current-year
evidence such as pre-tax income; increased sales driven by more intensive
marketing; improved gross margins generated from the efficiencies of operating
in a larger capacity, state-of-the art plant for a full year; acquisition of a
profitable Company; and an augmented management team. Management also analyzed
the projected results of future operations, which include the impact of a full
year of USC-related sales.
Based on this analysis, at March 31, 2000, management believes that its will
generate sufficient pre-tax income to realize $500,000 in current tax benefits.
The total amount of future taxable income necessary to realize the benefits is
approximately $1,250,000. In management's opinion, the remaining valuation
allowance is necessary due to the uncertainty of future income estimates.
Management will continue to review the appropriateness of the valuation
allowance on a quarterly basis.
Based on March 31, 2000, pre-tax income of $635,337, the Company is subject to
federal and state alternative minimum tax of approximately $30,000.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2000 the Company had $65,097 in cash compared to $39,303 at the end
of fiscal 1999. Cash flow used in operating activities totaled $104,351 in
fiscal 2000 versus $614,749 in fiscal 1999 and $751,532 in fiscal 1998. The
lower requirements in fiscal 2000 are due to the Company's first year of
profitability. The $1,159,883 proceeds from private placements in 2000 were
offset by the acquisition of U.S. Cellulose, while the Company increased
borrowing from the line of credit by $466,194. The cash requirements in fiscal
1999 were financed primarily from private placements of $244,721, 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 the repayment of debt.
The Company has positive working capital of $2,711,092 at March 31, 2000, versus
$888,821 at the end of fiscal 1999. The current ratio at March 31, 2000 was
2.4:1 and 1.6:1 at March 31, 1999. The primary reasons for the increase in
working capital and current ratio are increased sales volume, and the related
increase in accounts receivable.
Page 14
<PAGE> 15
Capital additions during the year ended March 31, 2000 consisted of $158,389
including $61,801 of equipment acquired under capital leases, offset by proceeds
from disposal of equipment of $15,145. This compares to fiscal 1999 in which
there were $440,459 in purchases of fixed assets offset by proceeds from the
disposal of the old facility of $346,517. The investments in fiscal 2000
consisted mostly of production equipment, and in 1999 were associated with the
new plant.
ACQUISITION OF U.S. CELLULOSE AND RELATED FINANCING
On October 18, 1999 the Company, through its subsidiary, AMT USA, acquired all
the issued and outstanding shares of U.S. Cellulose Co., Inc. ("USC") a
California-based paint coatings company for a total purchase price of $1,000,000
in cash. This purchase price has been allocated to assets and liabilities based
on their estimated fair market values.
To finance the transaction, the Company sold common shares as detailed on Form
8-K/A dated October 18, 1999, page F-9.
In connection with the purchase, the Company adopted a USC Employee Severance
Plan, which entitles former USC employees to receive up to $384,400 in benefits,
which will be paid over a six-year period. The acquisition was accounted for
using the purchase method of accounting. The excess of acquisition cost over the
fair value of net assets acquired ("goodwill") is being amortized on a
straight-line basis over fifteen years.
OUTLOOK
In fiscal year 2000 the Company reached all time record highs in both sales and
net income. The acquisition of USC was the first of future planned acquisitions
that will utilize capacity of our state of the art manufacturing plant by adding
new customers and improved products. The Company's strong fundamentals provide
the foundation for continued rapid growth through acquisitions, joint ventures,
product licenses, new product development, and any other opportunities that
could result in an increase in shareholder value.
INFLATION
The Company has in the past been able to increase the prices of its products or
reduce overhead costs sufficiently to offset the effects of inflation on wages,
materials and other expenses, and anticipates that it will be able to continue
to do so in the future.
YEAR 2000
As of the date hereof, the Company experienced no system failures or other
effects with regard to the year 2000 issue in areas of plant systems, external
parties and information technology. The monitoring of hardware, software, and
the external parties is ongoing and contingency plans have been developed to
address issues within the Company's control. This does not guarantee that
problems will not occur in the future or have not yet been detected.
