SECURITIES AND EXCHANGE COMMISSION
AMENDMENT NO. 3
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 98-0219399
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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 1,800,400 $2.00 $3,600,800 $950.61
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-7 OF THE SEQUENTIALLY NUMBERED PAGES OF
THIS REGISTRATION STATEMENT. THIS REGISTRATION STATEMENT, INCLUDING EXHIBITS,
CONTAINS 85 PAGES.
<PAGE>
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
2
(2)
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PROSPECTUS
Pultronex Corporation
1,800,400 shares of common stock offered by the selling securities holders
named on page 29.
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.
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. Please 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 ___________, 2001
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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, and WaterFront Seawall,
proprietary products for the residential and commercial decking and marine
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. In July 2000 we acquired the
dies for our scaffold plank. The scaffold plank is scheduled for market launch
in January 2001.
Securities Offered
This Prospectus describes the offering of 1,800,400 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. No 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.
2
(4)
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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.
1. We had a loss of $333,000 for our most recent fiscal year and may continue to
have losses in the future which may impair the value of an investment in the
shares.
During the fiscal year ended August 31, 2000 we incurred a loss of $333,000.
This loss resulted primarily from significant expenditures in market development
activities in anticipation of creating future revenue. If our revenue growth is
slower than we anticipate or our operating expenses exceed our expectations, it
may take an unforeseen period of time to achieve or sustain profitability or we
may never achieve or sustain profitability. This may result in an adverse effect
on the market value of an investment in the shares.
2. Possible lack of building code approval may limit our sales in some areas.
The sales of E-Z Deck can require building code approval in some jurisdictions.
To that extent, Pultronex has a BOCA (Building Officials & Code
Administrators)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.
3. The lack of a public market for our common stock may cause an investor to
have difficulty reselling the shares.
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.
4. We are dependent on Matrix Ag, Inc., as a major customer and the reduction or
loss of sales to this customer could adversely affect our revenue and profits.
Approximately 10% 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. We cannot assure investors that
Matrix Ag., sales will not decline in the future. A halt or even decrease in
Matrix Ag sales could have a materially adverse effect upon our business.
5. Our Line of Credit may prevent us from paying dividends.
The terms of our Line of Credit prohibits us from paying any dividends even if
funds are otherwise available for distribution to shareholders without the
consent of the Lender, HSBC Bank Canada. As a result, investors are not likely
to receive dividends from us for the foreseeable future.
3
(5)
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 auditors, 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, which is 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 from the Commission's internet website, www.sec.gov and searching the
EDGAR database for "Pultronex". Copies of such materials can be obtained from
the Commission's Washington, D.C. office at prescribed rates. The public may
obtain information on the operation of the Public Reference Room by calling the
SEC at 1-800-SEC-0330.
4
(6)
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Management's Discussion And Analysis Of Results Of Financial Condition And
Results Of Operations For Fiscal Year Ended August 31, 2000
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 began operating in April 1998 making December 31, 1998 its
first fiscal period. During 1999, we changed its year-end to August 31, 1999
because it better suited our business cycle. Therefore the first 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.
August 31, 2000 is the first full year of operations of Pultronex Corporation.
We are committed to growth. This year's results are characterized by the
decision of management to continue its focus on growth to build a sustainable
base of revenue for the business. Funds received from private investors during
the first quarter of fiscal 2000 were used exclusively to finance expenses
associated to this decision. During fiscal 2000, $525,000 was directly used for
extra marketing efforts to increase product awareness and improve the
infrastructure to support current and future growth by hiring key persons.
Additional funds were used in the process of registering the selling securities
holders common stock for public resale with the Securities and Exchange
Commission and thereafter becoming a reporting company and enabling us to
establish a public market for our common stock. We anticipate trading initially
on the NASDAQ Bulletin Board.
Fiscal 2000 saw the gross margin drop from 48.6% for the 8 months ended August
31, 1999 to 36.9% for the year ended August 31, 2000. This is a more normal
level which management expects to continue in the future. The previous two
reporting periods reflected the benefits of carrying lower cost inventory
acquired from ZCL Composites Inc. in both raw materials and finished goods.
