SECURITIES AND EXCHANGE COMMISSION
AMENDMENT NO. 1
FORM SB-2 REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
PULTRONEX CORPORATION
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(Exact Name of Registrant as Specified in its Charter)
NEVADA 3089 Applied For
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(State of Incorporation) (Primary Standard (IRS Employer ID No.)
Classification Code)
2305 - 8th St., Nisku, Alberta, Canada T9E 7Z3
(780) 955 7374
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(Address and Telephone Number of Registrant's Principal
Executive Offices and Principal Place of Business)
Pacific Corporate Services
5844 S. Pecos Road, Suite B
Las Vegas, Nevada 89120
702 315 0555
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(Name, Address and Telephone Number of Agent for Service)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
CALCULATION OF REGISTRATION FEE
Title of each Proposed Proposed
class of Amount Maximum Maximum Amount of
securities to be offering price aggregate registration
to be registered registered per share offering price fee
- ---------------- ---------- -------------- -------------- ------------
Common Stock of
Selling Securities
Holders 2,180,400 $2.00 $4,360,800 $1,151.26
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
THE EXHIBIT INDEX APPEARS ON PAGE II-6 OF THE SEQUENTIALLY NUMBERED PAGES OF
THIS REGISTRATION STATEMENT. THIS REGISTRATION STATEMENT, INCLUDING EXHIBITS,
CONTAINS 95 PAGES.
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PULTRONEX CORPORATION
CROSS REFERENCE SHEET FOR REGISTRATION STATEMENT ON FORM SB-2
ITEM REGISTRATION STATEMENT HEADING LOCATION IN PROSPECTUS
1. Forepart of Registration Statement and Outside Front Cover Page of
Outside Front Cover Page of Prospectus Prospectus
2. Inside Front and Outside Back Cover
Pages of Prospectus Inside Front and Outside Back
Cover Pages of Prospectus
3. Summary Information and Risk Factors Prospectus Summary; Risk Factors
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Risk Factors; Description of
Securities
6. Dilution Not Applicaable
7. Selling Security Holders Selling Securities Holders
8. Plan of Distribution Plan of Distribution
9. Legal Proceedings Legal Proceedings
10. Directors and Executive Officers Management
11. Security Ownership of Certain
Beneficial Owners and Management Principal Shareholders
12. Description of the Securities to be
Registered Prospectus Summary; Description
of Securities; Outside Front
Cover of Prospectus;
13. Interest of Named Experts and Counsel Not Applicable
14. Statement as to Indemnification Indemnification
15. Organization within 5 Years Business of Pultronex
16. Description of Business Business of Pultronex
17. Management's Plan of Operation Business of Pultronex
18. Description of Property Business of Pultronex
19. Certain Relationships and Related
Transactions Certain Transactions
20. Market for Common Equity and
Related Stockholder Matters Market for Shares
21. Executive Compensation Executive Compensation
22. Financial Statements Financial Statements
23. Changes in and Disagreements With
Accountants Not Applicable
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PROSPECTUS
Pultronex Corporation
2,180,400 shares of common stock offered by the Selling Securities Holders.
These Selling Securities Holders are individually offering their shares.
The price of the shares and the number of shares sold will be determined by each
Selling Securities Holders.
There is no time limit for the Selling Securities Holders to sell the shares.
There are no minimum purchase requirements or escrow arrangements.
The Selling Securities Holders may sell their shares in privately negotiated
transactions or in market transactions if a market develops.
No underwriter has been engaged to sell the shares for the Selling Securities
Holders.
Pultronex Corporation, is not offering these Shares for sale and will not
receive any proceeds from the sale of the Shares.
The shares are not presently traded on any recognized exchange or market.
These are speculative securities involving a high degree of risk. These shares
should be purchased only by persons who can afford to lose their entire
investment. (see "Risk Factors, page 3.")
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
PULTRONEX LOGO
The date of this Prospectus is ___________, 2000
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Prospectus Summary
The Business of Pultronex Corporation
We are a technology based engineering, manufacturing and marketing company in
the advanced composites industry.
We manufacture high strength, light weight, non-conductive, corrosion resistant,
structural products.
We currently manufacture and market E-Z Deck, a proprietary product for the
residential and commercial decking industry.
We also custom manufacture fiberglass hold-down straps for underground fuel
storage tanks, and produce a structural beam for the agricultural industry.
New proprietary and custom products are continually being developed and
evaluated for introduction into the marketplace. Our newest proprietary product,
the WaterFront Seawall, was launched in September 1999.
Securities Offered
This Prospectus describes the offering of 2,180,400 shares of Pultronex common
stock by the named Selling Securities Holders. These shares may be sold by their
holders from time to time at prevailing market prices. There are no minimum
purchase requirements. There are no escrow provisions with respect to the
Offering by the Selling Securities Holders. Nor have any Underwriters or brokers
been engaged to sell the Shares for the Selling Securities Holders.
We will not receive any of the proceeds from any sale of the Selling Securities
Holders shares.
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Risk Factors
Investment in the Shares offered involve a high degree of risk. Prospective
purchasers should consider carefully the following risks as well as the other
information in this Prospectus.
Risk Factors Relating To Pultronex's Business
1. Limited Operating History.
For the eight month period ended August 31, 1999, Pultronex had net earnings of
$59,965 based upon revenue of $1,448,974. Our operating subsidiary was formed
and commenced operations in April 1998. As a result, it is subject to the risks
inherent in a new enterprise, including the absence of a lengthy operating
history, shortage of cash, under-capitalization and new products.
2. Competition from Alternative Deck Products and Traditional Wooden Decking.
We have a number of competitors in the alternative deck products industry. They
include vinyl deck products including PVC and vinyl plastics covering extruded
metal forms, post consumer recycled plastics, recycled wood fiber and plastics
composites, and polymer deck carpet or spray-on coatings. Many of these
competitors are larger companies with greater market share and financial
resources than we currently have. In addition, We compete with traditional wood
decking which presently dominates the deck market. We cannot give investors any
assurance that we will be able to compete effectively.
3. Dependence on Matrix Ag, Inc., as a Major Customer.
Approximately 16% of our sales are from a pultruded structural beam used in hog
barns which is manufactured for a single customer, Matrix Ag, Inc. We do not
have a long term contract with Matrix Ag. Matrix Ag owns the production die and
can move its production to any other pultruder that can offer short run custom
production, warehousing and shipping services. While Matrix Ag sales have
continued to increase despite record low hog prices which could effect demand
for their products, we cannot assure investors that Matrix Ag., sales will not
decline in the future. A halt or even decrease in Matrix Ag sales could have a
materially adverse effect upon our business.
4. Possible Lack of Building Code Approval.
The sales of E-Z Deck can require building code approval in some jurisdictions.
To that extent, Pultronex has a BOCA (Building Officials & Code
Adminstrators)Certification ES95-38 which satisfies most building inspectors in
most regions of the continent. There are some districts that require separate
code certifications. Sales to these jurisdictions may be limited until regional
code approval is obtained.
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Risk Factors Relating To This Offering
1. Lack of a Public Market.
Our common stock is not presently listed for trading on any recognized exchange
or market. Investors may have to indefinitely hold their shares and may have
difficulty selling their shares.
2. Risk of Investing in Penny Stocks.
We believe that it is likely that our common stock will be characterized as
penny stock. As such, broker-dealers dealing in our common stock will be subject
to the disclosure rules for transactions involving penny stocks which require
the broker-dealer to determine if purchasing our common stock is suitable
for a particular investor. The broker-dealer must also obtain the written
consent of purchasers to purchase our common stock. The broker-dealer must also
disclose the best bid and offer prices available for our stock and the price at
which the broker-dealer last purchased or sold our common stock. These
additional burdens imposed upon broker-dealers may discourage them from
effecting transactions in our common stock, which could make it difficult for an
investor to sell their shares.
3. Arbitrary Determination of Warrant Exercise Price.
We arbitrarily set the exercise price of the Warrants based upon our capital
needs and our own estimation of the potential market capitalization of the
Company. The prices do not bear any relationship to the assets, book value,
earnings or net worth of the Company and is not an indication of actual value.
Investors should be aware of the risk of judging the real or potential market
value of the common stock by comparison to the Warrant Exercise Price.
Where You Can Get Additional Information
Pultronex will be subject to and will comply with the periodic reporting
Requirements of Section 12(g)of the Securities Exchange Act of 1934. Pultronex
will furnish to its Shareholders an Annual Report on Form 10-KSB containing
financial information examined and reported upon by independent certified public
accountants, and it may also provide unaudited quarterly or other interim
reports such as Forms 10-QSB or Form 8-K as it deems appropriate. Our
Registration Statement on Form SB-2 with respect to the Securities offered by
this prospectus, (a part of the Registration Statement)as well as its periodic
reports may be inspected at the public reference facilities of the U.S.
securities and Exchange Commission, Judiciary Plaza, 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549,or at the Commission's regional offices at
Northwestern Atrium Center, Suite 1400, 500 West Madison Street, Chicago,
Illinois 60661 and at 7 World Trade Center, New York, New York 0007. Copies of
such materials can be obtained from the Commission's Washington, D.C. office at
prescribed rates.
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Management's Discussion And Analysis Of Results Of Financial Condition And
Results Of Operations
The following discussion and analysis should be read in conjunction with the
audited financial statements of the Company and related notes included therein.
This section contains forward-looking statements that involve risks and
uncertainties. These forward-looking statements are not guarantees of our future
performance. They are subject to risks and uncertainties related to business
operations, some of which are beyond our control. Our actual results may differ
materially from those anticipated in these forward-looking statements.
Overview
Pultronex Corporation of Alberta acquired the pultrusion manufacturing assets of
ZCL Composites Inc. effective April 1, 1998. Since that time we have worked
diligently to diversify our product mix while remaining focused on our core
competency in pultruding fiberglass reinforced structural lineal shapes. We have
also been expanding our geographic market to balance the seasonality of our
business. In our 2 years in business, the seasonal impact of sales has been
strongest in the March through August period and weak from September to
February.
The seasonal nature of the business over the past 2 years is reflected in that
approximately 75% of total revenue is generated during the March to August
period. Management is continuously looking for new product opportunities and
markets, such as the WaterFront Sheet Pile, that will contribute to decrease the
period of low sales activity. While these new products and market efforts are
being implemented, it is not possible to determine the timeline to which
significant revenues will be generated from those opportunities and markets.
However, even with our short history, we have observed an increase interest in
the company's core product, which has resulted in increased sales throughout the
year. This fact is confirmed by the results of the 2nd quarter, which posted an
increase of more than 300% from the same period last year. This we believe is
attributable to our investment in advertising and promotion, raising market
awareness of our products and increasing demand.
In 9-month period ending December 31, 1998, 60% of sales were in the United
States and 40% were in Canada. For the 8-month period from January 1, 1999 to
August 31, 1999, 70% of sales were in the United States and 30% in Canada. For
the first six months of fiscal 2000, sales were 85% to the United States and 15%
in Canada.
Pultronex has excess production capacity to facilitate growth. As such, we have
optimized our production team to meet current and forecast demands without over
staffing. With this approach we produce year round; growing inventory October
through March and consuming inventory April through September.
Results of Operations
Pultronex Corporation began operating in April 1998 making December 31, 1998 its
first fiscal period. During 1999, the company changed its year-end to August 31,
1999 because it better suited its business cycle. Therefore the first
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fiscal period of operations covers a 9-month period from April 1, 1998 to
December 31, 1998 and the second covers an 8-month period from January 1, 1999
to August 31, 1999. The interim statements are for the period commencing
September 1, 1999 through to February 29, 2000.
The impact of seasonality results in losses from operations for the winter
season. This is reflected in our results of operations for the 6 month period
ending February 29, 2000. Not only is this period lower in sales, but also is
the period of our highest expenditures on market development through travel and
trade show activity.
<TABLE>
<CAPTION>
Year Ended Second Quarter
Dec 31, 1998 Aug 31, 1999 Feb 29, 2000
(9 Months) (8 Months) (6 Months)
------------- ------------ --------------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of sales 53.5% 51.4% 58.1%
Gross profit 46.5% 48.6% 41.9%
Selling, general and administrative expenses 34.8% 37.4% 60.6%
Depreciation 2.9% 2.9% 4.2%
Interest expense 2.2% 2.8% 5.9%
Other Income (expense) 0.2% (0.3%)
Income (loss) before income taxes 6.7% 5.1% (24.6%)
Income taxes (recovery) 1.3% 1.0% (7.8%)
Net profit (loss) for the period 5.4% 4.1% (16.9%)
</TABLE>
Net Sales:
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In the first 9-months of operation ending December 31, 1998, net sales were
$1.403 million. Net sales increased to $1.449 million for the 8-month period
ending August 31, 1999. Comparative net sales for 2000 over 1999 for the 6-month
period from September to February saw sales rise by 62.3% from $528,994 to
$858,689. The increase in sales is attributable to implementation of the
company's marketing plan, increases in trade show activity, and a significant
increase in expenditure on advertising.
Gross Profit:
- ------------
The gross profit for the periods ending December 31, 1998, 46.5%, and August 31,
1999, 48.6%, remained relatively constant as a percentage of sales. The gross
profit rate has dropped for the 6 month period ending February 29, 2000 to
41.9%. The reduction in gross profit percentage is due to an increase in large
volume sales to stocking contractors. These sales are at a greater discount from
suggested retail pricing. As we move through the spring and summer season, a
greater percentage of sales are at a higher selling price to non-stocking
contractors or direct sales to homeowners.
Selling, General and Administrative Expenses:
- --------------------------------------------
Selling, general and administrative expenses increased by $53,615 for the 8
month period ending August 31, 1999 compared with the 9 month period ending
December 31, 1998. Most of the increase was due to an increase in staff and an
increase in trade show activity in the first half of 1999
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compared with fiscal 1998. For the 6 first months of the current fiscal year we
significantly increased our planned expenditures in market development. Total
expenditures were up 81% to $484,181 from $267,519 for the same period last
year. The majority of the expenditures were for travel, trade shows, and
magazine advertising. Additions were also made to our sales and administrative
staff.
Interest Expense:
- ----------------
Interest and financing expense for 1998 and 1999 consisted of
borrowing costs for our term loan and utilization of operating line of credit
and interest expense related to the note payable to ZCL Composites Inc. Interest
expense for the year ended December 31, 1998 was $30,235 of which $15,667 was
paid to ZCL Composites Inc. For the 8 months ending August 31, 1999, interest
expense was $40,806 including $2,960 paid to ZCL Composites Inc. From September
to February of this current fiscal year interest and financing expenses are
$50,799 compared to $27,491 for the same period last year. Included in the
current year's financing costs is a $23,734 realized loss on foreign exchange
due to the strengthening of the Canadian dollar.
Accounts Receivable:
- -------------------
The accounts receivable turnover ratios for each period ending December 1998,
August 1999 and February 2000 are respectively 7.2, 2.8 and 1.2. These ratios
can be misleading because of two major factors in addition to dealing with
different time periods. First, the seasonality of the business, particularly
during the start up phase of 1998 and early 1999, creates a cyclic fluctuation
in accounts receivable. In 1998 we started with $0 in accounts receivable with
the first period ending December 31, 1998 during the slow sales period. This
point in time was 3 months after the end of the busiest season, providing the
company time to collect the receivables resulting from the sales realized during
that time. This combination yields an unusually high ratio.
Second, starting the second period with the low season and ending it
with the last month of the peak season, compounded with the fact that normal
terms extended to our newly signed customers are longer than the standard in the
industry (another form of our marketing strategy), will contribute to show an
unusually low ratio.
Seasonal sales also have a major impact in the calculation of this ratio for the
period ended February 2000. Approximately $300,000 in sales occurred after the
later part of January, distorting again the significance of the ratio.
Inventory:
- ---------
Inventory turns for the shortened periods are 0.86 for the 9 months ending
December 31, 1998, 0.57 for the 8 months ending August 31, 1999 and 0.3 for the
6 months ending February 29, 2000. Similar to the accounts receivable, these
inventory turnover ratios are for short periods, each less than 1 year, and
calculated at different times of the sales and production cycle. Another factor
that influences the inventory turnover rate is our current, low production
capacity utilization. With the cyclic nature of sales, we need to utilize
inventory as a buffer in order to meet customer demands during the busy period.
Currently using a skeleton crew, minimal production is required to ensure the
company an experienced labor force throughout the year. As a result, the
inventory of finished product is increasing during the slow season and used up
during the busy season.
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Inventory is carried at the lower of cost or net realizable value. The nature of
the glass fiber reinforced composite product is durability and long life.
Therefore, allowances for product deterioration are not required. At February
29, 2000 inventory was $1,765,637 consisting of $1,592,565 in finished goods and
$173,072 in raw material. Finished goods represent approximately 600,000 lineal
feet of product.
Liquidity and Capital Resources:
- -------------------------------
We historically financed our operations and growth with cash flow from issue of
share capital to private investors, capital leases, bank loans and normal trade
credit terms.
Cash flow used by operations was $299,276 for the 8-month period ended August
31, 1999 compared to $1,236,490 for the 9-month period ended December 31, 1998.
Cash flow generated from financing activities was $ 357,643 in 1999 compared to
$1,775,537 in 1998, while investing activities used $58,367 in 1999 compared to
$539,047 in 1998. We have a credit agreement consisting of a $668,540 line of
credit and a term loan facility.
Our term loan is payable monthly at $3,901 principal plus interest at Canadian
Bank prime rate plus 1.5%. The loan will be paid in full by October 31, 2003. We
had an operating line of credit based on qualified accounts receivable and
inventory up to $534,832 from October 1998 to July 1999. In August 1999, the
available operating line of credit was increased to $668,540. We were using
$505,180 of the line of credit at August 31, 1999.
Our total assets increased by 39% mostly attributable to the increase in
receivables and inventory. As originally planned, in October 1998 we sold our
building for proceeds of $808,683 with a leaseback agreement. The proceeds were
used to repay the note payable to ZCL Composites Inc.
Our short term investment plans consist of acquiring equipment to improve our
TEX-PLUS coating system, automate secondary processing and accelerate curing
processes. The investment is estimated to be $200,000 and will be financed
through a term loan.
Future Outlook
- --------------
Pultronex Corporation recognized that our strength was in its pultrusion
technology. The deck business is seasonal and therefore we diversified the
company's product and market mix to balance product demand throughout a greater
part of the year. This effort has since April 1998 resulted in the penetration
of new geographic markets, particularly in the southern regions of the United
States. The geographic market expansion along with our commitment to create a
greater product awareness has resulted in over 300% growth in sales for the
second quarter of 2000 compared with the same December to February period last
year. As market awareness builds in these regions, we expect that the effect of
seasonal cycles to be reduced through increased sales in the winter months in
the north.
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Pultronex also diversified its product mix. We remain focused on our core
competency in pultruded fiberglass structural lineal shapes. To increase plant
utilization, we do custom manufacturing of structural beams for hog barn
flooring and hold-down straps for underground fuel storage tanks. As both these
customers grow, we expect to grow our business with them. In addition, Pultronex
launched its WaterFront Sheet Piling for seawall and retaining walls in the late
fall of 1999. This product is beginning to sell and is generating much interest
in the market place. While it is too soon to be definitive about the total
market demand, early indications are that it will contribute significantly to
sales and profitability over the next few years.
