SECURITIES AND EXCHANGE COMMISSION
FORM SB-2 REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
PULTRONEX CORPORATION
(Exact Name of Registrant as Specified in its Charter)
NEVADA 3089 Applied For
(State of Incorporation) (Primary Standard (IRS Employer ID No.)
Classification Code)
2305 - 8th St., Nisku, Alberta, Canada T9E 7Z3
(780) 955 7374
(Address and Telephone Number of Registrant's Principal
Executive Offices and Principal Place of Business)
Gary Loblick
2305 - 8th St., Nisku, Alberta, Canada T9E 7Z3
(780) 955 7374
(Name, Address and Telephone Number of Agent for Service)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
CALCULATION OF REGISTRATION FEE
Title of each Proposed Proposed
class of Amount Maximum Maximum Amount of
securities to be offering price aggregate registration
to be registered registered per share offering price fee
Common Stock
Underlying Warrants 990,700 $2.00 $1,981,400 $523.09
Common Stock of
Selling Securities 1,189,700 $2.00 $2,379,400 $628.17
Holders -------
Total $1,151.26
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
THE EXHIBIT INDEX APPEARS ON PAGE II-4 OF THE SEQUENTIALLY NUMBERED PAGES OF
THIS REGISTRATION STATEMENT. THIS REGISTRATION STATEMENT, INCLUDING EXHIBITS,
CONTAINS 87 PAGES.
PULTRONEX CORPORATION
CROSS REFERENCE SHEET FOR REGISTRATION STATEMENT ON FORM SB-2
ITEM REGISTRATION STATEMENT HEADING LOCATION IN PROSPECTUS
1. Forepart of Registration Statement and Outside Front Cover Page of
Outside Front Cover Page of Prospectus Prospectus
2. Inside Front and Outside Back Cover
Pages of Prospectus Inside Front and Outside Back
Cover Pages of Prospectus
3. Summary Information and Risk Factors Prospectus Summary; Risk Factors
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Risk Factors; Description of
Securities
6. Dilution Not Applicaable
7. Selling Security Holders Selling Securities Holders
8. Plan of Distribution Plan of Distribution
9. Legal Proceedings Legal Proceedings
10. Directors and Executive Officers Management
11. Security Ownership of Certain
Beneficial Owners and Management Principal Shareholders
12. Description of the Securities to be
Registered Prospectus Summary; Description
of Securities; Outside Front
Cover of Prospectus;
13. Interest of Named Experts and Counsel Not Applicable
14. Statement as to Indemnification Indemnification
15. Organization within 5 Years Business of the Company
16. Description of Business Business of the Company
17. Management's Plan of Operation Business of the Company
18. Description of Property Business of the Company
19. Certain Relationships and Related
Transactions Certain Transactions
20. Market for Common Equity and
Related Stockholder Matters Market for Shares
21. Executive Compensation Executive Compensation
22. Financial Statements Financial Statements
23. Changes in Disagreements With
Accountants Not Applicable
2
PROSPECTUS
990,700 SHARES OF COMMON STOCK UNDERLYING COMMON STOCK PURCHASE WARRANTS
1,189,700 SHARES OF COMMON STOCK OFFERRED BY THE SELLING SECURITIES HOLDERS.
Pultronex Corporation,("We", "Us" or the "Company") is offering 990,700 shares
of common stock at $2.00 per Share to the holders of the Company's 990,700
Warrants (the "Shares" and "Warrants"). Each Warrant entitles the holder to
acquire an additional common share for $2.00 per common share.
The Shares are not presently traded on any recognized exchange or market. It is
our intention to apply to have the Shares listed for trading on the National
Association of Securities Dealers ("NASD") OTC Electronic Bulletin Board Market
as soon as possible after the date of this Prospectus.
THESE ARE SPECULATIVE SECURITIES, INVOLVE A HIGH DEGREE OF RISK AND SHOULD BE
PURCHASED ONLY BY PERSONS WHO CAN AFFORD TO LOSE THEIR ENTIRE INVESTMENT. (SEE
"RISK FACTORS.")
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISSAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PRICE TO PROCEEDS TO
WARRANT HOLDERS COMPANY(1)
Per Share $2.00 $2.00
990,700 Common Shares $1,981,400
(1) Before deduction of expenses of the Offering payable by the Company
estimated at $56,200.
The date of this Prospectus is ___________, 2000
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WHERE YOU CAN GET ADDITIONAL INFORMATION
The Company will be subject to and will comply with the periodic reporting
requirements of Section 12(g) of the Securities Exchange Act of 1934. The
Company will furnish to its Shareholders an Annual Report containing financial
information examined and reported upon by independent certified public
accountants, and it may also provide unaudited quarterly or other interim
reports as it deems appropriate. The Company's Registration Statement on Form
SB-2 with respect to the Securities offered by this prospectus, (a part of the
Registration Statement) as well as its periodic reports may be inspected at the
public reference facilities of the U.S. securities and Exchange Commission,
Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D. C. 20549, or
at the Commission's regional offices at Northwestern Atrium Center, Suite 1400,
500 West Madison Street, Chicago, Illinois 60661 and at 7 World Trade Center,
New York, New York 0007. Copies of such materials can be obtained from the
Commission's Washington, D. C. office at prescribed rates.
The Company has filed a Registration Statement of which this Prospectus is a
part which registers 1,189,700 shares of common stock for public resale by
certain non-affiliated shareholders of the Company (the Selling Securities
Holders).
The Company is not offering any of the Selling Securities Holders securities in
the Offering. These shares may be sold by the holders thereof from time to time
at prevailing market prices. The Company will not receive any of the proceeds
from any sale of the Selling Securities Holders shares. See "Description of
Securities", "Additional Securities Being Registered" and "Selling Security
Holders".
4
PROSPECTUS SUMMARY
THE COMPANY: We are a technology based engineering, manufacturing and marketing
company in the advanced composites industry. We manufacture high strength, light
weight, non-conductive, corrosion resistant, structural products. We currently
manufacture and market E-Z Deck, a proprietary product for the residential and
commercial decking industry. We also custom manufacture fiberglass hold-down
straps for underground fuel storage tanks, and produce a structural beam for the
agricultural industry. New proprietary and custom products are continually being
developed and evaluated for introduction into the market place. Our newest
proprietary product, the WaterFront Seawall, was launched in September 1999.
SECURITIES OFFERED: 990,700 Shares underlying the outstanding Warrants. Each
Warrant entitles the holder to acquire an additional common share for $2.00 per
common share beginning the date of this Prospectus and expiring on the last day
of the eighteenth month thereafter ( 2001.) See "Description of
---------
Securities".
USE OF PROCEEDS: We intend to use the net proceeds from this Offering and any
additional funds generated from operations for equipment purchases, facilities
improvements and marketing. Please see "Use of Proceeds" and "Business of the
Company".
ADDITIONAL SECURITIES BEING REGISTERED We have filed a Registration Statement of
which this Prospectus is a part which also registers 1,189,700 shares of common
stock for public resale by certain non-affiliated shareholders of the Company
(the Selling Securities Holders).
We are not offering any of the Selling Securities Holders securities in the
Offering. These shares may be sold by their holders from time to time at
prevailing market prices. We will not receive any of the proceeds from any sale
of the Selling Securities Holders shares. See "Description of Securities",
"Additional Securities Being Registered" and "Selling Security Holders".
5
RISK FACTORS
These Securities involve a high degree of risk. Prospective purchasers should
consider carefully, among other factors set forth in the Prospectus, the
following:
RISK FACTORS RELATING TO THE COMPANY
1. Limited Operating History. For the eight month period ended August 31, 1999,
the Company had net earnings of $61,601 based upon revenue of $1,488,498. The
Company's operating subsidiary was formed and commenced operations in April
1998. As a result, it is subject to the risks inherent in a new enterprise,
including the absence of a lengthy operating history, shortage of cash,
under-capitalization and new products. (Please see "The Company and its
Business.")
2. Competition. We have a number of competitors in the alternative deck products
industry. They include vinyl deck products including PVC and vinyl plastics
covering extruded metal forms, post consumer recycled plastics, recycled wood
fiber and plastics composites, and polymer deck carpet or spray-on coatings.
Many of these competitors are larger companies with greater market share and
financial resources than we currently have. We cannot give investors any
assurance that we will be able to
compete effectively.
3. Dependence on Management. The success of the Company is dependent largely
upon the efforts of its present management. To the extent the services of
Management would be unavailable to the Company for whatever reason, the Company
would be required to obtain other executive personnel to manage and operate the
Company. In such event, there can be no assurance that the Company would be able
to employ qualified persons on terms favorable to the Company. (Please see
"Management.")
4. Dependence on Major Customer. Approximately 16% of our sales are from a
pultruded structural beam used in hog barns which is manufactured for a single
customer, Matrix Ag, Inc. We do not have a long term contract with Matrix Ag.
Matrix Ag owns the production die and can move its production to any other
pultruder that can offer short run custom production, warehousing and shipping
services. While Matrix Ag sales have continued to increase despite record low
hog prices which could effect demand for their products, we cannot assure
investors that Matrix Ag., sales will not decline in the future. A halt or even
decrease in Matrix Ag sales could have a materially adverse effect upon our
business.
5. Need for Additional Funds. Proceeds from the exercise of the Warrants may not
be sufficient for us to acquire needed additional equipment or production
capacity. Sources of additional capital may be loans or the sale of additional
equity securities. We cannot assure investors that additional capital will be
available on any terms. Also, we cannot assure investors that if additional
capital is made available to the Company, that the terms for such additional
capital will not dilute the value or percentage ownership of our current
shareholders.
6. Possible Lack of Building Code Approval. The sales of E-Z Deck can require
building code approval in some jurisdictions. To that extent, Pultronex has a
BOCA (Building Officials & Code Adminstrators)Certification ES95-38 which
satisfies most building inspectors in most regions of the continent. There are
some districts that require separate code certifications. Sales to these
jurisdictions may be limited until regional code approval is obtained.
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RISK FACTORS RELATING TO THIS OFFERING
1. Public Will Bear Risk of Loss. The capital required by the Company to
increase the scope of its business is being sought principally from the proceeds
of this Offering. Therefore, public investors will bear most of the risk of the
Company's operations.
2. Arbitrary Determination of Offering Price. We arbitrarily set the exercise
price of the Warrants based upon our capital needs and our own estimation of the
potential market capitalization of the Company. The prices do not bear any
relationship to the assets, book value, earnings or net worth of the Company and
is not an indication of actual value.
3. Limited Public Market. Our common stock is not presently listed for trading
on any recognized exchange or market. It is our intention to seek a listing on
the National Association of Securities Dealers OTC Electronic Bulletin Board
Market following the effective date of this prospectus. However we cannot give
assurances that the listing will be obtained. Investors may have to indefinitely
hold their shares and may have difficulty selling their shares.
4. Lack of Dividends. The Company has never paid a dividend on its common stock
and intends to retain all earnings for the foreseeable future in order to
complete its business plan.
5. Disclosure Related to Penny Stocks. The Securities and Exchange Commission
has adopted rules that define a "penny stock". We believe that it is likely that
our common stock will be characterized as penny stock. As such, broker-dealers
dealing in our common stock will he subject to the disclosure rules for
transactions involving penny stocks which require the broker-dealer among other
things to (i) determine the suitability of purchasers of the securities, and
obtain the written consent of purchasers to purchase such securities and (ii)
disclose the best (inside) bid and offer prices for such securities and the
price at which the broker-dealer last purchased or sold the securities. The
additional burdens imposed upon broker-dealers may discourage them from
effecting transactions in penny stocks, which could reduce the liquidity of the
securities offered hereby.
6. Possible Inability to Exercise Warrants. The Warrants are not exercisable
into common stock unless, at the time of exercise, the Company has a current
prospectus covering the shares of common stock and such shares have been
registered, qualified or deemed to be exempt under the securities laws of the
state of residence of the holders of such the Warrants. We cannot be sure that
we will have or can maintain a current prospectus or that the securities will be
qualified or registered under any state laws. Purchasers may move to
jurisdictions in which the shares underlying the Warrants are not registered or
qualified during the period that the Warrants are exercisable. In this event, we
would be unable to issue common stock to those persons desiring to exercise
their Warrants unless and until the shares could be qualified for sale in
jurisdictions in which the purchasers reside, or an exemption from this
qualification exists in such jurisdiction.
7
7. Limitation on Directors' Liability. The Company's Articles of Incorporation
provide for certain limitations on the liability of the Company's directors to
its stockholders for monetary damages. Such limitations could adversely affect
an investor's ability to recover damages from such directors.
USE OF PROCEEDS
The net proceeds of the Offering will be $1,925,200 after the payment of
offering expenses estimated at $56,200 if all of the Warrants are exercised
prior to their expiration. The Company will utilize the net proceeds as and when
received primarily for equipment purchases (up to $400,000), facilities
expansion ( up to $250,000) marketing ( up to $750,000) and working capital
($525,200).
CAPITALIZATION
The following table sets forth the capitalization of the Company as of November
30, 1999 and on a pro forma basis giving effect to the exercise of the Warrants
offered hereby and the application of the net proceeds as described in "Use of
Proceeds".
November 30, 1999 November 30, 1999
Historical Proforma(1)
Stockholders Equity
200,000,000 no par
common shares authorized
3,832,135 $2,346,040 $2,346,040
outstanding at
November 30, 1999 (1)
Warrants 990,700 (2)(3) $1,925,200
outstanding at November 30, 1999
Retained Earnings $63,641 $63,641
Total Capitalization $2,409,681 $4,334,881
(1) 288,620 shares were issued in December 1999. After effect of exercising all
warrants and shares issued in December 1999, total outstanding shares would
be 5,111,455
(2) Gives effect solely to the sale of 990,700 common shares.
