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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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FORM 10-K/A
(Amendment No. 1)

(MARK ONE)

[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the fiscal year ended February 29, 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: 001-12837

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PAMECO CORPORATION
(Exact name of registrant as specified in its charter)

Georgia 51-0287654
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification number)

1000 Center Place
Norcross, GA 30093
(Address of principal executive offices)

(770)-798-0700
(Registrant's telephone number, including area code)

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Securities registered pursuant to Section 12(b) of the Act:

Title of each class Name of exchange on which registered
Class A Common Stock New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: Not applicable

----------------

Indicate by check mark 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 periods 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 II of this Form 10-K or any
amendment to this Form 10-K. [_]

The aggregate market value of the Class A Common Stock held by non-
affiliates of the registrant was $12,878,591 on April 30, 2000.

The number of shares outstanding of the registrant's Class A Common Stock,
$.01 par value, and Class B Common Stock, $.01 par value, was 7,366,582 and
1,872,929 respectively, as of April 30, 2000.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's definitive Proxy Statement for the 2000 Annual
Meeting of Stockholders are incorporated by reference into Part III.

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PAMECO CORPORATION

INDEX

Part I
Item 1. Business...................................................... 3
Item 2. Properties.................................................... 5
Item 3. Legal Proceedings............................................. 5
Item 4. Submission of Matters to a Vote of Security Holders........... 5

Part II
Item 5. Market for Registrant's Common Stock and Related Stockholder
Matters....................................................... 5
Item 6. Selected Financial Data....................................... 7
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................... 7
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.... 13
Item 8. Consolidated Financial Statements and Supplementary Data...... 14
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure...................................... 38

Part III
Item 10. Directors and Executive Officers of the Registrant............ 38
Item 11. Executive Compensation........................................ 38
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................... 38
Item 13. Certain Relationships and Related Transactions................ 38

Part IV
Item 14. Exhibits and Financial Statement Schedules and Reports on Form
8-K........................................................... 38

Signatures............................................................... 40

Part I.

Item 1. Business

Overview

Pameco Corporation ("Pameco" or the "Company") is one of the largest
distributors of heating, ventilation, and air conditioning ("HVAC") systems
and equipment and refrigeration products in the United States, with
predecessor corporations dating back to 1931. As of February 29, 2000, the
Company operated 309 branches in 47 states and Guam. The Company's products
include a complete range of central air conditioners, heat pumps, furnaces and
parts and supplies for the residential market, and condensing units,
compressors, evaporators, valves, walk-in coolers and ice machines for the
commercial market. In fiscal 2000, Pameco primarily focused on generating net
sales from the repair and replacement market, which is higher margin and less
cyclical than the new construction market due to end-users' needs for
immediate service and expert technical advice. Management believes that Pameco
is one of a small number of companies in the United States which offer a
complete line of HVAC and refrigeration products on a significant scale on a
nationwide basis.

The Industry

Based upon the most recent industry report available, management estimates
that sales in the residential and light commercial heating and cooling
equipment and commercial refrigeration markets (excluding product markets in
which the Company does not compete) totaled approximately $13.4 billion and
$3.7 billion, respectively, in 2000. The combined $17.1 billion industry
includes equipment, parts and supplies distributed by wholesalers and by OEMs'
captive distribution arms, but excludes HVAC systems sold for use in large
commercial projects and refrigeration products sold in the residential market.

Business Strategy

For the fiscal year ending February 28, 2001, the Company has two primary
goals. First, the Company will seek to improve its relationships with its core
customers, the HVAC and refrigeration contractors. The Company will focus on
becoming a contractor service organization which means having the right
products and services when its customers need them. Second, the Company will
seek to improve its infrastructure. In particular, the Company will seek to
re-engineer to lower fixed costs in general and optimize the distribution
network in particular. The Company will also seek to implement "best
practices" from both inside and outside the HVAC industry.

Suppliers

The Company's size and stature in the HVAC and refrigeration industries, as
well as its strong and long-standing supplier relationships, enable the
Company to obtain favorable terms from its suppliers. Additionally, suppliers
have traditionally resisted granting distribution rights on a national level.
Due to the Company's size and growth through acquisitions, Pameco has been
granted nationwide distribution rights for certain product lines. Management
believes that as the Company continues to grow, additional suppliers may grant
the Company broader distribution rights.

The Company believes that it has good relationships with its suppliers. A
significant portion, approximately 40.8%, of the Company's purchases are
pursuant to contractual distribution arrangements with its suppliers. The
remainder are verbal and many of these arrangements may be terminated by the
supplier immediately or upon short notice.

During fiscal 2000, the Company purchased approximately $414.0 million of
equipment for resale, of which approximately 52.7% was obtained from its top
five suppliers, while the 25 largest suppliers accounted for approximately
78.7% of total purchases. The largest supplier accounted for approximately
20.4% of the Company's total purchases.

Customers

The Company currently serves over 35,000 customers, with no single customer
accounting for more than 2.5% of the Company's total sales and with the top
ten customers representing less than 9.0% of total sales in fiscal 2000.

Competition

The Company's business is highly competitive and fragmented. The Company
competes with a wide variety of traditional HVAC and refrigeration product
distributors in each of the Company's geographic markets. Most such
distributors are small enterprises maintaining between one and ten branches
and selling to customers in a limited geographic area. The Company also
competes to some extent with the manufacturers of HVAC and refrigeration
products, although management believes these manufacturers cannot compete
effectively with distributors, such as the Company, which offer broad product
lines and additional services. The primary factors of competition within the
Company's industries include breadth and quality of product lines distributed,
ability to fill orders promptly, technical knowledge of sales personnel and,
in certain product lines, service capability and price. In general, the
Company believes that national and multi-regional wholesalers, such as the
Company, enjoy substantial competitive advantages over small, independent
wholesalers that cannot afford to maintain Pameco's comprehensive product
offerings. The Company believes that its ability to compete effectively is
dependent upon its ability to respond to the needs of its customers through
quality service and product availability.

Government Regulations and Environmental Matters

The Company's operations are subject to federal, state and local laws and
regulations relating to the generation, storage, handling, emission,
transportation and discharge of materials into the environment. These include
laws and regulations implementing the Clean Air Act, relating to minimum
energy efficiency standards of HVAC systems and the production, servicing and
disposal of certain ozone-depleting refrigerants used in such systems,
including those established at the Montreal Protocol in 1992 concerning the
phase-out of CFC-based refrigerants. Management believes that the Company is
in substantial compliance with all applicable federal, state and local
provisions relating to the protection of the environment. The Company is also
subject to regulations concerning the transport of hazardous materials,
including regulations adopted pursuant to the Motor Carrier Safety Act of
1990.

Associates

As of February 29, 2000, Pameco employed 1,493 associates, 172 of whom were
employed primarily in management and administration, 124 in regional
distribution centers and 1,197 in sales and field operations. The Company's
associates are not subject to any material collective bargaining agreements,
and management believes that its relationship with its associates is good.

Forward-Looking Statements

Certain statements contained in this filing are "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
Such risks include, without limitation, risks associated with the Company's
information technology, the risk that the Company will not be able to
successfully implement its new strategies, the risk that new acquisitions will
not be successfully integrated into the Company, the seasonality and
cyclicality of the Company's sales, the Company's competition, the Company's
dependence on supplier relationships, the increased presence of buying groups
and risks related to the Company's borrowings. Such forward-looking statements
are subject to risks, uncertainties and other factors which could cause actual
results to differ materially from future results expressed or implied by such
forward-looking statements. Investors are cautioned that any forward-looking
statements are not guarantees of future performance and involve risks and
uncertainties and that actual results may differ materially from those
contemplated by such forward-looking statements.

Item 2. Properties

The Company currently maintains its corporate headquarters in Norcross,
Georgia. The lease expires in July 2003. The Company believes that its current
office space is sufficient to meet its present needs and does not anticipate
any difficulty securing additional space, as needed, on terms acceptable to
the Company.

Pameco leases its 11 distribution centers pursuant to agreements expiring
from five to 15 years. As of February 29, 2000, the Company operated 309
branches in 47 states and Guam, of which five are owned. The Company's branch
leases have terms expiring from one to seven years, with its leases typically
having renewal options. Management believes that none of Pameco's leased
facilities, individually, is material to the Company's operations.

Item 3. Legal Proceedings

From time to time, the Company is involved in claims and legal proceedings
in the ordinary course of business. The Company intends to defend vigorously
all such claims and does not believe any such matters would have a material
adverse effect on the Company's results of operations or financial condition.

Item 4. Submission of Matters to a Vote of Security Holders

None

Part II.

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters

The Registrant was incorporated in March 1997, and since June 4, 1997 its
Class A Common Stock has been traded on the New York Stock Exchange. As of
January 12, 2000, there were approximately 1,400 beneficial holders and 345
holders of record of the Class A Common Stock. As of January 12, 2000, there
were 36 holders of record of the Class B Common Stock.

During the past three years, the following persons were issued Class A
Common Stock of the Registrant based on the exemption provided under Section
4(2) of the Securities Act of 1933 on the date and for the consideration
referenced below:

Name No. Shares Date of Issuance Consideration
---- ---------- ---------------- -------------

*J Chelsey Culpepper............... 625 07/31/97 $3,400.00
*Hector M. Colon................... 375 07/09/97 $1,800.00
*Robert J. Duncan.................. 375 06/23/97 $1,800.00
*Mary C. Barnett................... 375 06/20/97 $1,800.00
*Eugene H. Dill.................... 375 06/19/97 $ 330.00
*James E. Plew..................... 375 06/19/97 $ 330.00
*Andrew F. Ross.................... 375 06/19/97 $ 330.00
*Garland A. Smith.................. 375 06/19/97 $ 330.00
*Randall Fly....................... 5,000 06/17/97 $4,400.00
*Charles Bailly.................... 375 06/16/97 $ 330.00
*David Whitman..................... 375 06/16/97 $ 330.00
*James C. Herlinger................ 375 06/12/97 $ 330.00
*Wally W. George................... 5,000 06/11/97 $4,400.00
*Philip A. Mattera................. 375 06/11/97 $ 330.00
*Francis S. Dzialo................. 375 06/10/97 $ 330.00
*Lawrence C. Olson................. 6,250 06/10/97 $5,500.00
*Thomas S. Greenway................ 375 06/09/97 $ 330.00

Name No. Shares Date of Issuance Consideration
---- ---------- ---------------- -------------

*John K. Hammer.................... 375 06/09/97 $ 330.00
*Jacke Reynolds.................... 5,000 06/09/97 $ 4,400.00
*John D. Davis..................... 375 06/06/97 $ 330.00
*Pedro Morales..................... 375 06/04/97 $ 330.00
*Steve Ferguson.................... 375 05/28/97 $ 330.00
*Paul J. Smith..................... 625 05/21/97 $ 4,000.00
*Al J. Lendino..................... 5,000 05/16/97 $ 4,400.00
*J.W. Leneave...................... 6,250 05/02/97 $ 5,500.00
*Ronald T. Nakamura................ 5,000 05/02/97 $ 4,400.00
*David P. Satterthwaite............ 3,125 05/02/97 $ 2,750.00
*Robert Ellis...................... 375 04/14/97 $ 330.00
*Gary Wadsworth.................... 1,562 04/14/97 $ 1,375.00
*Jesus B. Pizarro.................. 5,000 04/10/97 $ 4,400.00
*Charles Sorrentino................ 21,875 04/07/97 $140,000.00
*J. Christopher van Ee............. 19,031 04/07/97 $ 30,100.00
*Mark L. Davison................... 1,875 04/04/97 $ 15,000.00
*Philip J. Filer................... 3,987 04/04/97 $ 19,140.00
*Donagh M. Kelly................... 22,916 04/04/97 $ 27,580.00
*James R. Balkcom, Jr.............. 12,500 04/03/97 $100,000.00
*Theodore R. Kallgren.............. 17,312 04/03/97 $ 39,000.00
*Jeffrey S. Ruege.................. 19,997 04/03/97 $ 39,638.00
*Brian T. Silva.................... 375 04/03/97 $ 330.00
*Walter W. Wilcox.................. 6,250 04/03/97 $ 5,500.00
*Mark A. Graham.................... 12,362 04/02/97 $ 44,620.00
*Thomas L. Jacques................. 7,625 04/01/97 $ 41,350.00
*Mary M. McCulley.................. 2,750 04/01/97 $ 13,200.00
*Jeffrey D. Ward................... 3,525 03/31/97 $ 15,110.00
*Paul K. Bois...................... 14,375 03/27/97 $ 12,650.00
*Gerald V. Gurbacki................ 76,875 03/20/97 $492,000.00
James R. Balkcom, Jr............... 62,500 03/10/97 $600,000.00
*James Giolas...................... 5,000 03/10/97 $ 4,400.00

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* Pursuant to the exercise of stock options

The following table sets forth for the periods indicated the high and low
sales prices of the Class A Common Stock on the New York Stock Exchange. The
Company has not paid dividends on its Class A Common Stock. The Company
intends to retain its earnings to finance its growth and for general corporate
purposes. Under the terms of its credit agreements, the Company may not pay
dividends without the consent of its lenders.