Pultronex And Its Business
History
Pultronex Corporation was formed as a Nevada corporation in August, 1999. Also
in August 1999, Krishen Mehra, Kuldip Delhon, Jarnail Sehra and Talvinder Sehra
as the record owners of 100% of the common stock of Pultronex Corporation, a
corporation organized under the laws of Alberta, Canada agreed to exchange 100%
of the common stock of the Alberta corporation for 2,813,435 shares of the
common stock in the Nevada corporation. On or before January 4, 2000, each of
the twenty beneficial owners, officers and directors of the Company or family
members of the officers and directors or employees of the Company affirmed the
exchange of shares prior to receipt of stock certificates for common stock in
the Company in their individual names. Krishen Mehra, Kuldip Delhon and Jarnail
Sehra were the founders of the Alberta corporation and are the founders of the
Company. Krishen Mehra is a director and Kuldip Delhon is an executive officer
and director of the Company.
Pultronex Corporation, the Alberta corporation purchased the pultrusion
manufacturing assets of ZCL Composites Inc., on April 1, 1998 for $3.0 million
Canadian Funds. The Alberta corporation was formed by four investors; Kuldip
(Kelly) Delhon, Krishen Mehra, Jarnail Sehra, and Robert Day. Robert Day and
Kuldip Delhon were shareholders of ZCL Composites Inc. Robert Day was also a
director and officer of ZCL. Mr. Day was bought out by the Alberta corporation
in September 1998 for $1.30 Cdn. per share. Mr. Day beneficially owned 195,454
shares.
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ZCL is the largest manufacturer of fiberglass underground fuel storage tanks in
Canada and entered the pultrusion industry in 1992 and established the
pultrusion manufacturing facility in Nisku in the fall of 1994. "Pultrusion"
refers to the manufacturing process whereby reinforcing materials such as glass
fiber are pulled through a resin bath or chamber and the mixture pulled through
a heated die. The die shapes the product and the heat causes the resin to cure,
resulting in a solid composite shape at the exit to the die. E-Z Deck was
developed and introduced to the market in July 1993.
Products
========
E-Z Deck
E-Z Deck is a decking system that utilizes the strength, durability and
maintenance free characteristics of composite glass fiber and resin
construction. Unlike wood, this composite fiber product will not warp, split or
crack, rot, has no surface nails to rust or pop up, and it never needs
refinishing. The material is unaffected by extreme heat or cold, is insect proof
and is not bothered by salt water or other corrosive elements.
E-Z Deck has the lowest amount of expansion and contraction of all of the
alternative deck materials. Its high strength to weight ratio and thermal
stability keeps it from warping as other plastic based products do, particularly
those made from recycled plastics. The material composition retains its great
looks for a lifetime. This is because of the high strength of the glass fiber
reinforcements and the deep penetration of the resin and coloring into the
entire product. The finish is through the product, not just on the surface. The
durability of this type of construction enables the company to offer a lifetime
warranty on the product's structural integrity and 15 years on its ability not
to weather. Independent structural analysis and testing by the Alberta Research
Council and McGill University along with accelerated weathering tests conducted
by AOC, our main resin supplier, have proven the product's performance
capability.
When E-Z Deck was originally developed by ZCL Composites Inc., great care was
taken to enable the home handyman to construct the deck using familiar tools.
This makes the product easy to install for the home handyman and the deck
contractor. The deck boards are fastened by way of fiberglass clips that mount
on the joists. The clip in place feature of the deck board system significantly
reduces the installation time for experienced deck installers as the decking
simply 'snaps' together. Flexibility has also been incorporated into the design
of the deck system. The system allows the individual to incorporate other
materials, such as wood features into the trim or railing systems to satisfy the
design criteria of the owner.
Agricultural Beam
The Company also manufactures a structural beam for the hog barn industry for
Matrix Ag Inc. of Calgary, Alberta. Pultronex is a contract manufacturer for
Matrix Ag who owns the beam die. The Company helped Matrix with the initial
design, testing and prototype development. We do not have a long term contract
to manufacture the beam and beams which are manufactured pursuant to purchase
orders received from Matrix. Matrix Ag markets the beam throughout North America
as a component of their hog barn flooring system. The pultruded fiberglass beam
design was selected for its light weight, strength and most importantly, for its
corrosion resistance. While at present the demand for hogs is at a low point, we
believe that sales will continue due to Matrix Ag's marketing experience and
superior product provided by Matrix Ag (because of the pultruded fiberglass
beam). This product represents approximately 16% of our current sales volume.
Tank Straps
Underground storage tanks can have a very high buoyancy force in areas where
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there is a high water table. The buoyancy force on a 50,000 liter storage tank
can be as much as 100,000 pounds force. It is usually a building code
requirement to restrain these tanks from floating. To accomplish this, companies
use hold down systems. We manufacture a pultruded fiberglass hold down strap
that is capable of a minimum of 20,000 pounds force resistance. These straps are
currently sold to ZCL Composites for restraining their tanks sold in North
America and in Southeast Asia (primarily The Philippines). Strap production
currently represents approximately 5% of Pultronex's revenue.
WaterFront Seawall
WaterFront Seawall was introduced to the market in September 1999. This is an
interlocking structural sheet pile used to prevent soil erosion, primarily due
to water. Applications include waterfront properties such as rivers, lakes,
lagoons, bayous, canals, ocean fronts, or even water areas on golf courses.
Additionally it can be used for shoring trenches and other excavations.
WaterFront takes advantage of the natural properties of fiberglass. It is
lighter in weight, stronger, and because of its strength to weight ratio, it is
price competitive with other shoring products while generating an acceptable
return on investment.
Other Products
In addition to pultruded products, we have acquired complementary products to
increase our sales of proprietary products. These include the right to sell the
'Techstar' floating docks. This is a polyethylene float manufactured by
Techstar, Inc., of Ontario, Canada, onto which E-Z Deck is mounted to provide
the deck surface. We purchase order required quantities of floating dock
materials from Techstar as and when we receive sales orders and then ship the
materials to the purchaser for on-site assembly. This product expands the
product mix and is helping the company enter the very large dock and marina
market.
A strategic sourcing arrangement with 'Imperial Kool-Ray', of Toronto,
Canada provides us with an aluminum railing system to complement our fiberglass
system. This is to provide an alternative for customers who want something
different in a railing system than what we produce. With this, an aluminum
framing structure and stair support system is also available. We purchase order
required quantities of aluminum railings from Imperial Kool-Ray as and when we
receive sales orders and then ship the materials to the purchaser for on-site
assembly. The Company must order minimum volumes of the Techstar product for
different regions in order to maintain exclusivity with the minimum amounts
negotiated annually.
Marketing & Distribution
Customers
We believe the consumers of the E-Z Deck are those people who consider the value
in a product based on its total life cycle cost. We think our customers consider
the value of the product in its functionality, its appearance, durability, life
span and zero maintenance costs. We believe they value their time and do not
want to spend it doing regular maintenance on their deck. We believe the E-Z
Deck makes a status statement, that the E-Z Deck product is a functional and
lifestyle enhancing product.
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We believe that generally, consumers of the E-Z Deck will be more performance
and/or image selective buyers. We believe some of the consumer demand will occur
because the product is an alternative to wood, particularly to those higher
cost, more limited supplies of wood such as cedar or redwood. We believe other
consumers will choose E-Z Deck because it represents a leading edge, up market
image that reflects their life style or the image that they wish to portray. We
believe this product will appeal to higher income earners who are looking for a
high class, leading edge technology product that looks good for a lifetime. We
believe the high strength, heat resistance, and no surface markings of the
product give it that 'Mercedes Benz' kind of appeal.
We believe use of our E-Z Deck product over 5 years makes E-Z Deck more cost
effective than wood because of wood's high maintenance costs. In today's market
with people working longer hours and more members of the household working,
leisure time is becoming more of a premium. This product should appeal to the
segment of people who value their free time and do not want to spend it doing
maintenance around the home.
While E-Z Deck will have a fairly broad appeal, our marketing strategy focuses
on those consumers we call the early adopters, who are attracted to the
maintenance free, and advanced technology lifestyle and image that the E-Z Deck
offers. This market segment typically is not averse to the initial cost and is
willing to explore the use of alternative aerospace type materials. We believe
the mass consumer market for alternative deck products will follow as market
awareness of the E-Z Deck grows. We estimate that the initial targeted segment
of the deck market that will consider purchasing E-Z Deck to be approximately
10% of the total deck market. We estimate the alternative deck market segment to
be $350 million per year. We also believe that industry trends suggest that the
alternative deck market is growing faster than the overall market.
The Market
E-Z Deck
In a recent study by Pure Strategy of Wexford, PA, the current annual North
American market for decks is estimated to be 3,000,000 decks with a value of
approximately $6.5 billion (US). Of this, approximately $3.5 billion is for
materials. A May 1999 article in 'The Merchant Magazine' pegs the residential
decking market in the U.S. at $4 billion by 2001. They estimate the average
annual growth rate for the past 10 years at 8.1% outpacing the 1.5% rate for new
construction and the 3.7% rate for home improvements. This growth rate is
forecast to continue for the next several years, particularly for 'alternative
deck products' (non-wood). We estimate the market share for 'alternative deck
products' at 10% of the total market or approximately $350 million (US). This
segment of the deck market is growing faster than the overall deck market as
alternative products are gaining more and more market acceptance. This growth is
estimated as high as 20% per year. At this rate, the potential market for
alternative deck products will reach approximately $726 million (US) within five
years.
The growth of alternative deck materials is being driven by a number of factors.
These include:
- the increased acceptance of recycled materials and wood alternatives;
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- the increased awareness of the depletion of forest products and the
rising cost of lumber;
- the increased demand for maintenance free products as consumers place a
greater value on their time;
- improved aesthetics of some alternative materials (a major feature of E-Z
Deck);
- technical benefits of some alternative deck products such as resistance
to vermin, corrosion, elimination of deck surface fasteners, splinters,
etc.;
- increased awareness of alternative products;
- consumers are recognizing the value of total life cycle costs: longer
product life cycle for some products means lower whole life cost.
Marketing Plan
Overall Marketing Strategy
The composite fiber deck system is unique in the market place in performance and
looks. The E-Z Deck is a leading edge product and must be marketed with the
characteristics of such a product. With the E-Z Deck, our proposition to our
customers is "best product, period." We believe E-Z Deck is unquestionably a
leading edge product. Its customers have a broader perception of performance.
They are looking for both tangible and experiential value in the product. It
could be likened to the "Mercedes Benz" of the deck materials. Therefore, our
approach to the end consumer is to establish that position in the eyes of the
consumer and the appropriate marketing channels, form the opinions in the
targeted market group so that they perceive the value in product performance and
lifestyle value of owning an E-Z Deck. The positioning statement for the E-Z
Deck reads, "E-Z Deck has been designed and manufactured with aerospace
technology and performance for the user who values time, style, and product
durability."
The targeted market segment is the lifestyle purchaser who values their own time
and recognizes that component as part of the whole life product cost. It
includes people who do not want to be bothered with maintenance, those who plan
on having the deck for more than 5 years, which is the approximate break-even
point between finished wood and E-Z Deck, people who recognize the added value
that a quality deck adds to their home, and those who want the image of owning
the best.
From buyer behavior models, to reach this target group requires a greater degree
of personal sales contact supported by product awareness campaigns in the
market. It is not realistic for our sales staff to sell the product directly to
the broad market of consumers. It is simply not cost effective, nor can the
market be covered. Therefore, we focus on marketing E-Z Deck through
professional home improvement and deck contractors and not the part time weekend
builders. Every city and town in North America has contractors who do this kind
of work. Based on advertised listings, there are an estimated 35,000 to 40,000
of these contractors in North America. The Merchant Magazine article identifies
that there are more than 7,200 contractors in the U.S. who specialize as deck
contractors that build 200 to 500 decks annually. We currently have 140
contractor/installers signed up to our installer program. The key for us
reaching the E-Z Deck consumer is that this group of contractors does business
one on one with its customers. They have the opportunity to suggest and
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influence the consumer's product choice. Home Building, Architectural, and Home
& Garden trade shows are a major way for us and our contractors to reach the
buying public. We currently do trade shows in partnership with our
contractors/installers to help them expand their business. This has proven to be
very cost effective as well as very successful in creating market awareness and
product demand.
We created a 'job-lot packaging' program to facilitate growth in the contractor
market segment and to enable it to cover the North American market from a single
facility. Like Dell Computer, the company packages each customer's deck in its
own crate for delivery to the building site. We believe this ability for mass
customization has contributed significantly to our growth rate. In addition,
freight is subsidized to remove high delivery cost buying objections. Special
arrangements have been made with major North American carriers to provide low
cost shipping to anywhere on the continent because of the high volumes and
packaging that enables the carrier to increase its payload capacity. The result
is that the Company can deliver in LTL mode anywhere on the continent at a very
competitive cost.
We also employ a multi level marketing structure in our contractor program.
There is the opportunity in each region for a contractor/installer to become
large enough to purchase E-Z Deck material in truckload quantities. They can
then act as a regional distributor to other contractors. This encourages the
larger contractors to enlist others in their region to promote and sell E-Z
Deck. To date, seven major contractors have taken advantage of this opportunity.
In all, the target is to have 15 regional contractor-distributors by the spring
of 2000, growing eventually to 100 on the continent by 2004. The impact of this
program for us is:
- faster customer response time;
- accelerated market penetration;
- reduced operating costs through order consolidation;
- reduced packaging costs;
- and lower shipping and handling costs.
Our multilevel marketing program is based upon the contractors ability to sell
and install E-Z Deck. We have two major levels of contractors we market to. The
first sell and install E-Z Deck on a job by job basis. These contractors receive
a discount from the published suggested retail price. The discount is dependent
upon the volume of business the contractor does with Pultronex. Contractors
whose purchases are less than $40,000 per year are a silver level contractor and
receive the smallest discount on their purchases. Purchasers of over $40,000 per
year are the gold level contractors who receive a greater discount from the
suggested retail price. In each case, the contractors order one deck at a time
which is shipped to the job site which we refer to as our job lot packaging
program.
Some contractors are large enough to stock product for resale and thereby gain a
competitive market advantage. They buy in truckload quantities typically ranging
from $40,000 to $75,000 at a time. These contractors purchase E-Z Deck at a
higher discount from the suggested retail price than the Silver or Gold
Contractors for single purchases over $40,000 and at the greatest discount for
purchases over $60,000. These contractors also commit to minimum annual
purchases that can range from $100,000 to over $500,000 depending upon the
territory in which they market. To make this volume purchasing and cost of
carrying the inventory viable, the stocking contractors enlist other silver and
gold contractors to sell and install projects in their regions.
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In addition to focusing on a specific consumer segment, we focus on specific
geographic regions. The process is to build a beachhead in a region, creating
some sustainable demand, before moving on to another geographic area. This
process enables the company to learn more about the market as it goes,
increasing its capabilities and probability of results in each successive
market. It also maximizes the use of limited corporate resources, both people
and financial by not over extending the company and its ability to manufacture
and deliver quality product to the market, on time, every time. The objective is
to build an excellent corporate reputation to match the product that we produce.
Pricing
E-Z Deck is a technologically advanced product whose value can be demonstrated
over the product life as being significantly superior to anything currently on
the market. It has a higher cost due to the high cost of the raw material inputs
to the product. Therefore it must command a higher selling price commensurate
with its value and performance. While some of the individual components in the
E-Z Deck may be approximately 3 to 6 times the price of conventional wood, the
contractor finished deck is typically only marginally more in initial cost. Most
contractors sell installed wood decks in the range of $15 to $25 per square
foot. E-Z Deck contractors typically install E-Z Deck for between $20 and $30
per square foot and most quote $25/sq.ft. At this price level, the break-even
for the purchaser on an all-inclusive material and maintenance cost basis,
except for personal labor is 5 years. The product value justifies this price.
This price level also differentiates the product for its target customers.
Our pricing structure allows each segment of the marketing channel to make a
reasonable profit margin. Typically, a contractor that sells decks will have a
gross margin on a wood deck of 10% to 15% based on a material purchase discount.
With the E-Z Deck formula of a 20% to 25% discount for contractors, the
contractor has a significantly higher material gross margin dollar value. In
addition, the contractor/distributors purchasing in truckload quantities receive
a 35% to 40% discount based on volume. This enables them to sell to the
contractors that they have established in their region.
In addition to the above price discounting structure, the 'job-lot package'
program provides an all-inclusive price to the contractor for each job order,
delivered to the job site or the contractor's shop. This pricing package
minimizes or eliminates a contractor's objections to using E-Z Deck due to the
inconvenience of getting the product from a non-local supplier, managing the
distribution network, and reducing the number of supplier transactions for the
contractor to one. Most of all it is making it convenient for the contractor and
therefore desirable to deal with us (E-Z Deck).
Suggested retail pricing with the above pricing discount structures, is set to
allow us to approach a gross margin on sales of 35% to 40%. Product and
production cost improvements are continually being worked on to enhance this
rate.
Sales Tactics
We solicit our contractors a number of ways. Direct telemarketing to contractors
is a primary route. The sales team select a region and search for the best in
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the area to represent E-Z Deck.
Our sales staff consists of the following:
Don Ayliffe, Sales Team Leader - responsible for distributors, manufacturer's
agents, and major projects
John Schelter, East Zone Representative
Graeme Kersell, Central Zone Representative
Jay Wahlund, West Zone Representative
Chris Larsen, Southern Zone and Seawall Market Development
Each member of the sales team does direct telemarketing into their regions; cold
calling deck builders and installers to find contractors to market E-Z Deck.
This is an ongoing process to grow the business. When the appropriate
contractors are identified and have indicated their interest in selling and
installing E-Z Deck, then the sales representatives travel to the area to meet
face to face with the contractor/installer to provide sales and installation
training.
Another source is in response to inquiries through the company's web site.
The E-Z Deck web site, "www.ezdeck.com", currently attracts up to 300 visits per
day. Each visit lasts an average of 7 1/2minutes. From this we are generating 70
inquiries per week and growing.
Another approach is through trade shows targeted at the contractor/installer.
Trade Shows
Over the next two years, we plan to utilize regional trade shows to:
- introduce E-Z Deck to the consumer;
- find more contractors/installers to market the product;
- assist those contractors to grow their businesses and
hence the volume of sales of E-Z Deck;
- develop a sustainable level of demand for E-Z Deck for long term growth.
The two major shows that are critical for product awareness and long term growth
are:
1. The Remodelers Show - US Show held in October in different locations
each year;
2. Canadian National Home Construction Show held in early December.
We intend to present our product at approximately 45 other trade shows in Canada
and the US during 2000.
Advertising and Promotion
We are expanding our advertising and promotion activities. We plan to
significantly increase our use of print media advertising to increase product
awareness. We will be working with our contractors to participate in advertising
in regional 'Home and Garden' type shows.
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Pultronex currently advertises in the following magazines to promote our
products:
Design/Build Business - USA
Marina Dock Age - USA
Handyman How To - USA
Seattle Homes and Lifestyles - USA
Midwest Outdoors - USA
Minneapolis/St. Paul - USA
Homes and Cottages - Canada Builder Architect - Canada
In addition to the magazine advertising, we entered into a contract in February
2000 with the National Shopping Club of Boca Raton, Florida, for a minimum of
250 television commercials to be run in 10 major markets in the USA. The
commercial is to be aired by mid June in the target market areas. We have also
participated directly or in partnership with regional contractors in more than
40 Home & Garden, Cottage or other product related trade shows between November
1999 and April 2000.
