Addison Distribution, Inc. - Page 4

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                  Upon acceptance of the customer's purchase order, AEI placed                           
            a firm order with a vendor or subcontractor for the production of                            
            the electronic materials for the customer.  Vendors and                                      
            subcontractors sent AEI invoices for the electronic materials,                               
            and AEI paid the invoices.  When the electronic materials were                               
            ready, vendors and subcontractors shipped them to AEI.  AEI                                  
            received silicon wafers and printed circuit boards as finished                               
                  AEI inspected the electronic materials that vendors and                                
            subcontractors shipped to AEI.  After inspection, AEI placed its                             
            own labels on the goods identifying AEI as the "vendor".  AEI                                
            then repackaged and shipped the electronic materials to the                                  
            customer.  AEI sent an invoice to the customer, and the customer                             
            paid AEI's invoice for the electronic materials.                                             
                  AEI has always used the cash method of accounting.  AEI                                
            treated the transaction between itself and vendors,                                          
            subcontractors, or Distribution as a sale of goods and/or                                    
            services by the vendors, subcontractors, or Distribution to AEI.                             
            AEI treated the transaction between itself and the customer as a                             
            sale of goods by AEI to the customer.                                                        
                  During the years in issue, AEI included all payments it                                
            actually received from customers in those years in its gross                                 
            receipts.  AEI also included all purchases from vendors,                                     
            subcontractors, and Distribution it actually paid in those years                             

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Last modified: May 25, 2011