(3) Adjusted to reflect the estimated issue costs of warrants at $56,200.
8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
audited financial statements of the Company and related notes included therein.
This section contains forward-looking statements that involve risks and
uncertainties. These forward-looking statements are not guarantees of our future
performance. They are subject to risks and uncertainties related to business
operations, some of which are beyond our control. Our actual results may differ
materially from those anticipated in these forward-looking statements.
Overview
We are a technology based engineering, manufacturing and marketing company in
the advanced composites industry. We manufacture high strength, light weight,
non-conductive, corrosion resistant, structural products. We currently
manufacture and market E-Z Deck, a proprietary product for the residential and
commercial decking industry. We also custom manufacture fiberglass hold-down
straps for underground fuel storage tanks, and produce a structural beam for the
agricultural industry. New proprietary and custom products are continually being
developed and evaluated for introduction into the market place. Our newest
proprietary product, the WaterFront Seawall, was launched in September 1999. All
amounts are in U.S. dollars and converted from Canadian dollars at the rate of
$1.4728 Cdn., equal to $1.00 US.
Results of Operations
In August 1999, Pultronex Corporation of Nevada acquired Pultronex Corporation
of Alberta Canada. The audited statements at August 31, 1999 reflect the
Canadian company's position after 17 months of operation. Pultronex Corporation
of Alberta acquired the pultrusion manufacturing assets of ZCL Composites Inc.
effective April 1, 1998. ZCL developed and launched the EZ Deck product line in
mid 1993. Pultronex Alberta has operated profitably since acquiring the
manufacturing assets from ZCL.
Pultronex Alberta conducted its first year end review at December 31, 1998 after
nine months of operation. The operations resulted in a net after tax profit of
$76,212 on sales of $1,403,986. A charge back of $57,065 against retained
earnings resulted from the redemption of the shares of one of the original four
investors. Therefore the net retained earnings at December 31, 1998 were
$19,147. Pultronex changed its year end to August 31, 1999 for audit purposes to
facilitate the acquisition by Pultronex Corporation of Nevada. The 8 month
operating period ending August 31, 1999 resulted in net after tax earnings from
operations of $61,601 on sales of $1,488,498.
During the 8 month period of January to August 1999 we invested extensively in
market development. This increased our operating expenses for the period but was
deemed necessary to increase future revenues. The investment in market
development was partially realized in 1999 as the majority of the revenue for
the 8 month period was generated from March through August. Recognizing that our
northern location introduced large seasonal swings in product sales, we spent
9
much of 1999 developing markets in the southern regions of North America. The
results of those efforts are being seen as we move into 2000. In addition, sales
are commencing with our new WaterFront Seawall product.
Liquidity and Capital Resources
Subsequent to August 31, 1999, the Pultronex Corporation of Nevada successfully
completed a private placement of $990,700 which, at November 30, 1999, has
reduced the company's debt equity ratio to approximately 0.33 to 1 and increased
our working capital ratio to just over 4 to 1. The company banks with HSBC
Canada Inc. where it has a term loan of $186,139 outstanding at November 30,
1999 and an approved operating line of credit of $670,000. At November 30, 1999,
the company was not using its operating line of credit and had cash on hand of
$261,674. We believe that we have sufficient capital available through debt and
equity instruments to implement our business plan.
Future Outlook
The company expects to continue its rapid growth over the next few years.
Pultronex recognized that its business could not be focused strictly on the
existing E-Z Deck market. The EZ Deck business has been seasonal because of the
location of the manufacturing facility and proximity of initial customers.
Pultronex has been expanding its geographic market to reduce the seasonality of
the EZ Deck. This effort will contribute to the growth of the company over the
next few years. The impact of these efforts is already being realized as January
2000 order bookings are 8 times greater than in 1999. This trend is expected to
continue into February 2000.
We have also diversified and do custom manufacturing for Matrix Ag and for ZCL
Composites Inc. Both of these customers are growing and Pultronex expects to
grow its custom production with them. In addition, the company is constantly
looking at new proprietary products. In 1999, the company completed the design
and engineering of its WaterFront Seawall (retaining wall) product. This product
line is expected to add significantly to the company's gross revenue and
profitability over the next few years. We have already received and shipped
orders for the seawall/retaining wall product. This sustainable market
development strategy along with the company's strong financial condition bode
well for its future.
10
THE COMPANY AND ITS BUSINESS
Summary
We are a technology based engineering, manufacturing and marketing company in
the advanced composites industry. We manufacture high strength, light weight,
non-conductive, corrosion resistant, structural products. We currently
manufacture and market E-Z Deck, a proprietary product for the residential and
commercial decking industry. We also custom manufacture fiberglass hold-down
straps for underground fuel storage tanks, and produce a structural beam for the
agricultural industry. New proprietary and custom products are continually being
developed and evaluated for introduction into the market place. Our newest
proprietary product, the WaterFront Seawall, was launched in September 1999.
History
Pultronex Corporation ( "we", "us", "our" or the "Company") was formed as a
Nevada corporation in August, 1999. Also in August 1999, Krishen Mehra, Kuldip
Delhon, Jarnail Sehra and Talvinder Sehra as the record owners of 100% of the
common stock of Pultronex Corporation, a corporation organized under the laws of
Alberta, Canada agreed to exchange 100% of the common stock of the Alberta
corporation for 2,813,435 shares of the common stock in the Nevada corporation.
On or before January 4, 2000, each of the twenty beneficial owners, officers and
directors of the Company or family members of the officers and directors or
employees of the Company affirmed the exchange of shares prior to receipt of
stock certificates for common stock in the Company in their individual names.
Krishen Mehra, Kuldip Delhon and Jarnail Sehra were the founders of the Alberta
corporation and are the founders of the Company. Krishen Mehra is a director and
Kuldip Delhon is an executive officer and director of the Company.
Pultronex Corporation (the Alberta corporation) purchased the pultrusion
manufacturing assets of ZCL Composites Inc. April 1, 1998 for $3.0 million
Canadian Funds. The Alberta corporation was formed by four investors; Kuldip
(Kelly) Delhon, Krishen Mehra, Jarnail Sehra, and Robert Day. Robert Day and
Kuldip Delhon were principal shareholders and officers of ZCL Composites, Inc.
Robert Day was also a director of ZCL. Mr. Day was bought out by the other three
investors in September 1998.
ZCL (the largest manufacturer of fiberglass underground fuel storage tanks in
Canada) entered the pultrusion industry in 1992 and established the pultrusion
manufacturing facility in Nisku in the fall of 1994. "Pultrusion" refers to the
manufacturing process whereby reinforcing materials such as glass fiber are
pulled through a resin bath or chamber and the mixture pulled through a heated
die. The die shapes the product and the heat causes the resin to cure, resulting
in a solid composite shape at the exit to the die. E-Z Deck was developed and
introduced to the market in July 1993.
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PRODUCTS
E-Z Deck
E-Z Deck is a decking system that utilizes the strength, durability and
maintenance free characteristics of composite glass fiber and resin
construction. Unlike wood, this composite fiber product will not warp, split or
crack, rot, has no surface nails to rust or pop up, and it never needs
refinishing. The material is unaffected by extreme heat or cold, is insect proof
and is not bothered by salt water or other corrosive elements.
E-Z Deck has the lowest amount of expansion and contraction of all of the
alternative deck materials. Its high strength to weight ratio and thermal
stability keeps it from warping as other plastic based products do (particularly
those made from recycled plastics). The material composition retains its great
looks for a lifetime. This is because of the high strength of the glass fiber
reinforcements and the deep penetration of the resin and coloring into the
entire product. The finish is through the product, not just on the surface. The
durability of this type of construction enables the company to offer a lifetime
warranty on the product's structural integrity and 15 years on its ability not
to weather. Independent structural analysis and testing by the Alberta Research
Council and McGill University along with accelerated weathering tests conducted
by AOC, are main resin supplier, have proven the product's performance
capability.
When E-Z Deck was originally developed by ZCL Composites Inc., great care was
taken to enable the home handyman to construct the deck using familiar tools.
This makes the product easy to install for the home handyman and the deck
contractor. The deck boards are fastened by way of fiberglass clips that mount
on the joists. The clip in place feature of the deck board system significantly
reduces the installation time for experienced deck installers as the decking
simply 'snaps' together. Flexibility has also been incorporated into the design
of the deck system. The system allows the individual to incorporate other
materials, such as wood features into the trim or railing systems to satisfy the
design criteria of the owner.
Agricultural Beam
The Company also manufactures a structural beam for the hog barn industry for
Matrix Ag Inc. of Calgary, Alberta. Pultronex is a contract manufacturer for
Matrix Ag who own the beam die. The Company helped Matrix with the initial
design, testing and prototype development. We do not have a long term contract
to manufacture the beam and beams are manufactured pursuant to purchase orders
received from Matrix. Matrix Ag markets the beam throughout North America as a
component of their hog barn flooring system. The pultruded fiberglass beam
design was selected for its light weight, strength and most importantly, for its
corrosion resistance. While at present the demand for hogs is at a low point, we
believe that sales will continue due to Matrix Ag's marketing experience and
superior product provided by Matrix Ag (because of the pultruded fiberglass
beam). This product represents approximately 16% of our current sales volume.
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Tank Straps
Underground storage tanks can have a very high buoyancy force in areas where
there is a high water table. The buoyancy force on a 50,000 liter storage tank
can be as much as 100,000 pounds force. It is usually a building code
requirement to restrain these tanks from floating. To accomplish this, companies
use hold down systems. We manufacture a pultruded fiberglass hold down strap
that is capable of a minimum of 20,000 pounds force resistance. These straps are
currently sold to ZCL Composites for restraining their tanks sold in North
America and in Southeast Asia (primarily The Philippines). Strap production
currently represents approximately 5% of Pultronex's revenue.
WaterFront Seawall
WaterFront Seawall was introduced to the market in September 1999. This is an
interlocking structural sheet pile used to prevent soil erosion, primarily due
to water. Applications include waterfront properties such as rivers, lakes,
lagoons, bayous, canals, ocean fronts, or even water areas on golf courses.
Additionally it can be used for shoring trenches and other excavations.
WaterFront takes advantage of the natural properties of fiberglass. It is
lighter in weight, stronger, and because of its strength to weight ratio, it is
price competitive with other shoring products while generating an acceptable
return on investment.
Other Products
In addition to pultruded products, we have acquired complementary products to
increase our sales of proprietary products. These include the exclusive rights
to approximately ninety percent of North, Central and South America for the
'Techstar' floating docks. This is a polyethylene float manufactured by
Techstar, Inc., of Ontario, Canada, onto which E-Z Deck is mounted to provide
the deck surface. We purchase order required quantities of floating dock
materials from Techstar as and when we receive sales orders and then ship the
materials to the purchaser for on-site assembly. This product expands the
product mix and is helping the company enter the very large dock and marina
market. A strategic sourcing arrangement with 'Imperial Kool-Ray', of Toronto,
Canada provides us with an aluminum railing system to complement our fiberglass
system. This is to provide an alternative for customers who want something
different in a railing system than what we produce. With this, an aluminum
framing structure and stair support system is also available. We purchase order
required quantities of aluminum railings from Imperial Kool-Ray as and when we
receive sales orders and then ship the materials to the purchaser for on-site
assembly. The Company must order minimum volumes of the Techstar product for
different regions in order to maintain exclusivity with the minimum amounts
negotiated annually.
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Marketing & Distribution
Customers
We believe the consumers of the E-Z Deck are those people who consider the value
in a product based on its total life cycle cost. We think our customers consider
the value of the product in its functionality, its appearance, durability, life
span and zero maintenance costs. We believe they value their time and do not
want to spend it doing regular maintenance on their deck. We believe the E-Z
Deck makes a status statement, that the E-Z Deck product is a functional and
lifestyle enhancing product.
We believe that generally, consumers of the E-Z Deck will be more performance
and/or image selective buyers. We believe some of the consumer demand will occur
because the product is an alternative to wood, particularly to those higher
cost, more limited supplies of wood such as cedar or redwood. We believe other
consumers will choose E-Z Deck because it represents a leading edge, up market
image that reflects their life style or the image that they wish to portray. We
believe this product will appeal to higher income earners who are looking for a
high class, leading edge technology product that looks good for a lifetime. We
believe the high strength, heat resistance, and no surface markings of the
product give it that 'Mercedes Benz' kind of appeal.
We believe use of our E-Z Deck product over 5 years makes E-Z Deck more cost
effective than wood because of wood's high maintenance costs. In today's market
with people working longer hours and more members of the household working,
leisure time is becoming more of a premium. This product should appeal to the
segment of people who value their free time and do not want to spend it doing
maintenance around the home.
While E-Z Deck will have a fairly broad appeal, our marketing strategy focuses
on those consumers (the early adopters) who are attracted to the maintenance
free, and advanced technology lifestyle and image that the E-Z Deck offers. This
market segment typically is not averse to the initial cost and is willing to
explore the use of alternative aerospace type materials. We believe the mass
consumer market for alternative deck products will follow as market awareness of
the E-Z Deck grows. We estimate that the initial targeted segment of the deck
market that will consider purchasing E-Z Deck to be approximately 10% of the
total deck market. We estimate the alternative deck market segment to be $350
million per year. We also believe that industry trends suggest that the
alternative deck market is growing faster than the overall market.