SAFE HARBOUR PROVISION
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
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"), which requires that
derivative instruments be measured at fair value and recognized as assets or
liabilities in the Company's balance sheet. SFAS No. 133 (as amended by SFAS No.
137) is effective for all quarters of all fiscal years beginning after June 15,
2000. The Company plans to adopt SFAS 133 and SFAS 137 in the first quarter of
its fiscal year commencing March 31, 2001. The Company does not expect adoption
of these statements to have a material impact on its financial statements.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), Revenue Recognition, which
provides guidance on the recognition, presentation, and disclosure of revenue in
financial statements filed with the SEC. SAB 101 outlines the basic criteria
that must be met to recognize revenue and provides guidance for disclosures
related to revenue recognition policies. Our revenue recognition policies comply
with the requirements of SAB 101.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to interest rate change market risk with respect to its
credit facility with a financial institution, which is priced based on the prime
rate of interest. At March 31, 2000, there was $1,752,667 in borrowings under
the credit facility. Changes in the prime interest rate during fiscal 2001 will
have a positive or negative effect on the Company's interest expense. Such
exposure will increase accordingly should the Company maintain higher levels of
borrowing during 2001.
The Company has minimal operations in foreign countries. While it is exposed to
foreign currency fluctuations, the Company presently has no financial
instruments in foreign currency and does not maintain material funds in foreign
currency beyond those necessary for operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX
<TABLE>
<S> <C>
Consolidated Financial Statements:
Report of Independent Accountants Page 17
Consolidated Balance Sheets Page 18
Consolidated Statements of Operations Page 19
Consolidated Statements of Shareholders' Equity
(Deficit) Page 20
Consolidated Statements of Cash Flows Page 21
Consolidated Statements of Cash Flows continued Page 22
Notes to Consolidated Financial Statements Page 23
</TABLE>
Page 16
<PAGE> 17
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' equity (deficit) and of
cash flows present fairly, in all material respects, the financial position of
Polymer Solutions, Inc. and its subsidiaries at March 31, 2000 and 1999, and the
results of their operations and their cash flows for the three years in the
period ended March 31, 2000 in conformity with generally accepted accounting
principles in the United States. 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 in the United States 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
PricewaterhouseCoopers LLP
Sacramento, California
May 26, 2000
17
<PAGE> 18
POLYMER SOLUTIONS, INC.
CONSOLIDATED BALANCE SHEETS (U.S. DOLLARS)
<TABLE>
<CAPTION>
MARCH 31,
----------------------------
2000 1999
----------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 65,097 $ 39,303
Accounts receivable, net 2,374,065 1,143,919
Inventories, net 1,523,947 1,009,754
Prepaid expenses and other assets 120,360 105,971
Deferred income taxes, net 500,000 -
----------- ------------
4,583,469 2,298,947
Fixed assets, net 825,652 907,533
Goodwill, net 1,239,972 -
----------- ------------
$ 6,649,093 $ 3,206,480
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 1,303,088 $ 1,038,882
Payroll related and commissions payable 409,791 244,332
Current portion of capital lease obligations 159,498 126,912
----------- ------------
1,872,377 1,410,126
Long-term liabilities:
Bank loan facilities 1,752,667 1,286,473
Capital lease obligations 371,932 482,719
Severance plan liability 359,735 -
----------- ------------
4,356,711 3,179,318
----------- ------------
Minority interest 190,415 225,036
----------- ------------
Commitments and contingencies (Note 11)
Shareholders' equity (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,
2000 - 8,855,939 and 1999 - 6,410,833 8,855 6,410
Additional paid-in capital 11,501,420 10,309,361
Accumulated deficit (9,408,308) (10,513,645)
----------- ------------
2,101,967 (197,874)
----------- ------------
$ 6,649,093 $ 3,206,480
=========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
18
<PAGE> 19
POLYMER SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (U.S. DOLLARS)
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
------------------------------------------------
2000 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
