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.
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.
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
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
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
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.
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.
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.
ITEM 2.
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.
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.
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.
PART II
ITEM 5.
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:
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.
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.
- --------------- (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.
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.
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.
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.
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.
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.
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.
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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX
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
POLYMER SOLUTIONS, INC.
CONSOLIDATED BALANCE SHEETS (U.S. DOLLARS)
The accompanying notes are an integral part of these financial statements.
POLYMER SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (U.S. DOLLARS)
The accompanying notes are an integral part of these financial statements.
POLYMER SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDER EQUITY (DEFICIT) (U.S. DOLLARS)
The accompanying notes are an integral part of these financial statements.
POLYMER SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (U.S. DOLLARS)
The accompanying notes are an integral part of these financial statements.
POLYMER SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS CONTINUED (U.S. DOLLARS)
The accompanying notes are an integral part of these financial statements.
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.
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.
POLYMER SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. INVENTORIES
4. FIXED ASSETS
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.
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.
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:
Future minimum principal payments under capital lease obligations are as follows:
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.
POLYMER SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------
10. INCOME TAXES
The benefit for income taxes consists of the following:
The tax effects of temporary differences that give rise to significant portions of the deferred tax benefits are as follows:
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.
The income tax rate on earnings differed from the Federal statutory rate as follows:
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:
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.
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:
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.
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:
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.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable
PART III
ITEM 10.
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.
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.
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.
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.
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
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
For the Fiscal Year Ended March 31, 2000
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)
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.
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
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.