The Market
E-Z Deck
In a recent study by Pure Strategy of Wexford, PA, the current annual North
American market for decks is estimated to be 3,000,000 decks with a value of
approximately $6.5 billion (US). Of this, approximately $3.5 billion is for
materials. A May 1999 article in 'The Merchant Magazine' pegs the residential
decking market in the U.S. at $4 billion by 2001. They estimate the average
annual growth rate for the past 10 years at 8.1% outpacing the 1.5% rate for new
construction and the 3.7% rate for home improvements. This growth rate is
forecast to continue for the next several years, particularly for 'alternative
deck products' (non-wood).
14
We estimate the market share for 'alternative deck products' at 10% of the total
market or approximately $350 million (US). This segment of the deck market is
growing faster than the overall deck market as alternative products are gaining
more and more market acceptance. This growth is estimated as high as 20% per
year. At this rate, the potential market for alternative deck products will
reach approximately $726 million (US) within five years.
The growth of alternative deck materials is being driven by a number of factors.
These include:
- the increased acceptance of recycled materials and wood alternatives;
- the increased awareness of the depletion of forest products and the
rising cost of lumber;
- the increased demand for maintenance free products as consumers place a
greater value on their time;
- improved aesthetics of some alternative materials (a major feature of E-Z
Deck);
- technical benefits of some alternative deck products such as resistance
to vermin, corrosion, elimination of deck surface fasteners,
splinters, etc.;
- increased awareness of alternative products;
- consumers are recognizing the value of total life cycle costs: longer
product life cycle for some products means lower whole life cost.
Market Size Forecast (US$ millions)
Year 2000 2001 2002 2003 2004
- ---- ---- ---- ---- ---- ----
Total Deck Material Market 3,500 4,000 4,324 4,675 5,053
Alternative Deck Market 350 420 504 605 726
% Share of Total Deck Market 10.0% 10.5% 11.7% 12.9% 14.4%
Pultronex Revenue 7.2 12.2 19.2 27.9 38.2
Market Share % 2.1% 2.9% 3.8% 4.6% 5.3%
MARKETING PLAN
Overall Marketing Strategy
The composite fiber deck system is unique in the market place in performance and
looks. The E-Z Deck is a leading edge product and must be marketed with the
characteristics of such a product. With the E-Z Deck, our proposition to our
customers is "best product, period."
15
We believe E-Z Deck is unquestionably a leading edge product. Its customers have
a broader perception of performance. They are looking for both tangible and
experiential value in the product. It could be likened to the "Mercedes Benz" of
the deck materials. Therefore, our approach to the end consumer is to establish
that position in the eyes of the consumer (and the appropriate marketing
channels), form the opinions in the targeted market group so that they perceive
the value in product performance and lifestyle value of owning an E-Z Deck. The
positioning statement for the E-Z Deck reads, "E-Z Deck has been designed and
manufactured with aerospace technology and performance for the user who values
time, style, and product durability."
The targeted market segment is the lifestyle purchaser who values their own time
and recognizes that component as part of the whole life product cost. It
includes people who do not want to be bothered with maintenance, those who plan
on having the deck for more than 5 years (which is the approximate break-even
point between finished wood and E-Z Deck), people who recognize the added value
that a quality deck adds to their home, and those who want the image of owning
the best.
From buyer behavior models, to reach this target group requires a greater degree
of personal sales contact supported by product awareness campaigns in the
market. It is not realistic for our sales staff to sell the product directly to
the broad market of consumers. It is simply not cost effective, nor can the
market be covered. Therefore, we focus on marketing E-Z Deck through
professional home improvement and deck contractors (not the part time weekend
builders). Every city and town in North America has contractors who do this kind
of work. Based on advertised listings, there are an estimated 35,000 to 40,000
of these contractors in North America. The Merchant Magazine article identifies
that there are more than 7,200 contractors in the U.S. who specialize as deck
contractors that build 200 to 500 decks annually. We currently have 140
contractor/installers signed up to our installer program. The key for us
reaching the E-Z Deck consumer is that this group of contractors does business
one on one with its customers. They have the opportunity to suggest and
influence the consumer's product choice. Home Building, Architectural, and Home
& Garden trade shows are a major way for us and our contractors to reach the
buying public. We currently do trade shows in partnership with our
contractors/installers to help them expand their business. This has proven to be
very cost effective as well as very successful in creating market awareness and
product demand.
We created a 'job-lot packaging' program to facilitate growth in the contractor
market segment and to enable it to cover the North American market from a single
facility. Like Dell Computer, the company packages each customer's deck in its
own crate for delivery to the building site. We believe this ability for mass
customization has contributed significantly to our growth rate. In addition,
freight is subsidized to remove high delivery cost buying objections. Special
arrangements have been made with major North American carriers to provide low
cost shipping to anywhere on the continent because of the high volumes and
packaging that enables the carrier to increase its payload capacity. The result
is that the Company can deliver in LTL mode anywhere on the continent at a very
competitive cost.
16
We also employ a multi level marketing structure in our contractor program.
There is the opportunity in each region for a contractor/installer to become
large enough to purchase E-Z Deck material in truckload quantities. They can
then act as a regional distributor to other contractors. This encourages the
larger contractors to enlist others in their region to promote and sell E-Z
Deck. To date, six major contractors have taken advantage of this opportunity.
In all, the target is to have 15 regional contractor-distributors by the spring
of 2000, growing eventually to 100 on the continent by 2004. The impact of this
program for us is:
- faster customer response time;
- accelerated market penetration;
- reduced operating costs through order consolidation;
- reduced packaging costs;
- and lower shipping and handling costs.
In addition to focusing on a specific consumer segment, we focus on specific
geographic regions. The process is to build a beachhead in a region, creating
some sustainable demand, before moving on to another geographic area. This
process enables the company to learn more about the market as it goes,
increasing its capabilities and probability of results in each successive
market. It also maximizes the use of limited corporate resources (both people
and financial) by not over extending the company and its ability to manufacture
and deliver quality product to the market, on time, every time. The objective is
to build an excellent corporate reputation to match the product that we produce.
Pricing
E-Z Deck is a technologically advanced product whose value can be demonstrated
over the product life as being significantly superior to anything currently on
the market. It has a higher cost due to the high cost of the raw material inputs
to the product. Therefore it must command a higher selling price commensurate
with its value and performance. While some of the individual components in the
E-Z Deck may be approximately 3 to 6 times the price of conventional wood, the
contractor finished deck is typically only marginally more in initial cost. Most
contractors sell installed wood decks in the range of $15 to $25 per square
foot. E-Z Deck contractors typically install E-Z Deck for between $20 and $30
per square foot (most quote $25/sq.ft.). At this price level, the break-even for
the purchaser on an all-inclusive material and maintenance cost basis (except
for personal labor) is 5 years. The product value justifies this price. This
price level also differentiates the product for its target customers.
Our pricing structure allows each segment of the marketing channel to make a
reasonable profit margin. Typically, a contractor that sells decks will have a
gross margin (based on material purchase discount) on a wood deck of 10% to 15%.
With the E-Z Deck formula (20% to 25% discount for contractors - depending upon
volume purchased), the contractor has a significantly higher material gross
margin dollar value. In addition, the contractor/distributors purchasing in
truckload quantities receive a 35% to 40% discount based on volume. This enables
them to sell to the contractors that they have established in their region.
In addition to the above price discounting structure, the 'job-lot package'
program provides an all-inclusive price to the contractor for each job order,
delivered to the job site or the contractor's shop. This pricing package
minimizes or eliminates a contractor's objections to using E-Z Deck due to the
17
inconvenience of getting the product from a non-local supplier, managing the
distribution network, and reducing the number of supplier transactions for the
contractor to one. Most of all it is making it convenient for the contractor and
therefore desirable to deal with us (E-Z Deck).
Suggested retail pricing with the above pricing discount structures, is set to
allow us to approach a gross margin on sales of 35% to 40%. Product and
production cost improvements are continually being worked on to enhance this
rate.
Sales Tactics
We solicit our contractors a number of ways. Direct telemarketing to contractors
is a primary route. The sales team select a region and search for the best in
the area to represent E-Z Deck. Another approach is through trade shows targeted
at the contractor/installer. A third source is in response to inquiries through
the company's web site.
The E-Z Deck web site (www.ezdeck.com) currently attracts up to 300 visits per
day. Each visit lasts an average of 7 1/2minutes. From this we are generating 70
inquiries per week and growing.
Trade Shows
Over the next two years, we plan to utilize regional trade shows to:
- introduce E-Z Deck to the consumer;
- find more contractors/installers to market the product;
- assist those contractors to grow their businesses and hence the volume of
sales of E-Z Deck;
- develop a sustainable level of demand for E-Z Deck for long term growth.
The two major shows that are critical for product awareness and long term growth
are:
1. The Remodelers Show - US Show held in October in different locations
each year;
2. Canadian National Home Construction Show held in early December.
We intend to present our product at approximately 45 other trade shows in Canada
and the US during 2000.
Advertising and Promotion
We are expanding our advertising and promotion activities. We plan to
significantly increase our use of print media advertising to increase product
awareness. We will be working with our contractors to participate in advertising
in regional 'Home and Garden' type shows.
18
Competition
We have a number of competitors in the alternative deck products industry. They
include vinyl deck products including PVC and vinyl plastics covering extruded
metal forms, post consumer recycled plastics, recycled wood fiber and plastics
composites, and polymer deck carpet or spray-on coatings. The largest of these
competitors is Trex. Trex is a recycled wood and plastic polymer deck board
material that was commercialized by Mobil Chemical as part of its recycling
initiative. Mobil has since exited the industry and sold Trex to management. It
has an estimated sales volume of $50 million U.S.
Almost all of the other alternative deck product manufacturers market their
products primarily through the distributor to retailer channel or contractor
yard distributor. Some also sell directly to contractors.
The major competitors include:
Recycled Material (Wood fiber and plastic)
- Trex
- AERT (Choice Deck)
- Smart Deck
- Crane Plastics (Timber Tech)
- Fiber Composites (Fiberon)
Vinyl and Plastic
- Brock (or Royal Crown)
- Kroy Building Products
- Heritage Vinyl
- PVC Design
- Materials International
- US Plastic Lumber (Carefree Plastic Decking)
- Thermal Industries (Dreamspace)
- Dura Deck
Governmental Regulation
The Company is subject to general business regulations, including Alberta and
Canadian environmental and hazardous material handling regulation. Our
manufacturing process does not result in air pollution emissions or waste water
discharge and no special environmental permits or licenses are required. The
Company contracts with a licensed hazardous waste disposal company for disposal
of acetone used primarily for cleaning the manufacturing equipment.
19
Code Certification
E-Z Deck currently carries a BOCA (Building Officials & Code Administrators)
Evaluation Services Certification for its deck system. There are some US
jurisdictions that require additional component applications to be certified by
BOCA. Those items include the use of E-Z Deck boards as stair tread components,
and a modification of the handrail for use as a grab bar. In addition to BOCA,
we are exploring other, broader product certifications.
Research and Development/New Products
We have a policy of continuous improvement in products and processes.
Improvements since we acquired the pultrusion assets from ZCL have reduced costs
and increased productivity and quality significantly. Improvements in product
quality have reduced off spec product from 25% (at the time of purchase from
ZCL) to less than 5%. Production speeds have increased by 50% and order
processing turn around has been reduced by 60%; resulting in faster customer
response and delivery with fewer staff.
Since acquisition of the pultrusion assets there have been a number of
breakthroughs in the production process. Most breakthroughs have been developed
by the production team. Some of these include:
- Increased production speeds;
- Reduced resin consumption (lowering costs);
- Better glass feeding systems (increased production speeds and product
quality);
- Reduction in resin formulation components (reducing costs);
- Reduced packaging costs.
We are continually looking at developing new products for related construction
markets. The company currently has one product under development which is being
tested by independent parties. This is pultruded snow fencing. The State of
Montana is currently field testing the pultruded snow fencing. We believe that
commercial sales of snow fencing are unlikely prior to the fall or winter of
2001.
The criteria for product development is:
- - the products must fit into similar or existing marketing channels;
- - the products must provide a commercial advantage to the consumer to allow us
an appropriate return on investment;
- - be of a size and nature that utilizes our core competencies in manufacturing
and processing.
We are continually striving to improve our existing products and develop new
products. The E-Z Deck Mark II is already in preliminary design. The new designs
20
will lower costs, and expand potential applications of the product. Other
proprietary and custom pultrusion products are also being evaluated daily. We
currently receive one custom inquiry per week.
New product development is a key component of our long term strategic plan. The
target is to develop and launch one new product per year. It is our objective to
have deck represent no more than 65% of our business within 4 years. Some of the
current and proposed future products include:
- Potato bins - market being researched
- Commercial or Industrial garage doors - market is being researched
- Roofing tiles - concept stage
- Hog pens - concept stage
- Flooring for refrigerated vans
New Product Development Methodology
We use a cooperative design team methodology to develop new products and bring
them to market. This design team consists of in-house engineering and production
teams, material suppliers, customers, and external technical and market
consultants when needed. All are a part of the product development process. We
believe the results of this process is fast time to market, reduced development
costs, reduced initial production costs, and significantly increased probability
of market success.
Employees
As of December 1, 1999, the Company employed 26 people, all of whom are
full-time individuals whose principal responsibilities are: product processing
and shipping (17 employees), sales, marketing and customer service (5
employees), research and development (1 employee) and administration (3
employees). Our manufacturing staff is not presently covered by any collective
bargaining or union relationship. Skilled labor is available from Edmonton and
the surrounding communities (population approximately 800,000). Pultronex has a
formal training program in pultrusion technology for all staff.