Stock Market Price Range Low High
------------------------ ------ ------

First Quarter--March 1, 1999-May 31, 1999..................... $ 5.63 $ 8.00
Second Quarter--June 1, 1999-August 31, 1999.................. $ 6.56 $ 9.50
Third Quarter--September 1, 1999-November 30, 1999............ $ 4.13 $ 6.88
Fourth Quarter--December 1, 1999-February 29, 2000............ $ 3.38 $ 4.31

First Quarter--March 1, 1998-May 31, 1998..................... $16.38 $20.50
Second Quarter--June 1, 1998-August 31, 1998.................. $17.00 $23.75
Third Quarter--September 1, 1998-November 30, 1998............ $13.69 $16.31
Fourth Quarter--December 1, 1998-February 28, 1999............ $ 6.69 $13.75

Item 6. Selected Financial Data

Year Ended
----------------------------------------------------------------
February 29, February 28, February 28, February 28, February 29,
2000(a) 1999(b) 1998(c) 1997(d) 1996
------------ ------------ ------------ ------------ ------------
Restated Restated

Results of Operations
Net sales............... $603,711 $625,042 $484,010 $378,658 $334,537
Net (loss) income
applicable to common
shareholders........... $(55,647) $ 1,855 $ 8,846 $ 10,732 $ 5,494

Per Share Data
Basic (loss) earnings
per share.............. $ (6.06) $ 0.21 $ 1.14 $ 1.82 $ 0.88
Diluted (loss) earnings
per share.............. $ (6.06) $ 0.20 $ 1.08 $ 1.71 $ 0.83

Balance Sheet
Information
Total assets............ $222,529 $272,632 $210,812 $149,369 $119,167
Long-term liabilities... 85,177 99,283 45,911 36,299 42,972
Redeemable convertible
preferred stock........ 23,324 -- -- -- 4,000
Warrants to purchase
redeemable convertible
preferred stock........ 11,676 -- -- -- --

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(a) Includes a $27.0 million increase in the Company's valuation allowance for
deferred tax assets.
(b) Reflects the results of operations of Keller Supply, Inc., George L.
Johnston Co., Inc., Park Heating and Air Conditioning Supply, Inc.,
Climate Supply Company, Inc., Tesco Distributors, Inc. and Belleville
Supply Company, Inc. from the respective dates of acquisition.
(c) Reflects the results of operations of Bellows-Evans, Inc., Trigg Supply,
Inc., Heating Cooling Distributors, Inc., Saez Refrigeration, Inc., Saez
Refrigeration of Hialeah, Inc., Superior Supply Company, General Heating
and Cooling Company, and Williams Refrigeration, Inc. from the respective
dates of acquisition.
(d) Reflects the results of operations of Chase Supply Company and Sid Harvey
Industries from the respective dates of acquisition.

Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations

Pameco Corporation is one of the largest distributors of HVAC systems and
equipment and refrigeration products in the United States, with predecessor
corporations dating back to 1931. As of February 29, 2000, the Company
operated 309 branches in 47 states and Guam.

In fiscal 2000, Pameco primarily focused on generating net sales from the
repair and replacement market, which is higher margin and less cyclical than
the new construction market due to end-users' needs for immediate service and
expert technical advice. Management believes that Pameco is one of a small
number of companies in the United States which offers a complete line of HVAC
and refrigeration products on a significant scale on a nationwide basis.

Results of Operations

The table below sets forth certain consolidated historical operating
information for the Company, as a percentage of total sales, for the periods
indicated:

Year Ended
--------------------------------------
February 29, February 28, February 28,
2000 1999 1998
------------ ------------ ------------
Restated Restated

Net sales............................... 100.0 % 100.0 % 100.0 %
Cost of products sold................... 78.2 76.5 76.2
----- ----- -----
Gross profit............................ 21.8 23.5 23.8
Warehousing, selling, and
administrative expenses............... 26.8 21.8 20.4
Restructuring.......................... 0.7 0.1 0.0
Amortization of excess of cost over
acquired net assets................... 0.2 0.2 0.1
Amortization of excess of acquired net
assets over cost...................... (0.2) (0.2) (0.3)
----- ----- -----
Operating (loss) earnings............... (5.7) 1.6 3.6
Other expense:
Interest expense, net.................. 1.4 0.8 0.4
Discount on sale of accounts receivable
and other expense..................... 0.3 0.5 0.6
----- ----- -----
(Loss) income before income taxes....... (7.4) 0.3 2.6
Provision for income taxes.............. 1.8 -- 0.7
----- ----- -----
Net (loss) income....................... (9.2)% 0.3 % 1.9 %
===== ===== =====

Year Ended February 29, 2000 Compared to Year Ended February 28, 1999

Net sales for the year ended February 29, 2000 decreased 3.4% to $603.7
million as compared to $625.0 million for the year ended February 28, 1999.
For the year ended February 29, 2000, same store net sales decreased 3.9% as
compared to the prior year. The decline in same store net sales cannot be
attributed to any single market factor. The decline was similar across all
regions of the country and included broad product categories, which affected a
broad range of product segments and vendor lines. The decline in net sales was
due primarily to supply chain and cash flow issues that affected product
availability. The Company also continued to reduce its inventory levels in an
effort to manage working capital more effectively, which adversely impacted
net sales volume. For the year ended February 29, 2000, working capital was
reduced by $17.4 million and long-term debt was reduced by $15.2 million.

Gross profit for the year ended February 29, 2000, decreased 10.3% to $131.8
million from $146.9 million for the prior year. The gross profit percentage
for year ended February 29, 2000, decreased to 21.8% from 23.5% for the prior
year. The gross profit percentage was negatively impacted by the Company's
lack of availability of higher margin repair and replacement products during
the year due to supply chain and cash flow issues. The gross profit percentage
was reduced as the Company received lower benefits from vendor rebate programs
due to lower purchasing levels. Also in February 2000, the Company conducted a
full physical inventory. Based on the results of that physical inventory, the
Company recorded an additional product shrinkage expense. In addition, the
Company revalued a portion of its inventory and also sold a significant
portion of its excess and idle inventory during the year. The effect of these
items lowered the gross profit percentage for the year ended February 29, 2000
from 23.3% to 21.8%.

Warehousing, selling, and administrative expenses for the year ended
February 29, 2000, increased 19.2% to $162.4 million from $136.2 million for
the prior year. The normal operating expenses of the 32 branches acquired
since February 28, 1998, contributed approximately 53.3% of the additional
expense. Of the remaining

expenses, a significant portion is attributable to the approximately $9.0
million dollars of consulting costs associated with the Company's enhancement
of its key business processes. Warehousing costs have also increased due to
the Company's strategic re-deployment of its inventory throughout the entire
distribution system during the current year.

For the year ended February 29, 2000, the Company recorded a $3.7 million
restructuring charge for costs relating to the closing of 40 branches.

Net interest expense for the year ended February 29, 2000, increased $3.5
million to $8.6 million from $5.1 million for the prior year. Higher interest
rates during the year in conjunction with higher average borrowings, which
increased by $3.4 million over the previous year, caused the increased
interest expense. The discount on the sale of accounts receivable of
$2.6 million and $3.6 million for the years ended February 29, 2000, and
February 28, 1999, respectively, was recorded as part of the "Discount on sale
of accounts receivable and other expense" on the statement of operations. The
weighted average rate of interest on all debt, including the Securitization
Program, for the year ended February 29, 2000, was 8.7% as compared to 7.0%
for the previous year.

For the year ended February 29, 2000, the Company recorded an income tax
expense of $11.0 million as compared to $325,000 in the prior year. The
Company's effective income tax rate for the year ended February 29, 2000,
differed from the statutory rate principally as a result of an increase in the
deferred tax asset valuation allowance of $27.0 million. In February 2000, in
connection with the significant loss incurred by the Company during the fourth
quarter of the year, management concluded that realization of its net deferred
tax assets was no longer more likely than not and, accordingly, increased the
valuation allowance to fully provide for such assets. The Company's effective
income tax rate is reduced by the exclusion of the amortization of the
acquired net assets over cost (negative goodwill amortization) from taxable
income.

Year Ended February 28, 1999 Compared to Year Ended February 28, 1998

Net sales of $625.0 million for the year ended February 28, 1999 increased
29.1% from $484.0 million for the year ended February 28, 1998. Same store net
sales increased 9.6% for the year ended February 28, 1999 as compared to the
prior year.

Although acquired branches contributed significantly to the year to year
growth in net sales, the net sales of HVAC products on a same store basis
increased by 14.8% for the year ended February 28, 1999 as compared to the
prior year. Continued net sales improvement in the Company's ThermalZone(TM)
private label equipment line was a primary reason for the increase. Sales of
refrigeration equipment, parts, and supplies increased 3.1% on a daily same
store basis for the year ended February 28, 1999 as compared to the prior
year.

For the year ended February 28, 1999, gross profit increased 27.4% to $146.9
million from $115.3 million in the prior year. The Company's gross profit
increased largely due to increased sales volume. The gross profit percentage
decreased to 23.5% for the year ended February 28, 1999 as compared to 23.8%
for the prior year. During the year, the Company increased the volume of its
lower margin ThermalZone(TM) product lines at a substantially faster rate than
its higher margin refrigeration products. In addition, the Company sustained
higher product shrinkage and damage expenses in the year ended February 28,
1999 than in the previous year. The gross profit also was adversely impacted
by non-recurring charges for (i) the write down of inventories associated with
certain discontinued product lines and (ii) other charges for damaged
equipment in inventory. These reductions to gross profit were offset in part
by improved terms and prompt payment discounts from key suppliers. The Company
also revised its purchasing practices to take further advantage of
manufacturer rebate programs and volume purchase discounts.

Warehousing, selling, and administrative expenses for the year ended
February 28, 1999 increased 38.0% to $136.2 million from $98.7 million in the
prior year. Although a portion of the increase over the prior year can be
attributed to the normal operating expenses of the acquired branches, the
Company also incurred significant additional expenses during its conversion to
a new enterprise-wide management information system ("MIS").

To facilitate a smooth transition to the new system with minimal disruption to
its customers, the Company retained seasonal employees at its branches and
warehouses through the transition period that lasted into the third quarter of
fiscal 1999. Likewise, additional administrative costs were incurred at the
corporate office during this transition period for the same purpose. The
Company also recorded non-recurring charges consisting of (i) the expensing of
certain training and software costs relating to the implementation of the new
MIS; and (ii) a significant increase in the Company's allowance for losses on
accounts receivable relating to the increase in aging of such receivables
because of billing statement delays and other inefficiencies associated with
the transition to the new MIS. Warehousing, selling, and administrative
expenses as a percentage of net sales increased to 26.8% for the year ended
February 28, 1999 from 21.8% in the prior year.

For the year ended February 28, 1999, the Company recorded a $0.7 million
restructuring charge for costs related to the closing of 15 branches.