During the past year, increases in raw material costs and additional production
costs also contributed to the reduction in the gross margin.
The aggressive sales growth strategy led to a greater allowance for bad debt
expense than anticipated. This has been rectified with the addition of
professional financial management staff added during the second half of the
year.
Revenue
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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; a 16% increase over the previous 9 months. For the
12-month fiscal year ended August 31, 2000, revenue increased to $2.810M. The
increase in sales is attributable to implementation of our marketing plan,
increases in trade show activity, and a significant increase in expenditure on
advertising. The recent introduction of the new Seawall product had a modest
contribution to revenue of $79,000 in the last quarter.
5
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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 revenue. However,
the gross profit for the year ended August 31, 2000 dropped to 36.9%. The
margins for first 2 periods ending December 31, 1998 and August 31, 1999, were
unusually high because of lower cost of inventory in both raw materials and
finished goods acquired from ZCL Composites Inc. We utilize the "first-in,
first-out" accounting for costing our inventory. As most of this lower cost
inventory has been consumed in prior periods, the cost of goods sold in 2000
reflects the current cost of production. In addition, the gross margin in 2000
was affected by significant increases in the cost of raw materials during the
year. Management did not implement price increases to its customers in order to
secure more growth. Management is constantly looking to find other cost savings
to mitigate the material cost increases.
During the year, glass reinforcement costs rose by 5% due to high demand from
industry. Resin costs were affected by the increase in petroleum prices
resulting in an 8% increase in costs. Production costs also increased as
additional employees were hired and trained during the year in anticipation of
greater production capacity being needed in the near future. Lastly, an increase
in large volume sales to stocking contractors, who purchase product at a greater
discount due to their stocking status, resulted in a large percentage of sales
at a reduced gross profit than previously experienced. Selling prices have been
revised to account for the increased cost of raw material. The impact of the new
pricing will be recognized in future quarters. The price revision has been
developed to target a 40% gross margin for the incoming fiscal year.
Selling, General and Administrative Expenses
--------------------------------------------
Selling, general and administrative expenses increased by $54,831 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 compared with fiscal
1998. For the year ended August 31, 2000, selling, general and administrative
expenses increased $814,000 to 1,339,000 from the 9-month period ended August
31, 1999. During the last fiscal year, the company has initiated a plan to
increase its market penetration and accelerate its growth. As a result, $336,000
was spent on travel, trade shows, and magazine advertising, compared to $84,000
for the period ended August 31, 1999, as increase of $251,000 In preparation for
this growth, the addition of two senior management positions and one sales
position, accounted for an additional $98,000 in salary expense. In addition to
this, $76,000 was recognized as expense for shares issued to employees for past
services and $56,000 for consulting services. Professional fees of $32,000 have
been recognized directly related to the Securities and Exchange Commission
filing.
The acceleration of growth resulted in accepting business that was not as credit
worthy as should have been. For the year ended August 31, 2000, an additional
allowance for doubtful accounts of $35,000 has been expensed. While much of this
is insured through the Canadian Export Development Corporation, until claims are
processed and payment is received, the exposure is expensed.
6
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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 9-month period ended December 31, 1998 was $30,235 of which $15,667 was paid
to ZCL Composites Inc. For the 8-month period ended August 31, 1999, interest
expense was $40,806 including $2,960 paid to ZCL Composites Inc. 1999 was the
last year that any interest was paid to ZCL as the note to ZCL Composites Inc.
was paid in full by March 31, 1999. Interest expense for the year ended August
31, 2000 was $79,038. This increase is mainly due to additional use of the
company's line of credit. Included in the current year's financing costs is a
$8,900 realized loss on foreign exchange due to the fluctuation of the Canadian
dollar.
Accounts Receivable
-------------------
The seasonal nature of our business results in approximately 70% of revenue
being generated during the last two quarters. Combined with our longer than the
industry standard payment terms (another form of our marketing strategy), this
results in high receivables at the end of the fiscal year. In addition, the
continual growth of the company at this time also results in continual growth in
accounts receivable. As a consequence, the accounts receivable turnover ratios
for each period ended August 1999 and August 2000 are respectively 2.9 and 3.2.