Competition
We have a number of competitors in the alternative deck products industry. They
include vinyl deck products including PVC and vinyl plastics covering extruded
metal forms, post consumer recycled plastics, recycled wood fiber and plastics
composites, and polymer deck carpet or spray-on coatings. The largest of these
competitors is Trex. Trex is a recycled wood and plastic polymer deck board
material that was commercialized by Mobil Chemical as part of its recycling
initiative. Mobil has since exited the industry and sold Trex to management. It
has an estimated sales volume of $50 million U.S.
Almost all of the other alternative deck product manufacturers market their
products primarily through the distributor to retailer channel or contractor
yard distributor. Some also sell directly to contractors.
The major competitors include:
Recycled Material (Wood fiber and plastic)
- Trex
- AERT (Choice Deck)
- Smart Deck
- Crane Plastics (Timber Tech)
- Fiber Composites (Fiberon)
Vinyl and Plastic
- Brock (or Royal Crown)
- Kroy Building Products
- Heritage Vinyl
- PVC Design
- Materials International
- US Plastic Lumber (Carefree Plastic Decking)
- Thermal Industries (Dreamspace)
- Dura Deck
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Pultronex Corporation competes in the alternative deck market place by
positioning its products in the high value-added and durable product quality
segment. We compete by marketing through professional deck builders who can
explain the benefits of the fiberglass-reinforced composite decking to the end
consumer. The economics of the products are measured in their whole life cycle
costs, not on first purchase price.
Marketing through the professional deck builder, pre-qualifies most of our
customers as high-value buyers. For these customers, our sales team will do a
material take-off and pricing for the customer. In addition, our job lot
packaging of each order allows the contractor and/or customer to order their
specific deck and have it delivered direct to the job site. This differentiates
us from the others who typically market commodity materials in standard lengths
through traditional wholesale to lumber yard to contractor/customer. In these
cases the buyer purchases a number of standard sized materials to fabricate into
their deck. Whereas their deck arrives from Pultronex with the majority of
pieces cut to size.
Governmental Regulation
We are subject to general business regulations, including Alberta and Canadian
environmental and hazardous material handling regulation. Our manufacturing
process does not result in air pollution emissions or waste water discharge and
no special environmental permits or licenses are required. We contract with a
licensed hazardous waste disposal company for disposal of acetone used primarily
for cleaning the manufacturing equipment.
Code Certification
E-Z Deck currently carries a BOCA (Building Officials & Code Administrators)
Evaluation Services Certification for its deck system. There are some US
jurisdictions that require additional component applications to be certified by
BOCA. Those items include the use of E-Z Deck boards as stair tread components,
and a modification of the handrail for use as a grab bar. In addition to BOCA,
we are exploring other, broader product certifications.
Research and Development/New Products
Since acquiring the pultrusion assets in April 1998, we have spent approximately
$300,000 on research and development. Funds have been expended on new product
development such as the WaterFront Seawall, computerizing process controls, new
engineering design software, optimizing material utilization and testing of
products to verify engineering specifications and design expectations.
We have a policy of continuous improvement in products and processes.
Improvements have reduced costs and increased productivity and quality
significantly. Improvements in product quality have reduced off spec product
from 25% (at the time of purchase from ZCL) to less than 5%. Production speeds
have increased by 50% and order processing turn around has been reduced by 60%;
resulting in faster customer response and delivery with fewer staff.
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There have been a number of breakthroughs in the production process. Most
breakthroughs have been developed by the production team. Some of these include:
- Increased production speeds;
- Reduced resin consumption (lowering costs);
- Better glass feeding systems(increased production speeds and product
quality);
- Reduction in resin formulation components (reducing costs); - Reduced
packaging costs.
We are continually looking at developing new products for related construction
markets. The company currently has one product under development which is being
tested by independent parties. This is pultruded snow fencing. The State of
Montana is currently field testing the pultruded snow fencing. We believe that
commercial sales of snow fencing are unlikely prior to the fall or winter of
2001.
The criteria for product development is:
- - the products must fit into similar or existing marketing channels;
- - the products must provide a commercial advantage to the consumer to allow us
an appropriate return on investment;
- - be of a size and nature that utilizes our core competencies in manufacturing
and processing.
We are continually striving to improve our existing products and develop new
products. The E-Z Deck Mark II is already in preliminary design. The new designs
will lower costs, and expand potential applications of the product. Other
proprietary and custom pultrusion products are also being evaluated daily. We
currently receive one custom inquiry per week.
New product development is a key component of our long term strategic plan. The
target is to develop and launch one new product per year. It is our objective to
have deck represent no more than 65% of our business within 4 years. Some of the
current and proposed future products include:
- Potato bins - market being researched
- Commercial or Industrial garage doors - market is being researched
- Roofing tiles - concept stage
- Hog pens - concept stage
- Flooring for refrigerated vans
New Product Development Methodology
We use a cooperative design team methodology to develop new products and bring
them to market. This design team consists of in-house engineering and production
teams, material suppliers, customers, and external technical and market
consultants when needed. All are a part of the product development process. We
believe the results of this process is fast time to market, reduced development
costs, reduced initial production costs, and significantly increased probability
of market success.
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Employees
As of April 30,2000, the Company employed 26 people, all of whom are full-time
individuals whose principal responsibilities are: product processing and
shipping has 17 employees, sales, marketing and customer service has 5
employees, research and development has 1 employee and administration has 3
employees. Our manufacturing staff is not presently covered by any collective
bargaining or union relationship. Skilled labor is available from Edmonton and
the surrounding communities with a population of approximately 800,000. We have
a formal training program in pultrusion technology for all staff.
Manufacturing Facilities/Properties
The manufacturing and office facility of Pultronex Corporation is located in the
Nisku industrial park, adjacent to the Edmonton International Airport, Edmonton,
Alberta, Canada. We believe that Alberta is one of the most cost-effective
regions in Canada to locate a manufacturing operation. Corporate tax rates are
among the lowest in Canada, particularly with no provincial sales tax. Alberta
also has some of the lowest utility costs in North America and the lowest
Workers Compensation Board insurance rates in Canada for this type of
production. As the plant is located in an industrial park, there is no zoning or
other encumbrances to manufacturing pultruded products at this location.
The location of the plant is on the main north/south transportation route.
Shipping product throughout North America is easily done. Backhaul truckload
rates enable the company to ship to anywhere in the United States for less cost
than shipping across Canada. Currently, product can be shipped anywhere in North
America for approximately 5% of the truckload value of the shipment. Shipping
times are competitive with anyone in any location serving Canada and the U.S.
The facility consists of a 28,000 square foot plant on 8.5 acres of property.
The plant is modern with room for expansion. There is also ample yard storage
for finished goods inventory. The 26,000 square feet of manufacturing and
warehouse space houses 8 pultrusion lines, secondary manufacturing process lines
for sanding and texture coating, routing clips and rail brackets, glass mat
cutting, shrink wrap packaging plus storage for work in process inventory.
The 8 lines operating at 80% efficiency for 7 days a week, 50 weeks per year,
can produce $18 to $25 million in revenue. To grow beyond this level would
require an expansion to the current plant or locating a second plant in the U.S.
This location houses all administrative, executive, sales, manufacturing, and
shipping functions for the Company. The Company leases the facilities from an
independent third party pursuant to a sixty month lease rate of $7,354, per
month, renewable for an additional sixty months at $8,044. The Company is
presently in the second year of the lease.
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Security Ownership Of Certain Beneficial Owners
And Of Management
The following table sets forth the persons known to us as beneficially owning
more than five percent (5%) of the 5,111,455 shares which would be outstanding
assuming the 990,700 Shares issuable upon the exercise of the Warrants. There
were 4,120,755 shares outstanding as of April 30, 2000. The table also shows the
number of shares of Common Stock beneficially owned as of April 30, 2000, by
each individual directors and executive officers and by all directors and
executive officers as a group.
Name/Address* Title Shares % Ownership
W. Gordon Buchanan Shareholder 750,000 (1) 14.7%
Suite 1060 Scotia Place 1
Edmonton Alberta
Canada T5J 3R8
Greg Buchanan Shareholder 500,000 (1) 9.8%
Box 38
High Prairie, Alberta
Canada T0G 1E0
Gary Loblick, Pres., COO, Dir. 15,500 0.3%
Krishen Mehra Director 59,495 2) 1.2%
Kuldip (Kelly) Delhon CEO, Sec, Dir. 409,092 8.0%
Mave Dhariwal Director 80,000 (3) 1.6%
Gary Steadman Director 120,000 (4) 2.3%
Michael Vida Director 100,000 (5) 2.0%
Luc Guilbault CFO 35,000 0.7%
Off. & Dir. as a Group (7 Individuals) 819,087 16.0%
* The address for the officers and directors is that of the Company: 2305 -
8th St., Nisku, Alberta, Canada T9E 7Z3
(1) W. Gordon Buchanan and Greg Buchanan are father and adult son and disclaim
beneficial ownership in each other's shares.
(2) Does not include 300,000 shares held by Dr. Mehra's adult children for
which he disclaims beneficial ownership.
(3) Does not include 50,000 shares held by Mr. Dhariwal's adult child for which
he disclaims beneficial ownership.
(4) Includes 80,000 shares registered in the name of 345439 Alberta Ltd., of
which Mr. Steadman is a control person.
(5) Includes 100,000 shares registered in the name of Tatum Investments, Ltd.,
of which Mr. Vida is the General Manager.
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Management
The executive officers and directors of the Company and their ages are as
follows:
Held
Name Age Position Position Since
Gary Loblick P. Eng. MBA 48 President, COO, and Director 1999
Krishen Mehra, Ph.D. 70 Chairman 1999
Kuldip (Kelly) Delhon B. Com 43 CEO/Secretary, and Director 1999
Mave Dhariwal HNC,MBA 53 Director 2000
Gary Steadman, P. Eng. 48 Director 2000
Michael Vida 39 Director 2000
Luc Guilbault, CA, CMA 41 Chief Financial Officer 2000
The Directors serve until their successors are elected by the shareholders.
Vacancies on the Board of Directors may be filled by appointment of the majority
of the continuing directors. The executive officers serve at the discretion of
the Board of Directors.
Business Experience
Board of Directors/Executive Officers
Krishen Mehra, Ph.D. - Chairman
1995 to Present - Professor Emeritus, Department of Mathematical Sciences,
University of Alberta; 1996 to Present - Statistical Quality Control Management
Consultant (Member of Statco International Inc. - Statco is a small company
engaged in industrial statistical consultation with manufacturing and
pharmaceutical industries in the areas of design of experiments, analysis of
experimental survey data, statistical quality control.); 1965 to 1993 -
Professor of Mathematics/Statistics, University of Alberta.
Kuldip (Kelly) Delhon, B. Com., CEO, Secretary, Director
Kelly Delhon has more than 20 years experience in the brokerage industry. From
1992 to 1997 he was a Vice President with CIBC Wood Gundy, an investment banking
firm in Edmonton, Canada. In 1987, Mr. Delhon was one of 3 founding partners at
ZCL Composites Inc. From August 1990 to December 1997, he served as a Director.
From January 1998 to January 1, 2000 he became Director of Investor Relations.
ZCL is the largest manufacturer of fiberglass underground fuel storage tanks in
Canada and recently has opened manufacturing operations in the Philippines for
the Southeast Asian Market. ZCL trades on the Toronto Stock Exchange.
Gary Loblick, P. Eng., MBA - President, Director
Gary Loblick is a Professional Engineer (registered in Alberta, Canada) who has
24 years experience in building and turning around manufacturing companies. He
has consummated 9 major international strategic alliances in Europe, Asia and
North America and utilizes alliance processes to develop market and supply
channels for Pultronex. His background includes work as a consultant for
industry development and as a corporate coach/trainer in marketing and business
strategies. He remains a senior associate with The Warren Company of Providence
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RI, consulting on special projects in strategic sourcing alliances for TWC's
Fortune 500 clients. Gary developed and implemented the business strategy for
the turn around of the former ZCL pultrusion operation by Pultronex. From 1986
to 1990 he served as President of Argo Handling Systems Inc. a manufacturer of
specialty elevators for freight and for the handicapped in Edmonton, Canada.
From 1990 to 1997 he was the Director, Industry Development Branch, Alberta
Economic Development, Government of Alberta. From 1993 to Present he was a
Business Consultant with The Warren Company of Providence, Rhode Island and The
Winslow Group Inc., located in Edmonton, Canada. From 1997 to 1998 Mr. Loblick
was the VP & Managing Director of Pultrusion Operation for ZCL Composites Inc.,
in Edmonton, Alberta.
Gary E. Steadman, P. Eng. - Director
Gary Steadman is a professional engineer (registered in Alberta and the
Northwest Territories, Canada) who has 25 years experience engineering and
designing in composites. Since 1978, he has been the President and Principal of
R P Composites Engineering Inc., Edmonton, Alberta providing professional
engineering services in the field of industrial reinforced plastic products. His
experience includes designing and manufacturing of custom FRP products,
underground fuel storage tanks and pressure vessels, FRP pipe and their related
manufacturing processes (including pultrusion). Gary did the original
engineering work for the E-Z Deck product manufactured by Pultronex Corporation.
Mave Dhariwal, HNC, MBA - Director
Mave Dhariwal is the Program head for the Mechanical Engineering Technology
Program at the Northern Alberta Institute of Technology (NAIT). He is also the
Program Coordinator for the Project Management and Quality Assurance Programs at
NAIT. Prior to joining NAIT in 1980, Mave worked 16 years in private industry.
He spent 8 years in Project Engineering and Project Management across Europe and
Canada. Mave also has 8 years experience in manufacturing and production
engineering in the United Kingdom. In addition to his University qualifications,
Mave also has his Alberta Machinist and Tool and Die Maker Certification.
Michael A. Vida - Director
Michael has been the General Manager and a Director for Tatum Investments Inc.,
since 1995 where he is responsible for the operation of multiple automobile
dealerships and real estate property in Alberta and British Columbia. City Ford
Sales Ltd. was Ford of Canada's largest dollar sales volume organization in the
1990's. Michael has 16 years experience in marketing and management in the
automobile and investment industries in Western Canada. Michael is a Science and
Business Management graduate of the State University of New York College of Arts
and Science, Plattsburg, NY.
Luc Guilbault - Chief Financial Officer
Luc is a Chartered Accountant with both public and private practice experiences.
He also spent 3 years as an external auditor for the Province of Quebec from
1987 to 1990. Prior to joining Pultronex Corporation, Luc spent 9 years as
controller for ZCL Composites Inc. which has been trading on the Toronto Stock
Exchange since September 1994.
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Key Employees
Don Ayliffe - Sales and Marketing Team Leader
Don Ayliffe, a graduate of Sheridan College, Xerox Sales program, and the CASH
Sales Management programs, has 25 years experience in sales and marketing
management. He has extensive background in the construction and hardware supply
industries. Don is accustomed to launching new products, developing geographic
territories and building sales teams. In the short time that Pultronex has been
in business, Don and his team have successfully implemented the business
strategy and accelerated the company's growth. From November 1990 to November
1997 he was a Sales Representative with National Manufacturing Company, Sterling
Illinois. From December 1997 to March 1998 he was a Sales Consultant and then
E-Z Deck Sales Manager for ZCL Composites Inc.
Dennis Bacon - Production Team Leader
Dennis Bacon, a graduate of the Northern Alberta Institute of Technology, has 20
years experience in manufacturing operations. The last five years have been in
the pultrusion industry with ZCL Composites and Pultronex. Dennis experienced
the early process development of the E-Z Deck as an operator and production
coordinator. He brings to the Pultronex team, leadership, and production
co-ordination, purchasing, and team building skills.
Michael Yeats, B. Eng. - Engineering
Michael Yeats graduated with a degree in Civil Engineering from McGill
University in April 1998. Michael's studies included engineering and working
with composites. After a year doing product design for R P Composites
Engineering, Michael joined Pultronex in May of 1999. Michael is responsible for
engineering design and is a member of the production and process development
team.
Mike Barker - Quality Assurance/Product & Process Development
Mike Barker has more than 30 years industrial products manufacturing experience.
Originally from the UK with an HNC in metallurgy, Mike has spent his career
developing and analyzing manufacturing processes with respect to Quality
Assurance and operating efficiency. Mike has developed quality program process
enhancements for such companies as Stelco and Borg Warner. Mike leads the
production Ideas/Technology team. From 1978 to 1992 he was the Rolling Mill
Quality Assurance Supervisor for Stelco, a Canadian steel manufacturing company.
From 1992 to 1994 he was a Documentation Engineer for Solent and Pratt, U.K., a
specialty valve manufacturer. From 1994 to 1998 he was the Quality Assurance
Supervisor for ZCL Composites Inc.
Family Relationships
There is no family relationship between any Director, executive or person
nominated or chosen by the Company to become a Director or executive officer.
24
(26)
<PAGE>
Executive Compensation
Summary Compensation Table
The following table shows for the fiscal years ending August 31, 1998 and August
31, 1999, the compensation awarded or paid by the Company to its Chief Executive
Officer and any of the executive officers of the Company whose total salary and
bonus exceeded $100,000 US during such year (The "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
----------------------------------
Annual Compensation Awards Payouts
-------------------------------- ------------------------- -------
Securities
Restricted underlying LTIP All Other
Name and Stock Awards Options/SAR's Payouts Compensation
Principal Position Year Salary ($) Bonus Other Annual
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gary Loblick, 1999 $100,000 CN 0 0 0 0 0 0
President, COO
</TABLE>
No other executive officer earned more than $100,000 US during the most recent
fiscal year.
Employment Agreements and Executive Compensation
The Company does not have written employment agreements with its executive
officers. Gary Lobick, the President and Chief Operating Officer is paid cash
compensation at the rate of $100,000 Cdn., per annum. Beginning January 1, 2000,
Kelly Delhon, the Chief Executive Officer as of December 1999 and Secretary of
the Company is also paid cash compensation at the rate of $100,000 Cdn., per
annum.
Compensation of Directors
Directors are entitled to receive reimbursement for all out-of-pocket expenses
incurred for attendance at Board of Directors meetings.
Other Arrangements
The Company has the Pultronex Corporation 2000 Stock Option Plan which was
adopted on December 15, 1999. The purpose of the Plan is to advance the business
and development of the Company and its shareholders by affording to the
employees, directors and officers of the Company the opportunity to acquire a
proprietary interest in the Company by the grant of Options to such persons
under the Plan's terms. The 2000 Plan reserved 2,000,000 shares for grant or
issuance upon the exercise of options granted under the plan. As of May 15,
2000, no options have been granted under the plan. Stock Options under the Plan
will be granted by the Board of Directors or a Compensation Committee of the
Board of Directors. The exercise prices for Options granted will be at the fair
market value of the common stock at the time of the grant if a public market
develops for the common stock or not less than the most recent price at which
the Company had sold its common stock.
25
(27)
<PAGE>
Termination of Employment and Change of Control Arrangement
There is no compensatory plan or arrangement with respect to any individual
named above which results or will result from the resignation, retirement or any
other termination of employment with the Company, or from a change in the
control of the Company.