Interest expense during the year ended February 28, 1999 increased to $5.1
million from $2.0 million in the previous year. The Company's average
borrowings increased by $64.8 million over the previous year. During the past
fiscal year, the Company utilized the Working Capital Facility to fund all its
acquisitions. To avoid disruptions during the transition to the new MIS, the
inventory levels were increased to a higher than normal level and maintained
at that level through the transition period. In addition, the mailing of
customer statements was delayed in September and October 1998 as the new
system became operational. Both of these events resulted in increased bank
borrowings during the third and fourth quarters of the year ended February 28,
1999. The Securitization Program (as defined below) was recorded as a sale of
assets; therefore, approximately $43.6 million of accounts receivable and debt
are not reflected on the Company's balance sheet at February 28, 1999. The
discount on the sale of accounts receivable of $3.6 million and $3.0 million
for the years ended February 28, 1999 and February 28, 1998, respectively, was
recorded as other expense on the consolidated statements of operations. The
weighted average rate of interest on all debt, including the Securitization
Program, for the year ended February 28, 1999 was 7.0% as compared to 7.3% for
the previous year.

For the year ended February 28, 1999, the Company recorded income tax
expense of $325,000. The Company's effective tax rate differed from the
statutory rate principally as a result of the amortization of the excess of
acquired net assets over cost (negative goodwill amortization) not being
included in taxable income. The Company's effective income tax rate for the
year ended February 28, 1998, was lower than the statutory rate principally as
a result of the reduction of the deferred income tax valuation allowances.

Liquidity and Capital Resources

The Company's liquidity needs arise from seasonal working capital
requirements, capital expenditures, interest and principal payment
obligations, and acquisitions. The Company has historically met its liquidity
and capital investment needs with internally generated funds and borrowings
under its credit facilities. For the year ended February 29, 2000, the cash
used in operating activities was $10.1 million compared to cash provided in
operating activities of $762,000 for the year ended February 28, 1999. Net
cash used in investing activities was $3.4 million for the year ended February
29, 2000 as compared to $51.0 million for the prior year. During the year
ended February 28, 1999, the Company purchased the HVAC operations and related
assets of Keller Supply, Inc., George L. Johnston Co., Inc., Park Heating and
Air Conditioning, Inc., Tesco Distributors, Inc., Climate Supply Company, Inc.
and Belleville Supply Company, Inc. for an aggregate cash price of $45.7
million. Net cash provided by financing activities was $13.5 million for the
year ended February 29, 2000, while such activities provided $50.3 million in
the prior year. The Company received $35.0 million from the issuance of Series
A redeemable convertible preferred stock and warrants in February 2000. The
Company borrowed $60.2 million pursuant to the new credit agreement it
executed in February 2000. The Company also borrowed $20.0 million under a
subordinated debt agreement reached in February 2000. The Company repaid $49.7
million and $49.2 million of outstanding borrowings under its previous working
capital facility and term debt, respectively, with the proceeds from the new
borrowings.

The Company's working capital decreased to $80.1 million at February 29,
2000 from $100.8 million at February 28, 1999.

At February 28, 1999, the Company had a $240.0 million Credit Agreement with
one primary institution and several other participating lenders. The Credit
Agreement provided for (a) a securitization commitment ("the Securitization
Program") of $100.0 million; (b) a revolving line of credit ("the Revolver")
of $90.0 million; and (c) two term loans aggregating $50.0 million ("Tranche
A" and "Tranche B"). The combined $240.0 million of facilities bore interest
based on the commercial paper or the Eurodollar rate plus a margin as
described below.

At February 28, 1999, the Company had a Securitization Program with General
Electric Capital Corporation, Redwood Receivables Corporation ("Redwood"), and
Pameco Securitization Corporation ("PSC"). The Securitization Program was an
off-balance sheet arrangement that provided for the transfer and sale of
accounts receivable to PSC, a special purpose wholly-owned subsidiary, that
sold the accounts receivable to Redwood, which issued commercial paper on the
Company's behalf. At February 28, 1999, accounts receivable of $43.6 million
were sold under the Securitization Program. The sales of such accounts
receivable were reflected as a reduction of accounts receivable in the
Company's consolidated balance sheet. The margin on the commercial paper rate
for the Securitization Program ranged from 0.75% to 1.75%, depending upon the
Company's interest coverage ratio, and was 1.00% at February 28, 1999. The
borrowing rate at February 28, 1999 was 5.9%. The discount on the sale of
accounts receivable was $2.6 million and $3.6 million for the years ended
February 29, 2000, and February 28, 1999, and such amounts are included in
other expenses on the consolidated statements of operations.

At February 28, 1999, the Company had borrowings of $49.7 million
outstanding under the Revolver. The margin on the Eurodollar rate for the
Revolver ranged from 1.50% to 2.50%, depending upon the Company's interest
coverage ratio, and was 1.75% at February 28, 1999. The borrowing rate at
February 28, 1999 was 6.7%.

The Company had aggregate borrowings of $49.2 million outstanding at
February 28, 1999 on Tranche A and Tranche B. The margin on the Eurodollar
rate for the Tranche A ranged from 1.50% to 2.50%, depending upon the
Company's interest coverage ratio, and was 1.75% at February 28, 1999. The
margin on the Eurodollar rate for the Tranche B ranged from 2.00% to 3.00%,
depending upon the Company's interest coverage ratio, and was 2.25% at
February 28, 1999.

During the year ended February 29, 2000, the Company entered into a series
of amendments to the Credit Agreement and the Securitization Program described
above. The Company entered into amendments to the Credit Agreement in June
1999, July 1999, August 1999, October 1999, December 1999, and January 2000.
These amendments primarily served to lower certain financial covenants, adjust
interest rates, decrease borrowing bases, and adjust repayment dates for the
tranche loans. Additionally, the Company entered into amendments to the
Securitization Program in June 1999, July 1999, August 1999, October 1999,
December 1999, and January 2000. These amendments principally served to change
reporting requirements and lower certain financial covenants. On February 29,
2000, the Company repaid all borrowings under the Credit Agreement using the
proceeds from the financing agreement described below. Additionally, the term
loan borrowings with the primary institution sponsoring the Credit Agreement
have been repaid. Accounts receivable previously sold under the Securitization
Program were repurchased by the Company concurrent with the repayment of
borrowings under the Credit Agreement.

On February 17, 2000, the Company entered into an agreement with a new
primary lender and various participating lenders (the "Lenders") to obtain
financing under a senior credit facility amounting to an aggregate of $130
million (the "New Credit Agreement"). The New Credit Agreement provides for
(a) a revolving line of credit of $130.0 million (the "New Revolver
Facility"), and (b) a subfacility of the New Revolver Facility providing for
the issuance of letters of credit (the "LC Facility"), not to exceed $15
million, (such amount to be calculated as part of, and not in addition to, the
aggregate limit of the New Credit Agreement). At February 29, 2000, no amounts
were outstanding on the LC Facility or additional credit facility.

At February 29, 2000, the Company had borrowings of $60.2 million
outstanding under the New Revolver Facility. Proceeds from these borrowings on
February 29, 2000, were used to repay borrowings under the previous Credit
Agreement. These borrowings are due February 17, 2005. Interest is based on
LIBOR plus 2.75% for specified loan amounts and the prime rate plus 0.75% for
borrowings in excess of specified loan amounts. The effective borrowing rate
at February 29, 2000 was 8.77%.

At February 29, 2000, debt includes a $20.0 million subordinated debt
agreement (the "Subdebt Facility") entered into on February 18, 2000,
simultaneously with the $130.0 million New Credit Agreement. The Subdebt
Facility bears interest of 12% per annum due quarterly. The 12% interest rate
consists of 6% payable in cash and 6% added to principal ("paid in kind"
interest). Principal of $2.0 million is due at March 31, 2003 and 2004,
respectively, and the remaining principal plus accrued paid in kind interest
balance is due on March 31, 2005.

In connection with the $20.0 million Subdebt Facility and effective February
18, 2000, the Company entered into future inventory purchase agreements with
the parties to the Subdebt Facility. These agreements require the Company to
purchase minimum percentages of its annual inventory demand for certain
products over the next five years from specified suppliers. Failure to meet
these minimum percentages would result in penalties and default on the
associated $20.0 million Subdebt Facility. Minimum commitments under these
purchase agreements are: 2001-$19.9 million; 2002-$24.1 million; 2003-
$25.4 million; 2004-$26.4 million; and 2005 and fiscal years thereafter $27.5
million. For the year ended February 29, 2000, the Company purchased $200.2
million of inventory from these specified suppliers.

The New Credit Agreement and the Subdebt Facility require compliance with
specific levels of net worth, earnings before interest, taxes, depreciation,
and amortization ("EBITDA"), and a specified fixed charge coverage ratio. The
negative covenants include various limitations on indebtedness, liens,
fundamental changes, dividends, and investments. At February 29, 2000, the
Company complied with all covenants or subsequently obtained a waiver and
amendment as of May 18, 2000, with respect to any violations. The Company has
granted a security interest to the Lenders for substantially all the assets of
the Company, including the accounts receivable, inventory, and equipment, as
collateral for the debt.

On May 18, 2000, the Company entered into an amendment and waiver to the New
Credit Agreement. In general, the amendment waived the Company's violation of
the consolidated net worth covenant, modified the definition of consolidated
net worth, and reduced the levels of consolidated net worth required for
future periods. In addition, the Subdebt Facility contains provisions whereby
amendments to the New Credit Agreement are automatically incorporated into the
Subdebt Facility.

On December 30, 1999, the Company borrowed $7.5 million principal amount
from a related party ("Related Party Note"). Interest on the Related Party
Note accrued at an annual rate equal to the LIBOR rate plus 7%. During the
year ended February 29, 2000, interest expense incurred on the Related Party
Note was $114,000. The outstanding principal and interest of $7.6 million were
repaid in February 2000 in connection with the New Credit Agreement described
above.

The Company's capital expenditures for the year ended February 29, 2000,
were $3.4 million as compared to $5.4 million for the previous fiscal year.
Such capital expenditures were primarily for branch and distribution center
leasehold improvements, equipment, and computer equipment and supply chain
software. Capital expenditures for fiscal year 2001 are expected to total
approximately $5.0 million.

Management believes that the Company has adequate resources and liquidity to
meet its borrowing obligations, fund all required capital expenditures, and
pursue its business strategy for existing operations through the end of fiscal
year 2001. However, the Company will require additional funding in order to
pursue significant acquisition opportunities. Future acquisitions may be
financed by bank borrowings, public offerings, or private placements of equity
or debt securities, or a combination of the foregoing. Such financings may
require the consent of the Company's existing lenders.

Seasonality

The Company's operating results vary significantly from quarter to quarter.
Sales typically increase during the warmer months beginning in April and peak
in the months of June, July, and August. For the year ended February 29, 2000,
the Company's second fiscal quarter accounted for $207.7 million of its net
sales and $1.8 million of operating earnings.

Sales of HVAC and refrigeration equipment and replacement components are
also affected by weather patterns and seasonal equipment start-ups. Warmer
than normal summer temperatures or colder than normal winter temperatures
cause increased stress on cooling and heating equipment. Increased stress on
equipment produces higher failure rates and therefore increased sales volume
of replacement equipment. Start-up modes for inactive equipment also produce
higher failure rates and an increase in replacement business on a seasonal
basis. Management believes the Company's national branch coverage mitigates
much of the risk associated with regional or local weather patterns.

Inflation

The rate of inflation as measured by changes in the average consumer price
index has not had a material effect on the sales or operating results of the
Company. However, inflation in the future could affect the Company's operating
costs. Price changes from suppliers have historically been consistent with
inflation and have had little impact on the Company's profitability. The
Company has been able to pass supplier price increases to its customers or, in
a case where the Company meets resistance from its customers on a price
increase, the Company has been successful in working with its suppliers to
reduce acquisition costs in order to maintain a reasonable margin on its
sales.

Year 2000

The Company developed a Year 2000 strategic plan that identified initiatives
necessary to minimize failures of its electronic systems to process date-
sensitive information in the Year 2000 and thereafter. The Company completed
the necessary modification and replacements to its critical supply chain and
financial management systems and software by November 1999. The Company also
replaced non-compliant point of sale ("POS") systems and telephone systems by
November 1999. The Company did not experience any significant failures of
these systems and software during the transition from 1999 to 2000. The
Company will continue to monitor these systems and software throughout the
year 2000 to ensure continued compliance.