As we continue to bring new products and diversify our activities, generating
more revenue, in what is currently the slow season, those ratios will improve
over time.
We insure most of our accounts receivable in the United States through the
Canadian Export Development Corporation. The insurance policy covers up to 90%
of insured accounts receivable. We have coverage up to $25,000 per account upon
acceptance of credit worthiness, with larger accounts approved on a case by case
basis by the Export Development Corporation. At August 31, 2000, EDC insured
$930,000 of our accounts receivable or 85% of the total receivables.
Inventory
---------
Raw materials and finished goods inventory acquired from ZCL Composites Inc were
acquired at a discount from ZCL's actual cost. As the raw materials were used
and finished goods sold, the impact on the gross margin in first two reporting
periods was to yield a higher than normal gross profit. The replacement value,
by producing new inventory, contributed to an increase in the cost on a per foot
basis. After over 2 years in business, almost the entire inventory acquired from
ZCL is now sold and replaced by new product. This situation results in the
inventory value growing while in terms of footage it remains relatively stable.
As a result, inventory turn ratios tend to be lower. Inventory turns are 0.57
for the 8-months ended August 31, 1999 and 1.0 for the year ended August 31,
2000. As revenue continues to grow, the inventory turnover ratio will increase.
Inventory is carried at the lower of cost or net realizable value, and is valued
on the "first in, first out" basis. The nature of the glass fiber reinforced
composite product is durability and long life. Therefore, allowances for product
deterioration are not required. At August 31, 2000 inventory was $2,057,000
consisting of $1,767,000 in finished goods and $290,000 in raw material.
Finished goods represent approximately 690,000 lineal feet of product.
7
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Liquidity and Capital Resources
-------------------------------
Pultronex has financed its operations and growth with cash flow from the
issuance of share capital to private investors, capital leases, bank loans and
normal trade credit terms.
Cash flow used by operations was $1,161,000 for the year ended August 31, 2000
compared to $299,000 for the 8-month period ended August 31, 1999 and to
$1,236,000 for the 9-month period ended December 31, 1998. For the year ended
August 31, 2000, the $1,161,000 cash flow used by operations consisted of a net
loss of $332,000, after considering non-cash items, and a net growth in working
capital items of $829,000. The net increase in working capital items was
primarily comprised of an increase in accounts receivable of $448,000, an
increase in inventory of $473,000, and an increase in prepaid expenses of
$50,000. These were offset by an increase in trade payables of $142,000.
This is compared to a contribution due to net earnings of $117,000 for the
8-months ended August 31, 1999 and an increase in working capital items of
$416,000 for a net cash flow used by operations of $299,000. The growth in
working capital was due to growth in accounts receivable of $232,000, an
increase in inventory of $460,000 and an increase in prepaid expenses of
$14,000. Trade and other accounts payable increased by $300,000 and taxes
payable decreased by $10,000.
For the 9-month period ended December 31, 1998, net earnings of $120,000 and an
increase in working capital items of $1,356,000 accounted for the net cash flow
used by operations of $1,236,000. An increase in accounts receivable of
$407,000, an increase inventory of $1,108,000, and an increase of $99,000 in
prepaid expenses offset with increases in trade and other accounts payable of
$244,000 and an increase in taxes payable of $14,000 accounted for the net
increase in working capital.
Cash flow generated from financing activities was $1,299,000 in 2000 compared to
$258,000 in 1999 and to $1,776,000 in 1998, while investing activities used
$138,000 in 2000 compared to $58,000 in 1999 and to $539,000 in 1998. Financing
activities for the fiscal year ended August 31, 2000, consisted of the issuance
of common shares for a total of $947,000, refundable grant from the Government
of Canada in the amount of $34,000 and an increase in the line of credit of
$369,000. $51,000 was used to repay long-term debt obligations. We have a credit
agreement consisting of a $1,073,000 line of credit and two term-loan
facilities.
The first term-loan is payable monthly at $3,963 principal plus interest at
Canadian Bank prime rate plus 1.0%. At August 31, 2000 the outstanding balance
on the first term loan was $150,543 and the loan interest rate was 8.5%. The
first term-loan will be paid in full by October 31, 2003. In July 2000, the
company was granted a second term-loan to finance its future technical and
equipment acquisitions. The maximum to be drawn under this second term-loan is
$312,000 and would bear interest at Canadian Bank prime rate plus 1.0%. The
repayment amounts for this loan will depend on the amount borrowed and should be
repaid within a period of 60 months from the date at which funds are drawn down.
