INDUSTRIAL RUBBER PRODUCTS INC, 424A, 1998-03-12

INDUSTRIAL RUBBER PRODUCTS INC
424A, 1998-03-12
FABRICATED RUBBER PRODUCTS, NEC

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As filed with the Securities and Exchange Commission on February 20, 1998

File No.

================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933

INDUSTRIAL RUBBER PRODUCTS, INC.
(Name of small business issuer in its charter)

MINNESOTA 3532 41-1550505
(State of Incorporation) (Primary Standard Industrial (IRS Employer I.D.
Classification I.D. Number) Number)

3804 EAST 13TH AVENUE
HIBBING, MINNESOTA 55746
(218) 263-8831
(Address and telephone number of principal executive offices)

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

3804 EAST 13TH AVENUE
HIBBING, MINNESOTA 55746
(218) 263-8831
(Address of principal place of business)

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

DANIEL O. BURKES, PRESIDENT
INDUSTRIAL RUBBER PRODUCTS, INC.
3804 EAST 13TH AVENUE
HIBBING, MINNESOTA 55746
(218) 263-8831
(Name, address and telephone number of agent for service)

John Nys, Esq. COPIES TO: Melodie R. Rose, Esq.
Johnson, Killen, Thibodeau & Seiler, P.A. Fredrikson & Byron, P.A.
811 Norwest Center 900 Second Avenue South, Suite 1100
Duluth, Minnesota 55802 Minneapolis, Minnesota 55402
(218) 722-6331 (612) 347-7000
Fax: (218) 722-3031 Fax: (612) 347-7077

APPROXIMATE DATE OF PROPOSED COMMENCEMENT OF SALE TO THE PUBLIC:
From time to time after the Registration Statement becomes effective.

-----------------
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of earlier effective
registration statement for the same offering. [ ]

If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT OF SHARES OFFER PRICE PER AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED TO BE REGISTERED SHARE PRICE REGISTRATION FEE
- ----------------------------- ------------------ ------------------ -------------------- -----------------
<S> <C> <C> <C> <C>
Common Stock ................ 1,610,000 $ 5.00 $8,050,000 $2,375
==========================================================================================================
</TABLE>

================================================================================
The Company hereby amends the 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 Acts of 1933 or until the Registration Statement shall become
effective.

<PAGE>

Filed pursuant to Rule 424(a)

SUBJECT TO COMPLETION, DATED, MARCH 12, 1998
PROSPECTUS

1,400,000 SHARES
OF COMMON STOCK

INDUSTRIAL RUBBER PRODUCTS, INC.

All of the 1,400,000 shares of Common Stock (the "Shares") offered hereby (this
"Offering") are being sold by Industrial Rubber Products, Inc. ("Industrial
Rubber" or the "Company"). Prior to this Offering, there has been no public
market for the Common Stock of the Company. See "Underwriting" for the factors
considered in determining the initial public offering price. The Company has
applied for listing of its Common Stock on the Nasdaq SmallCap Market(TM) under
the symbol "INRB."

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

THE COMMON STOCK OFFERED BY THIS PROSPECTUS IS SPECULATIVE AND INVOLVES A HIGH
DEGREE OF RISK AND DILUTION. SEE "RISK FACTORS" BEGINNING ON PAGE 5 AND
"DILUTION."

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

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.

================================================================================
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
- --------------------------------------------------------------------------------
Per Share ......... $ 5.00 $ .3750 $ 4.625
- --------------------------------------------------------------------------------
Total(3) .......... $7,000,000 $525,000 $6,475,000
================================================================================

(1) The Company has agreed to pay R.J. Steichen & Company, as representative of
the several Underwriters (the "Representative"), a nonaccountable expense
allowance in an amount equal to 2.0% of the gross proceeds of this Offering.
The Company has also agreed to sell the Representative, for a nominal price,
a five-year warrant to purchase up to 140,000 shares of the Common Stock,
exercisable at 120% of the Price to Public (the "Representative's Warrant").
In addition, the Company has agreed to indemnify the Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933,
as amended. See "Underwriting."

(2) Before deducting expenses payable by the Company, estimated at $340,000
(including the Representative's nonaccountable expense allowance
referenced in Note 1 above). See "Underwriting."

(3) Assumes no exercise of a 45-day option the Company has granted to the
Underwriters to purchase up to 210,000 additional shares of Common Stock
solely to cover overallotments, if any. If such option is exercised in full,
the total Price to Public, Underwriting Discount and Proceeds to Company
will be $8,050,000, $603,750 and $7,446,250, respectively. See
"Underwriting."

The Shares are being offered by the several Underwriters subject to prior sale,
to withdrawal, cancellation or modification of the offer without notice, to
delivery to and acceptance by the Underwriters and to certain other conditions.
It is expected that delivery of the Shares will be made on or about , 1998 in
Minneapolis, Minnesota.

[LOGO] R J STEICHEN & CO

The date of this Prospectus is , 1998

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.

<PAGE>

[PHOTO] [PHOTO]
HOME OFFICE AND PRODUCTION PLANT PRODUCTION FACILITY
Hibbing, Minnesota Clearfield, Utah

[PHOTO] [PHOTO]
STANDARD RUBBER PRODUCTS STORAGE AND SETUP AREA
Hibbing, Minnesota Clearfield, Utah

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVERALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN SUCH
SECURITIES, AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."

<PAGE>

PROSPECTUS SUMMARY

THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION
AND FINANCIAL STATEMENTS OF THE COMPANY AND THE NOTES THERETO APPEARING
ELSEWHERE IN THIS PROSPECTUS. ALL INFORMATION IN THIS PROSPECTUS, UNLESS
OTHERWISE INDICATED, REFLECTS A STOCK SPLIT OF THE OUTSTANDING SHARES OF
INDUSTRIAL RUBBER'S COMMON STOCK INTO 2,934,000 SHARES OF COMMON STOCK EFFECTIVE
JANUARY 30, 1998. UNLESS OTHERWISE INDICATED, ALL INFORMATION HEREIN ASSUMES NO
EXERCISE OF (i) THE UNDERWRITERS' OVERALLOTMENT OPTION FOR 210,000 SHARES OF
COMMON STOCK, (ii) THE REPRESENTATIVE'S WARRANT FOR 140,000 SHARES OF COMMON
STOCK AND (iii) OUTSTANDING OPTIONS TO PURCHASE UP TO 113,600 SHARES OF COMMON
STOCK.

THE COMPANY

Industrial Rubber is in the business of designing, producing and supplying
protective materials, abrasion resistant products and equipment,
erosion/corrosion protective linings and proprietary rubber products. The
Company's first customers were the low grade iron ore (taconite) processing
plants in Minnesota. It has expanded its operations to include sales to mineral
processing plants throughout the U.S. and Canada, as well as the power, wood
processing and other heavy industries in these geographical regions.

The Company has three product lines. Its pipe lining and pipe products line
consists of rubber lined pipe and other pipe parts fabricated primarily for the
mineral processing industry. Its proprietary products are engineered replacement
parts primarily for mineral processing facilities. Its standard rubber products
are sold, along with related services, to the Company's customers in the various
industry segments served by the Company.

The Company's net sales in its first full year of operations in 1987 were
$1,989,000. The Company's net sales in 1997 were $14,421,000. The Company
estimates that in 1997 it provided over 50% of the North American market for
rubber lined tailings pipe for the mineral processing industry.

The Company seeks to leverage its strength in the pipe products field by
expanding its business. Its expansion plans include opening additional satellite
production locations strategically located to service customers, increasing its
sales to existing customers by offering an expanded line of products including
both steel and iron products as well as products integrating several material
types, and expanding its sales, when appropriate, internationally.

The Company seeks to provide both products and service for its customers by
providing products designed and modified to meet the particular needs of each
customer's applications. The Company believes that this emphasis on customer
service has resulted in repeat business for the Company.

The Company's growth to date has been financed with internally generated
funds. In order to continue its expansion, it will use the proceeds of this
Offering to acquire additional facilities and capabilities as well as to develop
for its customers a closed-loop recycling system so that worn out products are
recycled and remanufactured for the customer, addressing the concerns in the
mineral processing and other industries about future landfill/disposal costs.

Industrial Rubber was incorporated as a Minnesota corporation on March 5,
1986, as Industrial Rubber Applicators, Inc. The Company's executive offices are
located at 3804 E. 13th Avenue, Hibbing, MN 55746, and its telephone number is
(218) 263-8331.

THE OFFERING

Common Stock Offered........... 1,400,000 shares

Common Stock to be outstanding
after this Offering........... 4,334,000 shares

Use of Proceeds................ Acquisition of production and processing
equipment or facilities, establishment of
satellite production and distribution
facilities, repayment of short-term bank loan,
working capital and general corporate
purposes. See "Use of Proceeds."

Proposed Nasdaq SmallCap
Market Symbol.................. INRB

<PAGE>

SUMMARY FINANCIAL DATA

The following table sets forth the summary financial data for the Company
for the periods indicated. This information should be read in conjunction with
the Financial Statements and related Notes appearing elsewhere herein and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." The summary financial data as of and for the year ended December
31, 1995 have been derived from unaudited financial statements (not included in
this Prospectus), which, in the opinion of the Company, reflect all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation. The summary financial data as of and for the years ended December
31, 1996 and 1997 have been derived from the Company's financial statements
which have been audited by McGladrey & Pullen, LLP, independent auditors, as
indicated in their report included elsewhere herein.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1995 1996 1997
--------------- --------------- ----------------
(UNAUDITED)
<S> <C> <C> <C>
STATEMENTS OF INCOME DATA:
Net sales ................................... $ 3,646,316 $ 6,309,775 $ 14,421,359
Gross profit ................................ 944,634 1,533,141 4,473,489
Operating expense ........................... 701,202 1,122,968 1,664,611
----------- ----------- ------------
Operating income ............................ 243,432 410,173 2,808,878
----------- ----------- ------------
Net income .................................. $ 188,490 $ 319,785 $ 2,701,767
=========== =========== ============
PRO FORMA STATEMENTS OF INCOME DATA(1)
Income before income taxes .................. $ 188,490 $ 319,785 $ 2,701,767
Provision for income taxes .................. 75,400 145,300 1,038,000
----------- ----------- ------------
Net income .................................. $ 113,090 $ 174,485 $ 1,663,767
=========== =========== ============
Basic earnings per share .................... $ 0.04 $ 0.06 $ 0.57
=========== =========== ============
Weighted average shares outstanding ......... 2,934,000 2,934,000 2,934,000
=========== =========== ============
</TABLE>

DECEMBER 31,
---------------------------------------------
ACTUAL PRO FORMA AS ADJUSTED
1997 1997(2) 1997(2)(3)
------------- ------------- -------------
BALANCE SHEET DATA:
Current Assets ............... $3,308,711 $3,308,711 $ 8,643,711
Total Assets ................. 4,949,584 4,949,584 10,284,584
Current Liabilities .......... 2,534,680 3,334,680 2,534,680
Long-term Debt ............... 171,095 171,095 171,095
Stockholder's Equity ......... 2,243,809 1,443,809 7,578,809

- -----------------
(1) The pro forma statements of income data reflect the effects on the
historical statements of income data for each period presented as if the
Company had not been treated as an S Corporation for income tax purposes.
See "Dividend Policy and S Corporation Status" and Note 7 of Notes to
Financial Statements. The weighted average number of shares outstanding have
been adjusted to reflect a stock split. See Note 6 of Notes to Financial
Statements.

(2) Reflects the amount of distributions payable after December 31, 1997 to the
Company's existing stockholder for the income tax liability (estimated to
approximate $800,000) resulting from the Company's earnings and status as an
S Corporation through December 31, 1997. See "Dividend Policy and S
Corporation Status," "Use of Proceeds," "Capitalization," and Note 7 of
Notes to Financial Statements.

(3) Adjusted to reflect the sale of shares of Common Stock offered by the
Company hereby at an assumed offering price of $5.00 per share and the
application of the estimated net proceeds therefrom. See "Use of
Proceeds."

<PAGE>

RISK FACTORS

THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. THIS
PROSPECTUS INCLUDES CERTAIN FORWARD-LOOKING STATEMENTS WHICH REFLECT INDUSTRIAL
RUBBER'S PLANS, ESTIMATES AND BELIEFS. THE COMPANY'S ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT
COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES ARE DISCUSSED IN THE FOLLOWING
RISK FACTORS AND ELSEWHERE IN THIS PROSPECTUS. IN EVALUATING AN INVESTMENT IN
THE COMMON STOCK, PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING
RISK FACTORS AND OTHER INFORMATION CONTAINED IN THIS PROSPECTUS.

LIMITED PRODUCTION FACILITIES

All of Industrial Rubber's production is performed at its facilities in
Hibbing, Minnesota, and Clearfield, Utah. At the present time the estimated
operating capacity of those facilities is sufficient to permit approximately
$17,000,000 per year in sales. The Company's 1997 sales were $14,421,359. The
Company cannot significantly expand its sales without acquiring additional
equipment and facilities and hiring additional personnel. If facilities and
equipment are not available or if there is a shortage of adequately trained
personnel, Industrial Rubber's ability to maintain or grow its revenues may be
adversely affected. If the Company's facilities are significantly damaged by
fire or other casualty, production may be substantially interrupted and such
casualty loss and business interruption would have a material adverse effect on
the Company's operations and profitability. Industrial Rubber maintains business
interruption insurance but there can be no assurance that such coverage will be
sufficient to cover the Company's losses or that the Company will be able to
regain its market share or customer base after resuming operations.

MANAGEMENT OF EXPANSION AND GROWTH

Industrial Rubber is currently experiencing a period of growth that could
place a significant strain on its management and other resources. The Company's
ability to manage its growth will require it to continue to improve its
operational, financial and management systems, and to motivate and effectively
manage its employees. If the Company's management is unable to manage growth
effectively, the quality of the Company's products, its ability to identify,
hire and retain key personnel and its results of operations could be materially
and adversely affected.

Industrial Rubber anticipates using a portion of the proceeds from this
Offering to expand its production operations both geographically and by product
line. These expansions will require a significant expenditure of time, effort
and capital by the Company. These expansions will divert the Company's key
employees from other management and sales tasks and will likely result in
decreased sales and profitability while the expansion is taking place. The
Company's operations may also be adversely affected as the Company integrates
the new locations and product lines into its current manufacturing, distribution
and sales operations and systems. There can be no assurance that Industrial
Rubber will be able to successfully and profitably achieve such integration.
Although the Company believes that the addition of locations and products will
improve the Company's ability to supply its existing customers by providing more
rapid response to customer orders, increase the volume of orders from existing
customers by supplying more of their product needs and attract new customers,
there can be no assurance that the Company will be able to generate sufficient
additional revenue to offset the expenditures incurred in connection with the
expansion. Failure to successfully integrate the satellite production and
distribution locations and product lines or to offset these additional
expenditures could have a material adverse effect on the Company's results of
operations. See "Use of Proceeds," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business -- Strategy for
Continued Growth."

POSSIBLE ACQUISITIONS

Although Industrial Rubber is exploring potential acquisitions, no
acquisition targets have been identified, no acquisitions are currently being
negotiated and no portion of the proceeds of the Offering has been allocated to
specific acquisitions. The Company's expansion may include the acquisition of
existing businesses, which will subject it to all of the risks inherent in
acquiring existing businesses and attempting to integrate such businesses into
the Company's existing operations, such as unknown

<PAGE>

liabilities and other unforeseen expenses, difficulties, complications and
delays. The evaluation of potential acquisitions will divert management
resources from the Company's regular operations and will likely result in a
temporary reduction in sales and profitability while the acquisitions are being
evaluated and made. No assurance can be given that the Company will consummate
such future business opportunities, if any, or that such business opportunities,
if consummated, will ultimately be advantageous for the Company.