The Company incurred approximately $358,000 through the end of 1999 in the
implementation of the modifications and replacements described above.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

The Company is exposed to changes in interest rates due to the Company's
variable rated debt. As a result of the Company's use of floating rate debt,
if market interest rates average 1% more in fiscal 2001 than the rates at
February 29, 2000, interest expense would increase by $604,000 for the year
ending February 29, 2001. Comparatively, based on the Company's debt profile
at February 28, 1999, a 1% increase in market interest rates would increase
interest expense by $392,000 for fiscal 2000. These amounts were determined by
calculating the effect of the hypothetical interest rate on the Company's
floating debt rate, after giving consideration to the Company's interest rate
swap agreements and other risk management instruments. These amounts do not
include the effects of certain potential results of increased interest rates,
such as a reduced level of overall economic activity or other actions
management may take to mitigate this risk. Furthermore, this sensitivity
analysis does not assume changes in the Company's financial structure that
could occur if interest rates were higher.

Item 8. Consolidated Financial Statements and Supplementary Data

REPORT OF INDEPENDENT AUDITORS

Board of Directors
Pameco Corporation

We have audited the accompanying consolidated balance sheets of Pameco
Corporation as of February 29, 2000, and February 28, 1999 (as restated), and
the related consolidated statements of operations, shareholders' equity and
cash flows for each of the three years in the period ended February 29, 2000
(2000 and 1999 as restated). Our audits also included the financial statement
schedule listed in Part IV, Item 14(a). These financial statements and
schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards 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. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material aspects, the consolidated financial position of Pameco
Corporation at February 29, 2000, and February 28, 1999 (as restated), and the
consolidated results of its operations and its cash flows for each of the
three years in the period ended February 29, 2000 (2000 and 1999 as restated),
in conformity with accounting principles generally accepted in the United
States. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.

The consolidated financial statements for the years ended February 29, 2000
and February 28, 1999 have been restated as discussed in Note 2.

/s/ Ernst & Young LLP

Atlanta, Georgia
April 21, 2000, except for the Subsequent
Event Section of Note 5, as to which the
date is May 18, 2000, and except for Note
2, as to which the date is March 13, 2001

PAMECO CORPORATION

CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)

February 29, February 28,
2000 1999
------------ ------------
Restated

Assets
Current assets:
Cash and cash equivalents.......................... $ 120 $ 148
Accounts receivable, less allowance of $5,991 at
February 29, 2000 and
$6,210 at February 28, 1999....................... 59,769 35,507
Inventories........................................ 96,619 157,621
Prepaid expenses and other current assets.......... 3,362 4,149
-------- --------
Total current assets............................. 159,870 197,425
Property and equipment, net.......................... 15,046 15,694
Excess of cost over acquired net assets, net......... 43,221 44,133
Debt financing costs................................. 3,657 815
Other assets......................................... 735 682
Deferred income tax assets........................... -- 13,883
-------- --------
Total assets..................................... $222,529 $272,632
======== ========
Liabilities and shareholders' equity
Current liabilities:
Accounts payable................................... $ 58,116 $ 68,521
Accrued compensation and withholdings.............. 5,201 4,661
Other accrued liabilities and expenses............. 16,355 19,849
Current portion of other debt...................... 50 3,575
-------- --------
Total current liabilities........................ 79,722 96,606
Long-term liabilities:
Debt............................................... 80,392 95,608
Deferred warranty revenue ......................... 4,785 3,675
-------- --------
Total long-term liabilities...................... 85,177 99,283
Excess of acquired net assets over cost, net......... 3,245 4,160
Redeemable convertible preferred stock, $1.00 par
value: 600 and no shares authorized as of February
29, 2000, and February 28, 1999, respectively;
140 and no shares issued and outstanding as February
29, 2000, and
February 28, 1999, respectively; aggregate
liquidation preference of $35,000
as of February 29, 2000............................. 23,324 --
Warrants to purchase redeemable convertible preferred
stock............................................... 11,676 --
Shareholders' equity:
Class A Common stock, $.01 par value--authorized
40,000 shares;
5,959 and 5,226 shares issued and outstanding at
February 29, 2000 and February 28, 1999,
respectively...................................... 59 52
Class B Common stock, $.01 par value--authorized
20,000 shares;
3,273 and 3,831 shares issued and outstanding at
February 29, 2000 and February 28, 1999,
respectively...................................... 33 38
Capital in excess of par value..................... 41,312 38,966
Unamortized deferred compensation.................. (299) --
Retained earnings (accumulated deficit)............ (21,720) 33,927
-------- --------
19,385 72,983
Note receivable from shareholder................... -- (400)
-------- --------
Total shareholders' equity....................... 19,385 72,583
-------- --------
Total liabilities and shareholders' equity....... $222,529 $272,632
======== ========

See notes to consolidated financial statements.

PAMECO CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)

Year Ended
--------------------------------------
February 29, February 28, February 28,
2000 1999 1998
------------ ------------ ------------
Restated Restated

Net sales............................... $603,711 $625,042 $484,010
Costs and expenses:
Cost of products sold................. 471,936 478,093 368,685
Warehousing, selling, and
administrative expenses.............. 162,387 136,194 98,715
Restructuring......................... 3,747 726 --
Amortization of excess of cost over
acquired net assets.................. 1,186 1,023 381
Amortization of excess of acquired net
assets over cost..................... (1,244) (1,224) (1,224)
-------- -------- --------
638,012 614,812 466,557
-------- -------- --------
Operating (loss) earnings............... (34,301) 10,230 17,453

Other expense:
Interest expense, net................. (8,568) (5,146) (1,980)
Discount on sale of accounts
receivable and other expense......... (1,737) (2,904) (3,086)
-------- -------- --------
(Loss) income before income taxes....... (44,606) 2,180 12,387
Provision for income taxes.............. 11,041 325 3,541
-------- -------- --------
Net (loss) income applicable to common
shareholders........................... $(55,647) $ 1,855 $ 8,846
======== ======== ========
Basic (loss) earnings per share......... $ (6.06) $ 0.21 $ 1.14
======== ======== ========
Basic weighted average shares
outstanding............................ 9,183 8,802 7,779
======== ======== ========
Diluted (loss) earnings per share....... $ (6.06) $ 0.20 $ 1.08
======== ======== ========
Diluted weighted average shares
outstanding............................ 9,183 9,118 8,183
======== ======== ========

See notes to consolidated financial statements.

PAMECO CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands)

Class Class
A B Retained
Common Common Common Common Capital in Unamortized Earnings
Stock Stock Stock Stock Excess of Note Deferred Treasury (Accumulated
Shares Shares Shares Amount Par Value Receivable Compensation Stock Deficit) Total
------ ------ ------ ------ ---------- ---------- ------------ -------- ------------ --------
Restated Restated

Balances at February
28, 1997............. 5,108 -- -- $64 $ 1,841 $-- $ -- $(10,500) $ 23,226 $ 14,631
Conversion of Common
Stock to Class A
shares............... (1,125) 1,125 -- -- -- -- -- -- -- --
Conversion of Common
Stock to Class B
shares............... (3,983) -- 3,983 -- -- -- -- -- -- --
Issuance of common
stock, net of
expenses............. -- 3,536 -- 35 45,098 -- -- -- -- 45,133
Purchase of treasury
stock................ -- (207) -- -- -- -- -- (1,207) (1,207)
Retirement of
treasury stock....... -- -- -- (13) (11,694) -- -- 11,707 -- --
Note receivable from
shareholder.......... -- 63 -- -- 600 (600) -- -- -- --
Proceeds from
exercise of common
stock warrants....... -- -- 63 1 524 -- -- -- -- 525
Proceeds from
exercise of stock
options.............. -- 148 -- 1 723 -- -- -- -- 724
Net income........... -- -- -- -- -- -- -- -- 8,846 8,846
------ ----- ----- --- ------- ---- ------ -------- -------- --------
Balances at February
28, 1998............. -- 4,665 4,046 88 37,092 (600) -- -- 32,072 68,652
------ ----- ----- --- ------- ---- ------ -------- -------- --------
Note receivable from
shareholder.......... -- -- -- -- -- 200 -- -- -- 200
Conversion of Class B
shares to Class A
shares............... -- 215 (215) -- -- -- -- -- -- --
Proceeds from the
issuance of shares
under Employee Stock
Purchase Plan........ -- 31 -- -- 425 -- -- -- -- 425
Proceeds from
exercise of stock
options.............. -- 315 -- 2 1,449 -- -- -- -- 1,451
Net income........... -- -- -- -- -- -- -- -- 1,855 1,855
------ ----- ----- --- ------- ---- ------ -------- -------- --------
Balances at February
28, 1999 (restated).. -- 5,226 3,831 90 38,966 (400) -- -- 33,927 72,583
------ ----- ----- --- ------- ---- ------ -------- -------- --------
Note receivable from
shareholder.......... -- -- -- -- -- 400 -- -- -- 400
Issuance of shares
for restricted stock
grant................ -- 200 -- 2 1,448 -- (1,450) -- -- --
Withdrawal of shares
to cover tax
liability of
chairman............. -- (90) -- -- -- -- -- -- -- --
Amortization of
compensation cost for
vested restricted
stock................ -- -- -- -- -- -- 1,151 -- -- 1,151
Conversion of Class B
shares to Class A
shares............... -- 558 (558) -- -- -- -- -- -- --
Proceeds from the
issuance of shares
under Employee Stock
Purchase Plan........ -- 58 -- -- 326 -- -- -- -- 326
Proceeds from
exercise of stock
options.............. -- 7 -- -- 572 -- -- -- -- 572
Net loss............. -- -- -- -- -- -- -- -- (55,647) (55,647)
------ ----- ----- --- ------- ---- ------ -------- -------- --------
Balances at February
29, 2000 (restated).. -- 5,959 3,273 $92 $41,312 $-- $ (299) $ -- $(21,720) $ 19,385
====== ===== ===== === ======= ==== ====== ======== ======== ========

See notes to consolidated financial statements.

PAMECO CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

Year Ended
--------------------------------------
February 29, February 28, February 28,
2000 1999 1998
------------ ------------ ------------
Restated Restated

Cash flows from operating activities
Net (loss) income....................... $(55,647) $ 1,855 $ 8,846
Adjustments to reconcile net (loss)
income to net cash (used in) provided
by operating activities:
Amortization of excess of acquired net
assets over cost..................... (1,244) (1,224) (1,224)
Amortization of excess of cost over
acquired net assets.................. 1,186 1,023 381
Charge to restructuring for goodwill
impairment........................... 1,377 -- --
Depreciation.......................... 3,610 2,459 1,596
Loss on sale of property and
equipment, including amounts charged
to restructuring..................... 435 30 66
Amortization of deferred compensation
for vested restricted stock.......... 1,151 -- --
Deferred income tax provision
(benefit)............................ 13,390 (403) (904)
Changes in operating assets and
liabilities net of assets acquired
and liabilities assumed:
Accounts receivable................. (23,862) 10,481 (2,309)
Inventories, prepaid expenses and
other assets....................... 62,551 (16,902) 10,467
Accounts payable and accrued
liabilities........................ (13,078) 3,443 (13,126)
-------- -------- --------
Net cash (used in) provided by operating
activities............................. (10,131) 762 3,793
Cash flows from investing activities
Purchases of property and equipment..... (3,411) (5,369) (5,546)
Proceeds from sales of property and
equipment.............................. 14 9 126
Business acquisitions, net of cash
acquired............................... -- (45,685) (44,580)
-------- -------- --------
Net cash used in investing activities... (3,397) (51,045) (50,000)
Cash flows from financing activities
Net (repayments) borrowings on working
capital facility....................... (49,670) 7,598 12,354
Net (repayments) borrowings on term
debt................................... (49,187) 49,187 --
Repayments on notes to affiliate........ -- -- (18,600)
(Repayments) borrowings on note
payable................................ -- (7,700) 7,700
Repayments on other debt................ (128) (672) (425)
Net borrowings on new credit agreement.. 60,244 -- --
Debt issue costs paid for new credit
agreement.............................. (3,657) -- --
Net borrowings from subordinated debt... 20,000 -- --
Issuance of common stock, net of
offering expenses...................... -- -- 45,133
Purchases of treasury stock............. -- -- (1,207)
Issuance of Series A redeemable
convertible preferred stock and
warrants............................... 35,000 -- --
Proceeds from exercise of stock options
and employee stock purchase plan....... 898 1,876 1,249
-------- -------- --------
Net cash provided by financing
activities............................. 13,500 50,289 46,204
-------- -------- --------
Net (decrease) increase in cash and cash
equivalents............................ (28) 6 (3)
Cash and cash equivalents at beginning
of year................................ 148 142 145
-------- -------- --------
Cash and cash equivalents at end of
year................................... $ 120 $ 148 $ 142
======== ======== ========
Supplemental disclosure of noncash
financing activities
Issuance of common stock in exchange for
note receivable........................ $ -- $ -- $ 600
======== ======== ========
Forgiveness of note receivable.......... $ 400 $ 200 $ --
======== ======== ========

See notes to consolidated financial statements.