Sales revenue $ 13,121,376 $ 7,807,291 $ 7,328,947
Costs of goods sold (9,028,728) (5,750,127) (5,904,797)
------------ ------------ ------------
4,092,648 2,057,164 1,424,150
------------ ------------ ------------
Corporate and administrative expenses:
Marketing and sales 1,200,576 934,019 864,739
General and administrative 1,428,449 935,930 905,237
Research and development 575,491 507,643 332,066
------------ ------------ ------------
3,204,516 2,377,592 2,102,042
------------ ------------ ------------
Income (loss) from operations 888,132 (320,428) (677,892)
Interest expense (287,695) (280,456) (189,382)
Other income (expense) 34,900 74,594 (2,816)
------------ ------------ ------------
Income (loss) before income tax benefit 635,337 (526,290) (870,090)
Income tax benefit 470,000 - -
------------ ------------ ------------
Net income (loss) $ 1,105,337 $ (526,290) $ (870,090)
============ ============ ============
Basic and diluted earnings (loss) per share $ .14 $ (.09) $ (.21)
------------ ------------ ------------
Weighted average basic and diluted number
of shares outstanding 7,925,595 5,711,797 4,182,591
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
19
<PAGE> 20
POLYMER SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDER EQUITY (DEFICIT) (U.S. DOLLARS)
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
--------------------------------------------------------------------------------------
2000 1999 1998
------------------------ ------------------------ ------------------------
COMMON COMMON COMMON
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ------------ --------- ------------ --------- ------------
<S> <C> <C> <C> <C> <C> <C>
COMMON STOCK:
Balance, beginning of year 6,410,833 $ 6,410 5,344,617 $ 5,345 3,762,505 $ 3,763
Shares issued, pursuant to -
Private placement 2,043,915 2,044 432,000 432 960,500 961
Exercise of warrants 385,750 386 -- -- -- --
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 15,441 15 333 -- 54,431 54
--------- ------------ --------- ------------ --------- ------------
Balance, end of year 8,855,939 8,855 6,410,833 6,410 5,344,617 5,345
--------- ------------ --------- ------------ --------- ------------
ADDITIONAL PAID-IN CAPITAL:
Balance, beginning of year -- 10,309,361 -- 9,775,173 -- 8,674,356
Shares issued, pursuant to -
Exercise of warrants -- 197,851 -- -- -- --
Private placement, net -- 959,602 -- 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 -- 34,606 -- 747 -- 121,989
--------- ------------ --------- ------------ --------- ------------
Balance, end of year -- 11,501,420 -- 10,309,361 -- 9,775,173
--------- ------------ --------- ------------ --------- ------------
EQUITY (DEFICIT):
Balance, beginning of year -- (10,513,645) -- (9,987,355) -- (9,117,265)
Net income (loss) -- 1,105,337 -- (526,290) -- (870,090)
--------- ------------ --------- ------------ --------- ------------
Balance, end of year -- (9,408,308) -- (10,513,645) -- (9,987,355)
--------- ------------ --------- ------------ --------- ------------
TOTAL SHAREHOLDERS' EQUITY (DEFICIT) 8,855,939 $ 2,101,967 6,410,833 $ (197,874) 5,344,617 $ (206,837)
========= ============ ========= ============ ========= ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
20
<PAGE> 21
POLYMER SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (U.S. DOLLARS)
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
---------------------------------------------
2000 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 1,105,337 $ (526,290) $ (870,090)
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation and amortization 282,111 243,778 111,157
(Gain) loss on disposals of fixed assets (945) (74,594) 2,816
Benefit from deferred income tax (500,000) -- --
Changes in operating assets and liabilities, net of
effects of acquisition:
Accounts receivable (875,372) (167,718) (281,269)
Inventories (302,979) 257,997 (174,558)
Prepaid expenses and other assets 74,458 (62,744) (13,263)
Accounts payable (5,747) (267,475) 468,390
Payroll related and commissions payable 138,451 (17,703) 5,285
Severance plan liability (19,665) -- --
----------- ----------- -----------
Net cash used in operating activities (104,351) (614,749) (751,532)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Goodwill acquired in business acquisition (1,274,487) -- --
Purchase of fixed assets (96,588) (201,332) (72,610)
Proceeds from disposals of fixed assets 15,145 346,517 12,519
----------- ----------- -----------
Net cash (used in) provided by investing activities (1,355,930) 145,185 (60,091)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of stock 1,159,883 244,721 680,120