Loan advances will be limited to 75% of the value of assets acquired. The
remaining 25% would be from operations or equity. As of August 31, 2000, no
money has been drawn from this loan.
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We had an operating line of credit based on qualified accounts receivable and
inventory up to $535,000for the period from October 1998 to July 1999. In August
1999, the available operating line of credit was increased to $669,000. In July
2000, the operating line of credit was increased to a maximum of $1,087,000 and
the interest rate reduced to Canadian Bank prime plus 0.75% for a loan rate of
8.25% at August 31, 2000. We were using $874,000 of the line of credit at August
31, 2000.
Total assets increased from $2,035,000 in December 1998, to $4,138,000 in August
2000. The increase is mostly attributable to an increase in accounts receivable
and inventory. Investing activities for the past year included the acquisition
of fixed assets. Of the $138,000 invested this past fiscal year, $26,000 was for
office equipment and computers and $112,000 was for manufacturing equipment
including $40,000 for the acquisition of dies for the scaffolding planking.
Our short-term investment plans consist of acquiring equipment to improve the
TEX-PLUS coating system, automate secondary processing, accelerate curing
processes, and equipment related to the production of new products. The
investment is estimated to be $200,000 and will be financed 75% through a
long-term loan and 25% from operations or equity.
Future Outlook
--------------
Pultronex Corporation recognizes that its strength is in its pultrusion
technology. The deck business is seasonal and therefore we are diversifying 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
greater product awareness in the market place has resulted in a 42.6% growth in
sales for the year ended August 31, 2000 over the same 12-month period ending
August 31, 1999. As market awareness builds in the southern regions, we expect
the effect of seasonal cycles for deck sales to be reduced through increased
sales in the winter months in those southern regions.
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 product for seawall and retaining wall
applications 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.
We continue to explore new opportunities. In June 2000, we acquired dies for the
manufacture of fiberglass scaffold planking. Prototype production and testing
should be completed by late fall 2000 with product market launch scheduled for
early 2001.
As presented in the financial statements, we anticipate to receive the full
benefit of the tax recovery related to the current year's loss. We anticipate
profitable operations for the coming years. It is the opinion of management that
$158,000 will be recovered in the fiscal year ending August 31, 2001. The
remaining $56,000 should be recovered in the subsequent year.
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Management's Discussion And Analysis Of Results Of Financial Condition And
Results Of Operations for the 3-Months Ended November 30, 2000
Pultronex continues to be committed to growth. The results of operations for the
first quarter of fiscal 2001 reflect that commitment to build a sustainable base
of revenue for the business. This quarter saw sales increase by 105% over the
same period last year. Sales of E-Z Deck decking products for the period
increased marginally while custom pultrusions decreased compared to the first
quarter of the previous year. The sheet-piling product used in seawall
applications primarily generated the growth in revenue for the first quarter
this year. This growth in revenue is in keeping with the company's strategy to
diversify its product mix while remaining focussed on construction industry
applications. The first quarter of fiscal 2001 also saw the continuation of our
investment in market development through trade shows, advertising, and
promotion.
Revenue
-------
In the first 3-months of operation for fiscal 2001, ending November 30, 2000,
net sales were $884,000 compared with net sales of $430,000 for the 3-month
period ending November 30, 1999. The increase in sales is attributable to
implementation of our marketing plan to diversify our product mix while focusing
on the construction industry and civil engineering products. The WaterFront
seawall product that was introduced in the spring of 2000 contributed $506,000
to the revenue for the first quarter of fiscal 2001.
Gross Profit
------------
The gross profit for the 3-month period ended November 30, 2000 was 29.5%
compared with 42.9% for the same period ended November 30, 1999. The gross
margin for the fiscal year ended August 31, 2000 was 36.9%. The reduction in
gross profit for the quarter occurred due to a large discount applied to the
seawall demonstration project. As this project represented 57.2% of the revenue
for the quarter, it had a significant impact on the gross profit for the
quarter. During the first quarter, we also invested in production staff training
in anticipation of greater production capabilities being needed in the near
future. This added to our labor cost overhead.