Transactions with Management
In August 1999, the shareholders of Pultronex Corporation, a corporation
organized under the laws of Alberta, Canada agreed to exchange 100% of the
common stock of the Alberta corporation for 2,813,435 shares of the common stock
in the Nevada corporation. Management of the Company were founders and majority
shareholders of the Alberta corporation and are founders and majority
shareholders of the Company. Gary Loblick received 3,000 shares, Kelly Delhon
and his wife Virendra Delhon received 390,341 shares, Kirshen Mehra and his
adult children received 359,495 shares, and Mayva Dhariwal and his adult son
received 130,000 shares as a result of the exchange.
In December 1999, Gary Loblick, Kelly Delhon and Luc Guilbault were issued
12,500, 18,750 and 35,000 shares respectively for their services as officers of
the Company. These shares were valued at $1 per share.
Indemnification of Officers and Directors
From Liability under the Securities Act of 1933
The Pultronex By-Laws permit Pultronex to indemnify and hold harmless its
officers and directors from any liability and expenses incurred by them as a
result of being an officer or director. This right of indemnity would include
any liability arising under the Securities Act of 1933. However, in the opinion
of the Securities and Exchange Commission such indemnification is against public
policy and is unenforceable. In the event that a claim for indemnification
against liabilities under the Securities Act is asserted by an officer or
director in connection with the securities offered by this Prospectus, Pultronex
will submit the question whether such indemnification by it is against public
policy to a court of appropriate jurisdiction and will be governed by the final
adjudication of such issue. Submitting the question of indemnity for Securities
Act liability to a court will not occur in the case of the payment of expenses
incurred in the successful defense of any action, suit or proceeding or if in
the opinion of its counsel the matter has been settled by controlling precedent.
Market For The Company's Common Stock
And Related Stockholder Matters
Market Information: The Company's common stock is not listed for trading on any
recognized market.
Security Holders: As of April 30, 2000, the Company had 86 holders of record of
its common stock, 48 holders of its 990,700 Warrants.
26
(28)
<PAGE>
Dividend Plans: The Company has paid no common stock cash dividends and has no
current plans to do so.
There are presently 4,120,755 shares of common stock outstanding as of April 30,
2000.
Description Of Securities
Common Stock
Pultronex is authorized to 200,000,000 shares of Common Stock, $.001 par value.
The holders of the Common Stock are entitled to one vote per share held and have
the sole right and power to vote on all matters on which a vote of the
stockholders is taken. Voting rights are non-cumulative. The holders of shares
of Common Stock are entitled to receive dividends when, as, and if declared by
the Board of Directors, out of funds legally available therefore and to share
pro rata in any distribution to stockholders. Upon liquidation, dissolution, or
winding up of Pultronex, the holders of the Common Stock are entitled to receive
the net assets of Pultronex in proportion to the respective number of shares
held by them after payment of liabilities which may be outstanding. The holders
of Common Stock do not have any preemptive right to subscribe for or purchase
any shares of any class of stock of Pultronex. The outstanding shares of Common
Stock will not be subject to further call or redemption and will be fully paid
and non-assessable.
Preferred Stock
Pultronex is authorized to issue up to 1,000,000 shares of preferred stock. The
preferred stock can be issued in different series. The rights and preferences of
different series of the preferred stock can be set from time to time by our
Board of Directors. These rights and preferences may include class voting
rights, specific dividend rights and priority over common stock with respect to
assets of Pultronex upon liquidation.
Stock Purchase Warrants
Pultronex has authorized and issued a total of 990,700 Common Stock Purchase
Warrants. Each Stock Purchase Warrant entitles the registered holder to purchase
one share of Pultronex Common Stock for $2.00 beginning the date of this
Prospectus and expiring on the last day of the eighteenth month thereafter (____
2001). The exercise price of the Warrants and the number of shares useable upon
exercise of such Warrants are subject to adjustment to protect against dilution
in the event of stock dividends, splits, combinations, subdivisions, and
reclassification. Warrants may be exercised by payment of the exercise price in
US funds by cash or certified check made out to the Company.
Arbitrary Determination of Warrant Exercise Price.
We arbitrarily set the exercise price of the Warrants based upon our capital
needs and our own estimation of the potential market capitalization of the
Company. The prices do not bear any relationship to the assets, book value,
earnings or net worth of the Company and is not an indication of actual value.
27
(29)
<PAGE>
Selling Security Holders
The following Selling Security Holders whose shares have been registered for
public resale under the registration statement are set forth below:
Selling Securities Securities Owned % Prior To % After
Holder And Offered(1) Offering *(1) Offering
Tatum Investments Inc. (2) 200,000 3.9% *
Lynne B. Johnson 134,000 2.6% *
Jeffery J. Tempas 10,000 * *
Leslie Gibbs &
Gwen Gibbs JTWROS 20,000 * *
345439 Alberta Ltd. (3) 80,000 1.6% *
Richard Dickerson 20,000 * *
George Mouchette &
Victoria Mouchette JTWROS 40,000 * *
Rhoda Davis &
C. Victoria Mouchette JTWROS 40,000 * *
Will Inns Ltd.(4) 80,000 1.6% *
James J. Caffes &
Sandra M. Caffes JTWROS 15,000 * *
Wheaton Investment Group (5) 10,000 * *
Ken Gaine &
Patricia A. Gaine JTWROS 20,000 * *
Gregg Funfar 20,000 * *
Robert C. Hedrick &
Mary Hedrick JTWROS 10,000 * *
Shawn Funfar 2,400 * *
Stephen A. Reno &
Judy L. Reno JTWROS 15,000 * *
269-5341 Canada Ltd.(6) 20,000 * *
John Phillips &
Joanne Phillips JTWROS 6,000 * *
Roger Walklin &
Judy Walklin JTWROS 30,000 * *
Mladen Dundur 2,000 * *
Neil T. Enright 100,000 2.0% *
Donna B. Cueroni 4,000 * *
James C. Irwin &
LaVerne G. Irwin TENCOM 2,000 * *
Marilyn J. Hoffart &
Elias Hoffart JTWROS 3,000 * *
Richard P Cueroni &
Elizabeth H. Cueroni TENCOM 4,000 * *
Andrew Loschiavo &
Lori Loschiavo JTWROS 4,000 * *
Beth Palmer &
David Stewart Palmer JTWROS 10,000 * *
Douglas J. Driver 2,000 * *
John W. Bishop &
Susan B. Bishop JTWROS 20,000 * *
Terry J. Swift 2,000 * *
John M. Fore &
Donna L. Fore TENCOM 10,000 * *
352649 Alberta Ltd (7) 20,000 * *
28
(30)
<PAGE>
Selling Securities Securities Owned % Prior to % After
Holder And Offered(1) Offering *(1) Offering
Carl K. Myers &
Patricia A. Myers JTWROS 200,000 3.9% *
Christopher L. Eades 2,000 * *
Curtis Williams 2,000 * *
Davis F. Briggs &
Jean Fowler Biggs JTWROS 2,000 * *
George G. Harris 30,000 * *
Heritage Nurseries Ltd (8) 20,000 * *
Joel W Gray &
Karen S Gray JTWROS 2,000 * *
Karen Brock &
Sam Brock JTWROS 2,000 * *
Marc Andre Guilbault 20,000 * *
Mehnga Matharu 200,000 3.9% *
Rosealta Mortgage Corporation (9) 20,000 * *
Thomas B. Chesnut 2,000 * *
W Gordon Buchanan 500,000 9.8% *
Robert V. Cella &
Cathy A. Cella JTWROS 2,000 * *
Sandra Esposito 20,000 * *
Tylere Couture &
Rick Couture, JTWROS 2,000 * *
Bob Adsit 174,000 3.4% *
Dennis Brovarone 25,000 * *
* = Less than 1%
(1) Assumes the exercise of outstanding warrants to acquire up to 990,700 shares
of common stock held by the Selling Securities Holders except Bob Adsit and
Dennis Brovarone.
(2) Tatum Investments Inc., is controlled by Jim Balkan, 88% Shareholder,
President & Director, and Michael A. Vida, an 12% Shareholder, Secretary &
Director. Mr. Vida is a director of Pultronex Corporation
(3) 345439 Alberta Ltd. is controlled by Gary Steadman, 50% Shareholder,
President & Director and Irene Mazurenko a 50% Shareholder, Secretary &
Director. Mr. Steadman is a director of Pultronex Corporation.
(4) Will Inns Ltd. is controlled by David J. Will a 100% Shareholder, President,
Secretary & Director.
(5) Wheaton Investment Group is controlled by James Caffes, Peter Caffes, Greg
Blust, John Hallen, Jay Witte, Sam Slough, Gary Slough as all equal shareholders
and directors. The President is Greg Blust and the Secretary is Sam Slough.
(6) 269-5341 Canada Ltd., is controlled by Tom Jacques, a 90% Shareholder and
President, Secretary & Director.
(7) 352649 Alberta Ltd., is controlled by Randy James, a 100% Shareholder,
President, Secretary & Director.
29
(31)
<PAGE>
(8) Heritage Nurseries Ltd., is controlled by Gerald Van Bruggen a 50%
Shareholder, President & Director and Joanne Van Bruggen a 50% Shareholder,
Secretary & Director.
(9) Rosealta Mortgage Corporation is controlled by Robert B. Cameron a 75%
Shareholder, President, Secretary & sole Director.
The Selling Securities Holders have never held any position, office, or other
material relationship with the Company, except that Michael Vida, a director of
the Company is the General Manager of Tatum Investments, Inc., and Gary Steadman
a director of the Company is a principal shareholder, officer and director of
345439 Alberta Ltd.
The Selling Securities Holders do not own any other securities of the Company.
Selling Security Holders Plan Of Distribution
Selling Security Holders may sell or distribute their shares in transactions
through underwriters, brokers, dealers or agents from time to time or through
privately negotiated transactions, including distributions to shareholders or
partners or other persons affiliated with the Selling Security Holders.
The distribution of the Selling Security Holders shares may be effected from
time to time in one or more transactions, which may involve crosses or block
transactions These transactions may occur in any of the following ways:
1. In Market Transactions;
2. In Privately Negotiated Transactions with Investors;
3. Through the writing of options on the shares, whether such options are listed
on an options exchange or otherwise.
Any of such transactions may be effected at market prices prevailing at the time
of sale, at prices related to such prevailing market prices, at negotiated
prices or at fixed prices.
If the Selling Security Holders effects such transactions by selling the shares
to or through underwriters, brokers, dealers or agents, such underwriters,
brokers, dealers or agents may receive compensation in the form of discounts,
concessions or commissions from the Selling Security Holders or commissions from
purchasers of the shares for whom they may act as agent, which discounts,
concessions or commissions as to particular underwriters, brokers, dealers or
agents might be in excess of those customary in the types of transactions
involved.
Selling Security Holders and any brokers, dealers or agents that participate in
the distribution of the securities might be deemed to be underwriters, and any
profit on the sale of the securities by them and any discounts, concessions or
commissions received by any such underwriters, brokers, dealers or agents might
be deemed to be underwriting discounts and commissions under the Securities Act.
30
(32)
<PAGE>
Selling Security Holders may pledge their shares from time to time in connection
with such Selling Security Holders' financing arrangements. To the extent any
such pledgees exercise their rights to foreclose on any such pledge, and sell
the shares, such pledgees may be deemed underwriters with respect to such shares
and sales by them may be effected under this Prospectus.
The Company will not receive any of the proceeds from the sale of any of the
shares by the Selling Security Holders.
Under the Exchange Act and applicable rules and regulations, any person engaged
in a distribution of any of the shares may not simultaneously engage in market
making activities with respect to the shares for a period, depending upon
certain circumstances, of either two days or nine days prior to the commencement
of such distribution. In addition, the Selling Security Holders will be subject
to applicable provisions of the Exchange Act and the rules and regulations,
including Rules 10b-6 and 10b-7, which provisions may limit the timing of
purchases and sales of any of the shares by the Selling Security Holders.
Under the securities laws of certain states, the shares may be sold in such
states only through registered or licensed brokers or dealers. In addition, in
certain states the shares may not be sold unless the shares have been registered
or qualify for sale in such state or an exemption from registration or
qualification is available and is complied with.
Transfer And Warrant Agent
The Transfer Agent with respect to the Shares and the Warrant Agent with respect
to the Warrants is American Securities Transfer and Trust, Inc., Lakewood,
Colorado.
Legal Matters
The legality of the Securities of the Company offered will be passed on for the
Company by Dennis Brovarone, Attorney at Law, Westminster, Colorado.
Independent Public Accountant
The balance sheet as of August 31, 1999 and December 31, 1998 and the related
statements of income, retained earnings, and cash flows for the fiscal periods
ended August 31, 1999 and December 31, 1998, incorporated by reference in this
prospectus, have been included herein in reliance on the report of
PricewaterhouseCoopers LLP, Chartered Accountants given on the authority of that
firm as experts in auditing and accounting.
31
(33)
<PAGE>
Pultronex Corporation
Consolidated Financial Statements
August 31, 1999 and December 31, 1998
(expressed in U.S. dollars)
F-1
(34)
<PAGE>
((LETTERHEAD))
PricewaterhouseCoopers ((LOGO))
PricewaterhouseCoopers LLP
Chartered Accountants
1501 Toronto Dominion Tower
10088 - 102 Avenue
Edmonton Alberta
Canada T5J 2Z1
Telephone +1 (780) 441 6700
Facsimile +1 (780) 441 6776
April 30, 2000
(except note 16(d), which is as of May 24, 2000)
Independent Auditors' Report
To the Directors and Shareholders of
Pultronex Corporation
We have audited the consolidated balance sheets of Pultronex Corporation as at
August 31, 1999 and December 31, 1998 and the consolidated statements of
earnings, shareholders' equity and cash flows for the eight-month period ended
August 31, 1999 and the nine-month period ended December 31, 1998. 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 audits.
We conducted our audits in accordance with Canadian generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at August 31, 1999
and December 31, 1998 and the results of its operations and its cash flows for
the eight-month period ended August 31, 1999 and the nine-month period ended
December 31, 1998 in accordance with United States generally accepted accounting
principles.
/s/ PricewaterhouseCoopers LLP
Chartered Accountants
Edmonton, Alberta
Canada
((LETTERHEAD FOOTER))
PricewaterhouseCoopers refers to the Canadian firm of PricewaterhouseCoopers LLP
and other members of the worldwide PricewaterhouseCoopers organization.
F-2
(35)
<PAGE>
Pultronex Corporation
Consolidated Balance Sheets
As at August 31, 1999 and December 31, 1998
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
<TABLE>
<CAPTION>
August 31, December 31,
1999 1998
$ $
Assets
Current assets
<S> <C> <C>
Accounts receivable - net of allowance of $27,800; 1998 - $12,200 636,702 392,468
Prepaid expenses and deposits 111,093 95,096
Inventory (note 4) 1,556,617 1,067,032
--------------------------------
2,304,412 1,554,596
Capital assets (note 5) 526,247 480,709
--------------------------------
2,830,659 2,035,305
================================
Liabilities
Current liabilities
Bank indebtedness (note 9) 505,180 206,476
Accounts payable and accrued liabilities (note 6) 543,825 235,183
Note payable (note 6) - 490,036
Income taxes payable 3,744 13,917
Current portion of obligations under capital leases (note 8) 6,781 -
Current portion of long-term debt (note 9) 46,811 45,750
-------------------------------
1,106,341 991,362
Obligations under capital leases (note 8) 14,130 -
Long-term debt (note 9) 148,168 175,308
Advances from shareholders - non-interest bearing with no fixed terms of - 105,848
Future income taxes 13,772 3,398
-------------------------------
1,282,411 1,275,916
-------------------------------
Commitments (note 11)
Shareholders' Equity
Preferred stock - $.001 par value, 1,000,000 shares authorized
Common stock - CAN$.001 par value, 200,000,000 shares authorized;
2,813,435 issued and outstanding (1998-1,195,454) 2,813 1,195
Additional paid in capital 1,464,796 757,563
Retained earnings 80,562 20,597
Accumulated other comprehensive income 77 (19,966)
--------------------------------
1,548,248 759,389
--------------------------------
2,830,659 2,035,305
================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
(36)
<PAGE>
Pultronex Corporation
Consolidated Statements of Shareholders' Equity
For the periods ended August 31, 1999 and December 31, 1998
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
<TABLE>
<CAPTION>
Common stock and
additional paid-in capital
--------------------------
Other
Number Share Retained comprehensive
of shares amount earnings income (loss) Total
# $ $ $ $
<S> <C> <C> <C> <C> <C>
Balance - April 2, 1998 - - - - -
Issuance of common shares 1,390,908 870,212 - - 870,212
Repurchase of common shares (195,454) (111,454) (55,086) - (166,540)
Net earnings for the period - - 75,683 - 75,683
Foreign currency translation adjustment - - - (19,966) (19,966)
---------------------------------------------------------------------
Balance - December 31, 1998 1,195,454 758,758 20,597 (19,966) 759,389
Issuance of common shares 1,511,560 600,811 - - 600,811
Issuance of common shares on conversion
of advanced from shareholders 106,421 108,040 - - 108,040
Net earnings for the period - - 59,965 - 59,965
Foreign currency translation adjustment - - - 20,043 20,043
--------------------------------------------------------------------
Balance - August 31, 1999 2,813,435 1,467,609 80,562 77 1,548,248
====================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
(37)
<PAGE>
Pultronex Corporation
Consolidated Statements of Earnings
For the periods ended August 31, 1999 and December 31, 1998
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
Eight-month Nine-month
period ended period ended
August 31, December 31,
1999 1998
$ $
Revenue 1,448,974 1,403,271
Cost of goods sold 745,077 750,302
--------------------------
Gross margin 703,897 652,969
--------------------------
Operating expenses
Selling, general and administration 542,432 488,817
Depreciation 42,189 40,869
Interest 40,806 30,235
--------------------------
625,427 559,921
--------------------------
78,470 93,048
--------------------------
Other income (expense)
Gain on sale of building - 1,110
Write down of capital assets (4,626) -
--------------------------
(4,626) 1,110
--------------------------
Earnings before income taxes 73,844 94,158
--------------------------
Income taxes
Current 3,702 14,456
Future 10,177 3,529
--------------------------
13,879 17,985
--------------------------
Net earnings for the period 59,965 76,173
==========================
$ $
Basic and diluted earnings per share 0.03 0.12
==========================
# #
Average shares outstanding 2,189,700 900,016
==========================
The accompanying notes are an integral part of the financial statements.