PAMECO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

February 29, 2000

1. Summary of Significant Accounting Policies and Other Matters

Principles of Consolidation

The consolidated financial statements include the accounts of Pameco
Corporation and its wholly-owned subsidiaries (collectively the "Company").
All significant intercompany accounts and transactions have been eliminated in
consolidation.

Description of Business

The Company is a nationwide wholesale distributor of heating, ventilation
and air conditioning ("HVAC") and refrigeration equipment, with 309 branches
located in 47 states and Guam. The principal components of the Company's
business are sales of heating, air conditioning, and refrigeration parts and
equipment to the commercial and residential markets. The Company operates in
one business segment.

Sales of HVAC and refrigeration equipment and replacement components are
also affected by weather patterns and seasonal equipment startups. Warmer than
normal summer temperatures or colder than normal winter temperatures cause
increased stress on cooling and heating equipment. Increased stress on
equipment produces higher failure rates and therefore increased sales volume
of replacement equipment. Start-up modes for inactive equipment also produce
higher failure rates and an increase in replacement business on a seasonal
basis. Management believes the Company's national branch coverage mitigates
much of the risk associated with regional or local weather patterns.

Initial Public Offering

On June 4, 1997, the Company completed an initial public offering ("IPO") of
its Class A Common Stock. A total of 4,115,441 shares were sold at $14 per
share, including 536,797 shares sold pursuant to the underwriters
overallotment option and 578,644 shares sold by certain selling shareholders.
The Company did not receive any of the proceeds from the sale of shares of
Class A Common Stock by the selling shareholders. The net proceeds to the
Company were approximately $45.1 million and were used to repay $11.1 million
of outstanding indebtedness to certain members and affiliates of a group of
investors in the Company, to repay approximately $32.8 million of the
outstanding balance of the Company's $100.0 million revolving credit line (the
"Working Capital Facility"), and to repurchase 206,847 shares of Common Stock
from certain shareholders, including members of the aforementioned investor
group, for an aggregate purchase price of approximately $1.2 million.

On June 3, 1997, Pameco Holdings Inc. ("PHI") and Pameco Corporation, both
Delaware corporations, were merged with and into the Company, and in
connection therewith the shareholders of PHI received 1.25 shares of the
Company's Class A Common Stock or Class B Common Stock, as agreed upon among
themselves, for each share of Class A Common Stock and Class B Common Stock of
PHI held by them immediately prior to the merger. In general, the Company's
Class A Common Stock entitles its holder to one vote per share, whereas the
Class B Common Stock entitles its holder to ten votes per share.

PAMECO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

February 29, 2000

Prior to the IPO, certain shareholders of the Company agreed to sell to the
Company shares of Common Stock equal to the number of shares issued as certain
stock options were exercised at a price equal to the exercise price of such
stock options. The Company repurchased all of the 206,847 shares subject to
this arrangement at the time of the IPO from such investors, and such shares
have been retired. Upon exercise of these stock options, the Company issues
its Class A Common Stock.

Revenue Recognition

Revenue is recognized upon delivery of products to customers. Warranty
revenue is initially deferred and recognized over the warranty term.

Cash Equivalents

For purposes of the accompanying consolidated statements of cash flows, the
Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.

Inventories

Inventories consist of finished goods held for resale and are stated at the
lower of cost or market. Cost is determined by the first-in, first-out method.
During fiscal 2000, the Company purchased approximately $414.0 million of
equipment for resale, of which approximately 52.7% was obtained from its top
five suppliers, while the 25 largest suppliers accounted for approximately
78.7% of total purchases. Two suppliers accounted for more than 33.2% of the
Company's total purchases and represented 13.6% of accounts payable as of
February 29, 2000. To help ensure adequate future inventory supply sources,
the Company maintains supply relationships with numerous other vendors.

The Company maintained reserves for excess and idle inventory aggregating
$3.2 million and $7.3 million as of February 29, 2000 and February 28, 1999,
respectively.

Property and Equipment

Properties are recorded at cost and include expenditures for additions and
major improvements. Expenditures for repairs and maintenance are charged to
operations as incurred. Depreciation is computed using the straight line
method over the estimated useful lives of the respective assets. The estimated
useful lives for property and equipment range from three to ten years.

Excess of Cost Over Acquired Net Assets

Excess of cost over acquired net assets is a result of fourteen business
acquisitions beginning in fiscal 1997. Such amounts are being amortized on a
straight-line basis over 40 years. Accumulated amortization of the excess of
cost over acquired net assets was approximately $2.7 million and $1.5 million
at February 29, 2000 and February 28, 1999, respectively.

The Company continually monitors events and changes in circumstances that
could indicate carrying amounts of the excess of cost over acquired net assets
may not be recoverable. When such events or changes in circumstances are
present, the Company assesses the recoverability of the excess of cost over
acquired net assets by determining whether the carrying value of such excess
of cost over acquired net assets will be recovered through undiscounted
expected future cash flows. Should the Company determine that the carrying
values of the excess of cost over acquired net assets are not recoverable, the
Company would record a charge to reduce the carrying values of such assets to
their fair values.

PAMECO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

February 29, 2000

Excess of Acquired Net Assets Over Cost

Excess of the acquired net assets over cost, which is the result of the
bargain purchase on the original purchase of the Company in March 1992, is
being amortized on a straight-line basis over 10 years. Accumulated
amortization of the excess of acquired net assets over cost was approximately
$9.6 million and $8.4 million at February 29, 2000 and February 28, 1999,
respectively.

Use of Estimates

The preparation of the financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results will differ from those
estimates, and such differences could be material to the financial statements.

Credit Policy

The Company performs periodic credit evaluations of its customers' financial
condition and in some instances places liens on sales of equipment. Accounts
receivable are generally due within 30 days. Credit losses have been within
management's expectations.

Income Taxes

The Company uses the liability method of accounting for income taxes. Under
this method, deferred income tax assets and liabilities are determined based
on differences between the financial reporting and tax bases of assets and
liabilities and are measured using the statutory tax rates and laws that will
be in effect when the differences are expected to reverse.

Recent Pronouncements

The FASB issued Statement No. 133, Accounting for Derivative Instruments and
Hedging Activities in June 1998 and Statement No. 137, which defers the
effective date of Statement No. 133 for one year, in June 1999. The Company
expects to adopt the new Statement effective March 1, 2001. This Statement
will require the Company to recognize all derivatives on the balance sheet at
fair value. The Company does not anticipate that the adoption of this
Statement will have a significant effect on the results of operations or
financial position.

Earnings Per Share

The Company computes earnings per share in accordance with SFAS No. 128.
Basic earnings per share is computed by dividing net income by the total of
the weighted average number of shares outstanding. Diluted earnings per share
assumes conversion of any dilutive common stock equivalents.

Fair Value of Financial Instruments

The carrying amounts reported in the consolidated balance sheets for cash,
accounts receivable, and accounts payable approximate their fair values. The
fair values of the Company's debt instruments approximate the reported amounts
in the consolidated balance sheets as their respective interest rates
approximate the market rates for similar debt instruments.

PAMECO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

February 29, 2000

The unrealized gain for interest rate swap agreements was approximately $1.6
million at February 28, 1999 based on evaluations made by the counterparties
to the interest rate swap agreements. The swap agreements were terminated in
December 1999, and the underlying debt was extinguished in February 2000,
resulting in a gain of $1.5 million.

Management Advisory Services

The Company received certain advisory services from Three Cities Research,
Inc. Three Cities Research, Inc. is the investment advisor for certain
investors who owned approximately 20.0% and 29.6% of the combined Class A and
Class B Common Stock of the Company at February 29, 2000 and February 28,
1999, respectively. Three Cities Research, Inc. was paid an annual fee of
$50,000 for advisory services and was reimbursed for expenses. The advisory
agreement was terminated by the Company on February 29, 2000 upon the closing
of the recapitalization of the Company.

Reclassifications

Certain reclassifications have been made to the prior years' consolidated
financial statements to conform to the current year presentation.

2. Restatement of Results of Operations for the Years Ended February 29, 2000
and February 28, 1999

The Company has restated its consolidated financial statements for the years
ended February 29, 2000 and February 28, 1999 by reducing the restructuring
charge recorded in the fourth quarter of the year ended February 28, 1999 by
$3,299,000 and eliminating the reversal of this charge of $3,299,000 in the
fourth quarter of the year ended February 29, 2000.

The restructuring charge recorded in 1999 previously included the
establishment of accruals of $3,299,000 related to the Company's plan to
downsize its distribution centers and to terminate a dedicated fleet contract.
Upon further review, the Company has determined that these accruals should not
have been recorded in 1999, and has therefore reduced the restructuring charge
by $3,299,000 for the year ended February 28, 1999 and removed the $3,299,000
reversal recorded in the year ended February 29, 2000. This restatement
affects operating (loss) earnings, net (loss) income, and (loss) earnings per
share for the years ended February 29, 2000 and February 28, 1999, as noted in
the table below.

PAMECO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

February 29, 2000

The following table sets forth selected balances as originally reported and
as restated:

Year Ended Year Ended
February 29, 2000 February 28, 1999
------------------- -------------------
As As
Originally As Originally As
Reported Restated Reported Restated
---------- -------- ---------- --------

Restructuring........................ $ 448 $ 3,747 $4,025 $ 726
======== ======== ====== =======
Operating (loss) earnings............ $(31,002) $(34,301) $6,931 $10,230
======== ======== ====== =======
Net (loss) income applicable to
common shareholders................. $(53,604) $(55,647) $ (188) $ 1,855
======== ======== ====== =======
Basic (loss) earnings per share...... $ (5.84) $ (6.06) $(0.02) $ 0.21
======== ======== ====== =======
Diluted (loss) earnings per share.... $ (5.84) $ (6.06) $(0.02) $ 0.20
======== ======== ====== =======

3. Acquisitions

All acquisitions have been accounted for under the purchase method of
accounting. Under the purchase method of accounting, the results of operations
of the acquired companies are included in the consolidated statements of
operations as of the acquisition dates. The excess of cost over acquired net
assets of the businesses acquired has been recorded as an intangible asset and
is being amortized on a straight-line basis over 40 years. The estimated net
sales information for the fiscal year prior to acquisition of the acquired
companies is unaudited. The Company did not make any acquisitions during the
year ended February 29, 2000.

Fiscal Year Ended February 28, 1999

In March 1998, the Company purchased the HVAC operations and related assets
of Keller Supply, Inc., a distributor of HVAC equipment in Huntsville,
Alabama, a new market for the Company. The acquired business had net sales in
excess of $2.0 million for the year ended December 31, 1997 and derived
substantially all its net sales from the sale of HVAC products.

In May 1998, the Company purchased the HVAC and refrigeration operations and
related assets of George L. Johnston Co., Inc., a 10 branch distributor in
Michigan and Ohio. The acquired business had net sales in excess of $20.0
million for the year ended October 31, 1997 and derived substantially all its
net sales from the sale of HVAC and refrigeration products.

In June 1998, the Company purchased the HVAC operations and substantially
all the related assets of Park Heating and Air Conditioning Supply Co.
("Park"), Inc., a seven branch distributor in the greater Chicago area. For
the year ended December 31, 1997, the acquired business had net sales in
excess of $30.0 million and derived substantially all its net sales from the
sale of HVAC products. The purchase price for Park aggregated $22.5 million.

In November 1998, the Company purchased the HVAC operations and
substantially all the related assets of Tesco Distributors, Inc., a six branch
distributor in the New York City and New Jersey markets. For the year ended
November 30, 1997, the acquired business had net sales in excess of $14.0
million and derived substantially all its net sales from HVAC and
refrigeration products.

PAMECO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

February 29, 2000

In November 1998, the Company purchased the HVAC operations and
substantially all the related assets of Climate Supply Company, Inc., a six
branch distributor in the Dallas market. For the year ended October 31, 1997,
the acquired business had net sales in excess of $7.0 million and derived
substantially all its net sales from HVAC and refrigeration products.