Manufacturing Facilities/Properties
The manufacturing and office facility of Pultronex Corporation is located in the
Nisku industrial park, adjacent to the Edmonton International Airport, Edmonton,
Alberta, Canada. We believe that Alberta is one of the most cost-effective
regions in Canada to locate a manufacturing operation. Corporate tax rates are
among the lowest in Canada, particularly with no provincial sales tax. Alberta
also has some of the lowest utility costs in North America and the lowest
Workers Compensation Board insurance rates in Canada for this type of
production. As the plant is located in an industrial park, there is no zoning or
other encumbrances to manufacturing pultruded products at this location.
21
The location of the plant is on the main north/south transportation route.
Shipping product throughout North America is easily done. Backhaul truckload
rates enable the company to ship to anywhere in the United States for less cost
than shipping across Canada. Currently, product can be shipped anywhere in North
America for approximately 5% of the truckload value of the shipment. Shipping
times are competitive with anyone in any location serving Canada and the U.S.
The facility consists of a 28,000 square foot plant on 8.5 acres of property.
The plant is modern with room for expansion. There is also ample yard storage
for finished goods inventory. The 26,000 square feet of manufacturing and
warehouse space houses 8 pultrusion lines, secondary manufacturing process lines
for sanding and texture coating, routing clips and rail brackets, glass mat
cutting, shrink wrap packaging plus storage for work in process inventory.
The 8 lines operating at 80% efficiency for 7 days a week, 50 weeks per year,
can produce $18 to $25 million in revenue. To grow beyond this level would
require an expansion to the current plant or locating a second plant in the U.S.
This location houses all administrative, executive, sales, manufacturing, and
shipping functions for the Company. The Company leases the facilities from an
independent third party pursuant to a sixty month lease rate of $11,000 Cdn.,
per month, renewable for an additional sixty months at $12,000 Cdn. The Company
is presently in the second year of the lease.
22
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND OF MANAGEMENT
The following table sets forth the persons known to the Company as beneficially
owning more than five percent (5%) of the outstanding shares of the Company
(4,120,755 as of February 15, 2000) the directors and officers and number of
shares of the Company's Common Stock beneficially owned as of February 15,,
2000, by individual directors and executive officers and by all directors and
executive officers of the Company as a group as well as giving effect to the
Shares Offered for the exercise of the Warrants.
Name/Address* Title Shares % Ownership %Post Offering.
W. Gordon Buchannon Shareholder 750,000 (1) 18.2% 14.7%
Suite 1060 Scotia Place 1
Edmonton Alberta
Canada T5J 3R8
Greg Buchannon Shareholder 500,000 (1) 12.1% 9.8%
Box 38
High Prairie, Alberta
Canada T0G 1E0
Gary Loblick, Pres., COO, Dir. 15,500 0.4% 0.3%
Krishen Mehra Director 59,495 2) 1.4% 1.2%
Kuldip (Kelly) Delhon CEO, Sec, Dir. 409,092 9.9% 8.0%
Mave Dhariwal Director 80,000 (3) 1.9% 1.6%
Gary Steadman Director 40,000 1.0% 0.8%
Michael Vida Director 100,000 (4) 2.4% 2.0%
Luc Guilbault CFO 35,000 0.9% 0.7%
Off. & Dir. as a Group (7 Individuals) 739,087 17.9% 14.5%
* The address for the officers and directors is that of the Company: 2305 -
8th St., Nisku, Alberta, Canada T9E 7Z3
(1) W. Gordon Buchannon and Greg Buchannon are father and adult son and
disclaim beneficial ownership in each other's shares.
(2) Does not include 300,000 shares held by Dr. Mehra's adult children for
which he disclaims beneficial ownership.
(3) Does not include 50,000 shares held by Mr. Dhariwal's adult child for which
he disclaims beneficial ownership.
(4) Includes 100,000 shares registered in the name of Tatum Investments, Ltd.,
of which Mr. Vida is the General Manager.
23
MANAGEMENT
The executive officers and directors of the Company and their ages are as
follows:
Held
Name Age Position Position Since
Gary Loblick P. Eng. MBA 48 President, COO, and Director 1999
Krishen Mehra, Ph.D. 70 Chairman 1999
Kuldip (Kelly) Delhon 43 CEO/Secretary, and Director 1999
Mave Dhariwal HNC,MBA 53 Director 2000
Gary Steadman, P. Eng. 48 Director 2000
Michael Vida 39 Director 2000
Luc Guilbault, CA, CMA 41 Chief Financial Officer 2000
The Directors serve until their successors are elected by the shareholders.
Vacancies on the Board of Directors may be filled by appointment of the majority
of the continuing directors. The executive officers serve at the discretion of
the Board of Directors.
Business Experience
Board of Directors/Executive Officers
Krishen Mehra, Ph.D. - Chairman
Dr. Mehra obtained his Ph.D. in Probability and Statistics from the University
of California, Berkley in 1965. For the past thirty-five years, he has been a
professor and administrator teaching at Michigan State, University of Colorado,
Iowa State University, and the University of Alberta. Since 1992 Dr. Mehra has
also worked as an industrial statistician and Total Quality Management
consultant as well as being an investor in real estate.
Kuldip (Kelly) Delhon, CEO, Director
Kelly Delhon has more than 20 years experience in the brokerage industry, his
last five years as Vice President with Wood Gundy. Kelly has been an investor
and partner in private manufacturing companies and a director of a public
company. He was an investment partner in Berlinex Polymers, a PVC extruder. In
1987, Mr. Delhon was one of 3 founding partners at ZCL Composites Inc. There he
served as a Director for 5 years until 1998 when he became Director of Investor
Relations. ZCL is the largest manufacturer of fiberglass underground fuel
storage tanks in Canada and recently has opened manufacturing operations in the
Philippines for the Southeast Asian Market. ZCL trades on the Toronto Stock
Exchange.
Gary Loblick, P. Eng., MBA - President, Director
Gary Loblick is a Professional Engineer (registered in Alberta, Canada) who has
24 years experience in building and turning around manufacturing companies. He
has consummated 9 major international strategic alliances in Europe, Asia and
North America and utilizes alliance processes to develop market and supply
channels for Pultronex. His background includes work as a consultant for
industry development and as a corporate coach/trainer in marketing and business
strategies. He remains a senior associate with The Warren Company of Providence
RI consulting on special projects in strategic sourcing alliances for TWC's
Fortune 500 clients. Gary developed and implemented the business strategy for
the turn around of the former ZCL pultrusion operation by Pultronex.
24
Gary E. Steadman, P. Eng. - Director
Gary Steadman is a professional engineer (registered in Alberta and the
Northwest Territories, Canada) who has 25 years experience engineering and
designing in composites. Since 1978, he has been the President and Principal of
R P Composites Engineering Inc., Edmonton, Alberta providing professional
engineering services in the field of industrial reinforced plastics products.
His experience includes designing and manufacturing of custom FRP products,
underground fuel storage tanks and pressure vessels, FRP pipe and their related
manufacturing processes (including pultrusion). Gary did the original
engineering work for the E-Z Deck product manufactured by Pultronex Corporation.
Mave Dhariwal, HNC, MBA - Director
Mave Dhariwal is the Program head for the Mechanical Engineering Technology
Program at the Northern Alberta Institute of Technology (NAIT). He is also the
Program Coordinator for the Project Management and Quality Assurance Programs at
NAIT. Prior to joining NAIT in 1980, Mave worked 16 years in private industry.
He spent 8 years in Project Engineering and Project Management across Europe and
Canada. Mave also has 8 years experience in manufacturing and production
engineering in the United Kingdom. In addition to his University qualifications,
Mave also has his Alberta Machinist and Tool and Die Maker Certification.
Michael A. Vida - Director
Michael is the General Manager and a Director for Tatum Investments Inc. where
he is responsible for the operation of multiple automobile dealerships and real
estate property in Alberta and British Columbia. City Ford Sales Ltd. was Ford
of Canada's largest dollar sales volume organization in the 1990's. Michael has
16 years experience in marketing and management in the automobile and investment
industries in Western Canada. Michael is a Science and Business Management
graduate of the State University of New York College of Arts and Science,
Plattsburg, NY.
Luc Guilbault - Chief Financial Officer
Luc is a Chartered Accountant with both public and private practice experience.
He also spent 3 years as an external auditor for the Province of Quebec from
1987 to 1990. Prior to joining Pultronex Corporation, Luc spent 9 years as
controller for ZCL Composites Inc. which has been trading on the Toronto Stock
Exchange since September 1994.
Key Employees
Don Ayliffe - Sales and Marketing Team Leader
Don Ayliffe, a graduate of Sheridan College, Xerox Sales program, and the CASH
Sales Management programs, has 25 years experience in sales and marketing
management. He has extensive background in the construction and hardware supply
industries. Don is accustomed to launching new products, developing geographic
territories and building sales teams. In the short time that Pultronex has been
in business, Don and his team have successfully implemented the business
strategy and accelerated the company's growth.
25
Dennis Bacon - Production Team Leader
Dennis Bacon, a graduate of the Northern Alberta Institute of Technology, has 20
years experience in manufacturing operations. The last five years have been in
the pultrusion industry with ZCL Composites and Pultronex. Dennis experienced
the early process development of the E-Z Deck as an operator and production
coordinator. He brings to the Pultronex team, leadership, production
co-ordination, purchasing, and team building skills.
Michael Yeats, B. Eng. - Engineering
Michael Yeats is a graduate in Civil Engineering from McGill University.
Michael's studies included engineering and working with composites. After a year
doing product design for R P Composites Engineering, Michael joined Pultronex in
May of 1999. Michael is responsible for engineering design and is a member of
the production and process development team.
Mike Barker - Quality Assurance/Product & Process Development
Mike Barker has more than 30 years industrial products manufacturing experience.
Originally from the UK with an HNC in metallurgy, Mike has spent his career
developing and analyzing manufacturing processes with respect to Quality
Assurance and operating efficiency. Mike has developed quality programs process
enhancements for such companies as Stelco and Borg Warner. Mike leads the
production Ideas/Technology team.
Family Relationships
There is no family relationship between any Director, executive or person
nominated or chosen by the Company to become a Director or executive officer.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table shows for the fiscal years ending August 31, 1998 and August
31, 1999, the compensation awarded or paid by the Company to its Chief Executive
Officer and any of the executive officers of the Company whose total salary and
bonus exceeded $100,000 US during such year (The "Named Executive Officers"):
26
Total Annual Cash Compensation
Restricted
Name and Position (Year ended 8/31/99) ($ Amt.) Stock or Options Granted
Gary Loblick Pres. $100,000 Cdn. None
(COO after 12/1999)
No other executive officer earned more than $100,000 US during the current
fiscal year.
Employment Agreements and Executive Compensation
The Company does not have written employment agreements with its executive
officers. Gary Lobick, the President and Chief Operating Officer is paid cash
compensation at the rate of $100,000 Cdn., per annum. Beginning January 1, 2000,
Kelly Delhon, the Chief Executive Officer as of December 1999 and Secretary of
the Company is also paid cash compensation at the rate of $100,000 Cdn., per
annum.
Compensation of Directors
Directors are entitled to receive reimbursement for all out-of-pocket expenses
incurred for attendance at Board of Directors meetings.
Other Arrangements: The Company has the Pultronex Corporation 2000 Stock Option
Plan which was adopted on December 15, 1999. The purpose of the Plan is to
advance the business and development of the Company and its shareholders by
affording to the employees, directors and officers of the Company the
opportunity to acquire a proprietary interest in the Company by the grant of
Options to such persons under the Plan's terms. The 2000 Plan reserved 2,000,000
shares for grant or issuance upon the exercise of options granted under the
plan. As of February 15, 2000, no options have been granted under the plan.
Termination of Employment and Change of Control Arrangement
There is no compensatory plan or arrangement with respect to any individual
named above which results or will result from the resignation, retirement or any
other termination of employment with the Company, or from a change in the
control of the Company.
Transactions with Management
In August 1999, the shareholders of Pultronex Corporation, a corporation
organized under the laws of Alberta, Canada agreed to exchange 100% of the
common stock of the Alberta corporation for 2,813,435 shares of the common stock
in the Nevada corporation. Management of the Company were founders and majority
shareholders of the Alberta corporation and are founders and majority
shareholders of the Company. Gary Loblick received 3,000 shares, Kelly Delhon
and his wife Virendra Delhon received 390,341 shares, Kirshen Mehra and his
adult children received 359,495 shares, and Mayva Dhariwal and his adult son
received 130,000 shares as a result of the exchange.
In December 1999, Gary Loblick, Kelly Delhon and Luc Guilbault were issued
12,500, 18,750 and 35,000 shares respectively for their services as officers of
the Company.
27
MARKET FOR THE COMPANY'S COMMON STOCK
AND RELATED STOCKHOLDER MATTERS
Market Information: The Company's common stock is not listed for trading on any
recognized market.
Security Holders: As of February 15, 2000, the Company had 86 holders of record
of its common stock, 48 holders of its 990,700 Warrants.
Dividend Plans: The Company has paid no common stock cash dividends and has no
current plans to do so.
There are presently 4,120,755 shares of common stock outstanding as of February
15, 2000.
