Advanced Delivery and Chemical Systems Nevada, Inc. - Page 11

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          revenue, cost of sales, operating expenses, and net income after            
          taxes as follows:3                                                          

                                           1996           1997                        
          Sales Revenue                $22,041,000    $24,600,452                     
          Cost of Sales                  6,567,000      8,352,577                     
          Operating Expenses             8,577,000      8,658,527                     
          Net Income After Taxes         6,027,000      4,202,672                     

               For 1996 and 1997, the respective yearend financial balance            
          sheets of petitioner, of Holdings LLC, of Operating LLC, and of             
          ADCS-Limited reflected cash assets as follows:                              
                                                                                     
             1996              1997                                                   
          Petitioner           $   16,549        $    7,876                           
          Holdings LLC             12,582            11,623                           
          Operating LLC             9,974             8,880                           
          ADCS-Limited          3,545,495         5,212,451                           

               Prior to the years in issue, ADCS had retained, and not                
          distributed to its individual shareholders, a cumulative total of           
          $9.7 million in earnings.                                                   
               During petitioner’s 1996 and 1997 short taxable years in               
          issue, ADCS-Limited retained approximately $1.9 million and $2.9            
          million, respectively, in current earnings, and petitioner did              
          not distribute any retained earnings to shareholders.                       
          Petitioner, however, did make distributions on behalf of its                

               3  The figures for 1996 for sales revenue, cost of sales,              
          operating expenses, and net income after taxes do not include               
          figures for ADCS-Korea as such figures were not included in the             
          record.  The figures for 1997 reflect the figures for all of                
          petitioner’s affiliated companies and for ADCS-Korea.                       





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