Proceeds from issuance of convertible debt -- 8,403 72,000
Payments on mortgage payable -- (52,250) (19,256)
Borrowings on operating line of credit, net 466,194 406,506 96,196
Payments of capital lease obligations (140,002) (99,690) (18,798)
----------- ----------- -----------
Net cash provided by financing activities 1,486,075 507,690 810,262
----------- ----------- -----------
Increase (decrease) in cash 25,794 38,126 (1,361)
Cash, beginning of year 39,303 1,177 2,538
----------- ----------- -----------
Cash, end of year $ 65,097 $ 39,303 $ 1,177
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
21
<PAGE> 22
POLYMER SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS CONTINUED (U.S. DOLLARS)
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
--------------------------------------
2000 1999 1998
--------------------------------------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Income taxes $ 800 $ -- $ --
========= ========= =========
Interest $ 287,695 $ 267,485 $ 212,834
========= ========= =========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Minority interest shareholder exchange of shares $ 34,621 $ 746 $ 122,043
========= ========= =========
Acquisition of equipment under capital leases $ 61,801 $ 239,127 $ 488,992
========= ========= =========
Conversion of debt for common stock $ -- $ 289,785 $ 300,236
========= ========= =========
ACQUISITION OF U.S. CELLULOSE CO
Accounts receivable $ 354,774
Inventories 211,214
Prepaid expenses 89,910
Fixed assets 20,896
Accounts payable (269,953)
Accrued payroll (27,008)
Severance plan liability (384,400)
---------
Net liabilities at date of acquisition $ (4,567)
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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 and retail users primarily in California and neighboring
states.
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 between reporting these consolidated financial statements
under accounting principals generally accepted in the United States verses
accounting principals generally accepted in Canada are not material.
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, 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 $20,000 and $5,000 at
March 31, 2000 and 1999, 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. Vehicles
are recorded at cost and depreciated on a straight-line basis over a
five-year period. In fiscal year 1999, land and building facilities
related to the Company's former manufacturing location were sold.
Page 23
<PAGE> 24
POLYMER SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 the costs and accumulated
depreciation from the asset and accumulated depreciation accounts with any
resulting gain or loss reflected in other income.
GOODWILL
Goodwill reflects the excess of acquisition costs of U.S. Cellulose Co.
over the estimated fair value of net assets acquired. Goodwill is
amortized on a straight-line basis over a 15-year life. Accumulated
amortization charges to operations are $39,082 at March 31, 2000.
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 14.
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.
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. See Note 10.
Page 24
<PAGE> 25
POLYMER SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. INVENTORIES
<TABLE>
<CAPTION>
MARCH 31,
----------------------------
2000 1999
----------- -----------
<S> <C> <C>
Raw materials and supplies $ 951,843 $ 605,288
Finished goods 872,504 603,250
Less allowance for slow-moving inventory (300,400) (198,784)
----------- -----------
$ 1,523,947 $ 1,009,754
=========== ===========
</TABLE>
4. FIXED ASSETS
<TABLE>
<CAPTION>
2000
ACCUMULATED
COST DEPRECIATION NET
------------ ------------ ---------
<S> <C> <C> <C>
Laboratory equipment $ 105,191 $ 82,302 $ 22,889
Office equipment 148,384 104,140 44,244
Production equipment 502,160 337,932 164,228
Leasehold improvements 153,825 26,437 127,388
Capital leases 776,451 309,548 466,903
------------ --------- ---------
$ 1,686,011 $ 860,359 $ 825,652
============ ========= =========
</TABLE>
<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>
Page 25
<PAGE> 26
POLYMER SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. EARNINGS PER SHARE ("EPS")
The Company's basic net income per share is computed by dividing net
income by the weighted average number of outstanding common shares. The
diluted EPS amounts are the same as the basic EPS for all periods
presented. At March 31, 2000, there were warrants and options for 612,600
shares that were not included in the diluted EPS because they were
antidilutive for the period; however, these shares could potentially
dilute basic EPS in the future.