DEPENDENCE ON ADDITIONAL CAPITAL

Industrial Rubber's expansion plans will require substantial capital
investment. The Company intends to pay for its expansion using cash, capital
stock, notes and/or assumption of indebtedness. Most of the proceeds from this
Offering will be required by the Company for, among other purposes,
acquisitions, establishing new locations, integrating completed acquisitions,
acquiring equipment and funding inventory, work in process and accounts
receivable. If the cash generated internally and cash available from the
Offering are not sufficient to provide the capital required for such purposes
and future operations, the Company will require additional debt and/or equity
financing in order to provide for such capital. There can be no assurance,
however, that such financing will be available on terms satisfactory to the
Company, if at all. Failure by the Company to obtain sufficient additional
capital in the future could limit the Company's ability to implement its
business strategy. Future debt financings, if available, may result in increased
interest and amortization expense, increased leverage, decreased income
available to fund further acquisitions and expansion, and may limit the
Company's ability to withstand competitive pressures and render the Company more
vulnerable to economic downturns. Future equity financings may dilute the equity
interest of existing stockholders. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

DEPENDENCE ON LARGE CONTRACTS

A substantial portion of Industrial Rubber's revenues are from large
project contracts, typically contracts for rubber lined tailings pipe. In 1997
one customer accounted for $8,094,517 of net sales. The companies purchasing
such products and services from the Company pursuant to large contracts vary
from year to year. There is no assurance that the Company will be able to
continue to obtain large contracts in the future. The failure to obtain such
large contracts would result in a significant decrease in the Company's sales
and income. All such large contracts have been pursuant to purchase orders
rather than long-term purchase agreements. See "Business -- Products and
Technology."

DEPENDENCE ON KEY PERSONNEL

Industrial Rubber's success depends to a significant degree upon the
continued contributions of its management, operations, sales/marketing and
technical personnel, including Daniel O. Burkes, President, Chief Executive
Officer and Treasurer, Christopher M. Liesmaki, Vice President -- Operations,
and Richard M. Radovich, Vice President -- Engineering. The Company has an
employment agreement only with Mr. Burkes. The Company maintains a key person
life insurance policy of $1,000,000 on Mr. Burkes. It does not maintain key
person life insurance policies on other management personnel. The Company
believes that its future success will also depend in large part on its ability
to attract and retain highly skilled managerial, technical operations and
sales/marketing personnel, who are generally in great demand. Failure to
attract and retain key personnel could have a material adverse effect on the
Company's results of operations. See "Management."

PATENTS AND OTHER PROPRIETARY RIGHTS

Industrial Rubber has patented one of its products and is developing other
products that it believes may be patentable. However, the Company can give no
assurance that further patents will be issued; that present or future patents
will be enforceable, will exclude competitors or provide competitive advantage,
and will be valid if challenged; or that competitors will not be able to design
around or develop similar products. The Company also seeks to maintain the
confidentiality of its proprietary rubber formula and production processes which
it believes are not patentable. However, the Company can give no assurance that
its confidentiality agreements will be enforced or that competitors could not
independently develop similar formulas or processes. See "Business --
Proprietary Rights."

<PAGE>

PRODUCT LIABILITY AND WARRANTY CLAIMS

Since Industrial Rubber's formation in 1986, the Company has never had a
significant claim brought against it for product liability. While the Company
has never incurred significant liability for such claims, any significant
increase in claims could have an adverse impact on the Company. The Company
believes that its product liability insurance is adequate and that it also has
certain rights to indemnification from third parties. There can, however, be no
assurance that claims exceeding such coverage will not be made, that the Company
will be able to continue to obtain insurance coverage or that the Company would
be successful in obtaining indemnification from such third parties. Although the
Company from time to time provides written limited warranties to its customers,
no significant warranty claims have been received. There can, however, be no
assurance that significant warranty claims will not be received in the future.

COMPETITION

The industry that Industrial Rubber is in is competitive. The Company faces
competition from national and regional manufacturers and distributors. The
national manufacturers and distributors provide proprietary design, large
distribution networks, large scale manufacturing to reduce costs and
sophisticated quality control programs. They may also have access to greater
financial resources than the Company. While the regional manufacturers and
distributors may lack these advantages, they do provide quick delivery and
personalized service to customers allowing them to effectively compete. See
"Business -- Competition."

GOVERNMENTAL AND ENVIRONMENTAL REGULATIONS

Industrial Rubber is subject to numerous federal, state and local laws and
regulations that govern the discharge and disposal of wastes, workplace safety
and other aspects of the Company's business. The Company's operations entail the
risk of noncompliance with environmental and other government regulations.
Environmental and other legislation and regulations have changed in recent years
and the Company cannot predict what, if any, impact future changes may have on
the Company's business. Further, environmental legislation has been enacted, and
may in the future be enacted, that creates liability for past actions that were
lawful at the time taken. As in the case with manufacturing companies in
general, if damage to persons or the environment has been caused, or is in the
future caused, by the Company's use of hazardous solvents or by hazardous
substances located at the Company's facilities, the Company may be fined or held
liable for the cost of remediating such damage. Imposition of such fines or the
incurrence of such liability may have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business --
Governmental and Environmental Regulation."

BUSINESS CYCLES

The demand for Industrial Rubber's products within any market segment that
it serves is tied to the production levels of that market segment. For example,
decreases in the price of copper will result in decreased copper mining activity
and a decreased need for the Company's products. These business cycles could
result in significant yearly fluctuations in financial results. See "Business --
Markets."

FLUCTUATIONS IN QUARTERLY OPERATING RESULTS

Industrial Rubber may experience variability in its sales and net income on
a quarterly basis as a result of many factors, including: changes in world
commodity prices for processed minerals which affect its customers' usage of its
products; labor stoppages at its customers' facilities; changes in its raw
materials costs; and delays or accelerations of its customers' capital spending
programs. If revenues do not meet expectations in any given quarter and the
Company is unable to adjust spending in a timely manner, operating results may
be materially adversely affected. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business -- Sales and
Marketing."

CONTROL BY MANAGEMENT

Upon completion of this Offering, the Company's President will own
approximately 67.7% of the issued and outstanding shares of Common Stock. As a
result of such ownership, he will have the ability

<PAGE>

to elect or remove all members of the Board of Directors and thereby control
the Company and will have the power to approve actions requiring shareholder
approval. Such a level of ownership can delay, defer or prevent a change in
control of the Company and can adversely affect the voting and other rights of
the other holders of Common Stock. See "Principal Shareholders."

NO PRIOR PUBLIC MARKET

Prior to this Offering, there has been no public market for the Company's
Common Stock. There can be no assurance that an active trading market for the
Common Stock will develop or be sustained after this Offering.

DETERMINATION OF OFFERING PRICE

The initial public offering price for the Shares has been determined by
negotiation between the Company and the Representative. Such price bears no
relationship to the book value of the Company and may bear no relationship to
the market price of the Shares subsequent to this Offering. See "Underwriting."

POSSIBLE VOLATILITY OF STOCK PRICE

The stock market has from time to time experienced significant price and
volume fluctuations that may be related or unrelated to the operating
performance of particular companies. These broad market fluctuations may
adversely affect the market price of the Company's Common Stock. In addition,
the market price of the shares of Common Stock of the Company may be highly
volatile. Factors such as a small market float, fluctuations in the Company's
operating results, failure to meet analysts' expectations, announcements of
major contracts by the Company or its competitors, developments with respect to
the Company's major markets, changes in stock market analyst recommendations
regarding the Company, its competitors or the industry generally, and general
market conditions may have a significant effect on the market price of the
Company's Common Stock.

SHARES ELIGIBLE FOR FUTURE SALE

Sales of Common Stock in the public market following this Offering could
adversely affect prevailing market prices. The existing shareholder has agreed
with the Underwriters not to sell or otherwise dispose of any shares or rights
to purchase shares of Common Stock beneficially held by him for 12 months from
the date of this Prospectus without the prior written consent of the
Representative. Upon expiration of this period, the 2,934,000 shares of Common
Stock held by the existing shareholder will be eligible for sale in the public
market subject to compliance with the volume limitations of Rule 144. Additional
shares of Common Stock, including shares issuable upon exercise of options, will
become eligible for sale in the public market from time to time in the future
and significant quantities of shares could become eligible if the Company makes
acquisitions of existing businesses with its stock. See "Description of
Securities," "Shares Eligible for Future Sale" and "Underwriting."

UNDESIGNATED STOCK

The Company's authorized capital consists of 25,000,000 shares of capital
stock of which 19,916,000 shares are undesignated shares. The Board of
Directors, without any action by the Company's shareholders, is authorized to
designate and issue these undesignated shares in such classes or series
(including classes or series of preferred stock) as they deem appropriate and to
establish the rights, preferences and privileges of such shares, including
dividends, liquidation and voting rights. No shares of preferred stock or any
other class of common stock are currently designated and there is no current
plan to designate or issue any such securities. The rights of holders of
preferred stock and other classes of common stock that may be issued may be
superior to the rights granted to the holders of the Shares. Further, the
ability of the Board of Directors to designate and issue such undesignated
shares could impede or deter an unsolicited tender offer or takeover proposal
regarding the Company and the issuance of additional shares having preferential
rights could adversely affect the voting power and other rights of holders of
Common Stock. See "Description of Securities."

<PAGE>

DILUTION

Purchasers of Shares in this Offering will experience an immediate
substantial decline in net tangible book value per share of their Shares equal
to $3.07 (a 61.4% decline from the purchase price). See "Dilution."

NO DIVIDENDS

While the Company has historically operated as an S Corporation and has
distributed a portion of previously taxed earnings, it has not paid dividends on
its Common Stock. Other than S Corporation distributions to be paid as described
in this Prospectus, the Company does not anticipate paying dividends in the
foreseeable future. The Company intends to use retained earnings to fund its
future growth. See "Dividend Policy and S Corporation Status."

ANTI-TAKEOVER LAWS

Certain provisions of the Minnesota Business Corporation Act may have the
effect of delaying or preventing a change in control or merger of the Company,
which could operate to the detriment of the shareholders. See "Description of
Securities."

APPLICABILITY OF "PENNY STOCK RULES"

Federal regulations under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), regulate the trading of so-called "penny stocks" (the
"Penny Stock Rules"), which are generally defined as any security not listed on
a national securities exchange or Nasdaq, priced at less than $5.00 per share
and offered by an issuer with limited net tangible assets and revenues. In
addition, equity securities listed on Nasdaq which are priced at less than $5.00
per share are deemed penny stocks for the limited purpose of Section 15(b)(6) of
the Exchange Act, which makes it unlawful for any broker-dealer to participate
in a distribution of any penny stock without the consent of the Securities and
Exchange Commission if, in the exercise of reasonable care, the broker-dealer is
aware of or should have been aware of the participation of previously sanctioned
person. Therefore, if, during the time in which the Common Stock is quoted on
the Nasdaq SmallCap Market, the Common Stock is priced below $5.00 per share,
trading of the Common Stock will be subject to the provisions of Section
15(b)(6) of the Exchange Act. In such event, it may be more difficult for the
broker-dealer to sell the Common Stock and purchasers of the Shares offered
hereby may have difficulty in selling their Shares in the future in the
secondary market.

In the event that the Company's Common Stock is delisted from the Nasdaq
SmallCap Market and the Company fails other relevant criteria, resulting in the
Common Stock being considered penny stock, trading, if any, of the Common Stock
would be subject to the full range of Penny Stock Rules. Accordingly, delisting
from the Nasdaq SmallCap Market and the application of the comprehensive Penny
Stock Rules may make it more difficult for broker-dealers to sell the Company's
Common Stock and purchasers of the Shares offered hereby may have difficulty in
selling their Shares in the future in the secondary market.

<PAGE>

USE OF PROCEEDS

The net proceeds to Industrial Rubber from the sale of the 1,400,000 Shares
of Common Stock offered to the public hereby at the Price to Public of $5.00 per
share are estimated to be $6,135,000 ($7,106,250 if the Underwriters'
overallotment option is exercised in full) after deducting the underwriting
discount and estimated offering expenses payable by the Company. The Company
currently intends to apply these proceeds approximately as follows:

Steel and iron casting, fabricating and machining capability .... $1,500,000
Rubber recycling, mixing, molding and calendaring capability .... 1,500,000
Satellite production and distribution facilities ................ 850,000
Product, process and marketing development ...................... 850,000
Repayment of short-term bank loan ............................... 675,000
Working capital and general corporate purposes .................. 760,000
----------
Total .......................................................... $6,135,000
==========

With approximately $1,500,000 of the proceeds of this Offering, Industrial
Rubber plans to purchase a facility or otherwise develop the capacity to sell
and distribute steel and iron products. Approximately $1,500,000 of the proceeds
are intended to be used to purchase a facility or otherwise develop the capacity
for recycling, mixing, molding and calendaring rubber. Approximately $850,000
will be used to acquire existing businesses or to purchase equipment and obtain
facilities for satellite production and distribution. Approximately $850,000
will be used to fund additional development of proprietary engineered products,
improved rubber formulas and production processes and marketing and sales
activities. Approximately $675,000 will be used to repay a bank loan to the
Company, the proceeds of which will be used for an S Corporation distribution to
the existing shareholder to enable him to pay income taxes resulting from the
Company's earnings through December 31, 1997. The remainder of the proceeds will
be used for working capital and general corporate purposes, including funding
increased inventory and accounts receivables. Any additional proceeds received
upon the exercise of the overallotment option or the Representative's Warrant
will be used for working capital and general corporate purposes.

Since Industrial Rubber has not entered into any acquisition or material
equipment purchase agreements, there can be no assurance that it will able to
carry out its expansion plans for the amounts budgeted. Accordingly, the Company
may decide to change its use of proceeds and reallocate its capital within the
above categories.

Pending utilization of the net proceeds of this Offering, the Company plans
to invest such net proceeds in short-term money market investments, including
money market funds, certificates of deposit and interest-bearing bank accounts.

<PAGE>

DIVIDEND POLICY AND S CORPORATION STATUS

For the foreseeable future, Industrial Rubber expects to follow a policy of
retaining earnings in order to finance the expansion and development of its
business. Therefore, it is unlikely that any dividends will be paid to holders
of the Shares in the foreseeable future.

Since 1989, Industrial Rubber has been treated for federal income tax
purposes as an S Corporation under Subchapter S of the Internal Revenue Code of
1986, as amended, and has been treated as an S Corporation under comparable
state tax laws. As a result, the Company's earnings from such dates through the
day preceding the date of termination of the Company's S Corporation status (the
"Termination Date") have been or will be, for federal and certain state income
tax purposes, taxed directly to the Company's shareholder at his individual
federal and state income tax rate, rather than to the Company. The Termination
Date will occur on or prior to the date of closing of this Offering. After the
Termination Date, the Company will no longer be treated as an S corporation and,
accordingly, will be subject to federal and state income taxes on its earnings.