In January 1999, the Company purchased the HVAC operations and substantially
all the related assets of Belleville Supply Company, Inc., a three branch
distributor in the Virginia market. For the year ended December 31, 1998, the
acquired business had net sales in excess of $14.0 million and derived
substantially all its net sales from HVAC products.

Fiscal Year Ended February 28, 1998

In March 1997, the Company purchased the HVAC operations and related assets
of Bellows-Evans, Inc., a distributor of HVAC equipment in Birmingham,
Alabama, a new market for the Company. The acquired business had revenues in
excess of $3.0 million for the year ended May 31, 1996 and derived
substantially all of its revenues from the sale of HVAC products.

In April 1997, the Company purchased the HVAC operations and related assets
of Trigg Supply, Inc., a distributor of HVAC products in Ft. Worth, Texas. The
acquired business had revenues of approximately $2.0 million for the year
ended December 31, 1996 and derived all of its revenues from the sale of HVAC
products.

In July 1997, the Company purchased the HVAC operations and related assets
of Heating Cooling Distributors, Inc., a distributor of HVAC equipment in
Indianapolis, Indiana, a new market for the Company. The acquired business had
revenues in excess of $2.0 million for the year ended December 31, 1996 and
derived substantially all of its revenues from the sale of HVAC products.

In August 1997, the Company purchased the HVAC operations and related assets
of Saez Refrigeration, Inc., and Saez Refrigeration of Hialeah, Inc. a
distributor of HVAC equipment in Miami, Florida. The acquired businesses had
revenues in excess of $13.0 million for the year ended December 31, 1996 and
derived substantially all of their revenues from the sale of HVAC products.

In August 1997, the Company purchased the HVAC operations and related assets
of Superior Supply Company, a distributor of HVAC equipment in the Midwest. Of
the 13 locations, ten were in new markets for the Company. The acquired
business had revenues in excess of $20.0 million for the year ended January
31, 1997 and derived substantially all of its revenues from the sale of HVAC
and refrigeration products.

In September 1997, the Company purchased the HVAC operations and related
assets of General Heating and Cooling Company, a distributor of HVAC equipment
in the Midwest. The acquired business had revenues in excess of $25.0 million
for the year ended December 31, 1996 and derived substantially all of its
revenues from the sale of HVAC products.

In December 1997, the Company purchased the refrigeration operations and
related assets of Williams Refrigeration, Inc., a distributor of refrigeration
equipment in the East. The acquired business had annual revenues of
approximately $30.0 million and derived substantially all of its revenues from
the sale of refrigeration products.

PAMECO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

February 29, 2000

Pro Forma Data

The following table summarizes unaudited pro forma financial information of
the Company as if the June 1998 acquisition of Park Heating and Air
Conditioning Supply Co., Inc. had occurred as of March 1, 1997. Pro forma
results have not been presented for those acquisitions which were not
significant during the periods presented. These unaudited pro forma results of
operations do not purport to represent what the Company's actual results of
operations would have been if the acquisition had occurred on March 1,
1997,and should not serve as a forecast of the Company's operating results for
any future periods.

The adjustments to the historical data reflect the following: (i) interest
expense assuming the Company financed the acquisition at a rate of 7.3%;
(ii)amortization of the excess of cost over acquired net assets; (iii) income
taxes on the earnings of the acquiree adjusted to reflect the Company's
effective tax rate; and (iv) the income tax effect of such pro forma
adjustments. The pro forma adjustments are based on the available information
and certain assumptions that management believes are reasonable.

Year Ended
-------------------------
February 28, February 28,
1999 1998
------------ ------------
Restated
(In thousands)

Net sales.......................................... $635,705 $518,105
======== ========
Net income......................................... $ 2,111 $ 9,176
======== ========
Basic earnings per share........................... $ 0.24 $ 1.18
======== ========
Basic weighted average shares outstanding.......... 8,802 7,779
======== ========
Diluted earnings per share......................... $ 0.23 $ 1.12
======== ========
Diluted weighted average shares outstanding........ 9,118 8,183
======== ========

4. Property and Equipment

The components of property and equipment are as follows:

February 29, February 28,
2000 1999
------------ ------------
(In thousands)

Buildings and leasehold improvements............... $ 3,938 $ 2,751
Machinery and equipment............................ 4,422 3,051
Furniture, office, and computer equipment.......... 17,061 18,331
-------- --------
25,421 24,133
Accumulated depreciation........................... (10,375) (8,439)
-------- --------
$ 15,046 $ 15,694
======== ========

PAMECO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

February 29, 2000

5. Debt

The components of debt are as follows:

February 29, February 28,
2000 1999
------------ ------------
(In thousands)

Revolver........................................... $ -- $49,670
Term loans......................................... -- 49,187
New credit agreement............................... 60,244 --
Subdebt facility................................... 20,000 --
Other.............................................. 198 326
------- -------
80,442 99,183
Less current portion of debt....................... (50) (3,575)
------- -------
$80,392 $95,608
======= =======

At February 28, 1999, the Company had a Securitization Program with General
Electric Capital Corporation, Redwood Receivables Corporation ("Redwood"), and
Pameco Securitization Corporation ("PSC"). The Securization Program was an
off-balance sheet arrangement that provides for the transfer and sale of
accounts receivable to PSC, a special purpose wholly-owned subsidiary, that
sold the accounts receivable to Redwood, which issues commercial paper on the
Company's behalf. At February 28, 1999, accounts receivable of $43.6 million
were sold under the Securitization Program. The sales of such accounts
receivable were reflected as a reduction of accounts receivable in the
Company's consolidated balance sheet. The margin on the commercial paper rate
for the Securitization Program ranged from 0.75% to 1.75%,depending upon the
Company's interest coverage ratio, and was 1.00% at February 28, 1999. The
borrowing rate at February 28, 1999 was 5.9%. The discount on the sale of
accounts receivable was $2.6 million, $3.6 million, and $3.0 million for the
years ended February 29, 2000, February 28, 1999 and February 28, 1998, and
such amounts are included in other expenses on the consolidated statements of
operations.

The Company had aggregate borrowings of $49.2 million outstanding at
February 28, 1999 on Tranche A and Tranche B. The margin on the Eurodollar
rate for the Tranche A ranges from 1.50% to 2.50%, depending upon the
Company's interest coverage ratio, and was 1.75% at February 28, 1999. The
margin on the Eurodollar rate for the Tranche B ranged from 2.00% to 3.00%,
depending upon the Company's interest coverage ratio, and was 2.25% at
February 28, 1999.

PAMECO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

February 29, 2000

These amendments primarily served to lower certain financial covenants, adjust
interest rates, decrease borrowing bases, and adjust repayment dates for the
tranche loans. Additionally, the Company entered into amendments to the
Securitization Program in June 1999, July 1999, August 1999, October 1999,
December 1999, and January 2000. These amendments principally served to change
reporting requirements and lower certain financial covenants. On February 29,
2000, the Company repaid all borrowings under the Credit Agreement using the
proceeds from the financing agreement described below. Additionally, the term
loan borrowings with the primary institution sponsoring the Credit Agreement
were repaid. Accounts receivable previously sold under the Securitization
Program were repurchased by the Company concurrent with the repayment of
borrowings under the Credit Agreement.

On February 17, 2000, the Company entered into an agreement with a new
primary lender and various participating lenders (the "Lenders") to obtain
financing under a senior credit facility amounting to an aggregate of $130
million (the "New Credit Agreement"). The New Credit Agreement provides for
(a) a revolving line of credit of $130.0 million (the "New Revolver
Facility"), and (b) a subfacility of the New Revolver Facility providing for
the issuance of letters of credit (the "LC Facility"), not to exceed $15
million (such amount to be calculated as part of, and not in addition to, the
aggregate limit of the New Credit Agreement). At February 29, 2000, no amounts
were outstanding on the LC Facility or additional credit facility.

At February 29, 2000, the Company had borrowings of $60.2 million
outstanding under the New Facility. Proceeds from these borrowings on February
29, 2000, were used to repay borrowings under the previous Credit Agreement.
These borrowings are due February 17, 2005. Interest is based on LIBOR plus
2.75% for specified loan amounts and the prime rate plus .75% for borrowings
in excess of specified loan amounts. The effective borrowing rate at February
29, 2000 was 8.77%.

In connection with the $20.0 million Subdebt Facility and effective February
18, 2000, the Company entered into future inventory purchase agreements with
the parties to the Subdebt Facility. These agreements require the Company to
purchase minimum percentages of its annual inventory demand for certain
products over the next five years from specified suppliers. Failure to meet
these minimum percentages would result in penalties and default on the
associated $20.0 million Subdebt Facility. Minimum commitments under these
purchase agreements are: 2001--$19.9 million; 2002--$24.1 million; 2003--$25.4
million; 2004--$26.4 million; and 2005 and fiscal years thereafter $27.5
million. For the year ended February 29, 2000, the Company purchased $200.2
million of inventory from these specified suppliers.

The New Credit Agreement and the Subdebt Facility require compliance with
specific levels of net worth, earnings before interest, taxes, depreciation,
and amortization ("EBITDA"), and a specified fixed charge coverage ratio. The
negative covenants include various limitations on indebtedness, liens,
fundamental changes, dividends, and investments. At February 29, 2000, the
Company complied with all covenants or subsequently obtained a waiver and
amendment as of May 18, 2000, with respect to any violations (see "Subsequent
Event"). The Company has granted a security interest to the Lenders for
substantially all the assets of the Company, including the accounts
receivable, inventory, and equipment, as collateral for the debt.

PAMECO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

February 29, 2000

plus 7%. During the year ended February 29, 2000, interest expense incurred on
the Related Party Note was $114,000. The outstanding principal and interest of
$7.6 million were repaid in February 2000 in connection with the New Credit
Agreement described above.

Aggregate maturities and other required reductions of debt for the next five
fiscal years and thereafter are: 2001--$50,000; 2002--$74,000; 2003--$74,000;
2004--$2.0 million; 2005--$62.2 million; and thereafter--$16.0 million.

Interest paid was $9.7 million, $4.2 million, and $2.5 million, for the
years ended February 29, 2000, February 28, 1999 and February 29, 1998,
respectively.

Subsequent Event

6. Redeemable Convertible Preferred Stock and Warrants

On February 29, 2000 (the "issue date"), the Company issued 140,000 shares
of Series A Preferred Stock, at a purchase price of $249.99 per share, and
warrants to purchase 140,000 additional shares of Series A Preferred Stock
(the "Warrants") at a purchase price of $0.01 per Warrant, for an aggregate
consideration of $35 million.

The fair value of the Series A Preferred Stock at the issue date was $23.3
million, or $166 per share. Commencing on the fifth anniversary of the issue
date, each holder of Series A Preferred Stock may elect to sell to the Company
all or any part of the Series A Preferred Stock at a per share price equal to
the Liquidation Preference of $250 per share plus accrued dividends. As a
result of the "put" provision, the Series A Preferred Stock is considered
mandatorily redeemable and has been classified as mezzanine equity in the
Company's February 29, 2000 balance sheet. The value of the Series A Preferred
Stock will be accreted each month, commencing in March 2000 and until February
2005, to the contractual redemption value of $250 per share plus accrued
dividends using the effective interest method. The increase in the carrying
amount will be charged each month against retained earnings and will be
reflected as a reduction in net income available for common shareholders.

For the three year period following the issue date, the holders of the
Series A Preferred Shares are entitled to receive cumulative preferential
dividends at the rate of 14% of the stated value. The dividends will be paid
by the issuance of additional shares of Series A Preferred Shares. The
dividends compound quarterly to the extent unpaid on March 1, June 1,
September 1 and December 1 of each fiscal year. In the years ending February
28, 2002 and February 28, 2003, if the Company meets certain EBITDA targets in
each year, the dividends will be calculated retroactively at 8% for the
respective fiscal year. The dividends will be charged each quarter against
retained earnings and will be reflected as a reduction in net income available
for common shareholders.