F-5
(38)
<PAGE>
Pultronex Corporation
Consolidated Statements of Cash Flows
For the period ended August 31, 1999 and December 31, 1998
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
<TABLE>
<CAPTION>
Eight-month Nine-month
period ended period ended
August 31, December 31,
1999 1998
$ $
Cash provided by (used in)
Operating activities
<S> <C> <C>
Net earnings for the period 59,965 76,173
Items not affecting cash
Depreciation 42,189 40,869
Future income taxes 10,177 3,529
Gain on sale of building - (1,110)
Write down of capital assets 4,626 -
-------------------------------
116,957 119,461
Net change in non-cash working capital items (note 13) (416,233) (1,355,951)
-------------------------------
(299,276) (1,236,490)
-------------------------------
Financing activities
Proceeds from bank indebtedness 290,544 214,456
Issuance of common shares 595,372 884,999
Redemption of common shares - (115,398)
Premium on redemption of common shares - (57,036)
Advances from shareholder - 109,939
Proceeds from note payable (495,655) 1,900,173
Repayment of note payable - (1,391,198)
Proceeds from long-term debt - 237,522
Repayment of long-term debt (30,850) (7,920)
Repayment of obligations under capital lease (1,768) -
------------------------------
357,643 1,775,537
------------------------------
Investing activities
Purchase of fixed assets (58,367) (1,347,730)
Proceeds on disposal of fixed assets - 808,683
------------------------------
(58,367) (539,047)
------------------------------
Change in cash and cash at end of period - -
==============================
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
(39)
<PAGE>
Pultronex Corporation
Notes to Consolidated Financial Statements
August 31, 1999 and December 31, 1998
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
1 Business and basis of presentation
Pultronex Corporation (the "Company") was incorporated in Nevada, August
20, 1999. On August 20, 1999 the shareholders of the Company entered into
an agreement to transfer all of their shares in Pultronex Corporation of
Alberta to Pultronex Corporation of Nevada in exchange for shares of
Pultronex Corporation of Nevada. As a result of that exchange, Pultronex
Corporation of Alberta became a wholly owned subsidiary of Pultronex
Corporation of Nevada. For financial statement purposes, the Company is
considered to be a continuation of Pultronex Corporation of Alberta.
Therefore, the financial statements for the period ended August 31, 1999
include the results of operations of Pultronex Corporation of Alberta from
the beginning of the period. Comparative figures for the period ended
December 31, 1998 are those of Pultronex Corporation of Alberta from April
2, 1998, the date it commenced operations.
The Company is a technology based manufacturing company in the advanced
composites industry. The Company's primary product is E-Z Deck, a
proprietary fibreglass pultruded material for use in the residential and
commercial decking industry. E-Z Deck and other products are marketed
through installers and resellers in the United States and Canada.
2. Accounting policies
These financial statements have been prepared by management in accordance
with accounting principles generally accepted in the United States.
Because the precise determination of many assets, liabilities, revenues
and expenses are dependent on future events, the preparation of financial
statements for a period necessarily includes the use of estimates and
approximations which have been made using careful judgement. Actual
results could differ from those estimates. These financial statements
have, in management's opinion, been properly prepared within reasonable
limits of materiality and within the framework of the accounting policies
summarized below.
a) Revenue recognition
Revenue from the sale of finished goods is recognized when title to
the goods passes to the buyer, which is generally when the product is shipped.
b) Inventory
Raw materials are recorded at the lower of cost and replacement cost. Finished
goods are recorded at the lower of cost and net realizable value. Cost is
determined on a first in, first out basis and finished goods includes direct
labour and an allocation of overhead.
c) Warranty
The Company warrants that its E-Z Deck products will be free from manufacturing
defects for life. Warrants costs have not been material to date, and
accordingly, no reserves have been provided for.
F-7
(40)
<PAGE>
Pultronex Corporation
Notes to Consolidated Financial Statements
August 31, 1999 and December 31, 1998
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
d) Fixed assets
The company records fixed assets at cost. Depreciation on these assets is
provided using the declining balance method at the following annual rates:
Plant equipment 10% and 20%
Computer hardware and software 30%
Furniture and fixtures 20%
e) Income taxes
Deferred tax assets and liabilities are recorded for the estimated future tax
effects of temporary differences between the tax bases of assets and liabilities
and amounts reported in the accompanying consolidated balance sheets, as well as
operating losses. Deferred tax assets may be reduced by a valuation allowance if
current evidence indicates that it is likely that these benefits will not be
realized.
f) Earnings per share
Basic earnings per share is based upon the weighted average common shares
outstanding during each year. Diluted earnings per share as the inclusion of
common stock equivalents would be antidilutive.
g) Foreign currency translation
The functional currency of the Company is the Canadian dollar. Translation of
balance sheet amounts to U.S. dollars is based on exchange rates as of each
balance sheet date. Cumulative currency translation adjustments are presented as
a separate component of shareholders' equity. Accumulated foreign currency
translation balances consisted of a net gain of $77 and loss of $19,966 at
August 31, 1999 and December 31, 1998, respectively. The statements of
operations and cash flows amounts are translated at the average exchange rates
for the period. Transaction gains and losses are included in income as incurred.
h) Recently issued accounting standards
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities", was issued, which established accounting and reporting standards
for derivative instruments and hedging activities. In July 1999, FASB issued
SFAS No. 137, which delayed the implementation of SFAS No. 133 to make it
effective for all fiscal years beginning after June 15, 2000. This statement
requires balance sheet recognition of derivatives as assets or liabilities
measured at fair value. Accounting for gains and losses resulting from changes
in the value of derivatives is dependent on the use of the derivative and
whether it qualifies for hedge accounting. The Company has not yet determined
the effect the adoption of SFAS No. 133 will have on its financial statements.
F-8
(41)
<PAGE>
Pultronex Corporation
Notes to Consolidated Financial Statements
August 31, 1999 and December 31, 1998
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
3. Acquisition
Effective April 1, 1998, the Company acquired the assets of the pultrusion
manufacturing division of ZCL Composites Inc. The acquisition has been accounted
for by the purchase method and the results of operations have been included
since the date of acquisition. The land and building were sold to an unrelated
third party on October 1, 1998 and are being leased by the company as described
in note 12.
$
Assets acquired
Land and building 807,546
Inventory 705,875
Plant and equipment 515,624
Furniture and fixtures 6,786
Patents, trademarks and designs -
----------
2,035,831
==========
Consideration
Cash 135,658
Promissory note 1,900,173
---------
2,035,831
=========
4. Inventory
August 31, December 31,
1999 1998
$ $
Raw materials 280,658 221,383
Finished goods 1,275,959 845,649
---------- ---------
1,556,617 1,067,032
F-9
(42)
<PAGE>
Pultronex Corporation
Notes to Consolidated Financial Statements
August 31, 1999 and December 31, 1998
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
5 Capital assets
August 31,
1999
------------------------------------------
Cost Accumulated Net
$ depreciation $
$
Plant equipment 573,320 77,537 495,783
Computer equipment 25,785 3,852 21,933
Furniture and fixtures 10,083 1,552 8,531
------------------------------------------
609,188 82,941 526,247
==========================================
December 31,
1998
-------------------------------------------
Cost Accumulated Net
$ depreciation $
$
Plant equipment 504,351 37,826 466,525
Computer equipment 9,172 1,032 8,140
Furniture and fixtures 6,534 490 6,044
------------------------------------------
520,057 39,348 480,709
==========================================
The above amounts include $22,701 ($23,053) (1998 - $nil) of capital assets
under capital leases and related accumulated depreciation of $3,405 (1998 -
$nil). Depreciation of $38,346 (1998 - $39,288) was allocated to cost of goods
sold and inventory during the period.
6 Accounts payable and accrued liabilities
1999 1998
$ $
Accounts payable 520,284 221,069
Accrued salary and wages 23,541 14,114
--------------------
543,825 235,183
====================
F-10
(43)
<PAGE>
Pultronex Corporation
Notes to Consolidated Financial Statements
August 31, 1999 and December 31, 1998
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
7 Note payable
The note payable at December 31, 1998 was fully repaid in the period ended
August 31, 1999. It was originally repayable in monthly instalments of $167,135
plus interest at 7.5% per year. A general security agreement covering all
present and after acquired personal property except for capital assets was
pledged as collateral at December 31, 1998.
8 Obligations under capital leases
Obligations under capital leases comprise two leases which are repayable in
blended monthly payments of $624, interest at 5.80% maturing June 23, 2002 and
blended monthly payments of $109, interest at 5.17% maturing May 1, 2002. The
future minimum lease payments under capital leases for each of the next three
years and in total are:
August 31, December 31,
1999 1998
$ $
2000 8,796 -
2001 8,796 -
2002 6,597 -
-------------------------------
24,189 -
Less: Amounts representing interest 3,278 -
-------------------------------
20,911 -
Balance of obligation
Less: Current portion 6,781 -
-------------------------------
14,130 -
===============================
Specifc leased equipment with a net book value of $19,296 has been pledged as
collateral for obligations under capital leases.
F-11
(44)
<PAGE>
Pultronex Corporation
Notes to Consolidated Financial Statements
August 31, 1999 and December 31, 1998
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
9 Long-term debt and bank indebtedness
August 31, December 31,
1999 1998
$ $
Bank loan payable, principal of $3,901 plus
interest at prime plus 1.5% payable monthly,
due October 31, 2003 194,979 221,058
Less: Current portion 46,811 45,750
----------------------------
148,168 175,308
============================
Principal payments required in each of the next five years are as follows:
$
2000 46,811
2001 46,811
2002 46,811
2003 46,811
2004 7,735
-------
194,979
=======
Bank indebtedness bears interest at prime plus 1.0% payable monthly. The Company
has a $668,540 operating line of credit based on qualified accounts receivable
and inventory of which $163,360 is available at August 31, 1999.
A general security agreement creating a first charge over all present and after
acquired assets of the Company, limited guarantees from certain shareholders and
an assignment of insurance proceeds have been pledged as collateral for the bank
indebtedness and long-term debt.
F-12
(45)
<PAGE>
Pultronex Corporation
Notes to Consolidated Financial Statements
August 31, 1999 and December 31, 1998
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
10 Income taxes
The provision for income taxes differs from the amount computed by applying the
federal statutory income tax rates to the company's loss for the periods ended
August 31, 1999 and December 31, 1998 as follows:
August 31, December 31,
1999 1998
$ $
Net earnings for the year 73,844 94,158
-----------------------------
Income tax at Canadian statutory rate 14,117 18,000
Difference between U.S. and Canadian
statutory rates on U.S. earnings - -
Other (238) (15)
------------------------------
13,879 17,985
==============================
Future income taxes reflect the net tax effect of temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes
and the amount used for income tax purposes. As at August 31, 1999 and December
31, 1998 the full amount of the future tax liability is the result of a
difference between the tax value and book value for accounting purposes of
capital assets. There was no valuation allowance at August 31, 1999 or December
31, 1998.
11 Share capital
During the period ended August 31, 1999, 1,511,560 (December 31, 1998 -
1,390,908) Class A common shares were issued for cash proceeds of $600,811
(December 31, 1998 - $870,212). During the period ended August 31, 1999,
advances from shareholders of $108,040 were converted into 106,421 Class A
common shares at a conversion rate of $0.985 per common share. During the period
ended December 31, 1998, 195,454 Class A common shares were repurchased by the
company for proceeds of $166,540. A premium on redemption in the amount of
$55,086 was charged to retained earnings.
On August 23, 1999, the Company issued an offering memorandum for the sale of up
to 1,000,000 units, each consisting of one share of common stock and one common
stock purchase warrant. Each warrant entitles the holder to acquire an
additional share of common stock for $2.00 per share at any time up to 5:00 p.m.
on the last day of the eighteenth month following the first month in which the
shares are listed for trading. The warrants may be called by the Company upon
thirty days written notice to the holders at $0.05 per warrant provided that the
closing bid price for the Company's common stock as reported by its trading
market has been not less than $4.00 per share for twenty consecutive trading
days. The offering price is $1.00 per unit with a minimum offering of 250,000
units and a maximum of 1,000,000 units. The offer expires October 31, 1999. No
proceeds were received from the offering by August 31, 1999.
F-13
(46)
<PAGE>
Pultronex Corporation
Notes to Consolidated Financial Statements
August 31, 1999 and December 31, 1998
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
12 Commitments
The Company is committed to a building lease, initiated on October 1, 1998 and
expiring on September 30, 2008.
Payments required for each of the next five years and in total are as follows:
$
2000 88,247
2001 88,247
2002 88,247
2003 88,247
2004 88,247
Thereafter 272,095
---------
713,330
=========
13 Statement of cash flows
August 31, December 31,
1999 1998
$ $
Accounts receivable (232,434) (407,636)
Prepaid expenses and deposits (13,632) (98,772)
Inventory (459,501) (1,108,271)
Accounts payable 299,710 244,273
Income taxes payable (10,376) 14,455
-----------------------------
(416,233) (1,355,951)
=============================
14 Segment information
The Company's assets are located in Nisku, Alberta, Canada. The Company earns
substantially all of its revenue from the sale of pultruded fibreglass products
for use in the residential and commercial decking industry. Sales to external
customers in the United States and Canada accounted for 70% and 30% respectively
of the Company's total sales for the period ended August 31, 1999. Sales to
external customers in the United States and Canada accounted for 60% and 40% of
the Company's total sales for the period ended December 31, 1998.
F-14
(47)
<PAGE>
Pultronex Corporation
Notes to Consolidated Financial Statements
August 31, 1999 and December 31, 1998
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
15 Financial instruments
Financial instruments that potentially subject the company to significant
concentration of credit risk consist primarily of accounts receivable. Accounts
receivable are typically unsecured and the company is exposed to credit risk to
the extent of non-performance by third parties in the payment of these amounts.
The Company earned 16% and 9% of its revenue from one customer for the periods
August 31, 1999 and December 31, 1998, respectively and 15% and 5% of its
receivables were with one customer as at August 31, 1999 and December 31, 1998,
respectively.
The Company has estimated fair value of its financial instruments which include
accounts receivable, bank indebtedness, note payable, income tax payable,
accounts payable and accrued liabilities, obligations under capital leases,
long-term debt and advances from shareholders. The Company has used valuation
methodologies and market information available as of year end and has determined
that for such financial instruments, the carrying amounts approximate fair value
in all cases except as follows:
Advances from shareholders
The Company's $nil (December 31, 1998-$105,848) current portion of
advances to shareholders are non-interest bearing. As a result, the company
believes the fair value of this obligation to be less than the carrying
value at December 31, 1998. However, due to the ncertainty as to the
eventual repayment date of this obligation, the Company is unable to
estimate the fair value.
16 Subsequent events
a) Private offering memorandum
On October 31, 1999, the offering memorandum dated August 23, 1999
described in note 11 was completed. Net proceeds from the offering were
$675,351 from the issue of 990,700 shares of common stock and 90,700
warrants.
b) Stock option plan
The company adopted a stock option plan on December 15, 1999. The plan
reserved 2,000,000 shares for grant or issuance upon the exercise of
options granted under the plan. Stock options will be granted by the Board
of Directors or a compensation committee of the Board of Directors. The
exercise price for options granted will be the fair market value of the
common stock at the time of the grant if a public market develops for the
stock or not less than the most recent price at which the company had sold
its common stock.
F-15
(48)
<PAGE>
Pultronex Corporation
Notes to Consolidated Financial Statements
August 31, 1999 and December 31, 1998
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
c) Shares issued for services
On December 15, 1999, the company issued 288,620 common shares in exchange
for services of employees and non-employees of the company. The issue of
the common shares was accounted for in accordance with FAS 123.
Accordingly, the company recorded the issue of the shares at an estimated
fair value of $1 per common share with a corresponding entry to
compensation and other expense.
d) SB-2 Registration
On May 24, 2000, the Company filed a Form SB-2 Registration Statement
registering 2,180,400 shares of common stock.
17 Comparative figures
Certain prior period comparative figures have been reclassified to conform with
the current period's presentation.
F-16
(49)
<PAGE>
PULTRONEX CORPORATION
Consolidate Fincnaical Statements
(Unaudited)
February 29, 2000
(expressed in U.S. dollars)
F-17
(50)
<PAGE>
Pultronex Corporation
Consolidated Balance Sheet
(Unaudited)
As at February 29, 2000
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
February 29, August 31,
2000 1999
(Unaudited)
ASSETS
- ------
Current assets
Accounts receivable 742,814 636,702
Income taxes recoverable 89,417 -
Prepaid expenses and deposits 76,843 111,093
Inventory 1,765,637 1,556,617
--------------------------
2,674,711 2,304,412
Capital assets 548,718 526,247
--------------------------
3,223,429 2,830,659
--------------------------
LIABILITIES
- -----------
Current liabilities
Bank indebtedness 270,386 505,180
Accounts payable 277,275 543,825
Income taxes payable - 3,744
Current portion of obligations under capital lease 6,995 6,781
Current portion of long-term debt 48,290 46,811
--------------------------
602,946 1,106,341
Obligation under capital lease 10,770 14,130
Long-term debt 128,703 148,168
Future income taxes 34,810 13,772
--------------------------
777,229 1,282,411
--------------------------
SHAREHOLDERS' EQUITY
- --------------------
Share capital 2,448,247 1,467,609
Retained earnings (64,240) 80,562
Accumulated other comprehensive income 62,193 77
--------------------------
2,446,200 1,548,248
--------------------------
3,223,429 2,830,659
--------------------------
F-18
(51)
<PAGE>
Pultronex Corporation
Consolidated Statement of Earnings
(Unaudited)
For the period ended February 29
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
<TABLE>
<CAPTION>
Three Months Six Months
1999 1998 2000 1999
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues 429,997 387,659 858,689 528,994
Cost of sales 214,241 251,353 498,993 336,079
-------------------------------------------------
215,756 136,305 359,696 192,915
-------------------------------------------------
Expenses
Selling, General and Administration 206,614 148,711 484,181 267,519
Depreciation 17,925 13,078 36,046 27,956
Financing 16,139 5,036 50,799 27,491
-------------------------------------------------
240,678 166,285 571,027 322,966
-------------------------------------------------
Loss before income taxes (24,922) (29,980) (211,331) (130,050)
Income taxes (recovery) (7,808) (10,426) (66,528) (45,806)
-------------------------------------------------
Net loss for the period (17,114) (19,554) (144,802) (84,245)
-------------------------------------------------
Basic and diluted loss per share (0.01) (0.03) (0.04) (0.07)
-------------------------------------------------
# # # #
Basic average shares outstanding 2,940,578 576,684 3,253,793 1,238,402
-------------------------------------------------
</TABLE>
F-19
(52)
<PAGE>
Pultronex Corporation
Consolidated Statement of Cash Flow
(Unaudited)
For the six-month period ended February 29
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
2000 1999
(unaudited) (unaudited)
Cash provided by (used in)
Operating activities
Net earnings for the period (144,802) (84,245)
Items not affecting cash
Depreciation 36,046 27,956
Future income taxes 20,309 (53,134)
Gain on sale of building - (1,070)
-----------------------------
(88,447) (110,493)
Net change in non-cash working capital items (574,903) (393,582)
-----------------------------
(663,350) (504,075)
-----------------------------
Financing activities
Increase in bank indebtedness (248,218) 160,603
Issuance of common shares 1,324,421 471,682
Share issue costs (343,349) -
Redemption of common shares - (111,271)
Premium on redemption of common shares - (54,996)
Advances from shareholders - 291,667
Repayment of note payable - (1,243,293)
Proceeds from long-term debt - 229,028
Repayment of long-term debt (23,901) (11,455)
Repayment of obligation under capital lease (3,768) -
-----------------------------
705,185 (268,035)
-----------------------------
Investing activities
Purchase of fixed assets (41,835) (7,654)
Proceeds on disposal of fixed assets - 779,764
-----------------------------
(41,835) 772,110
-----------------------------
Change in cash and cash at end of period - -
-----------------------------
F-20
(53)
<PAGE>
Pultronex Corporation
Notes to Consolidated Financial Statements
(Unaudited)
February 29
- --------------------------------------------------------------------------------
1. Business and basis of presentation
Pultronex Corporation (the "Company") was incorporated in Nevada, August
20, 1999. On August 20, 1999 the shareholders of the Company entered into
an agreement to transfer all of their shares in Pultronex Corporation of
Alberta to Pultronex Corporation of Nevada in exchange for shares of
Pultronex Corporation of Nevada. As a rersult of that exchange, Pultronex
Corporation of Alberta became a wholly owned subsidiary of Pultronex
Corporation of Nevada. For financial statement purposes, the Company is
considered to be a continuation of Pultronex Corporation of Alberta.