6. ACQUISITION
In October 1999, the Company purchased the outstanding capital stock of
U.S. Cellulose Co. ("USC"), a paint coatings company based in California
with annual revenues of approximately $3,300,000. Pursuant to a Stock
Purchase Agreement dated October 15, 1999 the consideration paid was
$1,000,000 in cash. In connection with the purchase, the Company adopted
the USC Employee Severance Plan, which entitles former USC employees to
receive up to $384,400 in benefits, which will be paid over a six-year
period. The acquisition was accounted for using the purchase method of
accounting. USC's assets and liabilities were recorded at their fair value
at the date of the acquisition. The excess of acquisition cost over the
fair value of tangible net assets acquired ("goodwill") is being amortized
on a straight-line basis over fifteen years.
The following summarized unaudited proforma financial information assumes
the acquisition had occurred on April 1 of each year. The USC results of
operations in fiscal year 2000 are through to the date of acquisition,
October 18, 1999.
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
MARCH 31,
-----------------------------
2000 1999
----------- ------------
(UNAUDITED)
<S> <C> <C>
REVENUES:
Polymer Solutions, Inc. $13,121,376 $ 7,807,291
U.S. Cellulose Co. 1,949,629 3,111,479
----------- ------------
Combined $15,071,005 $ 10,918,770
NET INCOME (LOSS):
Polymer Solutions, Inc. $ 1,105,337 $ (526,290)
U.S. Cellulose Co. (820,708) (794,253)
----------- ------------
Combined $ 284,629 $ (1,320,543)
----------- ------------
COMBINED NET INCOME PER SHARE:
Basic
Net income available to common shareholders $ 284,629 $ (1,320,543)
Weighted average number of common
shares outstanding 7,925,595 5,711,797
----------- ------------
Basic and diluted earnings per share $ 0.04 $ (0.23)
=========== ============
</TABLE>
The amounts do not reflect any benefits from economies that might be
achieved from combined operations. The proforma amounts do reflect purchase
accounting adjustments and amortization for the periods presented.
Page 26
<PAGE> 27
POLYMER SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. BANK LOAN FACILITIES
On December 29, 1999, the Company amended its revolving line of credit to
provide funds up to $3,000,000. Funds available to be advanced are limited
to 85% of eligible accounts receivable and 50% of eligible inventories. At
March 31, 2000, the maximum available borrowing under the line was
$2,338,539. Interest is payable on funds advanced at the rate of prime
plus 2.5% (11.5% at March 31, 2000). The line of credit is collateralized
by accounts receivable, inventories, equipment and other assets. The line
of credit expires on October 31, 2001. 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.
8. CAPITAL LEASE OBLIGATIONS
Capital lease obligations at March 31, consisted of the following:
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
Capital lease obligations bearing interest ranging from 7.34% to 20.86%,
payable in monthly principal and interest payments
and secured by the related equipment $531,430 $609,631
Less current portion 159,498 126,912
-------- --------
$371,932 $482,719
======== ========
</TABLE>
Future minimum principal payments under capital lease obligations are as
follows:
<TABLE>
<S> <C>
2001 $ 159,498
2002 165,968
2003 172,163
2004 33,801
----------
$ 531,430
==========
</TABLE>
9. RELATED PARTY TRANSACTIONS
During fiscal year 1999, the Company issued 250,000 warrants and converted
$153,064 of debt to 334,815 shares of common stock to officers and
directors.