DESCRIPTION OF SECURITIES
Common Stock
The Company is authorized to 200,000,000 shares of Common Stock, $.001 par
value. The holders of the Common Stock are entitled to one vote per share held
and have the sole right and power to vote on all matters on which a vote of the
stockholders is taken. Voting rights are non-cumulative. The holders of shares
of Common Stock are entitled to receive dividends when, as, and if declared by
the Board of Directors, out of funds legally available therefore and to share
pro rata in any distribution to stockholders. Upon liquidation, dissolution, or
winding up of the Company, the holders of the Common Stock are entitled to
receive the net assets of the Company in proportion to the respective number of
shares held by them after payment of liabilities which may be outstanding. The
holders of Common Stock do not have any preemptive right to subscribe for or
purchase any shares of any class of stock of the Company. The outstanding shares
of Common Stock and the shares offered hereby will not be subject to further
call or redemption and will be fully paid and non-assessable.
Stock Purchase Warrants
Each Stock Purchase Warrant entitles the registered holder to purchase one share
of the Company's Common Stock for $2.00. The exercise price of the Warrants and
the number of shares issueble upon exercise of such Warrants are subject to
adjustment to protect against dilution in the event of stock dividends, splits,
combinations, subdivisions, and reclassification. Warrants may he exercised by
payment of the exercise price in US funds by cash or certified check made out to
the Company.
PLAN OF DISTRIBUTION
The Company intends to solicit the exercise of the Warrants by mailing a copy of
this prospectus to the registered holders of the Warrants with instructions on
how to exercise the Warrants. The Company does not intend to engage the services
of any independent parties to solicit the exercise of the Warrants nor pay any
commissions for obtaining the exercise of the Warrants.
28
SELLING SECURITY HOLDERS
The following Selling Security Holders whose shares have been registered for
public resale under the registration statement are set forth below:
SELLING SECURITIES HOLDER SECURITIES OWNED AND OFFERED
Tatum Investments Inc. 100,000
Lynne B. Johnson 67,000
Jeffery J. Tempas 5,000
Leslie Gibbs & Gwen Gibbs JTWROS 10,000
345439 Alberta Ltd. 40,000
Richard Dickerson 10,000
George Mouchette & Victoria Mouchette JTWROS 20,000
Rhoda Davis & C. Victoria Mouchette JTWROS 20,000
Will Inns Ltd. 40,000
James J. Caffes & Sandra M. Caffes JTWROS 7,500
Wheaton Investment Group 5,000
Ken Gaine & Patricia A. Gaine JTWROS 10,000
Gregg Funfar 10,000
Robert C. Hedrick & Mary Hedrick JTWROS 5,000
Shawn Funfar 1,200
Stephen A. Reno & Judy L. Reno JTWROS 7,500
269-5341 Canada Ltd. 10,000
John Phillips & Joanne Phillips JTWROS 3,000
Roger Walklin & Judy Walklin JTWROS 15,000
Mladen Dundur 1,000
Neil T. Enright 50,000
Donna B. Cueroni 2,000
James C. Irwin & LaVerne G. Irwin TENCOM 1,000
Marilyn J. Hoffart & Elias Hoffart JTWROS 1,500
Richard P Cueroni & Elizabeth H. Cueroni TENCOM 2,000
Andrew Loschiavo & Lori Loschiavo JTWROS 2,000
Beth Palmer & David Stewart Palmer JTWROS 5,000
Douglas J. Driver 1,000
John W. Bishop & Susan B. Bishop JTWROS 10,000
Terry J. Swift 1,000
John M. Fore & Donna L. Fore TENCOM 5,000
352649 Alberta Ltd 10,000
Carl K. Myers & Patricia A. Myers JTWROS 100,000
Christopher L. Eades 1,000
Curtis Williams 1,000
Davis F. Briggs & Jean Fowler Biggs JTWROS 1,000
George G. Harris 15,000
29
Heritage Nurseries Ltd 10,000
Joel W Gray & Karen S Gray JTWROS 1,000
Karen Brock & Sam Brock JTWROS 1,000
Marc Andre Guilbault 10,000
Mehnga Matharu 100,000
Rosealta Mortgage Corporation 10,000
Thomas B. Chesnut 1,000
W Gordon Buchanan 250,000
Robert V. Cella & Cathy A. Cella JTWROS 1,000
Sandra Esposito 10,000
Tylere Couture & Rick Couture, JTWROS 1,000
Bob Adsit 174,000
Dennis Brovarone 25,000
The Selling Securities Holders have never held any position, office, or other
material relationship with the Company, except that Michael Vida, a director of
the Company is the General Manager of Tatum Investments, Inc.
The Selling Securities Holders do not own any other securities of the Company.
SELLING SECURITY HOLDERS PLAN OF DISTRIBUTION
Selling Security Holders may sell or distribute their shares in transactions
through underwriters, brokers, dealers or agents from time to time or through
privately negotiated transactions, including distributions to shareholders or
partners or other persons affiliated with the Selling Security Holders.
The distribution of the Selling Security Holders shares may be effected from
time to time in one or more transactions (which may involve crosses or block
transactions) (i) in the over-the-counter market, (ii) in transactions other
than in the over-the-counter market or (iii) through the writing of options on
the shares (whether such options are listed on an options exchange or
otherwise). Any of such transactions may be effected at market prices prevailing
at the time of sale, at prices related to such prevailing market prices, at
negotiated prices or at fixed prices. If the Selling Security Holders effects
such transactions by selling the shares to or through underwriters, brokers,
dealers or agents, such underwriters, brokers, dealers or agents may receive
compensation in the form of discounts, concessions or commissions from the
Selling Security Holders or commissions from purchasers of the shares for whom
they may act as agent (which discounts, concessions or commissions as to
particular underwriters, brokers, dealers or agents might be in excess of those
customary in the types of transactions involved). Selling Security Holders and
any brokers, dealers or agents that participate in the distribution of the
securities might be deemed to be underwriters, and any profit on the sale of the
securities by them and any discounts, concessions or commissions received by any
such underwriters, brokers, dealers or agents might be deemed to be underwriting
discounts and commissions under the Securities Act. Selling Security Holders may
pledge their shares from time to time in connection with such Selling Security
Holders' financing arrangements. To the extent any such pledgees exercise their
rights to foreclose on any such pledge, and sell the shares, such pledgees may
be deemed underwriters with respect to such shares and sales by them may be
effected under this Prospectus. The Company will not receive any of the proceeds
from the sale of any of the shares by the Selling Security Holders.
30
Under the Exchange Act and applicable rules and regulations promulgated
thereunder, any person engaged in a distribution of any of the shares may not
simultaneously engage in market making activities with respect to the shares for
a period, depending upon certain circumstances, of either two days or nine days
prior to the commencement of such distribution. In addition, and without
limiting the foregoing, the Selling Security Holders will be subject to
applicable provisions of the Exchange Act and the rules and regulations
promulgated thereunder, including without limitation Rules 10b-6 and 10b-7,
which provisions may limit the timing of purchases and sales of any of the
shares by the Selling Security Holders.
Under the securities laws of certain states, the shares may be sold in such
states only through registered or licensed brokers or dealers. In addition, in
certain states the shares may not be sold unless the shares have been registered
or qualify for sale in such state or an exemption from registration or
qualification is available and is complied with.
TRANSFER AND WARRANT AGENT
The Transfer Agent with respect to the Shares and the Warrant Agent with respect
to the Warrants is American Securities Transfer and Trust, Inc., Lakewood,
Colorado.
LEGAL MATTERS
The legality of the Securities of the Company offered will be passed on for the
Company by Dennis Brovarone, Attorney at Law, Westminster, Colorado.
INDEPENDENT PUBLIC ACCOUNTANT
The balance sheet as of August 31, 1999 and the related statements of income,
retained earnings, and cash flows for the fiscal year ended August 31, 1999,
incorporated by reference in this prospectus, have been included herein in
reliance on the report of PricewaterhouseCoopers LLP, Chartered Accountants
given on the authority of that firm as experts in auditing and accounting.
31
((LETTERHEAD))
PricewaterhouseCoopers ((LOGO))
PricewaterhouseCoopers LLP
Chartered Accountants
1501 Toronto Dominion Tower
10088 - 102 Avenue
Edmonton Alberta
Canada T5J 2Z1
Telephone +1 (780) 441 6700
Facsimile +1 (780) 441 6776
October 31, 1999
except note 16(b), which
is as of February 18, 2000
Auditors' Report
To the Shareholders of
Pultronex Corporation
We have audited the consolidated balance sheet of Pultronex Corporation as at
August 31, 1999 and the consolidated statements of earnings, shareholders'
equity and cash flows for the period then ended. These financial statements are
the responsibility of the company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with Canadian generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance 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.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the company as at August 31, 1999
and the results of its operations and its cash flows for the period then ended
in accordance with United States generally accepted accounting principles.
Chartered Accountants
Edmonton, Alberta
Canada
((LETTERHEAD FOOTER))
PricewaterhouseCoopers refers to the Canadian firm of PricewaterhouseCoopers LLP
and other members of the worldwide PricewaterhouseCoopers organization.
32
PULTRONEX CORPORATION
Consolidated Balance Sheet
As at August 31, 1999
- ---------------------------------------------------------------------------------------------------------
December 31,
August 31, 1998
1999 August 31, CAN$
US$ 1999 (Unaudited)
(Note 3) CAN$ (Note 1)
- ---------------------------------------------------------------------------------------------------------
Assets
Current assets
Accounts receivable (note 4) 646,570 952,379 600,672
Prepaid expenses and deposits 112,815 166,173 145,545
Inventory (note 5) 1,580,742 2,328,387 1,633,093
----------------------------------------------------
2,340,127 3,446,939 3,379,310
Capital assets (note 6) 534,403 787,160 735,725
-----------------------------------------------------
2,874,530 4,234,099 3,115,035
=====================================================
Liabilities
Current liabilities
Bank indebtedness (note 9) 513,009 755,648 316,012
Accounts payable 552,254 813,454 359,948
Note payable (note 7) - - 750,000
Income taxes payable 3,802 5,600 21,300
Current portion of obligations under capital lease
(note 8) 6,886 10,143 -
Current portion of long-term debt (note 9) 47,537 70,020 70,020
-----------------------------------------------------
1,123,488 1,654,865 1,517,280
Obligations under capital lease (note 8) 14,349 21,136 -
Long-term debt (note 9) 150,465 221,630 268,310
Advances from shareholders - non-interest bearing
with no fixed terms of repayment - - 162,000
Future income taxes (note 10) 13,985 20,600 5,200
-----------------------------------------------------
1,302,287 1,918,231 1,952,790
-----------------------------------------------------
Shareholders' Equity
Share capital (note 11) 1,491,497 2,196,932 1,134,045
Retained earnings 80,746 118,936 28,200
-----------------------------------------------------
1,572,243 2,315,868 1,162,245
-----------------------------------------------------
2,874,530 4,234,099 3,115,035
=====================================================
The accompanying notes are an integral part of the financial statements.
((LETTERHEAD FOOTER)) PRICEWATERHOUSECOOPERS ((LOGO))
33
Pultronex Corporation
Consolidated Statement of Shareholders' Equity
For the period ended August 31, 1999
- -------------------------------------------------------------------------------------------------------------------------------
Total Common Retained
US$ Total shares earnings
(Note 3) CAN$ CAN$ CAN$
- ---------------------------------------------------------------------------------------------
Balance - April 2, 1998 - - - -
Issued 1,390,908 Class A common
shares 885,347 1,304,090 1,304,090 -
Repurchase of 195,454 Class A
common shares (172,502) (254,090) (170,045) (84,045)
Net earnings for the period 76,203 112,245 - 112,245
--------------------------------------------------------
Balance -
December 31, 1998 (unaudited
- note 1) 789,048 1,162,245 1,134,045 28,200
Issued 1,617,981 Class A common
shares 721,594 1,062,887 1,062,887 -
Net earnings for the period 61,601 90,736 - 90,736
---------------------------------------------------------
Balance - August 31, 1999 1,572,243 2,315,868 2,196,932 118,936
=========================================================
The accompanying notes are an integral part of the financial statements.
((LETTERHEAD FOOTER)) PRICEWATERHOUSECOOPERS ((LOGO))
34
Pultronex Corporation
Consolidated Statement of Earnings
For the period ended August 31, 1999
- ---------------------------------------------------------------------------------------------------
Nine-month
Eight-month period ended
period ended Eight-month December 31,
August 31, period ended 1998
1999 August 31, CAN$
US$ 1999 (Unaudited)
(Note 3) CAN$ (Note 1)
- ---------------------------------------------------------------------------------------------------
Revenue 1,488,498 2,192,515 2,067,790
Cost of goods sold 765,401 1,127,414 1,105,608
---------------------------------------------------------
Gross margin 723,097 1,065,101 962,182
Operating expenses (schedule 1) 642,487 946,365 825,072
---------------------------------------------------------
80,610 118,736 137,110
---------------------------------------------------------
Other income (expense)
Gain on sale of building - - 1,635
Write down of capital assets (4,752) (7,000) -
---------------------------------------------------------
(4,752) (7,000) 1,635
---------------------------------------------------------
Earnings before income taxes 75,858 111,736 138,745
---------------------------------------------------------
Income taxes
Current 3,802 5,600 21,300
Future 10,455 15,400 5,200
---------------------------------------------------------
14,257 21,000 26,500
---------------------------------------------------------
Net earnings for the period 61,601 90,736 112,245
=========================================================
$ $ $
Basic and diluted earnings per share 0.03 0.05 0.16
=========================================================
# # #
Average shares outstanding 1,892,300 1,892,300 711,868
=========================================================
The accompanying notes are an integral part of the financial statements.