The Series A Preferred Stock will be convertible to the Company's Class A
Common Stock, subject to shareholder approval at the Company's 2000 Annual
Meeting of Stockholders. The holders of the Series A Preferred Stock initially
will be able to convert each share of Series A Preferred Stock into 100 shares
of the Company's Class A Common Stock. Such conversion formula is subject to
adjustment given certain changes in the Company's capitalization. If all the
shares of the Series A Preferred Stock outstanding were converted, a total of
14 million shares of Class A Common Stock would be issued.

PAMECO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

February 29, 2000

If the Company declares and pays a dividend on the Class A Common Stock, a
holder of the Series A Preferred Shares is entitled to 50% of the dividends
such holder would have been entitled to receive had such holder fully
converted the Series A Preferred Shares into Class A Common Stock.

On or after the sixth anniversary of the issue date, the Company may redeem
the Series A Preferred Shares at a price equal to 105% of the Liquidation
Preference, or $262.50 per share. Also subject to shareholder approval, the
holders of the Series A Preferred Stock will be entitled to vote such shares
together with the holders of the Class A Common Stock on an as-converted
basis.

The Warrants entitle holders to purchase shares of the Series A Preferred
Stock and are immediately exercisable at an initial exercise price of $300 per
share of Series A Preferred Stock, or $3.00 per share of Class A Common Stock,
on an as converted basis. If all the Warrants were exercised in full, an
additional 14 million shares of Class A Common Stock would be issued. The
Company has recorded the fair value of the Warrants of $11.7 million at
February 29, 2000 on its balance sheet.

When the Company declares dividends on preferred shares in subsequent
periods, the holders will also receive warrants to purchase the same number of
Series A Preferred Shares that are issued as dividends. The exercise price for
such warrants is $312.50 per share of Series A Preferred Stock.

7. Stock-Based Compensation

The Board of Directors and shareholders of the Company approved an Employee
Stock Purchase Plan that became effective on January 1, 1998. The purpose of
the Plan is to provide an opportunity for employees to purchase shares of the
Class A Common Stock, par value $.01 per share, of the Company through payroll
deductions. A total of 500,000 shares of Common Stock, including a maximum of
100,000 shares in any calendar year, are available for purchase under the
Plan.

The Company's Employee Stock Option Plan I provides that 1,050,000 stock
options may be granted to key employees, including officers and directors, to
purchase common stock at fair market value. In June 1999, the shareholders
approved the 1999 Stock Award Plan. The plan provides that 1,000,000 stock
options and other stock awards may be granted to key employees, including
officers and directors, and business partners. Under both plans, stock options
typically vest one-third at the date of grant with the remainder vesting
incrementally over a two-year period and expire five years from the date
granted. Additionally, the Company has a stock option plan which provides for
the granting of 112,500 stock options to outside directors and a separate
issuance of 515,625 stock options to the Company's former chief executive
officer.

The Company has elected to follow APB 25 and related interpretations in
accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under SFAS No. 123 requires use
of option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, because the exercise price of the Company's
employee stock options equals the fair value of the underlying stock on the
date of grant, no compensation expense is recognized.

Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, which also requires that the information be
determined as if the Company had accounted for its employee stock options
granted subsequent to February 28, 1995 under the fair value method of SFAS
No. 123.

PAMECO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

February 29, 2000

The fair value of stock options granted during the years ended February 29,
2000, February 28, 1999, and February 28, 1998, was estimated on the date of
grant using the Black-Scholes option pricing model with the following
assumptions:

Year Ended
--------------------------------------
February 29, February 28, February 28,
2000 1999 1998
------------ ------------ ------------
(In thousands)

Expected life in years................ 4-5 2-5 2-6
Risk-free interest rate............... 5.77-6.46% 4.33-6.50% 5.25-6.50%
Expected volatility................... 50.0% 60.0% 55.1%
Dividend yield........................ 0% 0% 0%

The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its employee stock
options.

For purposes of pro forma disclosure, the estimated fair value of the
options is amortized to expense over the options' vesting periods. The
Company's pro forma information follows (in thousands, except for earnings per
share information):

Year Ended
--------------------------------------
February 29, February 28, February 28,
2000 1999 1998
------------ ------------ ------------
Restated Restated
(In thousands)

Pro forma net (loss) income......... $(55,595) $ 993 $8,055
======== ===== ======
Pro forma basic (loss) earnings per
share applicable to common
shareholders....................... $ (6.05) $0.11 $ 1.04
======== ===== ======
Pro forma diluted (loss) earnings
per share applicable to common
shareholders....................... $ (6.05) $0.11 $ 0.98
======== ===== ======

Because SFAS No.123 is applicable only to options granted subsequent to
February 28, 1995, its pro forma effect will not be fully reflected until
future years.

PAMECO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

February 29, 2000

A summary of the status of the Company's stock option activity, and related
information for the years ended February 29, 2000, February 28, 1999, and
February 29, 1998, is as follows:

February 29, 2000 February 28, 1999 February 28, 1998
------------------ ------------------ ------------------
Weighted Weighted Weighted
Number Average Number Average Number Average
Of Exercise Of Exercise Of Exercise
Shares Price Shares Price Shares Price
-------- -------- -------- -------- -------- --------

Outstanding at beginning
of year................ 702,209 $13.86 674,613 $7.40 966,312 $5.61
Granted............... 674,500 5.83 497,500 19.33 49,750 17.68
Exercised............. (7,365) 5.18 (312,321) 6.44 (334,401) 3.70
Cancelled............. (606,219) 14.89 (157,208) 19.38 (7,048) 7.71
Expired............... -- -- (375) 4.80 -- --
-------- -------- --------
Outstanding at end of
year................... 763,125 6.03 702,209 13.86 674,613 7.40
======== ======== ========
Exercisable at end of
year................... 548,129 381,375 624,885
======== ======== ========
Options available for
future grant........... 392,010 294,486 284,403
======== ======== ========
Weighted average fair
value of options
granted during the
year................... $ 5.83 $ 19.33 $ 17.68
======== ======== ========

The following table summarizes information about stock options outstanding
at February 29, 2000:

Options Outstanding Options Exercisable
-------------------------------- --------------------
Weighted
Number Average Weighted Number Weighted
Outstanding Remaining Average Exercisable Average
February Contractual Exercise February Exercise
Range of Exercise Prices 29, 2000 Life Price 29, 2000 Price
- ------------------------ ----------- ----------- -------- ----------- --------

$3.31-$6.40.............. 523,125 3.1 $ 4.86 394,795 $ 5.25
$6.75-$9.60.............. 221,250 5.4 $ 7.50 134,584 $ 7.96
$16.00-$17.75............ 18,750 3.2 $16.58 18,750 $16.58
------- -------
763,125 548,129
======= =======

In June 1999, the Company granted restricted stock, consisting of 200,000
shares of its Class A Common Stock, to its chairman and then chief executive
officer. On the grant date, 90,000 shares vested and were immediately retained
by the Company to cover the officer's related tax liabilities. Originally, the
remaining 110,000 shares would have vested as follows: 40,000 on January 1,
2000; 40,000 on January 1, 2001; and 30,000 on January 1, 2002. As a result of
the Recapitalization, all the shares in the restricted stock award vested.
Upon issuance of the restricted shares, unearned compensation was charged to
stockholder's equity for the cost of restricted stock of $1,450,000.
Compensation cost is recognized as amortization expense ratably over the
vesting period. The Company recognized $1,151,000 of related compensation
expense in the year ended February 29, 2000.

8. Income Taxes

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant

PAMECO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

February 29, 2000

components of the Company's deferred income tax assets and liabilities at
February 29, 2000 and February 28, 1999 are as follows:

February 29, February 28,
2000 1999
------------ ------------
Restated
(In thousands)

Deferred income tax assets:
Accounts receivable reserves................... $ 2,379 $ 1,448
Inventory reserves............................. 2,994 6,436
Extended product warranties.................... 2,322 2,131
Restructuring and severance reserves........... 861 890
Other.......................................... 530 3,099
Net operating losses........................... 16,322 --
Alternative minimum tax credit................. 2,716 1,019
-------- -------
Total deferred income tax assets................. 28,124 15,023
Valuation allowance for deferred income tax
assets.......................................... (28,124) (1,140)
-------- -------
Net deferred income tax assets................... $ -- $13,883
======== =======

The cumulative alternative minimum tax credit generated in prior years can
be carried forward indefinitely to offset regular federal income tax expense
in future periods. Net operating losses of $277,859 can be carried forward
through 2007. The remaining net operating losses of $42.6 million from the
year ended February 29, 2000 can be carried forward through 2020.

The components of provision for income taxes for the years ended February
29, 2000, February 28, 1999, and February 28, 1998 are as follows:

Year Ended
--------------------------------------
February 29, February 28, February 28,
2000 1999 1998
------------ ------------ ------------
Restated Restated
(In thousands)

Current:
Federal income taxes.............. $(2,033) $ 492 $2,920
State, local, and foreign income
and franchise taxes.............. (316) 236 380
------- ----- ------
(2,349) 728 3,300
Deferred:
Federal and state income taxes.... 13,390 (403) 241
------- ----- ------
$11,041 $ 325 $3,541
======= ===== ======

A reconciliation of the expected income tax expense at the statutory federal
rate to the Company's actual income tax provision is as follows:

Year Ended
--------------------------------------
February 29, February 28, February 28,
2000 1999 1998
------------ ------------ ------------
Restated Restated
(In thousands)

Statutory (benefit) expense......... $(15,166) $741 $4,212
State (benefit) expense net of
federal benefit.................... (1,652) (138) 327
Increase (reduction) in valuation
allowance.......................... 26,984 -- (671)
Nondeductible items................. (382) (347) (327)
Other, net.......................... 1,257 69 --
-------- ---- ------
$ 11,041 $325 $3,541
======== ==== ======

PAMECO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

February 29, 2000

The Company's effective income tax rate for the years ended February 29,
2000, differed from the statutory rate principally as a result of an increase
in the deferred tax asset valuation allowance of $27.0 million in the year
ended February 29, 2000. In February 2000, in connection with the significant
loss incurred by the Company during the fourth quarter of the year, management
concluded that realization of its net deferred tax assets was no longer more
likely than not and, accordingly, increased the valuation allowance to fully
provide for such assets. The Company's effective income tax rate is
additionally reduced by the exclusion of the amortization of the acquired net
assets over cost (negative goodwill amortization) from taxable income.

The Company received (paid) approximately $1.1 million, $(1.4 million) and
($3.0 million) for federal and state income taxes during the years ended
February 29, 2000, February 28, 1999 and February 28, 1998, respectively.

9. Commitments and Contingencies

Operating Leases

The Company leases office and warehouse facilities and equipment under
operating leases. Rental expense for the years ended February 29, 2000,
February 28, 1999 and February 28, 1998 approximated $16.8 million, $16.2
million and $13.0 million, respectively. Future minimum lease commitments
under these agreements as of February 29, 2000 are as follows: 2001--$13.8
million; 2002--$10.6 million; 2003--$8.1 million; 2004--$5.5 million; 2005--
$2.6 million and $2.1 million thereafter.

Legal Proceedings

The Company is involved in claims and legal proceedings which have arisen in
the ordinary course of business. The Company intends to defend vigorously all
such claims and does not believe any such matters will have a material adverse
effect on the Company's results of operations or financial condition.

10. Employee Benefit Plan

The Company has a defined contribution plan which covers a majority of its
employees. The plan provides for voluntary employee contributions. Employee
contributions under plan provisions are discretionary. Pameco contributed
$300,219, $330,000 and $272,000 to the plan for the years ended February 29,
2000, February 28, 1999 and February 29, 1998, respectively.

PAMECO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

February 29, 2000

11. Earnings Per Share

The following table sets forth the computation of basic and diluted (loss)
earnings per share (in thousands, except per share amounts).

Year Ended
--------------------------------------
February 29, February 28, February 28,
2000 1999 1998
------------ ------------ ------------
Restated Restated

Numerator:
Net (loss) income applicable to common
shareholders......................... $(55,647) $1,855 $8,846
======== ====== ======
Denominator:
Denominator for basic earnings per
share-weighted average shares........ 9,183 8,802 7,779
Effect of dilutive securities:
Employee Stock Options................ -- 316 404
Series A Redeemable Convertible
Preferred Stock...................... -- -- --
Warrants for Series A Preferred
Stock................................ -- -- --
-------- ------ ------
Denominator for diluted earnings per
share-adjusted weighted-average shares
and assumed conversions................ 9,183 9,118 8,183
======== ====== ======
Basic (loss) earnings per share......... $ (6.06) $ 0.21 $ 1.14
======== ====== ======
Diluted (loss) earnings per share....... $ (6.06) $ 0.20 $ 1.08
======== ====== ======

The computations of dilutive common shares for the years ended February 28,
1999 and February 28, 1998 exclude 548,500 and 49,750, respectively, of stock
options that are antidilutive based on the average market price for those
periods.