Industrial Rubber has made and will make distributions to its existing
shareholder to enable him to pay income taxes on the Company's earnings through
December 31, 1997. The Company estimates that approximately $675,000 of the
proceeds of this Offering will be used to repay a short-term bank loan in that
amount to be incurred on or about March 31, 1998, in connection with a
distribution to the existing shareholder with respect to the Company's earnings
for the year ended December 31, 1997. A distribution of $125,000 was made in
January 1998 out of working capital. In addition, the Company expects to make a
distribution out of working capital to its existing shareholder to enable him to
pay income taxes on the Company's earnings during the period January 1, 1998
through the Termination Date, which is estimated to be March 31, 1998; no
estimate is available as to the amount of such distribution with respect to
earnings for the period ending March 31, 1998. The amount of such distributions
with respect to earnings of the Company will total more than the amount the
Company would have been required to pay had it been taxed as a C corporation
because of the differences between tax rates for corporations and individuals.
See "Use of Proceeds" and Note 7 of Notes to Financial Statements.

<PAGE>

DILUTION

The net tangible book value of the Company's Common Stock at December 31,
1997, was $2,243,809, or $.76 per share. "Net tangible book value" represents
the tangible assets less total liabilities of the Company, and "net tangible
book value per share" was determined by dividing the net tangible book value of
the Company by the number of shares of Common Stock outstanding on December 31,
1997, after giving effect to the stock split effective January 30, 1998. See
"Capitalization." "Net tangible book value dilution" represents the difference
between the Price to Public per Share and the net tangible book value per share
after this Offering. Without taking into account any changes in the Company's
net tangible book value per share after December 31,1997, other than to give
effect to the sale of the Shares offered hereby at the Price to Public of $5.00
per Share (net of underwriting commissions and estimated Offering expenses of
$865,000), the net tangible book value of the Company at December 31, 1997,
would have been $8,378,809, or $1.93 per Share. This represents an immediate
increase in net tangible book value to the existing shareholder of $1.17 per
Share and an immediate net tangible book value dilution to purchasers of the
Shares of $3.07 per share, as illustrated by the following table:

Price to Public per Share ................................... $ 5.00
Net tangible book value per share at December 31, 1997 ..... $ .76
Increase per share attributable to this Offering ........... 1.17
------
Net tangible book value per share after this Offering ....... 1.93
-------
Net tangible book value dilution per Share to new investors.. $ 3.07
=======

The following table summarizes, on a pro forma basis, the difference
between the number of shares of Common Stock purchased from the Company by its
existing shareholder and by new investors in this Offering, the total
consideration paid to the Company and the average price paid per share. The
table assumes that none of the 1,400,000 Shares offered hereby are purchased in
this Offering by the existing shareholder.

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION(1) AVERAGE
----------------------- ------------------------- CONSIDERATION
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- --------- ------------- --------- --------------
<S> <C> <C> <C> <C> <C>
Existing Shareholder ......... 2,934,000 67.7% $ 146,750 2.0% $ 0.05
New Investors ................ 1,400,000 32.3% 7,000,000 98.0% $ 5.00
--------- ----- ---------- -----
Total ....................... 4,334,000 100.0% $7,146,750 100.0%
========= ===== ========== =====
</TABLE>
- ------------------
(1) Does not reflect deduction of the underwriting discount or any other
expenses incurred in connection with this Offering.

<PAGE>

CAPITALIZATION

The following table presents the actual capitalization of the Company at
December 31, 1997. The pro forma column represents the actual balances after
giving effect to the payment of approximately $800,000 in cash distributions
subsequent to year end to the existing stockholder of the Company, reflecting
the amount of distributions paid or payable to the Company's existing
stockholder for the income tax liability resulting from the Company's earnings
and status as an S Corporation through December 31, 1997. The as adjusted column
gives effect to the sale of 1,400,000 shares of common stock by the Company in
this Offering at the initial public offering price of $5.00 per share.

<TABLE>
<CAPTION>
DECEMBER 31, 1997
--------------------------------------------
ACTUAL PRO FORMA AS ADJUSTED
------------- ------------- ------------
<S> <C> <C> <C>
Long-Term Debt, less current maturities ........... $ 171,095 $ 171,095 $ 171,095
Stockholder's Equity:
Common stock, $.001 par value; authorized
25,000,000 shares, issued 2,934,000 shares (as
adjusted, 4,334,000 shares outstanding) ......... 2,934 2,934 4,334
Additional paid in capital ....................... 143,816 143,816 6,277,416
Retained earnings ................................ 2,097,059 1,297,059 1,297,059
---------- ---------- ----------
TOTAL STOCKHOLDER'S EQUITY ...................... 2,243,809 1,443,809 7,578,809
---------- ---------- ----------
TOTAL CAPITALIZATION ............................ $2,414,904 $1,614,904 $7,749,904
========== ========== ==========
</TABLE>

<PAGE>

SELECTED FINANCIAL DATA

The following table sets forth the summary financial data for the Company
for the periods indicated. This information should be read in conjunction with
the Financial Statements and related Notes appearing elsewhere herein and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." The summary financial data as of and for the year ended December
31, 1995 have been derived from unaudited financial statements (not included in
this Prospectus), which, in the opinion of the Company, reflect all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation. The summary financial data as of and for the years ended December
31, 1996 and 1997 have been derived from the Company's financial statements
which have been audited by McGladrey & Pullen, LLP, independent public
accountants, as indicated in their report included elsewhere herein.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1995 1996 1997
--------------- --------------- ----------------
(UNAUDITED)
<S> <C> <C> <C>
STATEMENTS OF INCOME DATA:
Net sales ................................... $ 3,646,316 $ 6,309,775 $ 14,421,359
Cost of sales ............................... 2,701,682 4,776,634 9,947,870
Gross profit ................................ 944,634 1,533,141 4,473,489
Operating expense ........................... 701,202 1,122,968 1,664,611
----------- ----------- ------------
Operating income ............................ 243,432 410,173 2,808,878
Nonoperating expense ........................ 54,942 90,388 107,111
----------- ----------- ------------
Net income .................................. $ 188,490 $ 319,785 $ 2,701,767
=========== =========== ============
PRO FORMA STATEMENTS OF INCOME DATA(1):
Income before income taxes .................. $ 188,490 $ 319,785 $ 2,701,767
Provision for income taxes .................. 75,400 145,300 1,038,000
----------- ----------- ------------
Net income .................................. $ 113,090 $ 174,485 $ 1,663,767
Basic earnings per share .................... $ 0.04 $ 0.06 $ 0.57
=========== =========== ============
Weighted average shares outstanding ......... 2,934,000 2,934,000 2,934,000
=========== =========== ============
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------------------------
ACTUAL PRO FORMA AS ADJUSTED
1995 1996 1997 1997(2) 1997(2)(3)
------------ ------------- ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current Assets ...................... $ 765,512 $1,943,747 $3,308,711 $3,308,711 $ 8,643,711
Property and Equipment, net ......... 397,975 1,275,371 1,518,093 1,518,093 1,518,093
Other Noncurrent Assets ............. 216,408 120,131 122,780 122,780 122,780
Total Assets ........................ 1,379,895 3,339,249 4,949,584 4,949,584 10,284,584
Current Liabilities ................. 742,944 2,741,941 2,534,680 3,334,680 2,534,680
Long-term Debt ...................... 112,846 240,613 171,095 171,095 171,095
Stockholder's Equity ................ 524,105 356,695 2,243,809 1,443,809 7,578,809
</TABLE>

(2) Reflects the amount of distributions payable (after December 31, 1997) to
the Company's existing stockholder for the income tax liability (estimated
to approximate $800,000) resulting from the Company's earnings and status as
an S Corporation through December 31, 1997. See "Dividend Policy and S
Corporation Status," "Use of Proceeds," "Capitalization," and Note 7 of
Notes to Financial Statements.

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Financial
Statements and Notes thereto included elsewhere in this Prospectus. This
Prospectus contains, in addition to historical information, forward-looking
statements that involve risks and uncertainties. The Company's actual results
could differ materially from the results discussed in the forward-looking
statements. Factors that could cause or contribute to such differences include
those discussed below, as well as those discussed elsewhere in this Prospectus.
See "Risk Factors."

GENERAL

The Company was incorporated in March of 1986 to acquire and operate a
rubber lining facility then owned by Irathane Systems Incorporated, a wholly
owned subsidiary of Illinois Tool Works, Inc., located in Hibbing, Minnesota. At
the time the acquisition was closed in April 1986, the facility had been shut
down and it had no employees.

The Company began operations in April of 1986. The Company's business
originally consisted of applying and then vulcanizing rubber (for corrosion and
abrasion resistance purposes) to wearable parts that were used primarily in the
mining industry.

Initially, the Company was taxed as a C corporation under the Internal
Revenue Code. Effective January 1, 1989, the Company elected to be taxed as an S
corporation. The Company has continued to be taxed as an S corporation since
that date.

Until 1996, the Company operated only from the Minnesota facility. After
obtaining a major contract to supply pipe lining for tailing pipe to be used at
Kennecott Utah Copper, the Company opened its second production facility in
Clearfield, Utah in the second half of 1996. That facility tripled the Company's
production capacity. The Kennecott project constituted 22% of net sales in 1996
and 56% of net sales in 1997. The project has now been substantially completed.
Sales from the Utah facility comprised 22% of net sales in 1996 and 70% of net
sales in 1997. It is likely that sales from the Utah facility will decrease in
1998.

As discussed elsewhere in this Prospectus, sales to certain major customers
constitute a significant portion of the Company's net sales. These major
customers (each of whom accounted for 10% or more of sales) constituted 50% of
net sales in 1996 and 56% of net sales in 1997. These sales were made pursuant
to purchase orders, rather than long-term contracts.

RESULTS OF OPERATIONS

The following table sets forth certain financial data expressed as a
percentage of net sales for the periods indicated:

YEAR ENDED DECEMBER 31,
--------------------
1995 1996 1997
--- --- ---
Net Sales ................................. 100% 100% 100%
Cost of Sales ............................. 74% 76% 69%
--- --- ---
Gross Profit ............................. 26% 24% 31%
Selling, General and Administrative Expense 19% 18% 12%
Operating Income .......................... 7% 6% 19%
Nonoperating Expenses ..................... 2% 1% --%
--- --- ---
Net Income ................................ 5% 5% 19%
=== === ===

NET SALES. The Company's net sales increased from $3,646,316 for 1995, to
$6,309,775 for 1996 and to $14,421,359 for 1997. Of the net sales in 1997,
$8,094,517 were related to Kennecott Utah Copper pipe lining project. The
Company's order backlog on January 15, 1998 was approximately $6,300,000.

COST OF SALES. Cost of sales as a percentage of sales was 69% in 1997
compared with 76% in 1996 and 74% in 1995. The decrease in 1997 was mainly due
to achieving a higher level of profitability on a

<PAGE>

major contract and the impact of increased volume on fixed overhead costs. As a
percentage of net sales, gross profit decreased from 26% of net sales in 1995 to
24% in 1996, before increasing to 31% of net sales in 1997. In dollar terms,
gross profit increased from $701,202 in 1995, to $1,533,141 in 1996, to
$4,473,489 in 1997.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased from $701,202 (19% of net sales) in 1995, to
$1,122,968 (18% of net sales) in 1996, to $1,664,611 (12% of net sales) in 1997.
The increase in actual dollar amounts was due primarily to increased staffing
expenses, which were necessary to service increased sales and increased salaries
for key personnel, reflecting their efforts to increase sales and profitability
at the Company. The drop in selling, general and administrative expenses as a
percentage of net sales in 1997 reflected the fact that the Company was able to
achieve economies of scale thereby decreasing these expenses as a percentage of
sales.

NONOPERATING INCOME AND EXPENSE. The major nonoperating expense, interest
expense, increased from $72,227 in 1995, to $90,554 in 1996, to $110,731 in
1997. Nonoperating income was not a significant factor in the Company's
operating results in 1996 and 1997.

NET INCOME. Net income (before tax) in 1997 was $2,701,767 compared to
$319,785 in 1996 and $188,490 in 1995. Net income as a percentage of net sales,
increased from 5% in 1995 and 1996 to 19% in 1997. The increase was due
primarily to the successful completion of a major pipelining contract.

INCOME TAXES. As discussed elsewhere in this Prospectus, the Company is an
S Corporation, and as such is generally not responsible for income taxes.
Instead, the existing stockholder is taxed on the Company's taxable income. If
the Company had paid income taxes as a C Corporation, its estimated income taxes
in 1995 would have been $75,400, in 1996 income taxes would have been $145,300,
and in 1997 income taxes would have been $1,038,000.

FINANCIAL POSITION

Net working capital at December 31, 1996 and 1997 is summarized as follows:

1996 1997
-------------- ------------
Current Assets:
Cash and equivalents .......................... $ 39,261 $ 132,344
Trade Receivables ............................. 1,220,933 2,282,637
Inventories ................................... 605,133 840,363
Other ......................................... 78,420 53,367
---------- ---------
1,943,747 3,308,711
---------- ---------
Current Liabilities:
Short-term debt (including current maturities
of long term) ................................ 1,844,634 1,353,861
Accounts payable and accrued expenses ......... 897,307 1,073,994
Other ......................................... -- 106,825
---------- ---------
2,741,941 2,534,680
---------- ---------
Net Working Capital (Deficit) ................. $ (798,194) $ 774,031
========== =========

<PAGE>

The increase in trade receivables at December 31, 1997 was primarily due to
a single major contract which was in progress at year end. The percentage of
increase (87%) followed the growth in the Company's sales. Inventories increased
from 1996 to 1997, but the percentage of increase (39%) was significantly less
than the growth in sales. The change in the level of inventory is in part
dependent upon the Company's mix of sales with some types of sales requiring the
Company to carry more inventory than others.

Short-term debt and current maturities decreased from December 31, 1996, to
December 31, 1997 primarily reflecting the payment of principal (current
maturities) on the Utah equipment loan. The Company funded its major equipment
purchases for Utah on a three-year note which will be fully paid off in August
1999. During 1997, the Company also funded other capital expenditures and
working capital needs with short term borrowings. Accounts payable and accrued
expenses increased at December 31, 1997 versus year-end 1996 mainly due to
increased sales activity.

Long-term debt at December 31, 1997 consisted of $171,095 (primarily bank
debt at 9.5%). Long-term debt decreased $69,518 from December 31,1996.

The percentage of total debt to total assets decreased from 89% at December
31, 1996 to 55% at December 31, 1997. Stockholder's equity was $2,243,809 at
December 31, 1997 compared with $356,695 at December 31, 1996.

The Statement of Cash Flows for the years ended December 1996 and 1997 is
summarized below:

1996 1997
----------- -----------
Net Income ...................................... $ 319,785 $ 2,701,767
Depreciation .................................... 248,238 374,551
Increase in Receivables and Inventories ......... (1,194,215) (1,399,934)
Increase in Accounts Payable and Accrued Expenses 598,363 176,687
Additions to Plant and Equipment ................ (1,125,634) (617,273)
S Corporation Distributions ..................... (487,195) (711,653)
Net proceeds (repayments) of debt ............... 1,528,401 (560,291)
Other, net ...................................... 70,036 129,229
----------- -----------
Net increase (decrease) in cash and equivalents . $ (42,221) $ 93,083
=========== ===========

Net cash provided by operating activities of $1,845,624 in 1997 was
primarily used for additions to plant and equipment, for S Corporation
distributions, and to repay bank debt for plant and equipment. In 1996 operating
activities used net cash of $17,926 with increases in trade receivables and
inventories using all cash generated by operations. In 1997 net cash used in
investing activities of $587,422 was primarily used for additions to plant and
equipment. In 1996, investing activities used $1,061,857 which was also
primarily used for additions to plant and equipment and funded by bank
borrowings.