((LETTERHEAD FOOTER)) PRICEWATERHOUSECOOPERS ((LOGO))
35
Pultronex Corporation
Consolidated Statement of Cash Flows
For the period ended August 31, 1999
- ----------------------------------------------------------------------------------------------------
Nine-month
Eight-month period ended
period ended Eight-month December 31,
August 31, period ended 1998
1999 August 31, CAN$
US$ 1999 (Unaudited)
(Note 3) CAN$ (Note 1)
- -----------------------------------------------------------------------------------------------------
Cash provided by (used in)
Operating activities
Net earnings for the period 61,601 90,736 112,245
Items not affecting cash
Depreciation 43,340 63,839 60,223
Future income taxes 10,455 15,400 5,200
Gain on sale of building - - (1,635)
Write down of capital assets 4,752 7,000 -
-------------------------------------------------------
120,148 176,975 176,033
Net change in non-cash working capital
items (note 11) (427,587) (629,823) (1,998,062)
--------------------------------------------------------
(307,439) (452,848) (1,822,029)
--------------------------------------------------------
Financing activities
Increase in bank indebtedness 298,469 439,636 316,012
Issuance of common shares 611,612 900,887 1,304,090
Redemption of common shares - - (170,045)
Premium on redemption of common shares - - (84,045)
Advances from shareholder - - 162,000
Proceeds from note payable - - 2,800,000
Repayment of note payable (509,175) (750,000) (2,050,000)
Proceeds from long-term debt - - 350,000
Repayment of long-term debt (31,691) (46,680) (11,670)
Repayment of obligations under capital lease (1,817) (2,677) -
---------------------------------------------------------
367,398 541,166 2,616,342
---------------------------------------------------------
Investing activities
Purchase of fixed assets (59,959) (88,318) (1,985,948)
Proceeds on disposal of fixed assets - - 1,191,635
----------------------------------------------------------
(59,959) (88,318) (794,313)
----------------------------------------------------------
Change in cash and cash at end of period - - -
===========================================================
The accompanying notes are an integral part of the financial statements.
((LETTERHEAD FOOTER)) PRICEWATERHOUSECOOPERS ((LOGO))
36
Pultronex Corporation
Notes to Consolidated Financial Statements
August 31, 1999
- --------------------------------------------------------------------------------
1 Business and basis of presentation
Pultronex Corporation (the "Company") was incorporated in Nevada, August
20, 1999. On August 20, 1999 the shareholders of the Company entered into
an agreement to transfer all of their shares in Pultronex Corporation of
Alberta to Pultronex Corporation of Nevada in exchange for shares of
Pultronex Corporation of Nevada. As a result of that exchange, Pultronex
Corporation of Alberta became a wholly owned subsidiary of Pultronex
Corporation of Nevada. For financial statement purposes, the Company is
considered to be a continuation of Pultronex Corporation of Alberta.
Therefore, the financial statements for the period ended August 31, 1999
include the results of operations of Pultronex Corporation of Alberta from
the beginning of the period. Comparative figures for the period ended
December 31, 1998 are those of Pultronex Corporation of Alberta from April
2, 1998, the date it commenced operations.
The Company is a technology based manufacturing company in the advanced
composites industry. The Company's primary product is E-Z Deck, a
proprietary fibreglass extruded material for use in the residential and
commercial decking industry. E-Z Deck and other products are marketed
through retailers and resellers in the United States and Canada.
2 Accounting policies
These financial statements have been prepared by management in accordance
with accounting principles generally accepted in the United States. Because
the precise determination of many assets, liabilities, revenues and
expenses are dependent on future events, the preparation of financial
statements for a period necessarily includes the use of estimates and
approximations which have been made using careful judgement. Actual results
could differ from those estimates. These financial statements have, in
management's opinion, been properly prepared within reasonable limits of
materiality and within the framework of the accounting policies summarized
below.
a) Revenue recognition
Revenue from the sale of finished goods is recognized when the product
is shipped.
b) Inventory
Raw materials are recorded at the lower of cost and replacement cost.
Finished goods are recorded at the lower of cost and net realizable
value. Cost is determined on a first in, first out basis and finished
goods includes direct labour and an allocation of overhead.
c) Fixed assets
The company records fixed assets at cost. Depreciation on these assets
is provided using the declining balance method at the following annual
rates:
Plant equipment 10% and 20%
Computer hardware and software 30%
Furniture and fixtures 20%
(1)
((LETTERHEAD FOOTER)) PRICEWATERHOUSECOOPERS ((LOGO))
37
d) Income taxes
The Company accounts for income taxes using the asset and liability
approach. Future income taxes reflect the net tax effect of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes.
e) Advertising
Advertising costs are expensed as incurred.
f) Earnings per share
Basic earnings per share is based upon the weighted average common
shares outstanding during each year. Diluted earnings per share as the
inclusion of common stock equivalents would be antidilutive.
g) Recently issued accounting standards
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130,
Reporting Comprehensive Income. SFAS No. 130 requires that an
enterprise report, by major component and as a single total, the
change in its net assets from non-owner sources during the period.
There were no differences between net earnings and comprehensive net
earnings for the periods presented.
In June 1998, SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities, was issued, which established accounting and
reporting standards for derivative instruments and hedging activities.
In July 1999, FASB issued SFAS No. 137, which delayed the
implementation of SFAS No. 133 to make it effective for all fiscal
years beginning after June 15, 2000. This statement requires balance
sheet recognition of derivatives as assets or liabilities measured at
fair value. Accounting for gains and losses resulting from changes in
the value of derivatives is dependent on the use of the derivative and
whether it qualifies for hedge accounting. The Company has not yet
determined the effect the adoption of SFAS No. 133 will have on its
financial statements.
3 Translation of convenience
The financial statements presented herein are expressed in Canadian dollars
and, solely for the convenience of the reader, have been translated into
United States dollars for 1999 at the rate of CAN$1.47297 = US$1.00, the
noon rate of the Bank of Montreal Treasury Group on October 31, 1999. This
should not be construed as a representation that the Canadian dollar
amounts shown could be so converted into US dollars at CAN$1.47297 =
US$1.00 or at any other rate.
(2)
((LETTERHEAD FOOTER)) PRICEWATERHOUSECOOPERS ((LOGO))
38
4 Accounts receivable
At August 31, 1999 and December 31, 1998, accounts receivable were net of
an allowance of approximately $41,000 (US$27,800) and $18,000 (US$12,200)
respectively. At August 31, 1999, approximately $143,000 (US$97,100) of the
Company's accounts receivable was due from Matrix Ag Inc., compared to
$24,500 (US$16,600) at December 31, 1998.
5 Inventory
August 31, December 31,
1999 August 31, 1998
US$ 1999 CAN$
(Note 3) CAN$ (Unaudited)
Raw materials 285,007 419,807 338,827
Finished goods 1,295,735 1,908,580 1,294,266
---------------------------------------------------------
1,580,742 2,328,387 1,633,093
=========================================================
6 Capital assets
August 31,
1999
-------------------------------------------------
Accumulated Net
Cost depreciation US$
US$ US$ (Note 3)
Plant equipment 582,206 78,739 503,467
Computer equipment 26,184 8,911 22,273
Furniture and fixtures 10,239 1,576 8,663
-------------------------------------------------
618,629 89,226 534,403
=================================================
(3)
((LETTERHEAD FOOTER)) PRICEWATERHOUSECOOPERS ((LOGO))
39
August 31,
1999
-------------------------------------------------
Accumulated
Cost depreciation Net
CAN$ CAN$ CAN$
Plant equipment 857,572 115,980 741,592
Computer equipment 38,569 5,761 32,808
Furniture and fixtures 15,082 2,322 12,760
-------------------------------------------------
911,223 124,063 787,160
=================================================
December 31
1998
--------------------------------------------------
Accumulated Net
Cost depreciation CAN$
CAN$ CAN$ (Unaudited)
Plant equipment 771,910 57,893 714,017
Computer equipment 14,038 1,580 12,458
Furniture and fixtures 10,000 750 9,250
-------------------------------------------------
795,948 60,223 735,725
=================================================
The above amounts include $33,956 (US$23,053)(1998 - $nil) of capital
assets under capital leases and related accumulated depreciation of $5,093
(US$3,458) (1998 - $nil). Depreciation of $58,023 (US$39,392) (1998 -
$57,893) was allocated to cost of goods sold and inventory during the
period.
7 Note payable
The note payable at December 31, 1998 was fully repaid in the period ended
August 31, 1999. It was originally repayable in monthly instalments of
$250,000 (US$169,745) plus interest at 7.5% per year. A general security
agreement covering all present and after acquired personal property except
for capital assets was pledged as collateral at December 31, 1998.
(4)
((LETTERHEAD FOOTER)) PRICEWATERHOUSECOOPERS ((LOGO))
40
8 Obligations under capital lease
Obligations under capital lease comprise two leases which are repayable in
blended monthly payments of $933 (US$633); interest at 10% maturing June
23, 2002 and blended monthly payments of $163 (US$110), interest at 9.75%
maturing May 1, 2002. The future minimum lease payments under capital
leases for each of the next three years and in total are:
August 31, December 31,
1999 August 31, 1998
US$ 1999 CAN$
(Note 3) CAN$ (Unaudited)
2000 8,929 13,152 -
2001 8,929 13,152 -
2002 6,695 9,863 -
----------------------------------------------
24,553 36,167 -
Less: Amounts
representing
interest 3,318 4,888 -
----------------------------------------------
Balance of
obligation 21,235 31,279 -
Less: Current
portion 6,886 10,143 -
----------------------------------------------
14,349 21,136 -
==============================================
Specific leased equipment with a net book value of $28,863 (US$19,595) has
been pledged as collateral for obligations under capital leases.
9 Long-term debt and bank indebtedness
August 31, December 31,
1999 August 31, 1998
US$ 1999 CAN$
(Note 3) CAN$ (Unaudited)
Bank loan payable,
principal of $5,835
(US$3,961) plus
interest at prime
plus 1.5% payable
monthly, due
October 31, 2003 198,002 291,650 338,330
Less: Current portion 47,537 70,020 70,020
-------------------------------------------------
150,465 221,630 268,310
=================================================
(5)
((LETTERHEAD FOOTER)) PRICEWATERHOUSECOOPERS ((LOGO))
41
Principal payments required in each of the next five years are as follows:
US$ CAN$
2000 47,537 70,020
2001 47,537 70,020
2002 47,537 70,020
2003 47,537 70,020
2004 7,855 11,570
--------------------------------
198,003 291,650
================================
Bank indebtedness bears interest at prime plus 1.0% payable monthly. The
Company has an operating line of credit based on qualified accounts
receivable and inventory of which $486,991 (US$330,657) is available at
August 31, 1999.
A general security agreement creating a first charge over all present and
after acquired assets of the Company, limited guarantees from certain
shareholders and an assignment of insurance proceeds have been pledged as
collateral for the bank indebtedness and long-term debt.
10 Future income taxes
Future income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amount used for income tax purposes. As at
August 31, 1999 and December 31, 1998 the full amount of the future tax
liability is the result of a difference between the tax value and book
value for accounting purposes of capital assets. There was no valuation
allowance at August 31, 1999 or December 31, 1998.
11 Share capital
Authorized
Common stock, par value of $.001: 200,000,000 shares
Preferred stock, par value of $.001: 1,000,000 shares
Issued
August 31, December 31,
1999 August 31, 1998
US$ 1999 CAN$
(Note 3) CAN$ (Unaudited)
2,813,435
(1998 - 1,195,454)
common shares 1,491,497 2,196,932 1,134,045
=================================================
(6)
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42
During the period, 1,617,981 (1998 - 1,390,908) Class A common shares were
issued for cash proceeds of $900,887 (US$611,612) (1998 - $1,304,090) and
conversion of advances from shareholders of $162,000 (US$109,982). In 1998,
195,454 Class A common shares were repurchased by the company for proceeds
of $254,090 (US$172,501). A premium on redemption in the amount of $84,045
(US$57,058) was charged to retained earnings.
On August 23, 1999, the Company issued an offering memorandum for the sale
of up to 1,000,000 units, each consisting of one share of common stock and
one common stock purchase warrant. Each warrant entitles the holder to
acquire an additional share of common stock for US$2.00 per share at any
time up to 5:00 p.m. on the last day of the eighteenth month following the
first month in which the shares are listed for trading. The warrants may be
called by the Company upon thirty days written notice to the holders at
$0.05 per warrant provided that the closing bid price for the Company's
common stock as reported by its trading market has been not less than
US$4.00 per share for twenty consecutive trading days. The offering price
is US$1.00 per unit with a minimum offering of 250,000 units and a maximum
of 1,000,000 units. The offer expires October 31, 1999. No proceeds were
received from the offering by August 31, 1999.
12 Commitments
The Company is committed to a building lease, initiated on October 1, 1998
and expiring on September 30, 2008.
Payments required for each of the next five years and in total are as
follows:
US$ CAN$
2000 89,615 132,000
2001 89,615 132,000
2002 89,615 132,000
2003 89,615 132,000
2004 89,615 132,000
Thereafter 276,312 407,000
--------------------------------
724,387 1,067,000
================================
13 Comparative figures
Certain prior period comparative figures have been reclassified to conform
with the current period's presentation.