Selling, General and Administrative Expenses
--------------------------------------------
Selling, general and administrative expenses increased by $155,000 for the
3-month period ended November 30, 2000 compared with the 3-month period ended
November 30, 1999. The increase was due to an increase in administrative staff
with the addition of a Chief Financial Officer in January 2000, professional
fees related to the Securities and Exchange Commission filing and participation
at the annual industry technical conference and trade show in September. The
company is continuing with its plans to increase its market penetration and
accelerate its growth.
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During the quarter, sales costs increased due to the increase in committed
advertising and promotion, trade show activity, and targeted market development
activities in the southeast United States. The investment in market development
costs represents $100,000 of the increase over the same period last year.
Tighter credit management resulted in only a $1,246 provision for bad debt for
the period.
Interest Expense
----------------
Interest and financing expense for the 3-months ending November 30, 2000,
consisted of borrowing costs for our term loan and utilization of operating line
of credit. For the period, this totaled $24,000. Interest expense was offset by
a realized gain on currency exchange between the U.S. and Canadian dollars equal
to $24,700. This compares with a total interest and currency exchange cost of
$17,000 for the 3-month period ending November 30, 1999.
Accounts Receivable
-------------------
Typically, the seasonal nature of our business results in the majority of
revenue being generated during the last two quarters. This results in high
receivables at the end of the fiscal year. In addition, the continual growth of
the company at this time also results in maintaining large accounts receivable.
During the first quarter, we managed to accelerate our collection of accounts
receivable as well as increasing our sales.
Outstanding accounts receivable were $806,000 at November 30, 2000. This was
down from $1.097 million at August 31, 2000. Collections of account receivables
from the peak spring and summer sales seasons were $1.175 million, exceeding
sales for the quarter by $291,000.
We insure most of our accounts receivable in the United States through the
Canadian Export Development Corporation. The insurance policy covers up to 90%
of insured accounts receivable. We have coverage up to $25,000 per account upon
acceptance of credit worthiness, with larger accounts approved on a case by case
basis by the Export Development Corporation. At November 30, 2000, EDC insured
$665,000 of our accounts receivable.
Inventory
---------
Inventory is carried at the lower of cost or net realizable value, and is valued
on the "first in, first out" basis. The nature of the glass fiber reinforced
composite product is durability and long life. Therefore, allowances for product
deterioration are not required. At August 31, 2000 inventory was $2.057 million
and remains relatively unchanged at $2.030 million at November 30, 2000.
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Liquidity and Capital Resources
-------------------------------
Pultronex has financed its operations and growth with cash flow from the
issuance of share capital to private investors, capital leases, bank loans and
normal trade credit terms.
Cash flow used by operations was $17,000 for the 3-months ended November 30,
2000 compared to $16,000 for the 3-month period ended November 30, 1999. The
$17,000 cash flow used by operations consisted of a net loss for the period of
$90,000 after considering items not affecting cash plus a net change in working
capital items of $107,000. This compares with a net loss of $29,000 after
considering items not affecting cash and a net change in working capital of
$45,000 for the 3-months ended November 30, 1999.
Cash flow generated from financing activities was $23,000 for the first quarter
of fiscal 2001 compared to $234,000 for the same period in 1999. Financing
activities for the 3-months ended November 30, 2000 consisted of the addition of
a term loan of $146,000 and the repayment of bank indebtedness and reduction of
long-term obligations of $123,000. The new term loan is the first component of a
$312,000 term-loan that bears interest at Canadian Bank prime rate plus 1.0%.
The repayment amounts for this loan will depend on the amount borrowed and
should be repaid within a period of 60 months from the date at which funds are
drawn down. Loan advances are limited to 75% of the value of assets acquired.
At November 30, 2000, $775,000 of the company's $1.087 million operating line of
credit was being used. The interest rate on the line of credit is Canadian Bank
prime plus 0.75% for a loan rate of 8.25%.