In 1997 financing activities used $1,165,119 of net cash, $711,653 being
used for S Corporation distributions to the Company's shareholder for payment of
income taxes and net pay downs on bank borrowings of $560,291. In 1996 financing
activities provided $1,037,562 of net cash most of which came from an increase
in bank borrowings of $1,528,401. Most of the cash generated by financing was
used to fund equipment purchases for the Utah facility. S Corporation
distributions of $487,195, primarily to pay income taxes, were also made in
1996.

LIQUIDITY

As disclosed elsewhere in this Prospectus, the Company has major contracts
which account for a large percentage of its sales. A delay in or failure to pay
on those contracts by those customers could seriously impact the Company's
liquidity. In addition, the Company has made a distribution to its existing
shareholder of $125,000 since December 31, 1997 and expects to make an
additional distribution of approximately $675,000 in March 1998 to allow its
existing shareholder to pay income taxes with respect to the Company's earnings
through December 31, 1997. The Company also expects to make a distribution out
of working capital after the termination of its S Corporation election to enable
its existing shareholder to pay income taxes on its earnings from January 1,
1998 through termination of the

<PAGE>

S Corporation election; no estimate of the amount is available as that is
dependent on earnings from January 1, 1998 to the termination date. See "Use of
Proceeds."

The Company believes that the proceeds of this Offering, together with cash
on hand, interest expected to be earned thereon, anticipated revenues and bank
borrowings will be sufficient to fund its operations and expansion plans for at
least 12 months. In order to meet its needs beyond such time, the Company may be
required to raise additional capital. There can be no assurance that sufficient
capital will be available if and when required on terms acceptable to the
Company, if at all. See "Risk Factors -- Dependence on Additional Capital."

YEAR 2000.

The Company does not expect that the Year 2000 problem will have any
significant impact on its internal operations. The Company believes that its
bookkeeping and computer design systems can be easily modified to correct any
computer program problems that occur at the turn of the century. However, the
Company cannot predict whether it will be affected by problems that its
suppliers and customers might have with their computerized billing, shipping and
payment systems.

<PAGE>

BUSINESS

GENERAL

Industrial Rubber designs, produces and supplies protective materials,
abrasion resistant products and equipment, erosion/corrosion protective linings
and proprietary rubber products to the mineral processing, power, wood
processing and other heavy industries.

Industrial Rubber has increased its sales from $3,646,316 in 1995 to
$14,421,359 in 1997, and its pro forma net income from $113,090 in 1995 to
$1,663,767 in 1997. This increase in sales and earnings has been the result of
the Company obtaining and successfully completing a number of large contracts.
During that three-year period, the Company has more than tripled its production
capacity by opening a production facility in Utah.

Industrial Rubber has three product lines. Its pipe and pipe lining
products line consists of rubber lined pipe and pipe parts fabricated primarily
for the mineral processing industry. Its proprietary products are engineered
replacement parts primarily for mineral processing facilities. Its standard
rubber products are sold, along with related services, to the Company's
customers in the various industry segments served by the Company.

Industrial Rubber operates two production and distribution centers. Its
Minnesota facility (located on the Mesaba Iron Range, the heart of the taconite
mining industry) is a 30,000 square foot manufacturing facility. Proprietary and
rubber lined pipe products produced at the Minnesota facility are used by
taconite pellet producing companies and are also shipped throughout North
America for use in copper, gold, molybdenum and other mineral processing
operations. The Minnesota facility also houses the Company's corporate
headquarters and sales and technical support staffs.

In 1996, due to customer demand, a second production facility in Utah,
equipped with over $1,000,000 in specially designed processing machinery, was
opened. The Utah plant is designed to supply Industrial Rubber's piping and pipe
products. It uses the Company's proprietary erosion/corrosion protective linings
and a network of suppliers to produce and supply rubber lined pipe and pipe
products for slurry transportation and mineral handling. Due to the large size
of these products, the location of this production facility, close to the
copper, gold and molybdenum producing plants in the western United States and
Canada, is advantageous for shipping and technical support.

The Company markets its products through a direct sales force and
independent sales representatives. The Company's major customers in 1997
included Kennecott Utah Copper (copper mining), Hibbing Taconite Company, whose
majority owner is Bethlehem Steel (taconite production), Royal Oak Mining Kemess
Mine (gold mining), and Shaw -- NAPTech (power generation).

Industrial Rubber's expected growth will come through increased penetration
of the North American hard rock mining market with its present rubber products,
the development and sales of new products, sales to new mineral processing
markets outside of North America and sales of present and new products to the
power generation, paper and pulp manufacturing and other heavy industries.

INDUSTRY

The markets for the Company's products are the hard rock mineral
processing, power and coal generation, paper and pulp production, and other
similar heavy industries. Its marketing to date has focused primarily on the
mining industry.

The North American mining industry is considered heavy industry. The hard
rock that hosts important minerals (iron, copper, gold, molybdenum), is
generally blasted from the earth and then crushed and ground (processed) to
allow the extraction (benefication) of these minerals. The equipment needed to
process and beneficate this rock is subject to constant abrasion, corrosion and
erosion. Industrial Rubber has developed, designed, tested and produced rubber
products that protect the mineral processing and benefication equipment,
extending their serviceable life, and saving its customers money through
decreased replacement costs and reduced downtime. The Company's rubber products
also provide further benefits to its customers through noise abatement and dust
and dirt reductions.

<PAGE>

Although Industrial Rubber's products protect the mineral processing and
benefication equipment, the products do become worn and must be replaced. Many
of the Company's products are used to replace its own and other manufacturers'
protective products that have become worn.

MARKETS

North American taconite (iron ore), copper, gold and molybdenum plants are
major present customers for Industrial Rubber products. Mineral processors use
equipment to crush, grind, classify (size), separate and transport the rock,
mineral rock and wastes. This equipment is in a constant cycle of repair and
replacement due to the severe abrasion, corrosion and erosion qualities of the
material it is handling.

Industrial Rubber's first market was the Minnesota taconite industry where
taconite rock with a typical iron ore content of 25% to 30% is excavated,
crushed, ground and separated to make 46 million tons of high grade taconite
(iron ore) pellets annually.

The protective products, made from steel, iron, rubber, urethane, ceramics
and plastics are a large portion of a taconite plant's cost. For instance, to
protect the 36 foot diameter ore grinding mills at an 8,000,000 ton per year
operation, $5,500,000 to $6,000,000 is spent on abrasion resistant operating
materials. The taconite industry in northern Minnesota operates approximately
160 ore grinding mills, ranging from 10 foot diameters to 36 foot diameters, and
spends over $30,000,000 per year in protecting these grinding mills. This
expenditure is only a portion of the materials purchased to protect or replace
the process equipment in the taconite industry of Minnesota. According to the
Iron Mining Association of Minnesota, $1,426,000,000 is spent annually by
taconite producing companies located in Minnesota.

Peter Kakela, a taconite industry expert from Michigan State University,
projects a long-term, stable demand for taconite pellets from the Mesaba Iron
Range of Minnesota. In the United States, nine mines, seven in northern
Minnesota and two in the Michigan Upper Peninsula, accounted for 99.2% of
taconite production. In Canada, four mines in Northeast Canada accounted for 99%
of its taconite production. Minnesota taconite accounts for less than 10% of
worldwide production of iron ore. Globally, the growth in iron ore demand is
projected to continue over the next ten to 15 years.

In 1991, Industrial Rubber began to sell its products to other mineral
processing markets to diversify its business and minimize the effects of demand
cycles. For instance, while the demand for taconite and molybdenum remained
stable, the demand for copper and gold fell in 1997. In 1997, approximately 70%
of the Company's sales were to mineral processing facilities other than
taconite, much of those sales related to copper production.

The U.S. and Canada rank number two and number three, respectively, in
worldwide copper production and have slated many new mine openings and expansion
projects for copper production. Arizona is the number one copper producing
state.

Copper ore is typically a 1% to 1.5% grade. Gold ore is considerably lower.
The waste rock slurry pipe systems needed to transport this rock to large
impoundments have grown, due to environmental and practical needs. A North
American copper producer recently invested $450,000,000 in a new 3,500 acre
copper rock waste (tailings) impoundment. Of this total, $40,000,000 was spent
on highly abrasive resistant, lined pipe products.

Although North America is a large market for the Company's products, the
world mining industry is also large, with Chile alone operating a significant
number of grinding mills with resulting mine production of 3,000,000 metric
tons. Recently, the Company has begun to expand by selling its products outside
of North America. In 1997, less than 1% of the Company's sales were shipped
offshore. In 1998, the Company estimates that this will grow to approximately
20% of sales. The international market offers potential market growth for
Industrial Rubber, with most of the actual contracts coming from North American
engineering firms or their subcontractors. The Company's standard practice is to
have non-North American purchase orders guaranteed by letters of credit.

According to AME Mineral Economics of Australia, world demand for copper is
expected to grow over the next decade. China and other developing Asian
economies are expected to increase demand significantly. Eastern Europe and the
former Soviet Union may also become net importers of refined copper.

<PAGE>

STRATEGY FOR CONTINUED GROWTH

The Company's goal is to be a leading designer, producer and supplier of
protective materials for equipment in mining and mineral processing, coal and
power generation, paper and pulp and related industries on a global basis. It
seeks to achieve this goal by several methods.

INCREASED PENETRATION OF EXISTING MARKETS. The Company intends to increase
its penetration of its historic markets, specifically mineral processors and, to
a lesser extent, coal and power generators, with its present protective
materials, concentrating on slurry pipe and pipe products and engineered and
proprietary grinding mill products.

The Company is employing a variety of approaches that include a customer
identification program and need analysis, an increase in the direct sales force
and development of a network of independent representatives to serve
geographical areas that are not easily accessible to the Company's direct sales
force. The Company will seek to develop strategic business alliances with end
use customers and the engineering firms who serve them. The Company will focus
on its present relationships with large volume repeat customers.

GEOGRAPHICAL EXPANSION IN NORTH AMERICA. Industrial Rubber is planning to
increase its sales in North America by placing satellite production and
distribution facilities where justified by the local market. While the Company
has identified several potential satellite locations, the locations that
presently appear most promising are Canada and the southwestern United States,
particularly Arizona.

At the beginning of 1995, there were a total of 284 mines (excluding sand
and gravel quarries) in operation in Canada. As Natural Resources Canada has
recently stated:

"Total value of Canadian mineral production soared in 1996. The Canadian
mineral industry remains an essential and dependable cornerstone for
national economic growth and employment. As the world's greatest exporter
of minerals and metals, Canada enjoys benefits to its economy from this
industry."

According to an article in the CANADIAN MINING JOURNAL, August 1997, "capital
spending is on the uptake and about 50 new mines are expected to open in
1997-98, creating more than 6,000 jobs in the process. Moreover, spending on
exploration is on the rise . . ." A stated goal for the Canadian government is
to ensure that much of the mining and exploration capital expenditures are spent
within the Canadian borders. This growth projection and past experience in
competing in the Canadian market, particularly in dealing with exchange rate
issues, has demonstrated to Industrial Rubber the need for a production facility
in Canada.

Another likely location for a satellite facility is Arizona. According to
the U.S. Bureau of Mines, in 1996, for the eighth time in the past nine years,
Arizona led the U.S. in total non-fuel mineral production valued at $3.5
billion. Arizona continued as the top copper-producing state, accounting for 65%
of the total U.S. copper mine production and value. There are eight major
existing copper mines in Arizona. Arizona also produces gold, silver, molybdenum
and zinc.

INTERNATIONAL SALES EXPANSION OF PRODUCTS AND TECHNOLOGIES. The Company is
planning to target a portion of its marketing efforts to international mineral
processing and power generation customers. The Company will use its engineering
customer database and international representatives to market its products
outside of North America. The Company's direct sales force will support these
efforts by attending and exhibiting at international expositions -- such as the
International Mining Expo in Santiago, Chile, and the S.M.E. Mining Expo in
Orlando, Florida.

VERTICAL EXPANSION OF PRODUCTS. The Company has identified other protective
material products, including steel and iron products, that are not presently
produced by Industrial Rubber, but are used by its customers. The Company's
growth strategy seeks to supply these products to its customers either through
the acquisition of appropriate production facilities or through developing
strategic relationships with the manufacturers of these products. This would
allow the Company to supply its customers with a full line of protective
products eliminating the disadvantage to the customers of acquiring components
from multiple suppliers. Customers should further benefit by having a single
source for the design and testing of protective product improvements.

<PAGE>

INTEGRATION OF RAW MATERIALS SUPPLY. The Company currently purchases its
rubber from multiple suppliers that manufacture to the Company's specifications
and formulas. The Company plans to either purchase a raw material supplier or
purchase the equipment to process natural and synthetic rubber using the
Company's formulas and calendared forms. This integration is expected to reduce
production costs and expand potential markets by providing the capability to
develop new formulas internally. Management believes that the direct control of
raw material quality and research and development in the mixing and calendaring
process should enhance the product performance of the Company's products for its
customers. By strategically locating the raw material processing operation,
transportation costs can be reduced.

ENVIRONMENTAL SOLUTIONS FOR ITS CUSTOMERS. Recent studies in Minnesota and
Michigan have demonstrated that there is a concern regarding the environmental
considerations both for present disposal costs and future liabilities arising
from landfill disposal of steel, rubber, urethane and other worn out products.
At the present time, grinding mill parts, pump parts, classification screens,
pipe products and other benefication equipment protective parts made of rubber,
steel and urethane, are disposed of after usable life, normally through a
landfill method. The Company's planned closed-loop recycling program would allow
its customers to return these used equipment products to the Company. The
Company will remove the elastomeric compounds, and through cryogenic technology
and the Company's and others' proprietary material enhancement processes,
produce recycled raw materials to be used in manufacturing molded rubber
protective parts for repurchase.

Industrial Rubber plans to incorporate a closed-loop recycling program into
its marketing strategies for all products and locations. A further benefit of
the "closed-loop" recycling process and re-manufacturing raw materials should be
to reduce the Company's dependency on natural rubber.

PRODUCTS AND TECHNOLOGY

The Company has three product lines: pipe and pipe lining products,
proprietary and engineered products and standard rubber products.

PIPE AND PIPE LINING PRODUCTS. Industrial Rubber produces and supplies
rubber and steel slurry pipe and components for tailings pipeline systems. A
proprietary formulated rubber compound (I.R.P. X8220) is used which protects
these pipelines from abrasion and corrosion. This proprietary compound has
increased pipeline life expectancy by 50% in one North American taconite plant.
A taconite plant has advised Industrial Rubber that its operational evaluation
has demonstrated that unprotected steel tailing pipe has a service life of
20,000 hours, while similar pipe lined with Industrial Rubber's proprietary
compound X8220 has a service life of 40,000 hours. The Company's proprietary
compound X8220 has been used in 600,000 feet of slurry transportation pipe
products for 12 mineral processing plants. Since its development it has
demonstrated its ability to extend service life and protect expensive tailings
impoundment systems from corrosion and abrasive wear.

In 1996, the Company designed and developed new processes and equipment
that decreased the cost and improved the overall product quality of overland
slurry pipelines. Mechanical couplings, historically used in connecting lined
pipe for long distance overland slurry systems, are typically high cost items to
the customer. This is particularly true in high pressure, large diameter
pipelines. The Company believes that prior to 1996, industry standards and
equipment limitations only allowed for the production of 40' long pipe sections.
Industrial Rubber has designed its own production equipment, and presently
supplies to its customers 60' pipe sections, eliminating one third of the
required mechanical couplings, and resulting in cost savings to the customers.