Operating expenses of $59,548, $54,712, $79,305 in fiscal years 2000, 1999
and 1998 were incurred on a cost plus approximately 10% markup basis, of
which $5,029 and $46,350 are included in Accounts Payable at March 31,
2000 and 1999 respectively, from a corporation owned by an officer and
director of the Company.
27
<PAGE> 28
POLYMER SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------------------------------------
10. INCOME TAXES
The benefit for income taxes consists of the following:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
MARCH 31,
2000 1999
<S> <C> <C>
Federal:
Current $ 17,000 $ -
Deferred (434,000) -
-------- --------
(417,000) -
-------- --------
State:
Current 13,000 -
Deferred (66,000) -
-------- --------
(53,000) -
-------- --------
$ (470,000) $ -
========= ========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax benefits are as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
MARCH 31,
2000 1999
<S> <C> <C>
Inventory allowance $ 130,565 $ 85,159
Net operating loss carryforwards 1,876,177 2,458,353
Research and development credits 504,082 352,401
State taxes (48,111) (68,486)
Other 187,187 13,473
----------- -----------
2,649,900 2,840,900
Valuation allowance (2,149,900) (2,840,900)
----------- -----------
Net deferred tax benefit $ 500,000 $ -
=========== ===========
</TABLE>
The Company has reduced its deferred tax benefit valuation allowance in
2000 by $500,000 based on an assessment of the Company's ability to
utilize deferred tax benefits in the future. This assessment was based on
management's analysis of current-year pre-tax income, projected future
income, improved gross margins generated from a new plant, acquisition of
USC and an augmented management team.
At March 31, 2000, management believes that it is more likely than not
that the $500,000 tax benefit will be realized. The total amount of future
taxable income necessary to realize the benefit is approximately
$1,250,000. The remaining valuation allowance is considered necessary due
to the uncertainty of future income estimates.
Page 28
<PAGE> 29
The income tax rate on earnings differed from the Federal statutory rate
as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
MARCH 31, 2000
<S> <C>
Federal statutory rate 34.0%
State statutory rate, net of federal benefit 5.6%
Change in valuation allowance -99.9%
Research and development credits -25.1%
Permanent differences 6.5%
Other 1.2%
-----------
Effective rate -77.7%
===========
</TABLE>
Tax credits may be carried forward indefinitely. The expiration dates of
the net operating loss carryforwards for federal purposes are from 2010 to
2019 and for state purposes from 2001 to 2003.
11. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases certain facilities under arrangements which contain
renewal options and provide for periodic cost of living adjustments.
Rental expense was $299,012, $237,024 and $54,400 for each of the three
years in the period ended March 31, 2000, respectively.
Future minimum rental commitments as of March 31, 2000 under noncancelable
operating lease are as follows:
<TABLE>
<C> <C>
2001 $ 340,380
2002 314,988
2003 277,788
2004 226,212
2005 233,484
Thereafter 662,481
-----------
$ 2,055,333
===========
</TABLE>
ENVIRONMENTAL MATTERS
The Company is subject to environmental related claims in the normal
course of business. Management believes these liabilities, if any, will
not materially affect the Company's financial position or results of
operations.
12. PREFERRED STOCK
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 29
<PAGE> 30
13. COMMON STOCK
MINORITY INTEREST
Through a reorganization of the Company in February 1997, Canadian
shareholders are given the opportunity to convert their non-transferable,
non-voting PAC preferred shares on a 1:1 basis up to September 1, 2001,
after which the Company may redeem the PAC preferred shares for common
shares. During fiscal 2000 and 1999, 15,441 and 333 preferred shares were
exchanged or redeemed into common shares.
FOUNDERS' SHARES
An aggregate of 197,774 of "Founders' shares" are held in escrow by the
Company's transfer agent at March 31, 2000. These shares are releasable
from escrow at various times based on requirements of the Canadian Venture
Exchange. The founders have all rights related to these shares except the
right to transfer the shares without the permission of the Canadian
Venture Exchange.