Future Outlook
--------------
Pultronex Corporation recognizes that its strength is in its pultrusion
technology. The deck business is seasonal and therefore we are diversifying 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 introduction of new products and geographic market expansion along
with our commitment to create greater product awareness in the market place has
resulted in a 106% growth in sales for the 3-months ended November 30, 2000 over
the same 3-month period ending November 30, 1999.
As market awareness builds in the southern regions of the United States, and
with the addition of new products, we expect the effect of seasonal cycles for
deck sales to be reduced through increased sales in the winter months in those
southern regions. The sheet-piling product for use in seawalls appears to have
established itself. The success of the demonstration project has proven the
seawall product for which future sales at higher gross margins can be obtained.
New custom products such as the scaffold planking should add to our revenue this
year as we expect to complete prototype and beta testing by early January 2001
and launch the product in March 2001.
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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.
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
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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
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).
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
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price competitive with other shoring products while generating an acceptable
return on investment.
Other Products
--------------
In July 2000, we acquired the dies and molds for a fiberglass scaffold planking
system. We are currently producing prototypes and conducting preliminary
structural tests of the product. The market launch for the scaffold plank is
targeted for early 2001.
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.
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.
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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 believe that industry trends suggest that the
alternative deck market is growing faster than the overall market.
THE MARKET
E-Z Deck
--------
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 believe that the growth of alternative deck materials is being driven by a
number of factors.
These include:
- the increased acceptance of recycled materials and wood alternatives;
- the increased awareness of the depletion of forest products and the
rising cost of lumber;
- the increased demand for maintenance free products as consumers place a
greater value on their time;
- improved aesthetics of some alternative materials (a major feature of E-Z
Deck);
- technical benefits of some alternative deck products such as resistance
to vermin, corrosion, elimination of deck surface fasteners, splinters,
etc.;
- increased awareness of alternative products;
- consumers are recognizing the value of total life cycle costs: longer
product life cycle for some products means lower whole life cost.
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."
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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
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 "less than truckload" 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.
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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 level are contractors that 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.
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.
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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 in a number of ways. Direct telemarketing to
contractors is a primary route. The sales team select a region and search for
the best in the area to represent E-Z Deck.
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 sites
"www.pultronex.com" and "www.ezdeck.com".
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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 in partnership with our regional
contractors/installers at approximately 30 other trade shows in Canada and the
US during 2001.
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.
We currently advertise 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 was aired in late July 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 August 2000.
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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
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.
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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.
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.
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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.
Employees
---------
As of August 31, 2000, the Company employed 43 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
-----------------------------------
Our 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
23
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<PAGE>
regions in Canada to locate a manufacturing operation. Corporate tax rates are
among the lowest in Canada, and there is 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.
24
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<PAGE>
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 5,121,455 shares which would be outstanding
assuming the 990,700 shares issuable upon the exercise of the warrants. There
were 4,130,755 shares outstanding as of November 15, 2000. The table also shows
the number of shares of common stock beneficially owned as of November 15, 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 1,000,000 19.6%
Suite 1060 Scotia Place 1
Edmonton Alberta
Canada T5J 3R8
Greg Buchanan Shareholder 500,000 9.8%
Box 38
High Prairie, Alberta
Canada T0G 1E0
Jarnail Sehra Shareholder 267,820 5.2%
501 Hefferan Dr.
Edmonton, Alberta
T6R 2K5
Atul K. Mehra Shareholder 290,637 5.7%
39 Westbrook Dr. NW
Edmonton, Alberta
T6J 2C8
Gary Loblick, Pres., COO, Dir. 15,500 0.3%
Krishen Mehra Director 59,495 1.2%
Kuldip (Kelly) Delhon CEO, Sec, Dir. 409,092 8.0%
Mave Dhariwal Director 80,000 1.6%
Gary Steadman Director 120,000 2.3%
Michael Vida Director 100,000 2.0%
Luc Guilbault CFO 45,000 0.8%
-------- -----
Off. & Dir. as a Group (7 Individuals) 889,086 17.3%
* The address for the officers and directors is that of the Company: 2305 -
8th St., Nisku, Alberta, Canada T9E 7Z3
W. Gordon Buchanan and Greg Buchanan are father and adult son and disclaim
beneficial ownership in each other's shares.