The Company used this technology in lining 120,000 linear feet of pipe for
the abrasive slurry transportation system of the Kennecott Utah Copper
Corporation at its $450,000,000 tailings impoundment modernization project in
Utah. Since 1996, three other major slurry transportation system products have
been ordered from Industrial Rubber:

1997 B & K Steel 8,200' 48" diameter pipe (completed)
1998 Royal Oak Kemess 47,000' 26" diameter pipe (completed)
1998 Newmont/Batu Haiju 21,000' 44" diameter pipe (ordered)

<PAGE>

The Company believes that the development of 60` lined pipe has set the
standard for the industry. Industrial Rubber is continuing development efforts
to eliminate mechanical couplings in rubber lined pipe products for overland
slurry transportation systems.

In 1996, Industrial Rubber and its suppliers developed 1" thick calendared
rubber, the first in the industry to meet engineered specifications for an
abrasive slurry material. This rubber product doubled the expected service life
of industry standard 1/2" calendared rubber in slurry transport, and is
projected to result in cost savings for customers by reducing replacement cost.

Industrial Rubber's pipe product line includes large overland slurry system
pipe products and products as small as 2" in diameter. The Company can produce
rubber lined pipe from 2" to 72" in diameter, from 1" to 60` long, and with
calendared linings from 1/8" to 1" thick. It can provide all fittings, tees,
Y's, manifolds and other piping components typically used in mineral processing
and power generation facilities.

PROPRIETARY AND ENGINEERED PRODUCTS. Industrial Rubber's proprietary and
engineered products line includes engineered grinding mill parts. Examples of
such products are air bags, lifter bars and shell liners. The hard host rock
that contains minerals must be ground to small fragmented product size, using
large grinding mills. The wearable parts that protect these grinding mills have
a relatively short service life. They have been typically made of heavy iron
castings.

Industrial Rubber believes that its patented rubber grinding mill
discharger reduces weight, matches or increases service life and provides
improved fit when compared to other dischargers. A North American
mineral-processing plant has informed the Company that by using the Industrial
Rubber patented grinding mill dischargers, it has reduced grinding costs by
increasing production and decreasing energy costs per ton ground. The patented
grinding mill discharger is being used at two taconite, one molybdenum and three
copper mines, operating in 17 grinding mills. Grinding mill dischargers and
other grinding mill products are being designed for five additional mining
properties.

STANDARD RUBBER PRODUCTS. The Company's standard rubber products range in
weight from less than one pound to over 10,000 pounds, with costs ranging from
$20 to $20,000 for individual parts. Examples of such products are manifolds,
screens, pulleys and rolls. All products are made to customer engineered
specifications. The Company's Quality Assurance Program seeks to insure product
conformity while limiting defects and reducing associated value added costs. The
Company, responding to the needs of international markets, has begun
preparations to qualify under an ISO 9000 program.

RESEARCH AND DEVELOPMENT. The Company has not incurred significant research
and development costs, although it has incurred certain such costs on a
job-by-job basis which are expensed as incurred. Management anticipates that
research and development efforts will increase in the future.

SALES AND MARKETING

Industrial Rubber markets and sells its products to hard rock mineral
processing companies, power plants and other heavy industrial companies whose
process equipment is subject to abrasion and corrosion.

The Company presently has a sales force comprised of a sales and marketing
manager, four direct salespeople, a sales clerk, a marketing and public
relations clerk, two independent sales representative companies that employ five
direct salespeople and a marketing consultant. The Company plans to grow its
number of direct salespeople and is in the process of establishing independent
sales representation in certain national and international markets.

Industrial Rubber's marketing strategy is to maximize penetration of
domestic markets, including mineral processors and coal and power generating
facilities, with its present products. The Company intends to expand its product
lines and new products will be cross-sold to existing and new customers.

The marketing plan includes prospective customer identification, customer
needs analysis and increased and strategic placement of the sales force, to
facilitate geographic market and product expansion. The marketing plan will be
implemented in the U.S. and Canadian markets and, when appropriate,
internationally. The Company intends to develop business partnerships with
existing customers and the engineering firms that serve them.

<PAGE>

Chile, Peru, Brazil, Argentina, Mexico and Australia are major mineral
processing countries, as are certain Southeast Asian countries. The Company will
direct its efforts to penetrate these markets by adding direct sales people,
adding independent representatives and forming strategic alliances with original
equipment manufacturers in these markets.

Industrial Rubber utilizes general and product specific brochures and sales
literature. Video is used as an additional marketing resource. Advertising and
articles in industry trade magazines, journals, newsletters and papers will be
increased. Tradeshow attendance and participation is expected to become a larger
part of the marketing effort. The Company's management is meeting with
international marketing consultants in preparation for international sales.

<PAGE>

From the grinding of the ore to the disposal to the waste rock (tailings)
in taconite, copper, gold and molybdenum processing plants, Industrial Rubber's
markets include products to protect the following equipment:

TRANSPORTATION CRUSHING GRINDING
- -------------- ----------------------- -----------------------
Thickeners Chutes Mill Liners
Feed Wells Dust Collection Systems Pulp Lifters
Shrouds Pulleys Trommel Screens
Pulleys Skirt Boards Bucket Wheels
Skirt Boards Repair Coatings Dust Collection Systems
Repair Coatings Process Piping Return Tubes
Process Piping Valves Pulleys
Valves Skirt Boards
Repair Coatings
Process Piping
Valves

SEPARATION SLURRY TRANSPORTATION CLASSIFICATION
- ------------------------ --------------------- -----------------------
Sumps Plumes Launders
Cyclones Pipe Dust Collection Systems
Tanks Elbows Pump Parts
Dust Collection Systems Sumps Screens
Launders Launders Repair Coatings
Clarifiers Clarifiers Process Piping
Pump Parts Pump Parts Valves
Thickeners Thickeners
Feed Wells Feed Wells
Shrouds Shrouds
Agitator Shafts Repair Coatings
Filter Tanks Process Piping
Pipe Elbows Valves
Coatings
Screens
Hydro Separators
Mag. Separators
Flot. Cell Separators
Process Piping
Valves

The Company has current market, customer and competition research underway,
evaluating the markets in which its current customers are found and other
potential markets. For example, materials transportation using slurry methods is
continuing to grow for mineral processing, power generation and tar (oil) sands
operations. Other markets include both hard and soft rock mining, processing and
benefication and other industries with abrasion and corrosive issues, such as:

* Coal

* Rock Aggregate

* Sand & Gravel

* Wood Processing

* Agriculture, Food & Grain

* Power Generation

* Railroad

* Industrial Controls & Environmental

<PAGE>

BACKLOG

The Company's order backlog on January 15, 1998, was approximately
$6,300,000. All the Company's sales are made through purchase orders. The
Company currently anticipates that it will have filled all current backlog
orders by the end of the first half of 1998. For factors that might affect the
Company's ability to fill its orders, see "Risk Factors."

COMPETITION

The protective material products business that serves the mineral
processing and power generation industries is competitive. These protective
material products are made of steel, iron, rubber, urethane, ceramics, plastics
and hybrids of these materials. The Company's competitors fabricate, cast, mold,
shape, machine, and form the material into finished products. Both large and
small companies throughout the world compete on price and by adding value to
their products through fit and function, using physical design, chemical or
physical make up or proprietary data (patents). The competition falls into two
categories.

The first category is the regional manufacturer/supplier that services the
mineral processing and power generation properties that are close to its
production facility. Standard rubber liners, urethane castors and metal
fabricators typically fall within this category. They use personalized service
and quick delivery as an advantage to their regional customers.

The second category is national manufacturers of products that are used by
a large number of mineral processing and power generating plants. Rubber
molders, cast iron and metal makers, ceramic manufacturers and original
equipment manufacturers typically fall into this category. They use proprietary
design, large distribution networks and high volume to reduce manufacturing
costs. Sophisticated quality programs, managed inventories and just-in-time
deliveries are advantages to their customers, and their size provides them with
access to greater financial and other resources.

The Company believes that it can successfully compete with companies in
both categories, through focused service to customers located near its Minnesota
and Utah facilities and through its ability to provide quality products in
increasingly large quantities to customers located in geographically distant
areas. The Company also believes that the satellite facilities that it may
establish will increase its ability to compete in geographically distant
markets.

GOVERNMENTAL AND ENVIRONMENTAL REGULATION

Industrial Rubber is subject to a wide variety of governmental regulations,
with which it actively seeks to comply. As a manufacturing company, Industrial
Rubber is subject to safety regulation by the United States Department of Labor
and the Minnesota Department of Labor and Industry under the Occupational Safety
and Health Act ("OSHA"). Because its products are sold to the mining industry,
workplace safety at the Company is also subject to regulation by the Mine Safety
and Health Administration. The Company's operations are continually being
monitored and inspected. As new standards develop, the Company could be placed
in a situation of having to modify its production processes to comply with
changing regulations.

The Company uses hazardous solvents in its production processes and
disposes of waste products such as used solvents. These and other activities of
the Company are subject to various federal, state and local laws and regulations
governing the generation, handling, storage, transportation, treatment and
disposal of hazardous wastes. Under such laws, an owner or lessee of real estate
may be liable for, among other things, (i) the costs of removal or remediation
of certain hazardous or toxic substances located on, in or emanating from, such
property, as well as related costs of investigation and property damage and
substantial penalties for violations of such laws, and (ii) environmental
contamination at facilities where its waste is or has been disposed. Such laws
often impose such liability without regard to whether the owner or lessee knows
of, or was responsible for, the presence of such hazardous or toxic substances.
While the Company's operations, to its best knowledge, are in full compliance
with all existing laws and regulations, environmental legislation and
regulations have changed rapidly in recent years and the Company cannot predict
what, if any, impact future changes in such legislation may have on the
Company's business. Further, environmental legislation has been enacted, and may
in the future be

<PAGE>

enacted, that creates liability for past actions that were lawful at the time
taken. As in the case with manufacturing companies in general, if damage to
persons or the environment has been caused, or is in the future caused, by the
Company's use of hazardous solvents or by hazardous substances located at the
Company's facilities, the Company may be fined or held liable for the cost of
remediating such damage. Imposition of such fines or the incurrence of such
liability may have a material adverse effect on the Company's business,
financial condition and results of operations. Further, changes in environmental
regulations in the future may require the Company to make significant capital
expenditures to change methods of disposal of hazardous solvents or otherwise
alter aspects of its operations.

The United States Environmental Production Agency ("EPA") in its October
1992 Preliminary Assessment of the Company's Minnesota facility reported that
the Company's predecessor had a 5,000 square foot unlined outdoor waste drum
storage area between 1967 and 1981. The EPA's assessment revealed no documented
releases from this area. In August 1997, the Company was requested by the
Minnesota Pollution Control Agency to perform soil tests in the area. Based on
information received to date by the Company, the Company does not believe that
the cost of testing and soil remediation, if necessary, will be material.

During February 1998, the Company received OSHA reports addressing a number
of deficiencies found by inspectors in the Company's production facilities, and
assessing fines against the Company totalling $7,950. Management believes that
neither the cost of correcting the alleged deficiencies nor the payment of any
fines will have a material effect on the operations of the Company. The Company
intends to participate with OSHA in a program to limit or correct future
deficiencies before fines are assessed.

PROPRIETARY RIGHTS

The Company currently holds one patent for a Discharge Millhead. The
Company is developing additional potentially patentable products and is also
developing processes for increasing the amount of recycled rubber that can be
used in its products. Since many of the Company's developments are extensions of
existing knowledge, no assurance can be given that patents for either the
products or processes being developed will be issued, that the scope of any
patent protection will exclude competitors or provide competitive advantages to
the Company, that any of the Company's patents will be held valid if
subsequently challenged or that others will not claim rights in or ownership to
the patents and other proprietary rights held by the Company. Further, there can
be no assurance competitors have not developed or will not develop similar
products, duplicate the Company's products or, if patents are issued to the
Company, design around such patents. In addition, whether or not patents are
issued, others may hold or receive patents which contain claims having a scope
that covers products developed by the Company. Industrial Rubber's proprietary
rubber formula is not patentable. While the Company obtains confidentiality
agreements from its suppliers and its key employees, competitors could
independently develop the formula. Further, litigation to protect either patents
or trade secrets, enforce patents issued to the Company, to protect trade
secrets or know-how owned by the Company, and to defend the Company against
claimed infringement may be necessary.

EMPLOYEES

As of February 20, 1998, Industrial Rubber had 95 employees, all of whom
were full-time; 60 were in Minnesota and 35 were in Utah, of whom 76 were in
production, seven in sales, two in engineering and design, and ten in executive,
administrative and clerical positions. The Company believes that its relations
with its employees are excellent, demonstrated by a low turnover rate. The
Minnesota production employees are covered by a collective bargaining agreement
with the United Steel Workers of America, Local No. 6860-1, which terminates on
April 1, 2000. There is no union affiliation at the Utah facility. The Company
believes that the representation of the Minnesota production employees by the
Union acts to remove a potential barrier to the sale of certain of the Company's
products to the taconite mining plants by responding to union contract language
that limits out-sourcing of work.

FACILITIES

The Company owns a 30,000 square foot facility on eight acres of land in
the Hibbing Industrial Park, Hibbing, Minnesota. Newly renovated corporate
office space occupies approximately 4,000 square

<PAGE>

feet of this facility, with the remainder dedicated to manufacturing space.
Portions of the eight acres of land are used for receiving, storage and
sandblasting activities.

The Company leases a 60,000 square foot facility and a nearby lot in
Clearfield, Utah. The current lease agreement runs through July 31, 1998, and
the Company has options to renew the lease through July 31, 2001. Approximately
58,000 square feet of the facility are used for manufacturing and approximately
2,000 square feet are used for office space. The nearby lot is used for
receiving and storage.

LEGAL PROCEEDINGS

The Company has been involved from time to time in various legal
proceedings arising in the ordinary course of business. There are no pending or
threatened proceedings at this time.

<PAGE>

MANAGEMENT

DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES

The directors, executive officers and key employees of the Company are as
follows:

NAME AGE POSITION
- ------------------------ ----- -------------------------------------
Daniel O. Burkes 45 President, Chief Executive Officer, Treasurer
and Director
Nancy J. Burkes 42 Vice President, Secretary, and Director
Christopher M. Liesmaki 40 Vice President -- Operations
Richard M. Radovich 54 Vice President -- Engineering
James A. Skalski 29 Controller

All directors hold office until the next annual meeting of shareholders or
until their successors have been duly elected and qualified. Executive officers
of the Company are elected by and serve at the discretion of the Board of
Directors. Within 90 days of the completion of this Offering, it is anticipated
that Nancy J. Burkes will resign as a director and the Board of Directors will
be increased to five directors of which three will be outside directors. The
Board will establish an Audit Committee, which will review the results and scope
of the audit and other services provided by the Company's independent public
accountants.

DANIEL O. BURKES has been President, Chief Executive Officer and Treasurer
and a member of the Board of Directors of the Company since he founded it in
1986. He began working in 1975 in the rubber industry and from 1977 until 1986
he was the Sales and Marketing Director of Irathane Systems Incorporated, a
wholly owned subsidiary of Illinois Tool Works, Inc.