Therefore, the financial statements for the period ended February 29, 2000
include the results of operations of Pultronex Corporation of Alberta from
the beginning of the period. Comparative figures for the six months period
ended February 29, 1999 are those of Pultronex Corporation of Alberta.
The unaudited financial statements for the six months ended February 29,
2000 have been prepared in accordance with United States generally accepted
principles. In the opinion of management, these unaudited financial
statements include all adjustments necessary for fair presentation of the
financial position, the results of operations and cash flows. The results
of operations for the six months ended February 29, 2000 are not
necessarily indicative of results that may be achieved for the year ending
August 31, 2000 or any future period.
2. Foreign currency translation
The functional currency of the Company is the Canadian dollar. Translation
of balance sheet amounts to U.S. dollars is based on exchange rates as of
each balance sheet date. Cumulative currency translation adjustments are
presented as a separate component of shareholders' equity. The statements
of operations and cash flows amounts are translated at the average exchange
rates for the period. Translation gains and losses are included in income
as incurred.
3. Share capital
During the six months ended February 29, 2000, the company had the following
share capital transactions:
Shares $
Balance - August 31, 1999 2,813,435 1,467,609
Issued during the period pursuant to
Private Offering Memorandum 990,700 990,700
Issued during the period for cash 28,000 28,000
Options issued - 16,667
Shares issued for services 288,620 288,620
Costs of issue - (343,349)
-----------------------------
3,832,135 2,448,247
-----------------------------
On May 24, 2000, the Company filed a Form SB-2 Registration Statement
registering 2,180,400 shares which includes 990,700 shares of common stock
underlying outstanding warrants. Each warrant entitles the holder to acquire an
additional common share at US$2.00 per common share.
F-21
(54)
<PAGE>
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND IF GIVEN OR MADE SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITIES OTHER THAN THE SHARES UNDERLYING THE CLASS A
WARRANTS OFFERED BY THIS PROSPECTUS OR AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY THE SHARES AND THE CLASS A WARRANTS IN ANY JURISDICTION TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH
JURISDICTION.
TABLE OF CONTENTS
Prospectus Summary 2
Risk Factors 3
Where You Can Get Additional Information 4
Management's Discussion and Analysis 5
of Financial Condition
Pultronex and its Business 9
Security Ownership of Management and
Principal Shareholders 21
Management 22
Certain Transactions 26
Market for Pultronex's Common Stock
and Related Stockholder Matters 26
Description of Securities 27
Selling Securities Holders 28
Selling Securities Holders Plan of Distribution 30
Transfer and Warrant Agent 31
Legal Matters 31
Independent Public Accountant 31
Financial Statements F-1
UNTIL ______, 2000 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
PULTRONEX CORPORATION
LOGO
-------------------------
PROSPECTUS
-------------------------
(55)
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article 11 of the Company's By-laws provides that every person who was or is a
party or is threatened to be made a party to or is involved in any action, suit
or proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that he or a person for whom he is the legal representative
is or was a director or officer of the corporation or is or was serving at the
request of the corporation or for its benefit as a director or officer of
another corporation, or as its representative in a partnership, joint venture,
trust or other enterprise, shall be indemnified and held harmless to the fullest
extent legally permissible under the General Corporation Law of the State of
Nevada against all expenses, liability and loss (including attorney's fees,
judgments, fines and amounts paid or to be paid in settlement) reasonably
incurred or suffered by him in connection therewith. The expenses of officers
and directors incurred in defending a civil or criminal action, suit or
proceeding must be paid by the corporation as they are incurred and in advance
of the final disposition of the action, suit or proceeding upon receipt of an
undertaking by or on behalf of the director or officer to repay the amount if it
is ultimately determined by a court of competent jurisdiction that he is not
entitled to be indemnified by the corporation. Such right of indemnification
shall be a contract right which may be enforced in any manner desired by such
person. Such right of indemnification shall not be exclusive of any other right
which such directors, officers or representatives may have or hereafter acquire
and, without limiting the generality of such statement, they shall be entitled
to their respective rights of indemnification under any bylaw, agreement, vote
of stockholders, provision of law or otherwise, as well as their rights under
Article 11.
Nevada Revised Statutes Section 78.7502 provides for discretionary and mandatory
indemnification of officers, directors, employees and agents as follows:
1. A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed legal
proceeding, except by or in the right of the corporation, by reason of the fact
that the person is or was a director, officer, employee or agent of the
corporation, against expenses, including attorneys' fees, judgments, fines and
amounts paid in settlement actually and reasonably incurred by the person in
connection with the action, suit or proceeding if the person acted in good faith
and in a manner which was reasonably believed to be in or not opposed to the
best interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe the conduct was unlawful.
2. A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that the person is or was a director, officer, employee or
agent of the corporation, against expenses, including amounts paid in settlement
and attorneys' fees actually and reasonably incurred by the person in connection
II-1
(56)
<PAGE>
with the defense or settlement of the action or suit if the person acted in good
faith and in a manner reasonably believed to be in or not opposed to the best
interests of the corporation.
Indemnification may not be made for any claim, issue or matter as to which such
a person has been adjudged by a court of competent jurisdiction, after
exhaustion of all appeals therefrom, to be liable to the corporation or for
amounts paid in settlement to the corporation, unless and only to the extent
that the court in which the action or suit was brought or other court of
competent jurisdiction determines upon application that in view of all the
circumstances of the case, the person is fairly and reasonably entitled to
indemnity for such expenses as the court deems proper.
3. To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections 1 and 2, or in defense of
any claim, issue or matter therein, the corporation shall indemnify the person
against expenses, including attorneys' fees, actually and reasonably incurred in
connection with the defense.
Nevada Revised Statutes Section 78.751 requires authorization for discretionary
indemnification; advancement of expenses and limitation on indemnification and
advancement of expenses as follows:
1. Any discretionary indemnification under NRS 78.7502 unless ordered by a
court or advanced pursuant to subsection 2, may be made by the corporation
only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in
the circumstances. The determination must be made:
(a) By the stockholders;
(b) By the board of directors by majority vote of a quorum consisting
of directors who were not parties to the action, suit or
proceeding;
(c) If a majority vote of a quorum consisting of directors who were
not parties to the action, suit or proceeding so orders, by
independent legal counsel in a written opinion; or
(d) If a quorum consisting of directors who were not parties to the
action, suit or proceeding cannot be obtained, by independent
legal counsel in a written opinion.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses of the offering, all of which are to be borne by the
Registrant, are as follows:
SEC Filing Fee 1,200
NASD Filing Fee na
Printing Expenses 10,000
Accounting Fees and Expenses 15,000
Legal Fees and Expenses 25,000
Blue Sky Fees and Expenses 5,000
Total Estimated Expenses $56,200
II-2
(57)
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
During the past three years, the Registrant sold securities which were not
registered under the Securities Act of 1933, as amended, as follows:
Shares Exchanged for Pultronex Alberta
<TABLE>
<CAPTION>
Date Name # of Shares Consideration
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
08/20/99 Gordon Buchanan Enterprises, Ltd. 500,000 Share Exchange
08/20/99 Greg Arnold Buchanan 500,000 Share Exchange
08/20/99 Virendra Delhon 390,000 Share Exchange
08/20/99 Atul K. Mehra 290,637 Share Exchange
08/20/99 Jarnail Sehra 267,820 Share Exchange
08/20/99 Satinder Purewal 224,000 Share Exchange
08/20/99 Pal S. Purewal 160,103 Share Exchange
08/20/99 Chander Sharma 100,000 Share Exchange
08/20/99 Talvinder Sehra 91,675 Share Exchange
08/20/99 Mayva Singh Dhariwal &
08/20/99 Balwinder Kaur Dhariwal, JTWROS 80,000 Share Exchange
08/20/99 Krishen Mehra 59,495 Share Exchange
08/20/99 Manjinder S. Dhariwal 50,000 Share Exchange
08/20/99 Dennis Pelletier 40,000 Share Exchange
08/20/99 Don Ayliffe 33,334 Share Exchange
08/20/99 John Schelter 16,667 Share Exchange
08/20/99 Garnet Wahlund 15,000 Share Exchange
08/20/99 Angela Verma 9,363 Share Exchange
08/20/99 Bernice Sambor 8,000 Share Exchange
08/20/99 Gary Loblick 3,000 Share Exchange
08/20/99 Jay Wahlund 2,000 Share Exchange
08/20/99 Kuldip Delhon 341 Share Exchange
</TABLE>
Shares issued in Regulation D Offering
Date of
Subscription Name # of Units Consideration
- --------------------------------------------------------------------------------
09/10/99 Tatum Investments Inc. 100,000 $100,000
09/12/99 Lynne B. Johnson 50,000 $50,000
09/21/99 Jeffery J. Tempas 5,000 $5,000
09/22/99 Leslie Gibbs & 10,000 $10,000
Gwen Gibbs JTWROS
09/24/99 345439 Alberta Ltd 40,000 $40,000
09/25/99 Richard Dickerson 10,000 $10,000
10/05/99 Lynne B. Johnson 17,000 $17,000
10/11/99 George Mouchette & 20,000 $20,000
Victoria Mouchette JTWROS
II-3
(58)
<PAGE>
10/11/99 Rhoda Davis & 20,000 $20,000
C. Victoria Mouchette JTWROS
10/12/99 Will Inns Ltd. 40,000 $40,000
10/15/99 James J. Caffes & 7,500 $7,500
Sandra M. Caffes JTWROS
10/15/99 Wheaton Investment Group 5,000 $5,000
10/18/99 Ken Gaine & 10,000 $10,000
Patricia A. Gaine JTWROS
10/19/99 Gregg Funfar 10,000 $10,000
10/19/99 Robert C. Hedrick & 5,000 $5,000
Mary Hedrick JTWROS
10/19/99 Shawn Funfar 1,200 $1,200
10/20/99 Stephen A. Reno & 7,500 $7,500
Judy L. Reno JTWROS
10/22/99 269-5341 Canada Ltd. 10,000 $10,000
10/22/99 John Phillips & 3,000 $3,000
Joanne Phillips JTWROS
10/23/99 Roger Walklin & 15,000 $15,000
Judy Walklin JTWROS
10/25/99 Mladen Dundur 1,000 $1,000
10/25/99 Neil T. Enright 50,000 $50,000
10/26/99 Donna B. Cueroni 2,000 $2,000
10/26/99 James C. Irwin & 1,000 $1,000
LaVerne G. Irwin TENCOM
10/26/99 Marilyn J. Hoffart & 1,500 $1,500
Elias Hoffart JTWROS
10/26/99 Richard P Cueroni & 2,000 $2,000
Elizabeth H. Cueroni TENCOM
10/27/99 Andrew Loschiavo & 2,000 $2,000
Lori Loschiavo JTWROS
10/27/99 Beth Palmer & 5,000 $5,000
David Stewart Palmer JTWROS
10/27/99 Douglas J. Driver 1,000 $1,000
10/27/99 John W. Bishop & 10,000 $10,000
Susan B. Bishop JTWROS
10/27/99 Terry J. Swift 1,000 $1,000
10/28/99 John M. Fore & 5,000 $5,000
Donna L. Fore TENCOM
10/29/99 352649 Alberta Ltd 10,000 $10,000
10/29/99 Carl K. Myers & 100,000 $100,000
Patricia A. Myers JTWROS
10/29/99 Christopher L. Eades 1,000 $1,000
10/29/99 Curtis Williams 1,000 $1,000
10/29/99 Davis F. Briggs & 1,000 $1,000
Jean Fowler Biggs JTWROS
10/29/99 George G. Harris 15,000 $15,000
10/29/99 Heritage Nurseries Ltd 10,000 $10,000
10/29/99 Joel W Gray & 1,000 $1,000
Karen S Gray JTWROS
10/29/99 Karen Brock & 1,000 $1,000
Sam Brock JTWROS
10/29/99 Marc Andre Guilbault 10,000 $10,000
10/29/99 Mehnga Matharu 100,000 $100,000
10/29/99 Rosealta Mortgage Corporation 10,000 $10,000
10/29/99 Thomas B. Chesnut 1,000 $1,000
10/29/99 W. Gordon Buchanan 250,000 $250,000
II-4
(59)
<PAGE>
10/30/99 Robert V. Cella & 1,000 $1,000
Cathy A. Cella JTWROS
10/31/99 Sandra Esposito 10,000 $10,000
10/31/99 Tylere Couture & 1,000 $1,000
Rick Couture, JTWROS
Shares Issued for Services
Date of
Grant Name # of Shares Consideration
- --------------------------------------------------------------------------------
12/15/99 Barry Verge 1,110 Services
12/15/99 Bradley Fleming 1,120 Services
12/15/99 Brian Verge 800 Services
12/15/99 Cyril Benolkin 1,410 Services
12/15/99 Darryl Hodgson 1,900 Services
12/15/99 Dennis Bacon 1,710 Services
12/15/99 Dennis Brovarone 25,000 Services
12/15/99 Douglas Kolbe 1,120 Services
12/15/99 Gary Loblick 12,500 Services
12/15/99 John Phillips 1,310 Services
12/15/99 Kuldip Delhon 18,750 Services
12/15/99 Luc Guilbault 35,000 Services
12/15/99 Majid Sarkhoshfard 850 Services
12/15/99 Michael Barker 1,420 Services
12/15/99 Michael Scott Connors 550 Services
12/15/99 Mitar-Mili Komnenovic 600 Services
12/15/99 Mladen Dundur 1,710 Services
12/15/99 Paul Hartzog 5,000 Services
12/15/99 Rob Perrin 1,610 Services
12/15/99 Robert Adsit 174,000 Services
12/15/99 Touryalai Sistani 600 Services
12/15/99 Wei Zhi Huang 550 Services
Shares Exchanged for Pultronex Alberta
The shares were exchanged for an equal number of shares held in Pultronex
Corporation (the Alberta corporation). The shareholders are officers and
directors of the Nevada corporation and or the Alberta corporation, their family
members or employees of the Alberta corporation. The shareholders were provided
and had unlimited access to all material information regarding the Company as a
result of their relationship or employment with the Company or its officers and
directors. The August 20, 1999 date is the date of the Exchange Agreement when
100% of the Alberta shares were committed to be exchanged for Nevada shares.
However, 28,000 shares of the Alberta corporation had not been paid for until
subsequent to August 31, 1999. With respect to the sales made, the Company
relied on Section 4(2) of the Securities Act of 1933, as amended. No advertising
or general solicitation was employed in offering the securities. The securities
were offered for investment only and not for the purpose of resale or
distribution, and the transfer thereof was appropriately restricted by the
Company. The Company believes that each shareholder was a sophisticated investor
at the time of the exchange of shares.
Shares issued in Regulation D Offering
The Registrant was not a reporting company pursuant to the Securities Exchange
II-5
(60)
<PAGE>
Act of 1934 nor was it a development stage company with no business plan. Thus
it was eligible to rely upon Rule 504. Moreover, Rule 504 was available in that
the Registrant sold less than $1,000,000 of securities in the previous 12 month
period and the purchasers were unaffiliated investors. The Units, consisting of
one share of stock and one warrant to acquire an additional share were sold at
$1.00 per Unit in September and October, 1999 pursuant to the Rule 504 safe
harbor. These sales were entirely private transactions pursuant to which all
material information as specified in Rule 502(b)(2) was made available to the
purchasers. No advertising or general solicitation was employed in offering the
securities. The securities were offered for investment only and not for the
purpose of resale or distribution, and the transfer thereof was appropriately
restricted by the Company. The Company does not believe the Shares sold pursuant
to the above described Exchange or granted for Services described below should
be integrated into this offering due to the different consideration and purposes
of these other sales.
Shares issued for Services
The shares issued for services are for compensation to the Company's employees,
consultants and legal counsel pursuant to the exemption contained in Section
4(2) of the Securities Act. The shareholders were provided and had unlimited
access to all material information regarding the Company as a result of their
employment with the Company. With respect to the sales made, the Company relied
on Section 4(2) of the Securities Act of 1933, as amended. No advertising or
general solicitation was employed in offering the securities. The securities
were offered for investment only and not for the purpose of resale or
distribution, and the transfer thereof was appropriately restricted by the
Company.
Except for Dennis Brovarone and Robert Adsit, all other persons who were issued
shares for services are full time employees of the Company engaged in
production, marketing or administrative positions. All of the shares issued were
additional compensation to the employees who paid no additional consideration
for the shares. Dennis Brovarone is the Company's securities law counsel. Robert
Adsit is a consultant engaged to advise the Company on its business development
and corporate finance plans. The Company has incurred compensation expense for
these shares at $1 per share, totaling $288,620.
ITEM 27. EXHIBITS.
The following Exhibits are filed as part of this Registration Statement pursuant
to Item 601 of Regulation S-B:
3.1 -- Articles of Incorporation*
3.2 -- Bylaws*
4.1 -- Form of Warrant*
4.2 -- Form of Common Stock Certificate*
5.1 -- Opinion of Dennis Brovarone, Attorney at Law
10.1 -- Warrant Agreement*
10.2 -- Share Exchange Agreement*
10.3 -- ZCL Asset Purchase and Sale Agreement
10.4 -- R. Day Purchase Agreement
23.1 -- Consent of Dennis Brovarone, Attorney at Law (see opinion)
23.2 -- Consent of PricewaterhouseCoopers LLP, Chartered Accountants
27.1 -- Financial Data Schedule
*Previously filed
II-6
(61)
<PAGE>
ITEM 28. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the Securities
Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement(or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
(iii)To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities Act
of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
II-7
(62)
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933 as amended,
the Registrant certifies that it has reasonable grounds to believe that it meets
all the requirements for filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned thereunto duly
authorized, in the City of Nisku, Alberta on May xx, 2000
PULTRONEX CORPORATION
BY: /s/ Gary Loblick
- -----------------------
Gary Loblick, President
/s/ Luc Guilbault
- -----------------
Luc Guilbault, Chief Financial Officer
In accordance with the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates stated.
SIGNATURE TITLE DATE
/s/ Gary Loblick President, Chief Operating May 24, 2000
------------ Officer and Director
Gary Loblick
/s/ Krishen Mehra, Ph.D. Chairman May 24, 2000
-------------------
Krishen Mehra, Ph.D
/s/ Kuldip Delhon Chief Executive Officer, May 24, 2000
-------------- Secretary and Director
Kuldip Delhon
/s/ Mave Dhariwal Director May 24, 2000
-------------
Mave Dhariwal
/s/ Gary Steadman Director May 24, 2000
-------------
Gary Steadman
/s/ Michael Vida Director May 24, 2000
------------
Michael Vida
II-8
(63)
<PAGE>
Exhibit 5.1
DENNIS BROVARONE
ATTORNEY AND COUNSELOR AT LAW
11249 West 103rd Drive
Westminster, Colorado 80021
phone: 303 466 4092 / fax: 303 466 4826
May 22, 2000
Board of Directors
Pultronex Corporation
Re: Registration Statement on Form SB-2
Gentlemen:
You have requested my opinion as to the legality of the issuance by Pultronex
Corporation, (the "Corporation") of up to 2,180,400 shares of Common Stock (the
"Shares") being offered by the named Selling Securities Holders pursuant to
Amendment No. 1 to the Registration Statement on Form SB-2 (the "Registration
Statement") to be filed on or about May 22, 2000.