14. STOCK OPTION PLANS AND WARRANTS
The following table summarizes the stock option activity under the
Company's 1998 stock option plan:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
UNDERLYING EXERCISE PRICE
SHARES CDN U.S.
<S> <C> <C> <C>
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
Granted 637,475 1.08 .74
Forfeited (251,200) 1.00 .68
-------- ---- ---
Stock options outstanding, March 31, 2000 1,125,075 $ 1.05 $ .74
--------- ---- ---
Stock options exercisable, March 31, 2000 1,000,000 $ 1.06 $ .75
========= ======== ======
</TABLE>
Options outstanding at March 31, 2000 had a weighted average remaining
contractual life of 2.25 years and had exercise prices ranging from $.58
(Cdn$.85) to $.79 (Cdn$1.15) per share.
On July 5, 1999, the Company issued 800,000 shares with transferable
warrants to purchase an aggregate of 400,000 common shares at $0.60
(Cdn$0.90) up to June 30, 2000. The Company also issued warrants entitling
the Agent to purchase 160,000 common shares at a price of $0.60 (Cdn$.90)
up to June 30, 2000.
On July 30, 1999, the Company completed a private placement and issued
1,127,750 common shares with non-transferable warrants to purchase an
aggregate of 1,127,750 common shares at $0.60 (Cdn$0.90) for one year to
July 30, 2000 and at $0.84 (Cdn$1.25) for one year expiring July 30, 2001.
The Company also issued warrants entitling the Agent to purchase 66,165
common shares under the same terms as offered.
Page 30
<PAGE> 31
The Company also issued 268,750 warrants which expire October 18, 2001, as
a finder's fee to a consulting firm for the coordination of the
acquisition of USC.
The warrants outstanding at March 31, 2000 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, 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
Issued 2,022,665 .89 .60 June 2000 to
October 2001
Exercised (385,750) .76 .51
Expired (297,500) .91 .63
--------- -------- -------
Warrants outstanding March 31, 2000 3,065,665 $ 1.12 $ .78
========= ======== =======
</TABLE>
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 income and pro forma basic and diluted unaudited
net income per share in fiscal year 2000 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 and
warrants: dividend yield of 0%, expected volatility of 45%, risk-free
interest rate ranging from 5.03% to 6.49% and expected lives of 1 to 3
years.
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 2, 2000.
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 2, 2000.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS 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 2, 2000.
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 2, 2000.
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 33.
Schedule III -- Supplementary financial information required by
Item 302 of Regulations S-K is located on page 33.
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.
(iii) EXHIBITS
The exhibits listed on the Exhibit Index at page 35 are filed as
part of this Annual Report on Form 10-K.
(B) REPORTS ON FORM 8-K -- FILED BY EDGAR
Not applicable
Page 32
<PAGE> 33
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
For the Fiscal Year Ended March 31, 2000
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
DESCRIPTION BALANCE AT ADDITIONS DEDUCTIONS- BALANCE AT END
BEGINNING OF CHARGED TO COSTS DESCRIBE OF PERIOD
PERIOD AND EXPENSES
<S> <C> <C> <C> <C>
Allowance against Available
Income from:
Valuation allowance on
deferred tax assets $ 2,501,792 nil $ 691,000 $2,149,900
</TABLE>
Note [1]: The deductions reflect deferred tax assets utilized in fiscal 2000 and
the relief of $500,000 of the prior year valuation allowance based on
management's assessment regarding the future realization of the deferred tax
benefits.
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
30-JUN 30-SEP 31-DEC 31-MAR
<S> <C> <C> <C> <C>
2000
Net revenue $ 2,795,623 $2,906,894 $3,514,118 $3,904,741
Gross Profit 873,170 913,357 1,150,038 $1,156,083
Income from operations 202,121 211,786 227,531 $ 246,694
Income before income taxes 140,671 154,831 167,024 $ 172,811
Net income 140,671 154,831 167,024 $ 642,811
Net income per share - basic 0.02 0.02 0.02 0.07
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
</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.