NANCY J. BURKES has been a Director, Vice President and Secretary of the
Company since its founding in 1986. Mrs. Burkes is married to Daniel O. Burkes,
and as indicated above will be resigning as a Director within 90 days after the
Offering.

CHRISTOPHER M. LIESMAKI has been with the Company since 1988 and currently
serves as the Company's Vice President -- Operations. He has previously held
the positions of Sales Engineer, Quality Assurance Coordinator, Sales and
Marketing Manager and General Manager. Prior to coming to the Company, Mr.
Liesmaki was a Materials Quality Engineer with Control Data Corporation for
eight years. Mr. Liesmaki is married to a sister of Nancy J. Burkes.

RICHARD M. RADOVICH has been with the Company since 1991 and serves as
Vice President -- Engineering. Mr. Radovich is also General Manager of Nelson
Roofing Company (see "Certain Transactions"). From 1985 to 1991 he was the
General Manager and a Product Engineering Estimator of Irathane Systems
Incorporated. Prior to 1985 he worked for 12 years as a Design Engineer with
Abe W. Mathews Engineering Company.

JAMES A. SKALSKI has been with the Company since 1997, and serves as the
Company's Controller. Mr. Skalski is a Certified Public Accountant. Before
joining the Company, Mr. Skalski taught accounting and computer courses at
Mesabi Range Technical College from 1995 to 1997, was controller of Viking
Supply from 1993 to 1994 and was an accounting employee at Irathane Systems
Incorporated in 1992.

<PAGE>

SUMMARY COMPENSATION

The following table sets forth certain information regarding compensation
earned or awarded to the President and Chief Executive Officer and each
executive officer of the Company who received annual salary and bonus
compensation in excess of $100,000 for 1997 (the "Named Executive Officer").

SUMMARY COMPENSATION TABLE

ANNUAL COMPENSATION
---------------------------------
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS
- ------------------------------- ------ ----------- ----------
Daniel O. Burkes, 1997 $255,216 --
President, Chief Executive
Officer and Treasurer

Christopher M. Liesmaki, 1997 $ 70,122 $78,000
Vice President -- Operations

Richard M. Radovich, 1997 $ 64,320 $50,000
Vice President -- Engineering

EMPLOYMENT AGREEMENT

On January 30, 1998, the Company entered into a two-year Employment
Agreement with Daniel O. Burkes, President, Chief Executive Officer and
Treasurer of the Company, pursuant to which Mr. Burkes is entitled to an initial
annual base salary of $255,216 per year and a bonus determined by the Board of
Directors. Mr. Burkes is required by the agreement to maintain confidentiality
of all Company trade secrets and upon termination of employment will be
prohibited from participating in a competing venture for a period of two years.
The initial term of the agreement ends on January 30, 2000, unless sooner
terminated in accordance with the provisions of the agreement.

STOCK OPTIONS

On January 30, 1998, the Board of Directors and sole shareholder of the
Company adopted the Industrial Rubber Stock Option Plan (the "Plan") in order to
provide for the granting of stock purchase options to employees, directors and
officers of the Company. The Plan permits the granting of incentive stock
options meeting the requirements of Section 422 of the Internal Revenue Code of
1986, as amended, and also nonqualified stock options which do not meet the
requirements of Section 422. The Company has reserved 400,000 shares of its
Common Stock for issuance upon exercise of options granted under the Plan. On
January 30, 1998, the directors granted five-year incentive stock options to 15
employees of the Company, providing for the purchase of an aggregate 113,600
shares at $4.50 per share. One-fourth of the options become exercisable on
January 30, 1999, and an additional one-fourth on January 30 of each of the
subsequent three years. The group of employees receiving options included
Messrs. Liesmaki and Radovich, who received options to purchase 30,000 shares
and 25,000 shares, respectively.

The Plan also provides for the automatic grant of a non-qualified option to
purchase 10,000 shares of Common Stock, which vests over five years, to each
non-employee director at the time of his or her initial election to the Board of
Directors, and an automatic grant of a non-qualified option to purchase 2,500
shares of Common Stock at the end of each year during which such non-employee
serves as a director of the Company. The Plan authorizes the Board of Directors
to increase or decrease the 10,000 share and 2,500 share amounts. All such
options will be granted at an exercise price equal to the fair market value of
the Common Stock on the date of grant.

LIMITATION OF LIABILITY AND INDEMNIFICATION

The Company's Restated Articles of Incorporation limit the liability of
directors in their capacity as directors to the Company or its shareholders to
the full extent permitted by Minnesota law. The Articles provide that a director
shall not be liable to the Company or its shareholders for monetary damages for
breach of fiduciary duty as a director, except (i) for any breach of the
director's duty of loyalty to the Company or its shareholders, (ii) for acts or
omissions not in good faith or which involve intentional

<PAGE>

misconduct or a knowing violation of law, (iii) for dividends, stock repurchases
and other distributions made in violation of Minnesota law or for violations of
the Minnesota securities laws, or (iv) for any transaction from which the
director derived an improper personal benefit. These provisions do not affect
the availability of equitable remedies, such as an action to enjoin or rescind a
transaction involving a breach of fiduciary duty, although, as a practical
matter, equitable relief may not be available. The above provisions also do not
limit liability of the directors for violations of, or relieve them from the
necessity of complying with, the federal securities law.

The Restated Bylaws of the Company also provide that the Company will
exercise, to the full extent permitted by law, its power of indemnification.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission (the "Commission")
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.

CERTAIN TRANSACTIONS

Since August, 1992, the Company has provided certain services to Nelson
Roofing, Inc., a corporation owned by Daniel O. Burkes, the sole shareholder of
the Company. The services provided included accounting, human resource,
management and other miscellaneous services. Under this arrangement, Nelson
Roofing, Inc. paid the Company $120,000 in 1995, $73,000 in 1996 and $102,000 in
1997. Effective January 30, 1998, the arrangement with Nelson Roofing, Inc. was
formalized under a written agreement continuing the existing arrangement through
December 31, 1998, and requiring monthly itemized billing and payment.

Since January 1997, the Company has rented a home in Utah from Daniel O.
Burkes. The home is used as temporary housing for management and other Company
employees from the Hibbing facility who are on temporary assignment at the Utah
facility. During 1997, the Company paid a total of $61,100 in rent to Mr. Burkes
for use of the home. The Company intends to continue this arrangement on a
month-to-month basis, as needed.

The Company believes that all prior transactions between the Company and
its officers, directors or other affiliates of the Company were on terms no less
favorable than could have been obtained from unaffiliated third parties on an
arm's-length basis. All future transactions, loans and any forgiveness of loans,
with directors, officers or stockholders holding more than 5% of the Company's
outstanding Common Stock, or affiliates of any such persons, will be made for
bona fide business purposes and will be on terms no less favorable than could be
obtained from an unaffiliated third party and will be approved by a majority of
the independent outside directors who do not have an interest in the
transactions.

<PAGE>

PRINCIPAL SHAREHOLDERS

The following table sets forth as of the date of the Prospectus certain
information regarding beneficial ownership of the Company's Common Stock by (i)
each person known by the Company to be the beneficial owner of more than 5% of
the outstanding Common Stock, (ii) each director of the Company, (iii) each
Named Executive Officer and (iv) all executive officers and directors of the
Company as a group. The following information assumes that the named individuals
will not be purchasing any Shares in this Offering.

<TABLE>
<CAPTION>
SHARES PERCENT BEFORE PERCENT AFTER
NAME AND ADDRESS(1) BENEFICIALLY OWNED OFFERING OFFERING
- ------------------------------------ -------------------- ---------------- --------------
<S> <C> <C> <C>
Daniel O. Burkes ................... 2,934,000 100% 67.7%
Nancy J. Burkes .................... 2,934,000(2) 100% 67.7%
Christopher M. Liesmaki ............ 0(3) 0% 0%
Richard Radovich ................... 0(4) 0% 0%
All executive officers and directors
as a group (4 persons) ............ 2,934,000 100% 67.7%
</TABLE>

- ------------------
(1) The address of each named individual is 3804 E. 13th Avenue, Hibbing, MN
55746.

(2) Comprised of shares owned by Daniel O. Burkes, Mrs. Burkes' husband.

(3) Does not include 30,000 shares issuable to Mr. Liesmaki pursuant to a stock
option granted under the Company's Stock Option Plan, which option is not
currently exercisable.

(4) Does not include 25,000 shares issuable to Mr. Radovich pursuant to a stock
option granted under the Company's Stock Option Plan, which option is not
currently exercisable.

DESCRIPTION OF SECURITIES

The authorized capital stock of the Company consists of 25,000,000 shares
of capital stock, $.001 par value, of which 5,084,000 shares are Common Stock
and 19,916,000 shares are not designated as to terms and preferences.

COMMON STOCK

The Company has 2,934,000 shares of Common Stock issued and outstanding.
The holders of the Common Stock: (i) have equal ratable rights to dividends from
funds legally available therefor, when, as and if declared by the Board of
Directors of the Company; (ii) are entitled to share ratably in all the assets
of the Company available for distribution to holders of the Common Stock upon
liquidation, dissolution or winding up of the affairs of the Company; (iii) do
not have preemptive, subscription or conversion rights and there are no
redemption or sinking fund provisions applicable thereto; and (iv) are entitled
to one vote per share on all matters which shareholders may vote on at all
meetings of shareholders. All shares of the Common Stock now outstanding are
fully paid and nonassessable.

The holders of the Common Stock do not have cumulative voting rights, which
means that the holders of more than 50 percent of such outstanding shares voting
for the election of directors can elect all of the directors of the Company to
be elected, if they so choose. In such event, the holders of the remaining
shares will not be able to elect any of the Company's directors.

UNDESIGNATED STOCK

Under governing Minnesota law and the Company's Restated Articles of
Incorporation, no action by the Company's shareholders is necessary, and only
action of the Board of Directors is required, to authorize the issuance of any
of the undesignated stock. The Board of Directors is empowered to establish, and
to designate the name of each class or series of the undesignated shares and to
set the terms of such shares (including terms with respect to redemption,
sinking fund, dividend, liquidation, preemptive, conversion and voting rights
and preferences). Accordingly, the Board of Directors, without shareholder
approval, may issue undesignated stock with terms (including terms with respect
to redemption, sinking fund, dividend, liquidation, preemptive, conversion and
voting rights and preferences) that could adversely affect the voting power and
other rights of holders of the Common Stock.

<PAGE>

The existence of undesignated stock may have the effect of discouraging an
attempt, through acquisition of a substantial number of shares of Common Stock,
to acquire control of the Company with a view to effecting a merger, sale or
exchange of assets or a similar transaction. The anti-takeover effects of the
undesignated shares may deny shareholders the receipt of a premium on their
Common Stock and may also have a depressive effect on the market price of the
Common Stock.

MINNESOTA BUSINESS CORPORATION ACT

Section 302A.671 of the Minnesota Business Corporation Act provides that,
unless the acquisition of certain new percentages of voting control of the
Company (in excess of 20%, 33 or 50%) by an existing shareholder or other person
is approved by the holders of a majority of the outstanding voting stock other
than shares held by the acquirer (if already a shareholder) and officers and
directors who are also employees of the Company, the shares acquired above any
such new percentage level of voting control will not be entitled to voting
rights. In addition, if the requirements of this Section are not satisfied, the
Company may redeem the shares so acquired by the acquirer at their market value.
Section 302A.671 generally does not apply to a cash offer to purchase all shares
of voting stock of the issuing corporation if such offer has been approved by a
majority vote of disinterested directors of the issuing corporation.

Section 302A.673 of the Minnesota Business Corporation Act restricts
certain transactions between the Company and a shareholder who becomes the
beneficial holder of 10% or more of any class of the Company's outstanding
voting stock (an "interested shareholder") unless a majority of the
disinterested directors of the Company have approved, prior to the date on which
the shareholder acquired a 10% interest, either the business combination
transaction suggested by such a shareholder or the acquisition of shares that
made such a shareholder a statutory interested shareholder. If such prior
approval is not obtained, this section imposes a four-year prohibition from the
interested shareholder's share acquisition date on mergers, sales of substantial
assets, loans, substantial issuance of stock and various other transactions
involving the Company and the interested shareholder or its affiliates.

In the event of certain tender offers for stock of the Company, Section
302A.675 of the Minnesota Business Corporation Act precludes the tender offeror
from acquiring additional shares of stock (including acquisitions pursuant to
mergers, consolidations or statutory share exchanges) within two years following
the completion of such an offer unless the selling shareholders are given the
opportunity to sell the shares on terms that are substantially equivalent to
those contained in the earlier tender offer. The Section does not apply if a
committee of the Board consisting of all of its disinterested directors
(excluding present and former officers of the corporation) approves the
subsequent acquisition before the shares are acquired pursuant to the earlier
tender offer.

These statutory provisions could have the effect of delaying or preventing
a change in the control of the Company in a transaction or series of
transactions not approved by the Board of Directors.

TRANSFER AGENT AND REGISTRAR

The Transfer Agent and Registrar with respect to the Company's Common Stock
is Norwest Bank Minnesota, N.A.

<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

The Company has outstanding 2,934,000 shares of Common Stock. All of the
4,334,000 shares to be outstanding after the Offering will be freely tradeable
without restrictions or registration under the Securities Act, except as
follows. Of these shares, the 2,934,000 shares owned by the existing shareholder
are subject to a lockup agreement pursuant to which the existing shareholder
agreed not to offer, sell or otherwise dispose of any of his shares for a period
of 12 months after the effective date of this Offering, without the prior
written consent of the Representative. In addition, these shares are subject to
the restrictions of Rule 144 of the Securities Act with respect to the sale of
such shares.

In general, under Rule 144 a person (or persons whose sales are aggregated)
who beneficially owns shares acquired privately from the Company or an affiliate
of the Company at least one year previously and an affiliate of the Company who
beneficially owns shares acquired (whether or not such shares were acquired
privately) from the Company or an affiliate of the Company at least one year
previously, are entitled to sell within any three-month period a number of
shares that does not exceed the greater of 1% of the then outstanding shares of
the Company's Common Stock or the average weekly trading volume in the Company's
Common Stock during the four calendar weeks preceding the filing of notice with
the Commission in connection with such sale. Sales under Rule 144 are also
subject to certain manner-of-sale provisions, notice requirements and the
availability of current public information about the Company. A person who has
not been an affiliate of the Company at any time during the three months
preceding a sale and who beneficially owns shares acquired from the Company or
an affiliate of the Company at least two years previously is entitled to sell
all such shares under Rule 144 without regard to any of the limitations of the
Rule.

The Company cannot predict the effect, if any, that sales of the securities
subject to the previously described lockup or Rule 144 restrictions or the
availability of such securities for sale could have on the market price, if any,
prevailing from time to time. Nevertheless, sales of substantial amounts of the
Company's securities, including resale of the securities offered hereby, could
adversely affect prevailing market prices of the Company's securities and the
Company's ability to raise additional capital by occurring at a time when it
would be beneficial for the Company to sell securities.

<PAGE>

UNDERWRITING
The Underwriters named below, for whom R.J. Steichen & Company is acting as
representative (the "Representative"), have severally agreed, subject to the
terms and conditions of the Underwriting Agreement with the Company, to purchase
from the Company the 1,400,000 Shares of Common Stock offered hereby. The number
of Shares that each Underwriter has agreed to purchase is set forth opposite its
name below:

UNDERWRITING NUMBER OF SHARES
----------------------------------- -----------------
R.J. Steichen & Company ..........
---------

Total ........................... 1,400,000

The Underwriting Agreement provides that the several Underwriters will be
obligated to purchase all of the 1,400,000 Shares offered hereby, if any are
purchased.