(7)
((LETTERHEAD FOOTER)) PRICEWATERHOUSECOOPERS ((LOGO))
43
14 Statement of cash flows
August 31, December 31,
1999 August 31, 1998
US$ 1999 CAN$
(Note 3) CAN$ (Unaudited)
Accounts receivable (238,802) (351,707) (600,672)
Prepaid expenses and
deposits (14,006) (20,628) (145,545)
Inventory (472,090) (695,294) (1,633,093)
Accounts payable 307,971 453,506 359,948
Income taxes payable (10,660) (15,700) 21,300
-------------------------------------------------
(427,587) (629,823) (1,998,062)
=================================================
15 Segment information
The Company's assets are located in Nisku, Alberta, Canada. The Company
earns substantially all of its revenue from the sale of pultruded
fibreglass products for use in the residential and commercial decking
industry. Sales to external customers in the United States and Canada
accounted for 70% and 30% respectively of the Company's total sales for the
period ended August 31, 1999. Sales to external customers in the United
States and Canada accounted for 60% and 40% of the Company's total sales
for the period ended December 31, 1998.
16 Subsequent events
a) Private offering memorandum
On October 31, 1999, the offering memorandum dated August 23, 1999
described in note 8 was completed. Net proceeds from the offering were
$1,216,666 (US$826,091) from the issue of 990,700 shares of common
stock and 990,700 warrants.
b) SB-2 Registration
On February 22 , 2000, the Company filed a Form SB-2 Registration
Statement offering 990,700 shares of common stock to its warrant
holders. Each warrant entitles the holder to acquire an additional
common share at US$2.00 per common share. The Company is also
registering 1,189,700 shares of common stock for public resale by
certain non-affiliated shareholders of the Company.
(8)
((LETTERHEAD FOOTER)) PRICEWATERHOUSECOOPERS ((LOGO))
44
Schedule 1
Pultronex Corporation
Consolidated Statement Schedule of Operating Expenses
For the period ended August 31, 1999
- -------------------------------------------------------------------------------
Nine-month
Eight-month period ended
period ended Eight-month December 31,
August 31, period ended 1998
1999 August 31, CAN$
US$ 1999 (Unaudited)
(Note 3) CAN$ (Note 1)
Salaries and benefits 216,321 318,635 184,388
Freight 144,943 213,497 219,845
Advertising and promotion 60,472 89,074 72,317
Interest and bank charges 60,027 88,418 44,555
Travel 30,685 45,051 47,219
Professional fees 25,860 38,091 47,966
Bad debts 21,993 32,395 17,957
Telephone 13,357 19,675 16,940
Office 13,078 19,263 30,197
Property tax 10,665 15,709 17,770
Commissions 9,631 14,186 19,176
Lease expenses 8,364 12,320 -
Repairs and maintenance 6,676 9,833 -
Utilities 5,303 7,811 -
Insurance 5,215 7,682 17,569
Consulting 4,361 6,423 84,868
Depreciation 3,948 5,816 2,330
Miscellaneous 1,160 1,709 -
Licenses and fees 528 777 -
Warranty and discounts - - 1,975
-------------------------------------------------
642,587 946,365 825,072
=================================================
((LETTERHEAD FOOTER)) PRICEWATERHOUSECOOPERS ((LOGO))
45
((LETTERHEAD))
PricewaterhouseCoopers ((LOGO))
PricewaterhouseCoopers LLP
Chartered Accountants
1501 Toronto Dominion Tower
10088 - 102 Avenue
Edmonton Alberta
Canada T5J 2ZI
Telephone +1 (780) 441 6700
Facsimile +1 (780) 441 6776
February 18, 2000
Review Engagement Report
To the Shareholders of
Pultronex Corporation
We have reviewed the condensed consolidated balance sheet of Pultronex
Corporation as at November 30, 1999 and the condensed consolidated statements of
operations and retained earnings and cash flows for the three-month period then
ended. Our review was made in accordance with Canadian generally accepted
standards for review engagements and accordingly consisted primarily of enquiry,
analytical procedures and discussion related to information supplied to us by
the company.
A review does not constitute an audit and consequently we do not express an
audit opinion on these financial statements.
Based on our review, nothing has come to our attention that causes us to believe
that these condensed consolidated financial statements are not, in all material
respects, in accordance with United States generally accepted accounting
principles.
Chartered Accountants
Edmonton, Alberta
Canada
((LETTERHEAD FOOTER))
PricewaterhouseCoopers refers to the Canadian firm of PricewaterhouseCoopers LLP
and other members of the worldwide PricewaterhouseCoopers organization.
46
PULTRONEX CORPORATION
Condensed Consolidated Balance Sheet
(Unadited) As at November 30, 1999
- --------------------------------------------------------------------------------
1999 1999 1998
US$ CAN$ CAN$
(Note 2)
Assets
Current assets
Cash 261,674 385,394 -
Accounts receivable 578,760 852,397 728,083
Prepaid expenses and deposits 141,460 208,342 145,239
Inventory 1,677,390 2,470,461 1,446,782
--------------------------------------
2,659,284 3,916,594 2,320,104
Capital assets 538,543 793,166 742,428
--------------------------------------
3,197,827 4,709,760 3,062,532
======================================
Liabilities
Current liabilities
Bank indebtedness - - 68,559
Accounts payable 572,594 843,317 429,599
Income taxes payable 4,821 7,100 18,400
Note payable - - 800,000
Current portion of obligations
under capital lease 7,286 10,731 -
Current portion of long-term debt 47,542 70,020 70,020
Shareholder advances - - 161,983
--------------------------------------
632,243 931,168 1,548,561
Obligations under capital lease 12,146 17,888 -
Long-term debt 138,597 204,125 274,145
Future income taxes 5,160 7,600 4,400
--------------------------------------
788,146 1,160,781 1,827,106
--------------------------------------
Shareholders' Equity
Share capital (note 3) 2,346,040 3,455,248 1,134,045
Retained earnings 63,641 93,731 101,381
--------------------------------------
2,409,681 3,548,979 1,235,426
--------------------------------------
3,197,827 4,709,760 3,062,532
======================================
The accompanying notes are an integral part of the financial statements.
((LETTERHEAD FOOTER)) PRICEWATERHOUSECOOPERS ((LOGO)
47
PULTRONEX CORPORATION
Condensed Consolidated Statement of Operations and Retained Earnings
(Unaudited)For the three-month period ended November 30, 1999
- --------------------------------------------------------------------------------
1999 1999 1998
US$ CAN$ CAN$
(Note 2)
REVENUE 429,997 633,300 571,860
Cost of sales 214,241 315,534 419,865
---------------------------------------
215,756 317,766 151,995
---------------------------------------
EXPENSES
Selling 139,307 205,172 63,791
Administration 67,307 99,130 108,046
Depreciation 17,925 26,400 20,070
Financing 16,139 23,769 6,094
---------------------------------------
240,678 354,471 198,001
---------------------------------------
Loss before income taxes (24,922) (36,705) (46,006)
Income taxes (recovery) (7,808) (11,500) 8,550
---------------------------------------
Net loss for the period and retained
earnings at end of the period (17,114) (25,205) (54,556)
=======================================
$ $ $
Basic and diluted loss per share (.01) (.01) (.05)
=======================================
# # #
Basic average shares outstanding 3,162,338 3,162,338 1,195,454
=======================================
The accompanying notes are an integral part of the financial statements.
((LETTERHEAD FOOTER)) PRICEWATERHOUSECOOPERS ((LOGO)
48
PULTRONEX CORPORATION
Condensed Consolidated Statement Of Cash Flows
(Unaudited)For the three-month period ended November 30, 1999
- --------------------------------------------------------------------------------
1999 1999 1998
US$ CAN$ CAN$
Cash provided by (used in)
Operating activities
Net loss for the period (17,114) (25,205) (54,556)
Items not affecting cash
Depreciation 17,925 26,400 20,070
Future income taxes (8,826) (13,000) 1,650
Gain on sale of capital assets - - (1,635)
-------------------------------------
(8,015) (11,805) (34,471)
Net change in non-cash working capital items (35,849) (52,798) (500,953)
-------------------------------------
(43,864) (64,603) (535,424)
-------------------------------------
Financing activities
Proceeds from (repayment of) bank indebtedness (513,137) (755,748) 68,559
Repayment of note payable - - (1,600,000)
Issuance of common shares net of costs 854,370 1,258,316 250,000
Proceeds from long-term debt - - 350,000
Advances from shareholders - - 162,000
Repayment of long-term debt (11,886) (17,505) (5,835)
Repayment of capital leases (1,806) (2,660) -
-------------------------------------
327,541 482,403 775,276
-------------------------------------
Investing activities
Proceeds on sale of capital assets - - 1,191,635
Purchase of capital assets (22,003) (32,406) (10,732)
-------------------------------------
(22,003) (32,406) 1,180,903
-------------------------------------
Increase (decrease) in cash 261,674 385,394 (129,797)
Cash - Beginning of period - - 129,797
-------------------------------------
Cash - End of the period 261,674 385,394 -
=====================================
The accompanying notes are an integral part of the financial statements.
((LETTERHEAD FOOTER)) PRICEWATERHOUSECOOPERS ((LOGO)
49
PULTRONEX CORPORATION
Notes to Condensed Consolidated Financial Statements
(Unaudited) November 30, 1999
- --------------------------------------------------------------------------------
1 Basis of presentation
The unaudited financial statements for the three months ended November 30,
1999 have been prepared in accordance with United States generally accepted
principles and on the same basis as the audited financial statements
prepared for the eight months ended August 31, 1999. In the opinion of
management, these unaudited financial statements include all adjustments
necessary for fair presentation of the financial position, the results of
operations and cash flows. The results of operations for the three months
ended November 30, 1999 are not necessarily indicative of results that may
be achieved for the year ending August 31, 2000 or any future period.
2 Translation of convenience
The financial statements presented herein are expressed in Canadian dollars
and, solely for the convenience of the reader, have been translated into
United States dollars for 1999 at the rate of CAN$1.4728 = US$1.00, the
noon rate of the Bank of Montreal Treasury Group on November 30, 1999. This
should not be construed as a representation that the Canadian dollar
amounts shown could be so converted into US dollars at CAN$1.4728 = US$1.00
or at any other rate.
3 Share capital
During the three months ended November 30, 1999, the Company had the
following share capital transactions:
US$ CAN$
Shares (Note 2)
Balance - August 31, 1999 2,813,435 1,491,670 2,196,932
Issued during the period pursuant
to Private Offering Memorandum 990,700 989,221 1,456,924
Issued during the period for cash 28,000 28,279 41,650
Costs of issue - (163,130) (240,258)
----------------------------------------
3,832,135 2,346,040 3,455,248
========================================
(1)
((LETTERHEAD FOOTER)) PRICEWATERHOUSECOOPERS ((LOGO)
50
4. Subsequent event
SB-2 Registration
On February 22, 2000, the Company filed a Form SB-2 Registration Statement
offering 990,700 shares of common stock to its warrant holders. Each
warrant entitles the holder to acquire an additional common share at
US$2.00 per common share. The Company is also registering 1,189,700 shares
of common stock for public resale by certain non-affiliated shareholders of
the Company.
(2)
((LETTERHEAD FOOTER)) PRICEWATERHOUSECOOPERS ((LOGO)
51
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND IF GIVEN OR MADE SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITIES OTHER THAN THE SHARES UNDERLYING THE CLASS A
WARRANTS OFFERED BY THIS PROSPECTUS OR AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY THE SHARES AND THE CLASS A WARRANTS IN ANY JURISDICTION TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH
JURISDICTION.
TABLE OF CONTENTS
Prospectus Summary
Risk Factors
Use of Proceeds
Capitalization
Management's Discussion and Analysis
of Financial Condition
The Company and its Business
Management
Security Ownership of Management and
Principal Shareholders
Market for the Company's Common Stock
and Related Stockholder Matters
Certain Transactions
Description of Securities
Selling Securities Holders
Plan of Distribution
Transfer and Warrant Agent
Legal Matters/Legal
Proceedings
Independent Public Accountant
Financial Statements
UNTIL ______, 2000 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
PULTRONEX CORPORATION
LOGO
-------------------------
PROSPECTUS
-------------------------
52
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article 11 of the Company's By-laws provides that every person who was or is a
party or is threatened to be made a party to or is involved in any action, suit
or proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that he or a person for whom he is the legal representative
is or was a director or officer of the corporation or is or was serving at the
request of the corporation or for its benefit as a director or officer of
another corporation, or as its representative in a partnership, joint venture,
trust or other enterprise, shall be indemnified and held harmless to the fullest
extent legally permissible under the General Corporation Law of the State of
Nevada against all expenses, liability and loss (including attorney's fees,
judgments, fines and amounts paid or to be paid in settlement) reasonably
incurred or suffered by him in connection therewith. The expenses of officers
and directors incurred in defending a civil or criminal action, suit or
proceeding must be paid by the corporation as they are incurred and in advance
of the final disposition of the action, suit or proceeding upon receipt of an
undertaking by or on behalf of the director or officer to repay the amount if it
is ultimately determined by a court of competent jurisdiction that he is not
entitled to be indemnified by the corporation. Such right of indemnification
shall be a contract right which may be enforced in any manner desired by such
person. Such right of indemnification shall not be exclusive of any other right
which such directors, officers or representatives may have or hereafter acquire
and, without limiting the generality of such statement, they shall be entitled
to their respective rights of indemnification under any bylaw, agreement, vote
of stockholders, provision of law or otherwise, as well as their rights under
Article 11.
Nevada Revised Statutes Section 78.7502 provides for discretionary and mandatory
indemnification of officers, directors, employees and agents as follows:
1. A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed legal
proceeding, except by or in the right of the corporation, by reason of the fact
that the person is or was a director, officer, employee or agent of the
corporation, against expenses, including attorneys' fees, judgments, fines and
amounts paid in settlement actually and reasonably incurred by the person in
connection with the action, suit or proceeding if the person acted in good faith
and in a manner which was reasonably believed to be in or not opposed to the
best interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe the conduct was unlawful.