Page 33
<PAGE> 34
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/ Larry Flanagan /s/ Charlene Bellante
------------------------- ---------------------
E. Laughlin Flanagan Charlene Bellante
President, CEO & Director Corporate Controller, Assistant
Secretary/Treasurer
Dated: June 14, 2000
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 this 14 day of June, 2000.
SIGNATURE TITLE
/s/Gordon Ellis Chairman of the Board of
---------------------- Directors, Director
Gordon L. Ellis
/s/Larry Flanagan CEO & President, Director
----------------------
E. Laughlin Flanagan
/s/Bill Maligie CEO & President AMT USA,
---------------------- Director
William A. Maligie
/s/Stephen Silbernagel Director
----------------------
Stephen H. Silbernagel
/s/John Sutherland Director
----------------------
John J. Sutherland
/s/Darryl Jones Director, Secretary/ Treasurer
----------------------
Darryl F. Jones
/s/Gerald Habib Director
----------------------
Gerald A. Habib
Page 34
<PAGE> 35
EXHIBIT INDEX
EXHIBIT 2 PLAN OF ACQUISITION, REORGANIZATION, ARRANGEMENT, LIQUIDATION
OR SUCCESSION
2.1 [4] Plan of Reorganization - Information Circular for
the Extraordinary General Meeting of AMT
Environmental Products., Held November 12, 1996.
2.2 [1] Plan of merger
2.3 [2] Plan of acquisition
2.4 [3] Stock Purchase Agreement dated October 15, 1999,
by and between Alternative Materials Technology,
Inc., U.S. Cellulose Co., and Frederick Parkinson.
2.5 [3] Continuing Guaranty dated October 19, 1999, by and
between the Registrant and the Seller.
2.6 [3] U.S. Cellulose Employee Severance Plan effective
October 15, 1999.
2.7 [3] Assignment and Assumption of Lease; Acknowledgement
and consent thereto dated October 19, 1999, by and
between Fred Yrueta and U.S. Cellulose Co.
2.8 [3] Consulting Agreement dated October 19, 1999, by
and between Alternative Materials Technology, Inc.
and Frederick Parkinson.
2.9 [3] Consulting Agreement dated October 19, 1999,
by and between Alternative Materials Technology,
Inc. and Barbara Parkinson
2.10 [3] Agreement Not To Compete dated October 19, 1999
between Alternative Materials Technology, Inc.,
U.S. Cellulose Co. and Frederick Parkinson.
EXHIBIT 3 CURRENT ARTICLES OF INCORPORATION
3.1 [4] Articles of Incorporation
3.2 [4] By-Laws
EXHIBIT 10 MATERIAL CONTRACTS
10.1 [3] U.S. Cellulose Employee Severance Plan effective
October 15, 1999.
EXHIBIT 13 ANNUAL REPORT TO SECURITY HOLDERS, FORM 10Q OR QUARTERLY
REPORTS TO SECURITY HOLDERS
13.1 [1] 2000 Annual Report to Shareholders
13.2 [5] Form 10Q for the period ending June 30, 1999
13.3 [5] Form 10Q for the period ending September 30, 1999
13.4 [5] Form 10Q for the period ending December 31, 1999
EXHIBIT 21. SUBSIDIARIES OF THE REGISTRANT
21.1 [1] List of Subsidiaries of the Company
EXHIBIT 27. FINANCIAL DATA SCHEDULE
27.1 [1] Financial Data Schedule for Commercial and Industrial
Companies
-------------------------------------------------------------------------------
[1] Filed herewith.
[2] Incorporated by reference to the Form 10-K filed with the Company's
Annual Report for the year ended March 31, 1999.
[3] Incorporated by reference to the exhibits accompanying the Company's
current report on Form 8-K filed on November 2, 1999.
[4] Incorporated by reference to the exhibits accompanying the Company's
Form 10-K filed for the year ended March 31, 1997
[5] 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, 2000.
Page 35