The Underwriters propose to offer the shares to the public at the Price to
Public set forth on the cover page of this Prospectus and to dealers at such
price less a concession not in excess of $ per share. The Underwriters may
allow, and such dealers may reallow, a concession not in excess of $ per
share to certain other brokers and dealers. After the initial public offering,
the Price to Public, concession and reallowance may be changed by the
Representative. Additionally, the Company has agreed to pay the Representative a
nonaccountable expense allowance equal to 2% of the aggregate public offering
price. The Company has paid the Representative $10,000 as an advance against
this nonaccountable expense allowance.

The Company has granted the Underwriters an option exercisable within 45
days after the effective date of the Registration Statement of which this
Prospectus is a part, to purchase up to an additional 210,000 shares of Common
Stock at the Price to Public, less the Underwriting Discount shown on the cover
page of this Prospectus. The Underwriters may exercise such option only for the
purpose of covering any overallotments in the sale of the Shares of Common Stock
offered hereby.

The Company has agreed to sell to the Representative, for nominal
consideration, a warrant to purchase up to 140,000 shares of Common Stock (the
"Representative's Warrant"). The Representative's Warrant may be exercised in
whole or in part commencing twelve months after the effective date of the
Registration Statement of which this Prospectus is a part and for a period of
four years thereafter, at an exercise price equal to 120% of the Price to
Public. The Representative's Warrant may not be transferred, sold, assigned or
hypothecated for a period of one year from the effective date of this Offering
other than by will or pursuant to operation of law, except to officers of the
Representative. The Representative's Warrant contains anti-dilution provisions
providing for appropriate adjustments on the occurrence of certain events, and
contains customary demand and participatory registration rights with respect to
the underlying shares of Common Stock. Any profits realized by the
Representative upon the sale of such warrant or the securities issuable upon
exercise thereof may be deemed to constitute additional underwriting
compensation.

The Representative has informed the Company that the Underwriters do not
intend to confirm sales to any account over which they exercise discretionary
authority.

The Underwriting Agreement provides for reciprocal indemnification between
the Company, the Underwriters and their controlling persons against civil
liabilities in connection with the Offering,

<PAGE>

including liabilities under the Securities Act of 1933, as amended. Insofar as
indemnification for liabilities arising under the Securities Act of 1933 may be
permitted pursuant to the foregoing provisions, the Company has been informed
that, in the opinion of the Commission, such indemnification is against public
policy as expressed in such Act and is therefore unenforceable.

The sole shareholder of Common Stock of the Company, who owns 2,934,000
shares, has agreed that he will not, without the prior consent of the
Representative, publicly offer, sell or grant any option to sell any securities
of the Company in the open market or otherwise for a period of twelve months
from the effective date of this Offering.

In order to facilitate the offering of Common Stock, the Underwriters may
engage in transactions that stabilize, maintain or otherwise affect the price of
Common Stock. Specifically, the Underwriters may overallot Common Stock in
connection with the offering, creating a short position in the Common Stock for
their own account. In addition, to cover overallotments or to stabilize the
price of Common stock, the Underwriters may bid for, and purchase, shares of
Common Stock in the open market. The Underwriters may also reclaim selling
concessions allowed to an underwriter or a dealer for distributing Common Stock
in the offering, if the Underwriters repurchase previously distributed Common
Stock in transactions to cover their short positions, in stabilization
transactions or otherwise. Finally, the Underwriters may bid for, and purchase,
shares of the Common Stock in market making transactions and impose penalty
bids. These activities may stabilize or maintain the market price of Common
Stock above market level that may otherwise prevail. The Underwriters are not
required to engage in these activities, and may end any of these activities at
any time.

Prior to this Offering there has been no public trading market for the
Common Stock. The initial public offering price of the Shares has been
determined by negotiations between the Company and the Representative and bears
no relation to the Company's current earnings, book value, net worth or
financial statement criteria of value.

The foregoing is a brief summary of the provisions of the Underwriting
Agreement and the Representative's Warrant and does not purport to be a complete
statement of their terms and conditions. A form of the Underwriting Agreement,
including a form of the Representative's Warrant, has been filed as an exhibit
to the Registration Statement of which this Prospectus is a part.

LEGAL MATTERS

The validity of the Common Stock offered hereby will be passed upon for the
Company by Johnson, Killen, Thibodeau & Seiler, P.A. and Lommen, Nelson, Cole &
Stageberg, P.A. Certain legal matters for the Underwriters will be passed upon
by Fredrikson & Byron, P.A.

EXPERTS

The audited financial statements of the Company included in this Prospectus
and elsewhere in the Registration Statement have been audited by McGladrey &
Pullen LLP independent public accountants, as indicated in their reports with
respect thereto, and are included herein in reliance upon the authority of said
firm as experts in auditing and accounting.

AVAILABLE INFORMATION

Prior to this Offering, the Company has not been subject to the reporting
requirements of the Securities Exchange Act of 1934. The Company has filed with
the Washington, D.C. office of the Securities and Exchange Commission (the
"Commission") a registration statement on Form SB-2 ("Registration Statement")
under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the sale of the Shares. This Prospectus does not contain all of the
information set forth in the Registration Statement, certain portions of which
have been omitted as permitted by the rules and regulations of the Commission.
For further information with respect to the Company and the Shares, reference is
made to the Registration Statement, including the exhibits thereto. Statements
contained in

<PAGE>

this Prospectus as to the contents of any contract or other document referred to
are not necessarily complete, and in each instance reference is made to the copy
of such contract or other document filed as an exhibit to the Registration
Statement. The Registration Statement may be inspected by anyone without charge
at the principal office of the Commission at 450 Fifth Street, N.W., Judiciary
Plaza, Washington, D.C. 20549, or at one of the Commission's regional offices
located at: Northwestern Atrium Center, 500 West Madison, Suite 1400, Chicago,
Illinois 60661-2511 and 7 World Trade Center, 13th Floor, New York, New York,
10048. Copies of all or any part of such material may be obtained upon payment
of the prescribed fees from the Public Reference Section of the Commission at
450 Fifth Street, N.W, Washington, D.C. 20549. The Commission maintains a
Website that contains reports, proxy and information statements and other
information regarding issuers that file electronically with the Commission
(http://www.sec.gov).

The Company intends to distribute to its shareholders annual reports
containing audited financial statements and interim reports containing unaudited
financial statements.

<PAGE>

INDEX TO FINANCIAL STATEMENTS

PAGE
NUMBER
-------
Independent auditor's report ............................................. F-2
Balance sheets as of December 31, 1996 and 1997 .......................... F-3
Statements of income for the years ended December 31, 1996 and 1997 ...... F-4
Statements of stockholder's equity for the years ended December 31,
1996 and 1997 ........................................................... F-5
Statements of cash flows for the years ended December 31, 1996 and 1997 .. F-6
Notes to financial statements ............................................ F-7

F-1

<PAGE>

INDEPENDENT AUDITOR'S REPORT

To the Board of Directors
Industrial Rubber Products, Inc.
Hibbing, Minnesota

We have audited the accompanying balance sheets of Industrial Rubber
Products, Inc. (formerly Industrial Rubber Applicators, Inc.) as of December 31,
1996 and 1997, and the related statements of income, stockholder's equity, and
cash flows for the years 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Industrial Rubber Products,
Inc. as of December 31, 1996 and 1997, and the results of its operations and its
cash flows for the years then ended in conformity with generally accepted
accounting principles.

McGLADREY & PULLEN, LLP

Duluth, Minnesota
January 30, 1998

F-2

<PAGE>

INDUSTRIAL RUBBER PRODUCTS, INC.

BALANCE SHEETS
DECEMBER 31, 1996 AND 1997

<TABLE>
<CAPTION>
1997
-------------------------
PRO FORMA
1996 ACTUAL (NOTE 6)
---------- ---------- ----------
<S> <C> <C> <C>
ASSETS (NOTE 4)
Current Assets
Cash .................................................... $ 39,261 $ 132,344 $ 132,344
Trade receivables ....................................... 1,220,933 2,282,637 2,282,637
Due to related parties (Note 9) ......................... 32,500 -- --
Inventories (Note 3) .................................... 605,133 840,363 840,363
Prepaid expenses ........................................ 45,920 53,367 53,367
---------- ---------- ----------
TOTAL CURRENT ASSETS ................................... 1,943,747 3,308,711 3,308,711
---------- ---------- ----------
Cash Value of Life Insurance ............................. 120,131 122,780 122,780
---------- ---------- ----------
Property and Equipment, at cost ..........................
Land .................................................... 10,000 10,000 10,000
Buildings ............................................... 223,282 518,741 518,741
Automotive equipment .................................... 233,931 339,481 339,481
Machinery and equipment ................................. 1,492,870 1,709,134 1,709,134
---------- ---------- ----------
1,960,083 2,577,356 2,577,356
Less accumulated depreciation ........................... 684,712 1,059,263 1,059,263
---------- ---------- ----------
1,275,371 1,518,093 1,518,093
---------- ---------- ----------
$3,339,249 $4,949,584 $4,949,584
========== ========== ==========

LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities
Bank note payable (Note 4) .............................. $ 890,000 $1,135,000 $1,935,000
Current maturities of long-term debt (Note 5) ........... 954,634 218,861 218,861
Due to related party (Note 9) ........................... -- 106,825 106,825
Accounts payable ........................................ 668,957 674,144 674,144
Accrued expenses ........................................ 228,350 399,850 399,850
---------- ---------- ----------
TOTAL CURRENT LIABILITIES .............................. 2,741,941 2,534,680 3,334,680
---------- ---------- ----------
Long-term Debt, less current maturities (Note 5) ......... 240,613 171,095 171,095
---------- ---------- ----------
Commitments and Contingencies (Notes 6, 7 and 11)

Stockholder's Equity (Note 6)
Common stock, $.001 par value; authorized
25,000,000 shares; issued 2,934,000 shares ............. 38,604 2,934 2,934
Additional paid-in capital .............................. 108,146 143,816 143,816
Retained earnings ....................................... 209,945 2,097,059 1,297,059
---------- ---------- ----------
356,695 2,243,809 1,443,809
---------- ---------- ----------
$3,339,249 $4,949,584 $4,949,584
========== ========== ==========
</TABLE>

See Notes to Financial Statements.

F-3

<PAGE>

INDUSTRIAL RUBBER PRODUCTS, INC.

STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1996 AND 1997

<TABLE>
<CAPTION>
1996 1997
---------- -----------
<S> <C> <C>
Net Sales (Note 2) .................................... $6,309,775 $14,421,359
Cost of Sales ......................................... 4,776,634 9,947,870
---------- -----------
GROSS PROFIT ........................................ 1,533,141 4,473,489

Selling, general and administrative expenses .......... 1,122,968 1,664,611
---------- -----------
OPERATING INCOME .................................... 410,173 2,808,878
---------- -----------

Nonoperating Income (Expense) .........................
Interest income ...................................... 166 3,620
Interest expense ..................................... (90,554) (110,731)
---------- -----------
(90,338) (107,111)
---------- -----------
NET INCOME .......................................... $ 319,785 $ 2,701,767
========== ===========

Pro Forma Information (Note 7)
Income before income taxes ........................... $ 319,785 $ 2,701,767
Provision for income taxes ........................... 145,300 1,038,000
---------- -----------
NET INCOME .......................................... $ 174,485 $ 1,663,767
========== ===========
Basic earnings per share ............................. $ 0.06 $ 0.57
========== ===========
Weighted average shares outstanding .................. 2,934,000 2,934,000

</TABLE>

See Notes to Financial Statements.

F-4

<PAGE>

INDUSTRIAL RUBBER PRODUCTS, INC.

STATEMENTS OF STOCKHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 1996 AND 1997

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
------------------------ PAID-IN RETAINED STOCKHOLDER'S
SHARES AMOUNT CAPITAL EARNINGS EQUITY
--------- --------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995 ..... 36,880 $ 38,604 $108,146 $ 377,355 $ 524,105

Net income .................... -- -- -- 319,785 319,785

Dividends on common stock...... -- -- -- (487,195) (487,195)
--------- --------- -------- ---------- ----------

Balance, December 31, 1996 ..... 36,880 38,604 108,146 209,945 356,695

Issuance of additional shares
and transfer to adjust common
stock to authorized par value
as a result of stock split
(Note 6) ..................... 2,897,120 (35,670) 35,670 -- --

Net income .................... -- -- -- 2,701,767 2,701,767

Dividends on common stock...... -- -- -- (814,653) (814,653)
--------- --------- -------- ---------- ----------

Balance, December 31, 1997 ..... 2,934,000 $ 2,934 $143,816 $2,097,059 $2,243,809
========= ========= ======== ========== ==========
</TABLE>

See Notes to Financial Statements.

F-5

<PAGE>

INDUSTRIAL RUBBER PRODUCTS, INC.

STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1997

<TABLE>
<CAPTION>
1996 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ....................................................... $ 319,785 $ 2,701,767
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation ................................................... 248,238 374,551
Changes in working capital components: .........................
Increase in receivables ....................................... (750,577) (1,164,704)
Increase in inventories ....................................... (443,638) (235,230)
(Increase) decrease in prepaid expenses ....................... 9,903 (7,447)
Increase in accounts payable and accrued expenses ............. 598,363 176,687
------------ ------------
Net cash provided by (used in) operating activities ......... (17,926) 1,845,624
------------ ------------

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment ............................... (1,125,634) (617,273)
Repayment of advance to stockholder .............................. 103,400 --
Receipts from (advances to) related party ........................ (32,500) 32,500
Increase in cash value of life insurance ......................... (7,123) (2,649)
------------ ------------
Net cash used in investing activities ....................... (1,061,857) (587,422)
------------ ------------

CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds on short-term borrowings ............................ 465,000 245,000
Proceeds from long-term borrowings ............................... 1,250,000 20,000
Principal payments on long-term borrowings ....................... (186,599) (825,291)
Dividends paid on common stock ................................... (487,195) (711,653)
Advances from related party ...................................... -- 106,825
Other ............................................................ (3,644) --
------------ ------------
Net cash provided by (used in) financing activities ......... 1,037,562 (1,165,119)
------------ ------------
Net increase (decrease) in cash ............................. (42,221) 93,083
Cash:
Beginning ........................................................ 81,482 39,261
------------ ------------
Ending ........................................................... $ 39,261 $ 132,344
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for interest ....................................... $ 102,210 $ 111,430
============ ============
</TABLE>

See Notes to Financial Statements.

F-6

<PAGE>

INDUSTRIAL RUBBER PRODUCTS, INC.

NOTES TO FINANCIAL STATEMENTS

NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

NATURE OF BUSINESS

The Company's operations consist primarily of vulcanizing rubber and
applying urethane (for corrosion and abrasion resistant purposes) to pipes,
pumps, launders, etc. that are used in the mining industry in Northern Minnesota
and Utah. The Company extends credit to its customers, all on an unsecured
basis, on terms that it establishes for individual customers. The Company's Utah
operations commenced in August 1996. Approximately 22 percent and 70 percent of
net sales resulted from the Utah operations for the years ended December 31,
1996 and 1997, respectively.

During 1998 the Company changed its name to Industrial Rubber Products,
Inc., from Industrial Rubber Applicators, Inc.