2. A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that the person is or was a director, officer, employee or
agent of the corporation, against expenses, including amounts paid in settlement
and attorneys' fees actually and reasonably incurred by the person in connection
with the defense or settlement of the action or suit if the person acted in good
faith and in a manner reasonably believed to be in or not opposed to the best
interests of the corporation.
Indemnification may not be made for any claim, issue or matter as to which such
a person has been adjudged by a court of competent jurisdiction, after
exhaustion of all appeals therefrom, to be liable to the corporation or for
amounts paid in settlement to the corporation, unless and only to the extent
that the court in which the action or suit was brought or other court of
competent jurisdiction determines upon application that in view of all the
circumstances of the case, the person is fairly and reasonably entitled to
indemnity for such expenses as the court deems proper.
53
3. To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections 1 and 2, or in defense of
any claim, issue or matter therein, the corporation shall indemnify the person
against expenses, including attorneys' fees, actually and reasonably incurred in
connection with the defense.
Nevada Revised Statutes Section 78.751 requires authorization for discretionary
indemnification; advancement of expenses and limitation on indemnification and
advancement of expenses as follows:
1. Any discretionary indemnification under NRS 78.7502 unless ordered by
a court or advanced pursuant to subsection 2, may be made by the
corporation only as authorized in the specific case upon a
determination that indemnification of the director, officer, employee
or agent is proper in the circumstances. The determination must be
made:
(a) By the stockholders;
(b) By the board of directors by majority vote of a quorum consisting
of directors who were not parties to the action, suit or
proceeding;
(c) If a majority vote of a quorum consisting of directors who were
not parties to the action, suit or proceeding so orders, by
independent legal counsel in a written opinion; or
(d) If a quorum consisting of directors who were not parties to the
action, suit or proceeding cannot be obtained, by independent
legal counsel in a written opinion.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses of the offering, all of which are to be borne by the
Registrant, are as follows:
SEC Filing Fee 1,200
NASD Filing Fee na
Printing Expenses 10,000
Accounting Fees and Expenses 15,000
Legal Fees and Expenses 25,000
Blue Sky Fees and Expenses 5,000
54
II-1
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
During the past three years, the Registrant sold securities which were not
registered under the Securities Act of 1933, as amended, as follows:
Shares Exchanged for Pultronex Alberta
Date Name # of Shares Consideration
- --------------------------------------------------------------------------------------------
08/20/99 Gordon Buchanan Enterprises, Ltd. 500,000 Share Exchange
08/20/99 Greg Arnold Buchanan 500,000 Share Exchange
08/20/99 Virendra Delhon 390,000 Share Exchange
08/20/99 Atul K. Mehra 290,637 Share Exchange
08/20/99 Jarnail Sehra 267,820 Share Exchange
08/20/99 Satinder Purewal 224,000 Share Exchange
08/20/99 Pal S. Purewal 160,103 Share Exchange
08/20/99 Chander Sharma 100,000 Share Exchange
08/20/99 Talvinder Sehra 91,675 Share Exchange
08/20/99 Mayva Singh Dhariwal &
08/20/99 Balwinder Kaur Dhariwal, JTWROS 80,000 Share Exchange
08/20/99 Krishen Mehra 59,495 Share Exchange
08/20/99 Manjinder S. Dhariwal 50,000 Share Exchange
08/20/99 Dennis Pelletier 40,000 Share Exchange
08/20/99 Don Ayliffe 33,334 Share Exchange
08/20/99 John Schelter 16,667 Share Exchange
08/20/99 Garnet Wahlund 15,000 Share Exchange
08/20/99 Angela Verma 9,363 Share Exchange
08/20/99 Bernice Sambor 8,000 Share Exchange
08/20/99 Gary Loblick 3,000 Share Exchange
08/20/99 Jay Wahlund 2,000 Share Exchange
08/20/99 Kuldip Delhon 341 Share Exchange
Shares issued in Regulation D Offering
Date of
Subscription Name # of Units Consideration
- --------------------------------------------------------------------------------
09/10/99 Tatum Investments Inc. 100,000 $100,000
09/12/99 Lynne B. Johnson 50,000 $50,000
09/21/99 Jeffery J. Tempas 5,000 $5,000
09/22/99 Leslie Gibbs & 10,000 $10,000
Gwen Gibbs JTWROS
09/24/99 345439 Alberta Ltd 40,000 $40,000
09/25/99 Richard Dickerson 10,000 $10,000
55
10/05/99 Lynne B. Johnson 17,000 $17,000
10/11/99 George Mouchette & 20,000 $20,000
Victoria Mouchette JTWROS
10/11/99 Rhoda Davis & 20,000 $20,000
C. Victoria Mouchette JTWROS
10/12/99 Will Inns Ltd. 40,000 $40,000
10/15/99 James J. Caffes & 7,500 $7,500
Sandra M. Caffes JTWROS
10/15/99 Wheaton Investment Group 5,000 $5,000
10/18/99 Ken Gaine & 10,000 $10,000
Patricia A. Gaine JTWROS
10/19/99 Gregg Funfar 10,000 $10,000
10/19/99 Robert C. Hedrick & 5,000 $5,000
Mary Hedrick JTWROS
10/19/99 Shawn Funfar 1,200 $1,200
10/20/99 Stephen A. Reno & 7,500 $7,500
Judy L. Reno JTWROS
10/22/99 269-5341 Canada Ltd. 10,000 $10,000
10/22/99 John Phillips & 3,000 $3,000
Joanne Phillips JTWROS
10/23/99 Roger Walklin & 15,000 $15,000
Judy Walklin JTWROS
10/25/99 Mladen Dundur 1,000 $1,000
10/25/99 Neil T. Enright 50,000 $50,000
10/26/99 Donna B. Cueroni 2,000 $2,000
10/26/99 James C. Irwin & 1,000 $1,000
LaVerne G. Irwin TENCOM
10/26/99 Marilyn J. Hoffart & 1,500 $1,500
Elias Hoffart JTWROS
10/26/99 Richard P Cueroni & 2,000 $2,000
Elizabeth H. Cueroni TENCOM
10/27/99 Andrew Loschiavo & 2,000 $2,000
Lori Loschiavo JTWROS
10/27/99 Beth Palmer & 5,000 $5,000
David Stewart Palmer JTWROS
10/27/99 Douglas J. Driver 1,000 $1,000
10/27/99 John W. Bishop & 10,000 $10,000
Susan B. Bishop JTWROS
10/27/99 Terry J. Swift 1,000 $1,000
10/28/99 John M. Fore & 5,000 $5,000
Donna L. Fore TENCOM
10/29/99 352649 Alberta Ltd 10,000 $10,000
10/29/99 Carl K. Myers & 100,000 $100,000
Patricia A. Myers JTWROS
10/29/99 Christopher L. Eades 1,000 $1,000
10/29/99 Curtis Williams 1,000 $1,000
56
10/29/99 Davis F. Briggs & 1,000 $1,000
Jean Fowler Biggs JTWROS
10/29/99 George G. Harris 15,000 $15,000
10/29/99 Heritage Nurseries Ltd 10,000 $10,000
10/29/99 Joel W Gray & 1,000 $1,000
Karen S Gray JTWROS
10/29/99 Karen Brock & 1,000 $1,000
Sam Brock JTWROS
10/29/99 Marc Andre Guilbault 10,000 $10,000
10/29/99 Mehnga Matharu 100,000 $100,000
10/29/99 Rosealta Mortgage Corporation 10,000 $10,000
10/29/99 Thomas B. Chesnut 1,000 $1,000
10/29/99 W. Gordon Buchanan 250,000 $250,000
10/30/99 Robert V. Cella & 1,000 $1,000
Cathy A. Cella JTWROS
10/31/99 Sandra Esposito 10,000 $10,000
10/31/99 Tylere Couture & 1,000 $1,000
Rick Couture, JTWROS
Shares Issued for Services
Date of
Grant Name # of Shares Consideration
- --------------------------------------------------------------------------------
12/15/99 Barry Verge 1,110 Services
12/15/99 Bradley Fleming 1,120 Services
12/15/99 Brian Verge 800 Services
12/15/99 Cyril Benolkin 1,410 Services
12/15/99 Darryl Hodgson 1,900 Services
12/15/99 Dennis Bacon 1,710 Services
12/15/99 Dennis Brovarone 25,000 Services
12/15/99 Douglas Kolbe 1,120 Services
12/15/99 Gary Loblick 12,500 Services
12/15/99 John Phillips 1,310 Services
12/15/99 Kuldip Delhon 18,750 Services
12/15/99 Luc Guilbault 35,000 Services
12/15/99 Majid Sarkhoshfard 850 Services
12/15/99 Michael Barker 1,420 Services
12/15/99 Michael Scott Connors 550 Services
12/15/99 Mitar-Mili Komnenovic 600 Services
12/15/99 Mladen Dundur 1,710 Services
12/15/99 Paul Hartzog 5,000 Services
12/15/99 Rob Perrin 1,610 Services
12/15/99 Robert Adsit 174,000 Services
12/15/99 Touryalai Sistani 600 Services
12/15/99 Wei Zhi Huang 550 Services
57
Shares Exchanged for Pultronex Alberta
The shares were exchanged for an equal number of shares held in Pultronex
Corporation (the Alberta corporation). The shareholders are officers and
directors of the Nevada corporation and or the Alberta corporation, their family
members or employees of the Alberta corporation. The shareholders were provided
and had unlimited access to all material information regarding the Company as a
result of their relationship or employment with the Company or its officers and
directors. The August 20, 1999 date is the date of the Exchange Agreement when
100% of the Alberta shares were committed to be exchanged for Nevada shares.
However, 28,000 shares of the Alberta corporation had been paid for until
subsequent to August 31, 1999. [I'LL ALSO EXPLAIN THIS CAUSES A DIFFERENCE IN
SHARE CAPITAL IN FINANCIAL STATEMENTS IN FILING COVER LETTER] With respect to
the sales made, the Company relied on Section 4(2) of the Securities Act of
1933, as amended. No advertising or general solicitation was employed in
offering the securities. The securities were offered for investment only and not
for the purpose of resale or distribution, and the transfer thereof was
appropriately restricted by the Company.
Shares issued in Regulation D Offering
The Registrant was not a reporting company pursuant to the Securities Exchange
Act of 1934 nor was it a development stage company with no business plan. Thus
it was eligible to rely upon Rule 504. Moreover, Rule 504 was available in that
the Registrant sold less than $1,000,000 of securities in the previous 12 month
period and the purchasers were unaffiliated investors. The Units, consisting of
one share of stock and one warrant to acquire an additional share were sold at
$1.00 per Unit in September and October, 1999 pursuant to the Rule 504 safe
harbor. These sales were entirely private transactions pursuant to which all
material information as specified in Rule 502(b)(2) was made available to the
purchasers. No advertising or general solicitation was employed in offering the
securities. The securities were offered for investment only and not for the
purpose of resale or distribution, and the transfer thereof was appropriately
restricted by the Company. The Company does not believe the Shares sold pursuant
to the above described Exchange or granted for Services described below should
be integrated into this offering due to the different consideration and purposes
of these other sales.
Shares issued for Services
The shares issued for services are for compensation to the Company's employees,
consultants and legal counsel pursuant to the exemption contained in Section
4(2) of the Securities Act. The shareholders were provided and had unlimited
access to all material information regarding the Company as a result of their
employment with the Company. With respect to the sales made, the Company relied
on Section 4(2) of the Securities Act of 1933, as amended. No advertising or
general solicitation was employed in offering the securities. The securities
were offered for investment
58
only and not for the purpose of resale or distribution, and the transfer thereof
was appropriately restricted by the Company.
ITEM 27. EXHIBITS.
The following Exhibits are filed as part of this Registration Statement pursuant
to Item 601 of Regulation S-B:
3.1 -- Articles of Incorporation
3.2 -- Bylaws
4.1 -- Form of Warrant
4.2 -- Form of Common Stock Certificate
5.1 -- Opinion of Dennis Brovarone, Attorney at Law
10.1 -- Warrant Agreement
10.2 -- Share Exchange Agreement
23.1 -- Consent of Dennis Brovarone, Attorney at Law (see opinion)
23.2 -- Consent of PriceWaterhouseCoopers, Certified Public Accountants
27.1 -- Financial Data Schedule
ITEM 28. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the Securities
Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
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(iii)To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities Act
of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
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SIGNATURES
In accordance with the requirements of the Securities Act of 1933 as amended,
the Registrant certifies that it has reasonable grounds to believe that it meets
all the requirements for filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned thereunto duly
authorized, in the City of Nisku, Alberta on February 18, 2000
PULTRONEX CORPORATION
BY: /s/ Gary Loblick
- -----------------------
Gary Loblick, President
In accordance with the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates stated.
SIGNATURE TITLE DATE
/s/ Gary Loblick President, Chief Operating February 18, 2000
------------
Gary Loblick Officer and Director
/s/ Krishen Mehra, Ph.D. Chairman February 18, 2000
-------------------
Krishen Mehra, Ph.D
/s/ Kuldip Delhon Chief Executive Officer, February 18, 2000
--------------
Kuldip Delhon Secretary and Director
/s/ Mave Dhariwal Director February 18, 2000
-------------
Mave Dhariwal
/s/ Gary Steadman Director February 18, 2000
-------------
Gary Steadman
/s/ Michael Vida Director February 18, 2000
------------
Michael Vida
/s/ Luc Guilbault Chief Financial Officer February 18, 2000
-------------
Luc Guilbault
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