The above information on Dr. Mehra does not include 300,000 shares held by Dr.
Mehra's adult children for which he disclaims beneficial ownership.
The above information on Mr. Dhariwal does not include 50,000 shares held by Mr.
Dhariwal's adult child for which he disclaims beneficial ownership.
25
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<PAGE>
The above information on Mr. Steadman includes 40,000 shares and 40,000 warrant
shares registered in the name of 345439 Alberta Ltd., of which Mr. Steadman is a
control person.
The above information on Mr. Vida includes 100,000 shares and 100,000 warrant
shares registered in the name of Tatum Investments, Ltd., of which Mr. Vida is
the General Manager.
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 49 President, COO, and Director 1999
Krishen Mehra, Ph.D. 71 Chairman 1999
Kuldip (Kelly) Delhon B. Com 44 CEO/Secretary, and Director 1999
Mave Dhariwal HNC,MBA 54 Director 2000
Gary Steadman, P. Eng. 49 Director 2000
Michael Vida 40 Director 2000
Luc Guilbault, CA, CMA 42 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.
26
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<PAGE>
Gary Loblick, P. Eng., MBA - President, Director
------------------------------------------------
Gary Loblick is a Professional Engineer (registered in Alberta, Canada) who has
24 years experience in building and turning around manufacturing companies. He
has consummated 9 major international strategic alliances in Europe, Asia and
North America and utilizes alliance processes to develop market and supply
channels for Pultronex. His background includes work as a consultant for
industry development and as a corporate coach/trainer in marketing and business
strategies. He remains a senior associate with The Warren Company of Providence
RI, consulting on special projects in strategic sourcing alliances for TWC's
Fortune 500 clients. Gary developed and implemented the business strategy for
the turn around of the former ZCL pultrusion operation by Pultronex. 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. The Warren Company is a small
consulting and training organization which assists its clients by training the
clients in structuring and implementing strategic alliances with other
companies. The Winslow Group is a consulting company for market development
planning and business strategy. 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.
27
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<PAGE>
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. National Manufacturing Company is a manufacturer and distributor of
home and builder hardware. 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.
28
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<PAGE>
Family Relationships
There is no family relationship between any Director, executive or person
nominated or chosen by the Company to become a Director or executive officer.
Executive Compensation
Summary Compensation Table
The following table shows for the fiscal years ending August 31, 1999 and August
31, 2000, 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 $45,000 0 0 0 0 0 0
President, COO
2000 $68,000 0 0 0 0 0 0
--------------------------------------------------------------------------------------------------------------------
Kelly Delhon, 2000 $68,000 0 0 0 0 0 0
CEO
--------------------------------------------------------------------------------------------------------------------
</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 Loblick, the President and Chief Operating Officer is paid cash
compensation at the rate of $68,000 US, 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 $68,000 US, 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.
29
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<PAGE>
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 November 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.
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 and were exchanged for an
equivalent number shares in the Nevada corporation.
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
30
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<PAGE>
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. 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.
Security Holders: As of November 15, 2000, the Company had 86 holders of record
of its common stock, 48 holders of its 990,700 Warrants.
Dividend Plans: The Company has paid no common stock cash dividends and has no
current plans to do so. The terms of our Line of Credit prohibits us from paying
any dividends even if funds are otherwise available for distribution to
shareholders without the consent of the Lender, HSBC Bank Canada. As a result,
investors are not likely to receive dividends from us for the foreseeable
future.
There are presently 4,130,755 shares of common stock outstanding as of
November 15, 2000.
Description Of Securities
Common Stock
------------
Pultronex is authorized to issue up 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.
31
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<PAGE>
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 (____
2002). 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.