A summary of the Company's significant accounting policies follows:

CASH

The Company maintains its cash in bank deposit accounts which, at times,
may exceed federally insured limits. The Company has not experienced any losses
in such accounts.

TRADE RECEIVABLES

The Company charges bad debts to expense in the year they are deemed
uncollectible. It is the opinion of management that, based on prior bad debt
experience and the status of current receivables, an allowance for doubtful
accounts is not necessary.

INVENTORIES

Inventories are stated at the lower of cost or market. Cost is determined
by the first-in, first-out method.

PROPERTY AND EQUIPMENT

Property and equipment is stated at cost. Depreciation is computed as
follows:

YEARS METHOD
----- -------------
Buildings ........................ 19-39 Straight-line
Automotive equipment ............. 3-5 Accelerated
Machinery and equipment .......... 5-7 Accelerated

INCOME TAXES

The Company, with the consent of its stockholder, has elected to be taxed
under sections of the federal and state income tax laws, which provide that, in
lieu of corporation income taxes, the stockholder separately accounts for the
Company's items of income, deductions, losses and credits. Therefore, these
statements do not include any provision for federal and state income taxes. The
State of Utah requires the Company to deposit on behalf of the stockholder
income taxes for which the stockholder receives a credit on his personal income
tax return. Total state income taxes paid or payable on behalf of the
stockholder amounted to $8,000 and $103,000 for the years ended December 31,
1996 and 1997, respectively. (See Note 7.)

The Company pays dividends annually to enable the stockholder to pay his
individual income taxes on the Company's taxable income.

ADVERTISING COSTS

The Company follows the policy of charging the costs of advertising to
expense as incurred. For the years ended December 31, 1996 and 1997, advertising
expense totaled $16,699 and $22,450, respectively.

REVENUE RECOGNITION

The Company recognizes revenue upon shipment of product. Returns and
allowances are recorded in the period the need for such is identified.

F-7

<PAGE>

INDUSTRIAL RUBBER PRODUCTS, INC.

NOTES TO FINANCIAL STATEMENTS

NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amount of current assets and liabilities approximates fair
value because of the short maturity of those instruments. The carrying amount of
long-term debt approximates fair value since interest rates fluctuate with the
prime rate.

EARNINGS PER SHARE

Earnings per share are computed based upon the weighted average number of
shares outstanding during the period. All references to share and per share
information have been adjusted to reflect the stock split as described in Note
6. The Company will be required to present dilutive earnings per share in the
future as a result of the option plan discussed in Note 6.

USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1997, the FASB issued SFAS No. 131, DISCLOSURE ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION, which changes the way public companies
report information about operating segments. SFAS No. 131, which is based on the
management approach to segment reporting, establishes requirements to report
selected segment information quarterly and to report entity-wide disclosures
about products and services, major customers and the major countries in which
the entity holds assets and reports revenue.

NOTE 2. MAJOR CUSTOMERS

Net sales for the years ended December 31, 1996 and 1997 include sales to
several major customers, each of which accounted for 10 percent or more of net
sales:

AMOUNT OF NET SALES
YEAR ENDED DECEMBER 31,
-------------------------
CUSTOMER 1996 1997
- -------- ---------- ----------
Customer A .................................. $1,417,656 $8,094,517
Customer B .................................. 1,043,089 *
Customer C .................................. 680,228 *
---------- ----------

- ------------------
*The net sales to these customers was under 10 percent of net sales for the year
ended December 31, 1997.

Trade receivable balance due from Customer A as of December 31, 1997
amounted to approximately $420,000.

The Company has a trade receivable from a customer amounting to
approximately $1,168,000 as of December 31, 1997, of which $594,000 is due from
sales to the customer and $574,000 is due for the purchase of steel pipe.

F-8

<PAGE>

INDUSTRIAL RUBBER PRODUCTS, INC.

NOTES TO FINANCIAL STATEMENTS

NOTE 3. INVENTORIES

Inventories consist of the following as of December 31, 1996 and 1997:

1996 1997
-------- --------
Raw materials ........................................ $542,410 $538,330
Work in process ...................................... 48,443 255,937
-------- --------
590,853 794,267
Raw materials purchased on behalf of customers ....... 14,280 46,096
-------- --------
$605,133 $840,363
======== ========

The Company incurs costs on behalf of its customers for the purchase of
pipes, pumps, launders, etc. and is reimbursed for these costs by the customers.
The Company does not receive a commission or recognize gross profit upon sale of
these components, and therefore, net sales and cost of sales in the statements
of income do not include amounts for sales and purchases of components.

NOTE 4. NOTE PAYABLE

The Company has a $1,500,000 bank line of credit for working capital
financing which is due on demand. Advances under the line of credit are subject
to a borrowing base of eligible trade receivables and inventories, as defined in
the agreement. The line of credit is collateralized by trade receivables,
inventories, equipment, assignment of a life insurance policy, and is personally
guaranteed by the stockholder. Interest is payable monthly at the bank's prime
rate (9.5% at December 31, 1997).

Among other things, the agreement requires the Company to:

a. Maintain a ratio of total liabilities to tangible net worth of less
than 3 to 1.

b. Maintain a current ratio of at least 1.2 to 1.

c. Maintain a ratio of traditional cash flow to current maturities of
long-term debt of at least 1.5 to 1.

d. Refrain from declaring or paying dividends in excess of 50% of after
tax net income.

The Company has received a waiver from the bank of certain of the above
requirements in conjunction with the proposed initial public offering discussed
in Note 6.

F-9

<PAGE>

INDUSTRIAL RUBBER PRODUCTS, INC.

NOTES TO FINANCIAL STATEMENTS

NOTE 5. LONG-TERM DEBT

A summary of long-term debt as of December 31, 1996 and 1997 is as follows:

<TABLE>
<CAPTION>
1996 1997
--------- --------
<S> <C> <C>
Note payable bank, due in monthly installments of $20,090 including
interest at the bank's prime rate (9.5% at December 31, 1997) to
August l999, at which time the remaining balance is due. The note is
subject to the same collateral and covenants as described in Note 4. $ 946,350 $370,594
Note payable bank, due in monthly installments of $2,580 including
interest at the bank's prime rate to August 2001. The note was
repaid in full during 1997. ........................................ 248,897 --
Other note payable due in November 2002 ............................. -- 19,362
--------- --------
1,195,247 389,956

Less current maturities ............................................. 954,634 218,861
--------- --------
$ 240,613 $171,095
========= ========
</TABLE>

Aggregate maturities required on long-term debt as of December 31, 1997 are
as follows:

DECEMBER 31, AMOUNT
------------ --------
1998 ................................... $218,861
1999 ................................... 159,414
2000 ................................... 4,016
2001 ................................... 4,139
2002 ................................... 3,526
--------
$389,956
========

NOTE 6. STOCKHOLDER'S EQUITY

In January 1998, the Company amended its Articles of Incorporation to
increase the number of authorized shares of stock to 25,000,000 and declared a
stock split so that 2,934,000 shares of common stock are outstanding. The stock
split has been retroactively reflected in the accompanying financial statements.

During 1997 the Company commenced activity to accomplish an initial public
offering (IPO) of its common stock. The Company intends to sell approximately
1,400,000 shares of common stock (excluding the underwriters' over allotment
option to purchase an additional 210,000 shares of common stock) at a proposed
offering price of approximately $5.00 per share. Under the terms of the
agreement the Company has agreed to sell to the representative a warrant to
purchase a number of shares equal to 10% of the shares sold by the Company in
the offering. The warrant may not be exercised during the first year after the
effective date of the offering and is exercisable during a period of four years
thereafter at a price equal to 120% of the public offering price.

On January 30, 1998, the Company adopted the 1998 Stock Option Plan to
provide for the granting of stock options to employees, directors and officers
of the Company. The number of shares issued pursuant to the options granted
shall not exceed 400,000 shares, of which 113,600 were granted to employees
concurrent with the adoption of the plan. Options are exercisable at the fair
market value at the date of grant and expire five years after grant. As
permitted under generally accepted accounting principles, management anticipates
that grants under the plan will be accounted for following the provisions of APB
Opinion No. 25 and its related interpretations.

F-10

<PAGE>

INDUSTRIAL RUBBER PRODUCTS, INC.

NOTES TO FINANCIAL STATEMENTS

NOTE 6. STOCKHOLDER'S EQUITY (CONTINUED)

The Company intends to make distributions totaling approximately $800,000
subsequent to year end, of which $125,000 was paid in January 1998, to enable
the stockholder to pay income taxes on the related 1997 income of the Company.
The accompanying pro forma balance sheet reflects an anticipated distribution of
$800,000, which is assumed to be funded with additional debt. Additional
distributions to the stockholder may be necessary in an amount sufficient to
discharge the stockholder's actual tax liability on the 1998 income of the
Company through the termination of the S corporation election. (See Note 7.)

NOTE 7. INCOME TAXES

The Company has been taxed as an S corporation since January 1989. As an S
corporation, the Company generally is not responsible for income taxes; instead,
the stockholder is taxed on the Company's taxable income.

As described in Note 6, the Company has a pending public offering for the
sale of common stock. Upon closing of the offering, the Company's status as an S
corporation will be terminated and, accordingly, the Company will be subject to
federal and state income taxes from the date of termination of the S election.
In addition, the Company may be required to recognize deferred taxes for
cumulative temporary difference between financial reporting and income tax
reporting. Such deferred tax will be based on the cumulative temporary
difference at the date of the termination of the S corporation election. If the
termination of the S corporation status occurred at December 31, 1997, a
deferred tax asset of approximately $14,700 would result.

Pro forma income taxes represent the estimated income taxes that would have
been reported had the Company filed federal and state income tax returns under
the asset and liability method of accounting.

The following summarizes the pro forma provision for income taxes:

YEAR ENDED DECEMBER 31, 1996 1997
- --------------------------- ----------- --------------
Federal:
Current ................. $122,300 $ 873,300
Deferred ................ (3,900) (2,150)
-------- ----------
118,400 871,150
State:
Current ................. 28,100 167,400
Deferred ................ (1,200) (550)
-------- ----------
26,900 166,850
-------- ----------
Total .................. $145,300 $1,038,000
======== ==========

F-11

<PAGE>

INDUSTRIAL RUBBER PRODUCTS, INC.

NOTES TO FINANCIAL STATEMENTS

NOTE 7. INCOME TAXES (CONTINUED)

The income tax provision differs from the amount of income tax determined
by applying the U.S. federal income tax rate to pretax income due to the
following:

YEAR ENDED DECEMBER 31, 1996 1997
- ----------------------- -------- ----------
Computed "expected" tax expense ....................... $111,900 $ 945,600
Increase (decrease) in income taxes resulting from:
State income taxes, net of federal tax benefit ...... 17,800 110,100
Other nondeductible expenses ........................ 18,800 9,300
Benefit of income taxed at lower rates .............. (3,200) (27,000)
-------- ----------
Total .............................................. $145,300 $1,038,000
======== ==========

Temporary differences that give rise to deferred tax assets relate to
capitalized inventory costs and accrued liabilities not currently deductible and
amounted to $14,700 as of December 31, 1997.

NOTE 8. RETIREMENT PLAN

The Company has a Salary Savings Plan and Trust (401(k)) which covers
substantially all employees of the Company. The plan provides for contributions
in such amounts as the Board of Directors may annually determine. Company
contributions for 1996 and 1997 were $27,838 and $49,165, respectively.

NOTE 9. RELATED COMPANY TRANSACTIONS

The Company has a receivable of $32,500 as of December 31, 1996 from
Nelson Roofing, Inc., a company owned by the stockholder of the Company. The
Company has a payable of $106,825 to Nelson Roofing, Inc. as of December 31,
1997. The Company provides management and administrative services for Nelson
Roofing, Inc. and receives a management fee for such services. Management fees
received from Nelson Roofing, Inc. amounted to approximately $73,000 in 1996
and $102,000 in 1997. On January 30, 1998, the Company entered into a formal
agreement with Nelson Roofing, Inc. to provide management and administrative
services through December 31, 1998. Management fees are based upon actual
employee cost plus overhead. The Company paid $9,243 in 1997 to Nelson Roofing,
Inc. for construction services.

During 1997 the Company rented a house in Utah owned by the stockholder on
a month to month basis. Total rent paid to the stockholder amounted to $61,100
in 1997.

The Company rented warehouse space from a company owned by the stockholder
which amounted to $12,600 in 1996 and $6,700 in 1997.

On January 30, 1998, the Company entered into a two-year employment
agreement with its president. Under the agreement, the president will receive a
base salary of $255,216 and a bonus as determined by the Board of Directors. The
agreement contains certain noncompetition provisions.

NOTE 10. OPERATING LEASES

The Company leases its Utah production facility under the terms of an
operating lease expiring July 30, 1998. Lease payments amount to $13,000 per
month at December 31, 1997. The Company has renewal options for another
six-month period and three successive one-year periods. The lease provides that
the Company pay all utilities, and property taxes and insurance over certain
amounts. The Company also leases equipment on a short-term basis.

Total rent expense, including rent paid to related parties, amounted to
approximately $106,000 in 1996 and $282,000 in 1997.

F-12

<PAGE>

INDUSTRIAL RUBBER PRODUCTS, INC.

NOTES TO FINANCIAL STATEMENTS

NOTE 11. ENVIRONMENTAL CLEANUP OBLIGATION

During 1997, the Company was notified by the Minnesota Pollution Control
Agency that it will be required to complete an initial investigation of
suspected contamination of hazardous material at its Hibbing, Minnesota site.
The suspected contamination related to storage drums maintained by the previous
owner. The Company has not yet completed the investigation to determine if a
release of hazardous material has occurred, and thus has not been able to assess
if any cleanup on the site is necessary, or the estimated total cost of
remediation. Management estimated the minimum cost of remedial investigation of
$10,000, which has been accrued by a charge to operating income.

F-13

<PAGE>

[PHOTO] [PHOTO]
PRODUCTION AREA 10 ft. x 64 ft.
Hibbing, Minnesota AUTOCLAVE

[PHOTO] [PHOTO]
COMPLETED RUBBER LINED PIPE PRE-VULCANIZED PIPE

[PHOTO]
PATENTED RUBBER LINED DISCHARGE MILLHEAD

<PAGE>

================================================================================

NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THIS OFFERING 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 BY THE
COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THESE SECURITIES IN ANY STATE
TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH
STATE. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.

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

TABLE OF CONTENTS

PAGE
---
Prospectus Summary ............................... 3
Summary Financial Data ........................... 4
Risk Factors ..................................... 5
Use of Proceeds .................................. 10
Dividend Policy and S Corporation Status ......... 11
Dilution ......................................... 12
Capitalization ................................... 13
Selected Financial Data .......................... 14
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ..................................... 15
Business ......................................... 19
Management ....................................... 29
Certain Transactions ............................. 31
Principal Shareholders ........................... 32
Description of Securities ........................ 32
Shares Eligible for Future Sale .................. 34
Underwriting ..................................... 35
Legal Matters .................................... 36
Experts .......................................... 36
Available Information ............................ 36
Index to Financial Statements .................... F-1

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

Until , 1998 (25 days after the date of this Prospectus), all dealers
effecting transactions in the Common Stock offered hereby, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as Underwriters and with respect to their unsold allotments or
subscriptions.

================================================================================

1,400,000 SHARES

INDUSTRIAL RUBBER
PRODUCTS, INC.

COMMON STOCK

----------
PROSPECTUS
----------

[LOGO R J STEICHEN & CO]

, 1998

================================================================================