12. Restructuring (restated)

In the quarter ended February 28, 1999, the Company initiated an extensive
review of its unprofitable branches. The Company determined that 15 branches
should be closed based on either of the following criteria: (1) The branch
location was already in a market sufficiently serviced by a Pameco branch, or
(2) The branch location was in an area with limited demand. As of February 29,
2000, the Company has closed 14 of these branches. The remaining branch
closing should be completed by May 2000.

By closing or consolidating branches in these markets, the Company seeks to
reduce its inventory levels and operating expenses, without significantly
reducing its net sales. The Company does not expect the demographics of these
markets to change significantly enough within the next several years for these
branches to become profitable.

PAMECO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

February 29, 2000

In connection with the closure and the consolidation of these 15 branches
the Company recorded a $726,000 restructuring charge. The following table
provides more detail describing the restructuring charge:

Reserve
Charged Balance
Cash/ Restructuring to February 29,
Description Non-Cash Charges Accrual 2000
----------- -------- ------------- ------- ------------
(In thousands)

Branches to be closed
Lease............................. Cash $(493) $268 $(225)
Severance......................... Cash (25) 8 (17)
Fixed asset write-off............. Non-Cash (35) 13 (22)
Utilities......................... Cash (61) 27 (34)
Other............................. Cash (112) 112 --
----- ---- -----
Total............................... $(726) $428 $(298)
===== ====

The majority of the cash expenditures related to branch closures, excluding
lease commitments, were completed by February 2000. The Company will continue
to pay on certain lease commitments through 2001. To date, the Company has
paid approximately $268,000 to terminate leases.

PAMECO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

February 29, 2000

During the quarters ended August 31, 1999 and November 30,1999, the Company
identified 40 additional branches that met the closing criteria mentioned
above. As of February 29, 2000, the Company had closed 33 of these branches.
The remaining closings should be completed by August 31, 2000. The Company
recorded a $3,747,000 restructuring charge that can be attributed to the
additional 40 branches scheduled to close. These charges consisted of the
following components: (1) lease and other facility expenses of $1,821,000; (2)
the write-off of $549,000 of fixed assets no longer in use; and (3) an asset
impairment charge of $1,377,000 for the write-off of goodwill associated with
certain branches to be closed. The table below provides supplementary data
pertaining to the $3,747,000 charge:

Reserve
Charged Balance
Cash/ Restructuring to February 29,
Description Non-Cash Charges Accrual 2000
----------- -------- ------------- ------- ------------
(in thousands)

Branches to be closed
Lease........................... Cash $(1,277) $ 122 $(1,155)
Severance....................... Cash (162) 36 (126)
Fixed asset write-off........... Non-Cash (549) 355 (194)
Utilities....................... Cash (167) 10 (157)
Other........................... Cash (215) 185 (30)
Goodwill related to branches to be
closed Non-Cash (1,377) 1,377 --
------- ------ -------
Total............................. $(3,747) $2,085 $(1,662)
======= ====== =======

13. Quarterly Financial Data (unaudited)

The following is a summary of the unaudited quarterly results of operations
for the fiscal years ended February 29, 2000 and February 28, 1999 (in
thousands, except per share data):

Year Ended February 29, 2000
--------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
-------- -------- -------- --------
Restated

Net sales............................. $159,117 $207,724 $135,991 $100,879
Gross profit.......................... $ 37,202 $ 43,984 $ 32,828 $ 17,761
Net loss.............................. $ (1,433) $ (587) $ (5,142) $(48,485)
Basic loss per share.................. $ (0.16) $ (0.06) $ (0.56) $ (5.26)
Basic weighted average shares
outstanding.......................... 9,092 9,201 9,216 9,225
Diluted loss per share................ $ (0.16) $ (0.06) $ (0.56) $ (5.26)
Diluted weighted average shares
outstanding.......................... 9,092 9,201 9,216 9,225

PAMECO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

February 29, 2000

Year Ended February 28, 1999
-----------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
-------- -------- -------- --------
Restated

Net sales................................ $145,194 $210,293 $148,068 $121,487
Gross profit............................. $ 34,048 $ 50,483 $ 35,493 $ 26,925
Net income (loss)........................ $ 1,884 $ 8,308 $ 102 $ (8,439)
Basic earnings (loss) per share.......... $ 0.22 $ 0.95 $ 0.01 $ (0.95)
Basic weighted average shares
outstanding............................. 8,740 8,782 8,818 8,867
Diluted earnings (loss) per share........ $ 0.21 $ 0.91 $ 0.01 $ (0.95)
Diluted weighted average shares
outstanding............................. 9,120 9,180 9,106 8,867

In fourth quarter 2000, the Company conducted a full physical inventory.
Based on the results of that physical inventory, the Company recorded an
additional product shrinkage expense. In addition, the Company revalued a
portion of its inventory during the quarter.

The normal operating expenses of the 32 branches acquired since February 28,
1998, contributed approximately $6.7 million of the additional warehousing,
selling, and administrative expenses as compared to the prior year. In
addition, the Company incurred approximately $3.2 million of consulting costs
in the fourth quarter associated with the Company's process of enhancing its
key business processes.

In the fourth quarter 2000, the Company recorded income tax expense of $15.7
million. In February 2000, in connection with the significant loss incurred by
the Company during the fourth quarter of the year, management concluded that
realization of its net deferred tax assets was no longer more likely than not
and, accordingly, increased the valuation allowance by $27.0 million
(including additional deferred tax assets originating in the fourth quarter)
to fully provide for such assets.

Fourth quarter 1999 net income is unusually low due to severance costs
associated with several executive level separations, product discontinuance,
and a restructuring of the Company's distribution system which resulted in a
fourth quarter charge aggregating approximately $4.8 million.

In February 1999, the Company announced an operations restructuring plan
which included certain branch closings. This plan resulted in a fourth quarter
charge of approximately $0.7 million. Such amount is reflected in the 1999
consolidated statement of operations as restructuring.

In the fourth quarter of 1999, three executive level employees were
separated and the Company provided severance packages resulting in an
aggregate charge of approximately $1.5 million. Such amount is reflected in
the 1999 consolidated statement of operations as severance.

In the fourth quarter of 1999, the Company elected to discontinue relations
with certain suppliers and recorded a charge of approximately $2.6 million to
adjust such inventory to net realizable value. Such charge is included in cost
of products sold in the 1999 consolidated statement of operations.

Due to the method used in calculating per share data as prescribed by SFAS
No. 128, the quarterly per share data does not total to the full-year per
share data.

Item 9. Changes In And Disagreements With Accountants On Accounting And
Financial Disclosure

None.

Part III.

Item 10. Directors and Officers of the Registrant

The information contained under the headings "Directors and Executive
Officers" and Section "16(c) Beneficial Ownership Reporting Compliance" in the
definitive Proxy Statement to be used in connection with the solicitation of
proxies for the Company's 2000 Annual Meeting of Shareholders, to be filed
with the Commission, are incorporated by reference.

Item 11. Executive Compensation

The information contained under the heading "Executive Compensation" in the
definitive Proxy Statement to be used in connection with the solicitation of
proxies for the Company's 2000 Annual Meeting of Shareholders, to be filed
with the Commission, is incorporated herein by reference. In no event shall
the information contained in the Proxy Statement under the heading "Comparison
of Cumulative Total Return" be deemed incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management

The information contained under the heading "Beneficial Ownership of
Securities and Voting Rights-Voting Securities and Principal Holders" in the
definitive Proxy Statement to be used in connection with the solicitation of
proxies for the Company's 2000 Annual Meeting of Shareholders, to be filed
with the Commission, is incorporated herein by reference. For purposes of
determining the aggregate market value of the Company's voting stock held by
nonaffiliates, shares held by all directors and executive officers of the
Company have been excluded. The exclusion of such shares is not intended to,
and shall not, constitute a determination as to which persons or entities may
be "affiliates" of the Company as defined by the Commission.

Item 13. Certain Relationships and Related Transactions

The information contained under the heading "Certain Transactions" in the
definitive Proxy Statement to be used in connection with the solicitation of
proxies for the Company's 2000 Annual Meeting of Shareholders, to be filed
with the Commission, is incorporated herein by reference.

Part IV.

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

(a) Financial Statements, Financial Statement Schedule and Exhibits

(1) Financial Statements included in Item 8:

Report of Independent Auditors

Consolidated Balance Sheets as of February 29, 2000 and February 28,
1999 (restated)

Consolidated Statements of Operations for the years ended February
29, 2000 (restated), February 28, 1999 (restated), and February 28,
1998

Consolidated Statements of Shareholders' Equity for the years ended
February 29, 2000 (restated), February 28, 1999 (restated), and
February 28, 1998

Consolidated Statements of Cash Flows for the years ended February
29, 2000 (restated), February 28, 1999 (restated), and February 28,
1998

Notes to Consolidated Financial Statements

(2) Financial Statement Schedule

Schedule II. Valuation and Qualifying Accounts

All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are
not required under the related instructions or are inapplicable and
therefore have been omitted.

(3) Exhibits:

23.1 Consent of Ernst and Young LLP

(b) Reports on Form 8-K:

NONE

SIGNATURES

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
Corporation and in the capacities indicated, this 15th day of March, 2001.

/s/ W. Michael Clevy Director /s/ Angus C. Littlejohn, Jr. Director
- -------------------------------------- -------------------------------
W. Michael Clevy Angus C. Littlejohn, Jr.

/s/ Willem F.P. De Vogel Director /s/ Dixon Ray Walker Director
- -------------------------------------- -------------------------------
Willem F.P. De Vogel Dixon Ray Walker

/s/ Edmund J. Feeley Director /s/ Harry F. Weyher III Director
- -------------------------------------- -------------------------------
Edmund J. Feeley Harry F. Weyher III

/s/ Michael Ira Klein Director /s/ Stephen C. Hileman Chief Financial
- -------------------------------------- -------------------------------
Michael Ira Klein Stephen C. Hileman Officer

Schedule II. Valuation and Qualifying Accounts

VALUATION AND QUALIFYING ACCOUNTS

Additions
---------------------------------
Charged to Other
Balance at Beg. Charged to Costs Accounts-- Deductions Balance at
of year and Expenses Describe Describe End of year
--------------- ---------------- ---------------- ---------- -----------

Allowance for losses on trade
accounts(a):
Year ended February 29, 2000........ 6,210 3,854 -- 4,074(c) 5,991
Year ended February 28, 1999........ 3,992 3,727 949(b) 2,458(c) 6,210
Year ended February 28, 1998........ 2,535 1,854 850(b) 1,247(c) 3,992

Valuation allowance for Inventory(a):
Year ended February 29, 2000........ 10,381 2,307 -- 9,439(e) 3,249
Year ended February 28, 1999........ 4,779 5,296 2,209(d) 1,903(e) 10,381
Year ended February 28, 1998........ 4,192 1,277 1,297(d) 1,987(e) 4,779

Valuation allowance for deferred tax
assets(a):
Year ended February 29, 2000........ 1,140 26,984(f) -- -- 28,124
Year ended February 28, 1999........ 1,140 -- -- -- 1,140
Year ended February 28, 1998........ 1,811 -- -- 671(g) 1,140

- --------
(a) Deducted from the related asset accounts.
(b) Principally represents recoveries of amounts previously charged off and
allowances for losses on trade accounts of acquired companies at the date
of acquisition.
(c) Charge off of uncollected accounts (net of recoveries).
(d) Inventory reserves of acquired companies at the date of acquisition.
(e) Adjustments relating to book-to-physical differences, sale of excess and
idle inventory, and other inventory adjustments.
(f) Increase in valuation allowance due to management's belief that
recognition of the related deferred tax assets is no longer more likely
than not.
(g) Reduction in valuation allowance due to management's belief that
recognition of the related deferred tax assets is more likely than not.