Pursuant to your request I have reviewed and examined:(1).The Articles of
Incorporation of the Corporation, as amended (the "Articles"); (2). The Bylaws
of the Corporation, as certified by the Secretary of the Corporation; (3). The
minute book of the Corporation; (4). A copy of certain resolutions of the Board
of Directors of the Corporation; (5). The Registration Statement; and (6) Such
other matters as I have deemed relevant in order to form my opinion.
Based upon the foregoing, and subject to the qualifications set forth below, I
am of the opinion that the Shares, if issued as described in the Registration
Statement will have been duly authorized, legally issued, fully paid and
non-assessable in compliance with Nevada general corporate law.
My opinion is subject to the qualification that no opinion is expressed herein
as to the application of state securities or Blue Sky laws.
I consent to the use of this opinion as an Exhibit to the above referenced
Registration Statement.
Very truly yours,
/s/ DENNIS BROVARONE
Dennis Brovarone
(64)
<PAGE>
Exhibit 10.3
THIS AGREEMENT made effective, this 31st day of March, 1998.
BETWEEN:
ZCL COMPOSITES INC., a body corporate duly
incorporated pursuant to the laws of the Province of Alberta (hereinafter
referred to as the "ZCL")
OF THE FIRST PART
- and -
PULTRONEX CORPORATION, a body corporate duly
incorporated pursuant to the laws of the Province of Alberta (hereinafter
referred to as the "Purchaser")
OF THE SECOND PART
- and -
ROBERT DAY, an individual resident in the Province of
Alberta ("Day")
OF THE THIRD PART
- and -
KULDIP DELHON, an individual resident in the Province
of Alberta ("Delhon")
OF THE FOURTH PART
- and -
KRISHEN MEHRA, an individual resident in the Province
of Alberta ("Mehra")
OF THE FIFTH PART
- and -
JARNAIL SEHRA, an individual resident in the Province
of Alberta ("Sehra")
OF THE SIXTH PART
(65)
<PAGE>
-2-
ASSET PURCHASE AND SALE AGREEMENT
WHEREAS:
A. The Purchaser is desirous of acquiring from ZCL and ZCL is desirous of
selling to the Purchaser the Assets for the Purchase Price, all on the
terms as set forth herein;
B. As security for payment of the Purchase Price, the Purchaser and the
Principals have agreed to grant security to ZCL, including the General
Security Agreements, the Mortgage and the Guarantee;
NOW THEREFORE THIS AGREEMENT WITNESS THAT, in consideration of the mutual
covenants, promises and provisos hereinafter contained and other good and
valuable consideration, the Parties hereto agree as follows:
ARTICLE 1 - DEFINITIONS
1.1 In this Agreement (including the recitals and each schedule hereto) the
words and phrases set forth below shall have the following meanings ascribed
thereto:
1.1.1"Agreement" means this Agreement in writing between the Parties and
any amendments thereto, including the recitals together with any
schedules attached hereto and made part hereof;
1.1.2"Assets" means all assets owned by ZCL comprising the pultrusion
division of ZCL including, but not limited to, the Premises, the
Equipment, the Raw Materials, the Stock and the Intangibles;
1.1.3"Business" means the business currently carried on by ZCL through its
pultrusion division which consists of the manufacture and sale of
pultruded products throughout North America;
1.1.4"business day" means any day except Saturday, Sunday and statutory
holidays in the Province of Alberta;
1.1.5"Closing" means the conveyance to the Purchaser by ZCL of the Assets
in accordance with the terms of this Agreement;
1.1.6"Closing Date" means June 3, 1998 or such other date as the Parties
mutually agree to;
1.1.7 "Effective Date" means March 31, 1998;
(66)
<PAGE>
1.1.8"Equipment" means all equipment, toolings and fixtures owned by ZCL,
as of the Effective Date, located on the Premises, including but not
limited to that equipment listed in Schedule "A" attached hereto and
excluding underground storage tanks, strap assembly and testing
equipment and the hydraulic press for bio-container cores;
1.1.9"General Security Agreement" means the general security agreement to
be granted by the Purchaser to ZCL in the form attached as Schedule
"C";
1.1.10 "GST" means goods and services tax as defined by the Excise Tax Act
(Canada);
1.1.11 "Guarantee" means the guarantee to be provided by each of the
Principals to ZCL in the form attached as Schedule "E";
1.1.12 "Intangibles" means all patents, trademarks, technology, designs,
specifications, know-how, customer lists and market information owned
by ZCL as at the Effective Date and associated with pultrusion;
1.1.13 "Mortgage" means the collateral mortgage to be granted by the
Purchaser to ZCL as security for payment of the Promissory Note in the
form attached hereto as Schedule "D";
1.1.14 "Person" means an individual, a partnership, a corporation, a joint
venture, and any other form of incorporated or unincorporated
association, organization or other entity;
1.1.15 "Premises" means the land and building located at 2305 - 8th Street,
Nisku, Alberta;
1.1.16 "Principals" means collectively Day, Delhon, Mehra and Sehra;
1.1.17 "Promissory Note" means a Promissory Note in the form set out as
Schedule "B" hereto and forming part of this Agreement to be executed
by the Purchaser and dated the Effective Date hereof;
1.1.18 "Purchase Price" means the sum of THREE MILLION ONE DOLLARS
($3,000,001) in Canadian currency;
1.1.19 "Raw Materials" means all unprocessed or partially processed
materials or supplies, as of the Effective Date, located on the
Premises used in the manufacture, packaging or shipment by ZCL of
pultruded products, or the maintenance of the Equipment or the
Premises, excluding any Parabeam fabric and tank related materials
stored on the Premises;
(67)
<PAGE>
-4-
1.1.20 "Stock" means finished goods and work in process on pultruded
products related to the Business, owned by ZCL as of the Effective
Date, whether located on the Premises or held in other locations,
consigned goods, accessories normally sold with pultruded products,
marketing materials and displays.
ARTICLE 2 - PURCHASE AND SALE OF ASSETS
2.1 On the Closing Date, ZCL hereby sells, transfers and conveys to the
Purchaser, in consideration for the payment of the Purchase Price by the
Purchaser to ZCL all right, title and interest to the Assets as of the Effective
Date, free and clear of any claims, liens, encumbrances, charges or security
interest whatsoever.
2.2 The Purchase Price for the Assets shall be paid as follows:
2.2.1TWO HUNDRED THOUSAND AND ONE DOLLARS ($200,001) by way of a deposit
(the "Deposit") shall be paid upon acceptance of the offer by ZCL to
sell the Assets to the Purchaser (the receipt of which is hereby
acknowledged);
2.2.2The balance by Promissory Note to be TWO MILLION EIGHT HUNDRED
THOUSAND DOLLARS ($2,800,000), payable to ZCL in full on or before
March 31, 1999 in accordance with the terms of such Promissory Note.
2.3 The Parties do hereby acknowledge and agree that the Deposit shall be
non-refundable to the Purchaser in the event that the Purchaser is
unable to complete the purchase of Assets contemplated hereunder.
2.4 The parties agree that, with respect to adjustments to the Purchase Price:
2.4.1all necessary adjustments, including adjustments of all income and
expenses of the Business occurring after the Effective Date shall be
for the account of the Purchaser as well as all customary closing
adjustments respecting the transfer of real property, including
property taxes as at the Effective Date; and
2.4.2all necessary adjustments, including adjustments of all income and
expenses of the Business occurring prior to the Effective Date shall
be for the account of ZCL as well as all customary closing adjustments
respecting the transfer of real property, including property taxes as
at the Effective Date; and
2.4.3interest on the outstanding balance of the Promissory Note shall be
accrued monthly in arrears at the rate of 15% per annum commencing on
April 1, 1998 and become payable on September 30, 1998 and on a
monthly basis thereafter. Provided however, that if principal payments
are made when
(68)
<PAGE>
-5-
due, the Purchaser will be credited retroactively for
the total accrued amount from April 1, 1998 until September 30, 1998
and credited for accrued interest in excess of 7.5% per annum on a
monthly basis thereafter.
2.5 The parties agree that the Purchase Price for the Assets will be allocated
as follows:
(a) Premises, Equipment, Raw Materials and Stock $3,000,000.00
(b) Intangibles 1.00
-----------------
Total Purchase Price: $3,000,001.00
2.6 ZCL and the Purchaser agree to jointly elect that GST shall not apply to the
purchase of Assets contemplated hereunder and the Parties agree to take all
necessary steps to execute such further and other documentation as may be
required and to give such further assurances as may be necessary in order that
GST not apply to this transaction pursuant to the Excise Tax Act (Canada). In
the event that GST shall apply to the sale of Assets contemplated hereunder, the
payment of GST shall be the responsibility of the Purchaser. Such payment shall
be taken into consideration as an adjustment (in addition) to the Purchase Price
as contemplated in section 0 hereof.
2.7 As security for the Promissory Note, the Purchaser does hereby agree to
grant to ZCL the General Security Agreement and the Mortgage.
2.8 As further security for the Promissory Note, each of the Principals do
hereby agree to provide a Guarantee to ZCL, such Guarantees being in the
aggregate amount of EIGHT HUNDRED THOUSAND DOLLARS ($800,000), being the sum of
TWO HUNDRED THOUSAND DOLLARS ($200,000) from each Principal. It is hereby
acknowledged and agreed amongst the parties hereto that no legal action in
relation to the Guarantees shall be initiated by ZCL until the amount owing, if
any, is determined after ZCL has taken all reasonable steps to realize on its
security other than the Guarantees .
2.9 ZCL does hereby agree to discharge the Mortgage upon receipt by ZCL of the
principal amount of ONE MILLION FIVE HUNDRED AND FIFTY THOUSAND DOLLARS
(69)
<PAGE>
-6-
($1,550,000), under the terms of the Promissory Note. ZCL further agrees to
discharge its security interest of any kind and nature whatsoever related to the
Equipment, upon the further payment of the principal amount of SEVEN HUNDRED
FIFTY THOUSAND DOLLARS ($750,000) (aggregate TWO MILLION THREE HUNDRED THOUSAND
DOLLARS ($2,300,000)) of the principal amount of the Promissory Note.
2.10 ZCL agrees, if requested by the Purchaser, to postpone any security
interest it has in all raw materials (meaning all unprocessed or partially
processed materials used in the manufacture, production or shipment of pultruded
products), and accounts receivable of the Purchaser, in favour of any financial
institution providing a commercial lending facility to the Purchaser.
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES OF ZCL
3.1 ZCL hereby represents and warrants, as of the Effective Date and the Closing
Date, with and to the Purchaser as follows, and acknowledges that the Purchaser
is relying on such representations and warranties, all of which are material to
the Purchaser in connection with the purchase and sale of the Assets:
3.1.1ZCL is a corporation duly incorporated and properly organized under
the laws of the jurisdiction of its incorporation and is duly
qualified to transact business and is up to date on all material
corporate filings in each jurisdiction in which the conduct of its
businesses or the ownership of its properties require such
qualifications, and ZCL has all the necessary authority and power to
enter into and perform its obligations pursuant to this Agreement;
3.1.2ZCL is the registered and beneficial owner of the Assets, and on
Closing the Assets will be free and clear of any claims, liens,
encumbrances, charges or security interests whatsoever and ZCL is
entitled to sell the Assets to the Purchaser;
3.1.3All of the trademarks comprising the Intangibles are listed hereto in
Schedule "F";
3.1.4There are no actions or claims, commenced or alleged, against ZCL
relating to its ownership rights in the Intangibles, or alleging
infringement by ZCL as a result of the use of the Intangibles;
3.1.5ZCL has full corporate power and authority to own, lease or use the
Assets and is not aware of any governmental licenses, authorizations,
consents, registrations and approvals which have not been obtained
which are necessary to operate the Business and to own, lease or use
the Assets;
3.1.6All necessary corporate action has been taken by ZCL to approve this
Agreement and the transactions contemplated hereunder to be performed
by ZCL and this Agreement has been duly executed and delivered by ZCL
and
(70)
<PAGE>
-7-
constitutes valid, legal and binding obligations of ZCL, enforceable
against it in accordance with its terms, subject to the availability
of equitable remedies and enforcement of creditors rights generally;
3.1.7As of the Closing, the entering into of this Agreement by ZCL and the
performance of its obligations hereunder will not result in the breach
or violation of:
3.1.7.1 any of the material terms or provisions of any constating
documents of ZCL or of any material permit, indenture, mortgage,
deed of trust, loan agreement or other material agreement,
written or oral, to which ZCL is a party; or
3.1.7.2 any material law, regulation or applicable order (of which ZCL
is aware) of any Court, arbitrator or governmental authority
having jurisdiction over the Assets or the properties or business
of ZCL;
3.1.8As of the Closing, the execution and delivery of this Agreement and
the performance of the covenants and agreements herein contained are
not limited or restricted by and are not in conflict with any
contract, agreement or other instrument to which ZCL is bound;
3.1.9None of the Assets are subject to any rights of first refusal or
similar rights or restrictions granted by ZCL;
3.1.10 All due and properly owing property, production, business, and
similar taxes and assessments based on or measured by the ownership of
the Assets or the production of goods and services by the Business
have been properly and fully paid and discharged;
3.1.11 ZCL, in conducting its Business, is unaware of any non-compliance
with any material laws, rules and regulations of each jurisdiction in
which such business is carried on, and is unaware of any breach in any
material respect of any such material laws, rules or regulations;
3.1.12 ZCL is a resident of Canada within the meaning of the Income Tax Act
(Canada);
(71)
<PAGE>
-8-
3.1.13 As of the Closing, ZCL is not in breach or violation of any of the
material terms or provisions of, or in default under, any material
indenture, mortgage, deed of trust, loan agreement or other material
agreement (written or oral) to which they are bound and to which any
of the Assets are subject;
3.1.14 There are no lawsuits in existence or, to the knowledge of ZCL,
proceedings or investigations pending or threatened against ZCL that:
3.1.14.1 challenge the validity of this Agreement with respect to sale
of the Assets or the Business or the transactions contemplated
hereby to be performed by ZCL; or
3.1.14.2 seek to restrain or prevent any action taken or to be taken
by ZCL in connection with this Agreement or the transactions
contemplated hereby;
3.1.15 All computer software and related data associated with the Business,
and relating to the Assets and more particularly relating to customer
data, will be available to the Purchaser for a period of two (2) years
subsequent to the Closing Date;
3.1.16 ZCL shall maintain in full force and effect such policies of
insurance issued by reputable and responsible insurers as will be
maintained with respect to assets similar to the Assets by reasonably
competent businessmen, and such policies of insurance are to be so
maintained until Closing of the transactions contemplated hereby or
until the Purchaser provides proof to ZCL that it has obtained
insurance coverage acceptable to ZCL, which ever first occurs.
ARTICLE 4 - ASSIGNMENT OF CONTRACTS
4.1 ZCL does hereby agree to assign all rights and obligations under the
contracts listed in Schedule "G" hereof provided that ZCL will be responsible
for any claims made under assumed contracts prior to the Effective Date, except
as hereinafter specified, and will be responsible for payment of all obligations
accruing prior to the Effective Date. It is specifically acknowledged and agreed
between the parties hereto that the Purchaser reserves the right to deny
assumption of any contracts which it deems undesirable and the Purchaser will
advise ZCL on the Closing Date which contracts it will not assume. It is further
acknowledged and agreed that ZCL may be obligated to accept returned materials
for credit under a distributorship agreement with each of BMD and Detroit Forest
Products. The Purchaser does hereby agree to assist ZCL to minimize such credits
and to purchase any returned product from ZCL at one-half the value of
applicable credits paid by
(72)
<PAGE>
-9-
ZCL to these distributors.
ARTICLE 5 - REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
5.1 The Purchaser hereby represents and warrants, as of the Effective Date and
the Closing Date, with and to ZCL as follows, and acknowledges that ZCL is
relying on such representations and warranties, all of which are material to ZCL
in connection with the purchase and sale of the Assets:
5.1.1All necessary corporate actions, resolutions or otherwise will be
taken by the directors of the Purchaser to approve, ratify and confirm
the execution delivery of this Agreement, the Promissory Note, the
General Security Agreements and the Mortgage;
5.1.2The Purchaser is a resident of Canada for the purposes of the
Investment Canada Act (Canada);
5.1.3This Agreement constitutes a valid and legally binding obligation of
the Purchaser and enforceable against the Purchaser in accordance with
the terms of this Agreement;
5.1.4The Purchaser has been incorporated and organized under the laws of
the province of Alberta and is a valid and subsisting corporation in
good standing.
ARTICLE 6 - COVENANTS OF THE PURCHASER
6.1 The Purchaser shall not assume any contracts relative to the Business except
as listed in Schedule "G". In addition, the Purchaser agrees to assist ZCL to
minimize the credits which may be owing to BMD or Detroit Forest Products
pursuant to two distributorship agreements under which ZCL may be obligated to
accept returned materials for credit and does further undertake to purchase any
returned product from ZCL pursuant to these two distributorship agreements at
one-half the value of applicable credits paid by ZCL to these distributors.
6.2 The Purchaser agrees to obtain on the Closing Date, insurance coverage
acceptable to ZCL to be effective upon the transfer of title by ZCL to the
Purchaser on the Closing Date. The Purchaser further acknowledges that it shall
bear the risk of loss of any of the assets not covered by ZCL's existing
insurance coverage on and after April 6, 1998.
6.3 The Purchaser agrees on the Closing Date, to assume those liabilities listed
in Schedule "H" hereof.
(73)
<PAGE>
-10-
6.4 The Purchaser agrees to provide ZCL with access to all corporate records,
during normal business hours of the Purchaser, related to records prior to the
Effective Date.
ARTICLE 7 - SURVIVAL OF REPRESENTATIONS AND WARRANTIES
7.1 The representations and warranties made by ZCL pursuant to Article 3 of this
Agreement, and the Purchaser pursuant to Article 5, shall survive the Closing on
the Closing Date, and notwithstanding such Closing, shall continue in full force
and effect for the benefit of the Purchaser for two (2) years, and for the
benefit of ZCL, indefinitely.
ARTICLE 8 - EMPLOYEES
8.1 ZCL agrees to advise all of its employees in the Business of this
transaction and shall terminate their employment effective on the Effective
Date. ZCL agrees to pay and satisfy as at the Effective Date all salaries,
wages, termination pay, wrongful dismissal claims, holiday pay, employment
insurance premiums, Workers' Compensation payments, income tax and Canada
Pension Plan deductions and all other payments to be made to or on behalf of the
employees to and including the Effective Date and shall indemnify the Purchaser
with respect to same. The Purchaser shall offer employment to employees of the
Business commencing on the Effective Date, on essentially the same terms and
conditions of employment as offered by ZCL, excluding any employees on long-term
disability or temporary layoff.
ARTICLE 9 - CLOSING
9.1 The Closing of the transaction contemplated by this Agreement shall be
completed at the offices of Bryan & Company, Barristers and Solicitors, 2600
Manulife Place, 10180-101 Street, Edmonton, Alberta T5J 3Y2, Solicitors for the
Purchaser, at 2:00 p.m., Edmonton time, on the Closing Date. At the Closing, ZCL
shall deliver to the Purchaser such documents as are reasonably required to
complete the transaction as contemplated by this Agreement, including, but not
limited to the following:
9.1.1all bills of sale, transfer and assignments as may be necessary to
vest good and marketable title to the Assets in the name of the
Purchaser, free and clear of all liens, charges, encumbrances and
security interests whatsoever;
9.1.2assignment of all right, title and interest of ZCL and those
contracts identified in Schedule "G" hereto which the Purchaser has
agreed to assume together with executed copies of the contracts and
consents of third parties
(74)
<PAGE>
-11-
to such assumptions as deemed necessary by the Purchaser;
9.1.3assignments of those liabilities identified in Schedule "H" hereto
together with executed copies of the documents creating the
obligations and consents of third parties to such assumptions as
deemed necessary by the Purchaser;
9.1.4 possession of the Assets;
9.1.5such specific assignments or conveyances as the Purchaser may require
with respect to any part of the Assets sold hereunder;
9.1.6 worker's compensation clearance for the operations of the Business;
9.1.7evidence of termination of employees of ZCL in the Business
satisfactory to the Purchaser or its solicitors;
9.1.8all books, records, invoices, statements, files, correspondence and
other materials as presently maintained by ZCL in the operation of the
Business located on the Premises, as of the Closing Date;
9.1.9an opinion of the solicitors of ZCL to the effect that ZCL is a
corporation duly organized, validly existing and in good standing
under the laws of the Province of Alberta with full power, authority
and capacity to execute and deliver this Agreement and that the same
has been duly and validly authorized by all necessary corporate
proceedings of ZCL; and
9.1.10 such further documents and assurances as may be reasonably required
by the Purchaser or its solicitors in order to complete the
transactions contemplated herein;
9.2 At the Closing, the Purchaser shall deliver to ZCL such documents as are
reasonably required to complete the transaction as contemplated by this
Agreement, including but not limited to the following:
9.2.1 the Promissory Note;
9.2.2 the General Security Agreement;
9.2.3 the Mortgage;
9.2.4 the Guarantees;
9.2.5an agreement acceptable to ZCL whereby the Purchaser agrees to supply
(75)
<PAGE>
-12-
ZCL with pultrusions for hold down straps under which ZCL will be
granted production priority;
9.2.6The opinion of the solicitors of the Purchaser to the effect that the
Purchaser is a corporation duly organized, validly existing and in
good standing under the laws of the Province of Alberta with full
power, authority and capacity to execute and deliver this Agreement,
the Promissory Note and the General Security Agreement and that the
same have been duly and validly authorized by all necessary corporate
proceedings of the Purchaser;
9.2.7executed copies of all assumption agreements required by this
Agreement;
9.2.8an acknowledgement satisfactory to ZCL that the Equipment listed in
Schedule "A" hereto has been received by the Purchaser and that the
Equipment is a complete list of all equipment forming the Assets of
the Business; and
9.2.9such further documents and assurances as may reasonably be required
by the solicitors of ZCL in order to complete the transactions
contemplated herein.
ARTICLE 10 - INDEMNITY
10.1 ZCL agrees to be liable to and to indemnity and does hereby indemnify the
Purchaser from and against any and all claims, actions, losses, damages,
liabilities and costs to which the Purchaser may be put or suffer by or as a
result of any undertaking, representations or warranties set forth herein by ZCL
being incorrect, inaccurate, untrue or breached, including costs on a solicitor
and its own client basis.
10.2 ZCL does hereby further agree to be liable to and to indemnify and does
hereby indemnify the Purchaser from and against any and all claims, actions,
losses, damages, liabilities and costs to which the Purchaser may be put or
suffer by or as a result of any liabilities of the Business which are not
assumed by the Purchaser hereunder, including costs on a solicitor and its own
client basis.
10.3 The Purchaser agrees to be liable to and to indemnify and does hereby
indemnify ZCL from and against any and all claims, actions, losses, damages,
liabilities and costs to which the Purchaser may be put or suffer by or as a
result of any undertaking, representation or warranties set forth herein by the
Purchaser being incorrect, inaccurate, untrue or breached including, including
costs on a solicitor and its own client basis.
10.4 The Purchaser does further agree to be liable to and to indemnify and does
hereby indemnify ZCL from and against any and all claims, actions, losses,
damages, liabilities and costs to
(76)
<PAGE>
-13-
which ZCL may be put or suffer by or as a result of those liabilities listed in
Schedule "H" hereof which the Purchaser has agreed to assume, and with respect
to liabilities arising from the conduct of the Business after the Effective
Date, including costs on a solicitor and its own client basis.
ARTICLE 11 - GENERAL
11.1 The rights defined by this Agreement shall not be assigned or transferred
by any party.
11.2 All notices, requests, demands or other communications by the terms hereof
required or permitted to be given hereunder shall, unless otherwise specifically
provided for herein be given in writing or shall be either mailed postage
prepaid by double registered mail and faxed or personally served to each party
at its address as follows:
11.2.1 to ZCL:
6907 - 36 Street
Edmonton, Alberta
T6B 2Z6
Attention: Ven Cote, President and Chief Executive
Officer
Fax: 466 - 6126
with a copy to:
Parlee McLaws
Barristers and Solicitors
1500, 10180 - 101 Street
Edmonton, Alberta
T5J 4K1
Attention: Dave Finlay
Fax: (403) 423 - 2870
(77)
<PAGE>
-14-
11.2.2 to the Principals:
Robert Day - Chairman
#109, 52258 Range Road 231
Sherwood Park, Alberta
T8B 1M7
Phone: (403) 466-6648
Kuldip Delhon
12511 - 29 Avenue
Edmonton, Alberta
T6J 6E1
Phone: (403) 940-0714
Jarnail Sehra
501 Heffernan Drive
Edmonton, Alberta
T6R 2K5
Phone: (403) 461-6666
Dr. Krishen Mehra
39 Westbrook Drive
Edmonton, Alberta
T6J 2C8
Phone: (403) 435-8093
11.2.3 to the Purchaser:
2305 - 8th Street
Nisku, Alberta
T9E 7Z3
Attention: Robert Day
Fax: 955 - 7170
(78)
<PAGE>
-15-
with a copy to:
Bryan & Company
Barristers & Solicitors
2600, 10180 - 101 Street
Edmonton, Alberta
T5J 3Y2
Attention: Douglas O. Goss
Fax: (403) 428-6324
11.3 The parties do hereby agree that any property or assets of ZCL located on
the Premises at Closing but not included in the Assets purchased by the
Purchaser hereunder may be stored on the Premises free of charge, provided that
the Purchaser shall not be held responsible for the insurance or safe keeping of
such property. ZCL does hereby agree to remove any such property or assets from
the Premises at its expense upon 60 days notice from the Purchaser.
11.4 ZCL does hereby agree that any of the Assets or other property of the
Purchaser located on any of the premises of ZCL may be stored on such premises
free of charge, provided that ZCL shall not be held responsible for the
insurance or safe keeping of such property. The Purchaser shall have this
property removed from the premises of ZCL at the expense of the Purchaser upon
60 days notice from ZCL.
11.5 This Agreement supersedes all other agreements, documents, writings and
verbal understandings among the parties.
11.6 Appended hereto are the following Schedules, which are incorporated into
this Agreement by reference and are deemed to be a part hereof:
Schedule "A" - Equipment
Schedule "B" - Promissory Note
Schedule "C" - General Security Agreement
Schedule "D" - Mortgage
Schedule "E" - Guarantee
Schedule "F" - Patents and Trademarks
Schedule "G" - Contracts
Schedule "H" - Assumed Liabilities
11.7 Time shall be of the essence of this Agreement.
(79)
<PAGE>
-16-
11.8 No amendment or variations of the provisions of this Agreement shall be
binding upon any party, unless it is evidenced in writing and executed by the
parties.
11.9 The parties agree that this Agreement shall enure to the benefit and be
binding upon the parties and their respective executors, administrators, assigns
and successors.
11.10 If any provision of this Agreement shall be adjudged void, or
unenforceable by a competent court, the remaining provisions of this Agreement
shall continue in full force and effect. This Agreement shall be governed by,
and construed in accordance with, the laws of the Province of Alberta and the
laws of Canada applicable therein, and the parties hereby submit to the
jurisdiction of the courts of the Province of Alberta.
11.11 This Agreement may be executed in several counterparts each of which when
so executed shall be deemed to be an original, and such counterparts shall
constitute one and the same instrument and notwithstanding their date of
execution shall be deemed to bear date as of the 3rd day of June, 1998.
IN WITNESS WHEREOF the Corporate parties have hereto affixed their
corporate seals duly attested by the hands of their properly authorized officers
in that behalf and the individual parties have executed this Agreement all on
the day and year first written above.
ZCL COMPOSITES INC.
PER: /s/ Venance Cote
-----------------------------------------
PER: /s/ Tony Barlot
-----------------------------------------
PULTRONEX CORPORATION
PER: /s/ Robert Day
----------------------------------------
PER: /s/ Jarnail Sehra
----------------------------------------
SIGNED, SEALED AND DELIVERED in the presence of:)
)
)
/s/ Douglas O. Goss ) /s/ Robert Day
- ------------------------------- ) -----------------------------
Witness Robert Day
Barrister and Solicitor
(80)
<PAGE>
-17-
SIGNED, SEALED AND DELIVERED in the presence of: )
)
)
/s/ Douglas O. Goss ) /s/ Kuldip Delhon
- ------------------------------- ) ----------------------------
Witness Kuldip Delhon
Barrister and Solicitor
(81)
<PAGE>
-18-
SIGNED, SEALED AND DELIVERED in the presence of: )
)
)
/s/ Douglas O. Goss ) /s/ Krishen Mehra
- ------------------------------------- ) ----------------------------
Witness Krishen Mehra
Barrister and Solicitor
SIGNED, SEALED AND DELIVERED in the presence of: )
)
)
/s/ Douglas O. Goss ) /s/ Jarnail Sehra
- ------------------------------------- ) ----------------------------
Witness Jarnail Sehra
Barrister and Solicitor
(82)
<PAGE>
SCHEDULE "A"
EQUIPMENT
(83)
<PAGE>
SCHEDULE "B"
PROMISSORY NOTE
(84)
<PAGE>
SCHEDULE "C"
GENERAL SECURITY AGREEMENT
(85)
<PAGE>
SCHEDULE "D"
MORTGAGE
(86)
<PAGE>
SCHEDULE "E"
GUARANTEE
(87)
<PAGE>
SCHEDULE "F"
PATENTS AND TRADEMARKS
Canadian Trademark: E-Z Deck
TMA 469,065
Reg: January 20, 1997
US Trademark: E-Z Deck
#1,969,571
Reg: April 23, 1996
Declaration of Use required by April 23, 2001
Canadian Trademark: E-Z Fence
TMA 473,957
Reg: March 27, 1997
(88)
<PAGE>
SCHEDULE "G"
CONTRACTS
(a) ZCL and Can-Cell Industries Inc., dated October 1, 1994
(b) ZCL and Ace Hardware Corporation, dated October 6, 1997, effective date
January 1, 1998
(c) ZCL and All-Coast Forest Products Inc., dated July 15, 1996, distribution
for the United States
(d) ZCL and Alta Mont Wholesale Co. dated March 18, 1996, distribution for
Southern Illinois
(e) ZCL and Prince Corporation dated October 18, 1995, distribution for
Wisconsin and upper peninsula of Michigan
(f) ZCL and Westech Building Products, dated December 1, 1995, distribution for
Alberta and British Columbia
(g) ZCL and Allied Plywood Corporation
(h) ZCL and Can-Save agreed to August 15, 1997
(i) ZCL and Cameron Ashley Building Products
(89)
<PAGE>
SCHEDULE "H"
ASSUMED LIABILITIES
The Purchaser assumes any and all liabilities relating to the Pultrusion
division operations for the following:
- - Warranty obligations, whether arising from the period before or after the
Effective Date
- - Lease contracts, except for any portion of expenses relating to the period
prior to March 31, 1998
- - Obligations relating to all distributor agreements listed in Schedule "G"
hereto, except for the return of product for credit from BMD and Detroit
Forest Products for which the Purchaser will purchase any returned product
for one-half the value of the applicable credit paid to these distributors
- - All expenses and costs relating to the operations after March 31, 1998,
including taxes, assessments, insurance, employee related costs, permits,
licenses, registrations, and costs relating to intangible assets
- - Environmental obligations relating to the operations, products and
premises, whether arising from the period before or after the Effective
Date
(90)
<PAGE>
PULTRONEX CORPORATION
- --------------------------------------------------------------------------------
ASSET PURCHASE AND SALE AGREEMENT
- --------------------------------------------------------------------------------
(91)
<PAGE>
Exhibit 10.4
THIS AGREEMENT made this 4th day of September, 1998.
BETWEEN:
PULTRONEX CORPORATION, a corporation duly incorporated under the laws of
the Province of Alberta
(hereinafter called the "Purchaser")
OF THE FIRST PART
- and -
505265 ALBERTA LTD., a corporation duly incorporated under the laws of the
Province of Alberta
(hereinafter called the "Vendor")
OF THE SECOND PART
REPURCHASE AGREEMENT
WHEREAS:
1. There are issued and outstanding 1,140,908 Class "A" Common Shares of the
Purchaser, of which the Vendor is the owner of 195,454 Class "A" Common Shares.
2. The paid up capital of all of the issued and outstanding Class "A" Common
Shares is $1,054,090.00, or $.9239 per share.
3. The Vendor desires to sell 195,454 Class "A" Common Shares (being all of the
shares presently owned by it in the capital stock of the Purchaser) to the
Purchaser, all in accordance with the provisions of this Agreement.
4. Robert Day ("Day") is the majority shareholder of the Vendor and its duly
appointed Proxy with respect to all matters relating to the Vendor's interest in
the Purchaser. Day is also an Officer and Director of the Purchaser.
NOW THEREFORE in consideration of the mutual covenants and provisos
hereinafter contained, the parties agree as follows:
1. SHARES
(92)
<PAGE>
-2-
1.1 The Vendor agrees to sell to the Purchaser and the Purchaser agrees to
purchase from the Vendor 195,454 Class "A" Common Shares of the Purchaser
(hereinafter called the "Shares"), on the terms and conditions hereinafter set
forth.
2. PURCHASE PRICE
2.1 The purchase price for the Shares shall be the sum of Two Hundred Fifty Four
Thousand Ninety Dollars and Twenty Cents ($254,090.20)(One Dollar and Thirty
Cents ($1.30) per share) to be paid by the Purchaser on the execution of this
Agreement.
3. DELIVERY OF SHARES
3.1 Upon the Purchaser having paid for the Shares, the Vendor shall deliver to
the Purchaser the share certificate (or certificates) duly endorsed for transfer
in blank representing all of the Vendor's Shares being sold to the Purchaser by
the Vendor, and the Purchaser shall cause the said share certificate to be
cancelled and the Shares shall be returned to the status of authorized but
unissued share capital.
4. RESIGNATION OF DAY
4.1 Upon the Purchaser having paid for the Shares, the Vendor shall cause Day to
immediately tender to the Purchaser his resignation as a Director, Chairman of
the Board and Chief Executive Officer of the Purchaser.
5. PURCHASER'S REPRESENTATIONS AND WARRANTIES
5.1 The Purchaser represents and warrants that the purchase has been approved by
the Directors of the Purchaser, and that the Purchaser has the authority to
enter into this Agreement and that the said purchase is not contrary to the
provisions of the Purchaser's constating documents or the Business Corporations
Act (Alberta). ---------------------
- ---
5.2 The Purchaser represents and warrants to the Vendor that on or before
November 30, 1998 the financial statements of the Purchaser for the period
ending August 31, 1998 will be delivered to the Vendor.
(93)
<PAGE>
-3-
6. VENDOR'S REPRESENTATIONS AND WARRANTIES
6.1 The Vendor hereby warrants and represents to the Purchaser that it is the
beneficial owner of the Shares with a good and marketable title thereto free and
clear of all liens, charges, security interests, adverse claims and encumbrances
whatsoever and further that no person, firm or corporation other than the
Purchaser has any agreement or option or any right capable of becoming an
agreement for the purchase of the Shares to be repurchased from the Vendor.
7. SURVIVAL OF REPRESENTATIONS AND WARRANTIES
7.1 The representations and warranties made by the Vendor pursuant to Article
6.1 of this Agreement shall survive the closing of this transaction, and
notwithstanding such closing, shall continue in full force and effect for the
benefit of the Purchaser for a period of two (2) years.
8. BINDING NATURE
8.1 This Agreement shall enure to the benefit of and be binding upon the Vendor
and the Purchaser, together with their respective heirs, executors,
administrators, successors and assigns.
IN WITNESS WHEREOF the parties have duly executed this Agreement as at the
4th day of September, 1998.
PULTRONEX CORPORATION
Per: /s/ Jarnail Sehra
Per: /s/ Kuldip Delhon
505265 ALBERTA LTD.
Per: /s/ Robert Day
(94)
<PAGE>
Exhibit 23.2
((LETTERHEAD))
PricewaterhouseCoopers ((LOGO))
PricewaterhouseCoopers LLP
Chartered Accountants
1501 Toronto Dominion Tower
10088 - 102 Avenue
Edmonton Alberta
Canada T5J 2ZI
Telephone +1 (780) 441 6700
Facsimile +1 (780) 441 6776
Direct Tel. 1 (780-441-6815
Direct Fax 1 (780) 441-6776
United States Securities and Exchange Commission
May 24, 2000
Dear Sirs:
We hereby consent to the use in Amendment No. 1 to the Registration Statement on
Form SB-2 of our report dated April 30, 2000, except note 16(d), which is as
of May 24, 2000, relating to the financial statements of Pultronex
Corporation, which appears in such Registration Statement. We also consent to
the references to us under the heading "Experts" in such Registration Statement.
Yours very truly,
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
((LETTERHEAD FOOTER))
PricewaterhouseCoopers refers to the Canadian firm of PricewaterhouseCoopers LLP
and other members of the worldwide PricewaterhouseCoopers organization.
(95)
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 8-MOS 6-MOS
<FISCAL-YEAR-END> AUG-31-1999 AUG-31-2000
<PERIOD-START> JAN-01-1999 SEP-01-1999
<PERIOD-END> AUG-31-1999 FEB-29-2000
<CASH> 0 0
<SECURITIES> 0 0
<RECEIVABLES> 664,502 760,824
<ALLOWANCES> 27,800 15,100
<INVENTORY> 1,556,617 1,765,637
<CURRENT-ASSETS> 2,304,412 2,674,711
<PP&E> 609,188 670,214
<DEPRECIATION> 82,941 121,496
<TOTAL-ASSETS> 2,830,659 3,223,429
<CURRENT-LIABILITIES> 1,106,341 602,946
<BONDS> 162,298 139,473
0 0
0 0
<COMMON> 1,467,609 2,448,247
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 2,830,659 3,223,429
<SALES> 1,448,974 858,689
<TOTAL-REVENUES> 1,448,974 858,689
<CGS> 745,077 498,993
<TOTAL-COSTS> 745,077 498,993
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 40,806 50,799
<INCOME-PRETAX> 73,844 (211,331)
<INCOME-TAX> 13,879 (66,528)
<INCOME-CONTINUING> 59,965 (144,802)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 59,965 (144,802)
<EPS-BASIC> 0.03 (0.04)
<EPS-DILUTED> 0.03 (0.04)
</TABLE>