Selling Security Holders
------------------------
The following Selling Security Holders whose shares have been registered for
public resale under the registration statement are set forth below:
32
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<PAGE>
Selling Securities Securities Owned Shares & Shares &
% Prior To % After
Holder And Offered Offering * Offering
-------------------------------------------------------------------------------
Lynne B. Johnson 134,000 134,000/2.6% 0/*
Jeffery J. Tempas 10,000 10,000/ * 0/*
Leslie Gibbs &
Gwen Gibbs JTWROS 20,000 20,000/ * 0/*
Richard Dickerson 20,000 20,000/ * 0/*
George Mouchette &
Victoria Mouchette JTWROS 40,000 40,000/ * 0/*
Rhoda Davis &
C. Victoria Mouchette JTWROS 40,000 40,000/ * 0/*
Will Inns Ltd.(4) 80,000 80,000/1.6% 0/*
James J. Caffes &
Sandra M. Caffes JTWROS 15,000 15,000/ * 0/*
Wheaton Investment Group 10,000 10,000/ * 0/*
Ken Gaine &
Patricia A. Gaine JTWROS 20,000 20,000/ * 0/*
Gregg Funfar 20,000 20,000/ * 0/*
Robert C. Hedrick &
Mary Hedrick JTWROS 10,000 10,000/ * 0/*
Shawn Funfar 2,400 2,400/ * 0/*
Stephen A. Reno &
Judy L. Reno JTWROS 15,000 15,000/ * 0/*
269-5341 Canada Ltd. 20,000 20,000/ * 0/*
John Phillips &
Joanne Phillips JTWROS 6,000 6,000/ * 0/*
Roger Walklin &
Judy Walklin JTWROS 30,000 30,000/ * 0/*
Mladen Dundur 2,000 2,000/ * 0/*
Neil T. Enright 100,000 100,000/2.0% 0/*
Donna B. Cueroni 4,000 4,000/ * 0/*
James C. Irwin &
LaVerne G. Irwin TENCOM 2,000 2,000/ * 0/*
Marilyn J. Hoffart &
Elias Hoffart JTWROS 3,000 3,000/ * 0/*
Richard P Cueroni &
Elizabeth H. Cueroni TENCOM 4,000 4,000/ * 0/*
Andrew Loschiavo &
Lori Loschiavo JTWROS 4,000 4,000/ * 0/*
Beth Palmer &
David Stewart Palmer JTWROS 10,000 10,000/ * 0/*
Douglas J. Driver 2,000 2,000/ * 0/*
John W. Bishop &
Susan B. Bishop JTWROS 20,000 20,000/ * 0/*
Terry J. Swift 2,000 2,000/ * 0/*
John M. Fore &
Donna L. Fore TENCOM 10,000 10,000/ * 0/*
352649 Alberta Ltd 20,000 20,000/ * 0/*
33
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<PAGE>
<TABLE>
<CAPTION>
Selling Securities Securities Owned Shares & Shares &
% Prior to % After
Holder And Offered Offering * Offering
-------------------------------------------------------------------------------
<S> <C> <C> <C>
Carl K. Myers &
Patricia A. Myers JTWROS 200,000 200,000/3.9% 0/*
Christopher L. Eades 2,000 2,000/ * 0/*
Curtis Williams 2,000 2,000/ * 0/*
Davis F. Briggs &
Jean Fowler Biggs JTWROS 2,000 2,000/ * 0/*
George G. Harris 30,000 30,000/ * 0/*
Heritage Nurseries Ltd 20,000 20,000/ * 0/*
Joel W Gray &
Karen S Gray JTWROS 2,000 2,000/ * 0/*
Karen Brock &
Sam Brock JTWROS 2,000 2,000/ * 0/*
Marc Andre Guilbault 20,000 20,000/ * 0/*
Mehnga Matharu 200,000 200,000/3.9% 0/*
Rosealta Mortgage Corporation 20,000 20,000/ * 0/*
Thomas B. Chesnut 2,000 2,000/ * 0/*
W Gordon Buchanan 400,000 1,000,000/19.6% 600,000/11.7%
Robert V. Cella &
Cathy A. Cella JTWROS 2,000 2,000/ * 0/*
Sandra Esposito 20,000 20,000/ * 0/*
Tylere Couture &
Rick Couture, JTWROS 2,000 2,000/ * 0/*
Bob Adsit 174,000 174,000/3.4% 0/*
Dennis Brovarone 25,000 25,000/ * 0/*
--------- --------- ---------
Totals 1,800,400 2,400,000 600,000
* = Less than 1%
</TABLE>
The above table 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.
Will Inns Ltd. is controlled by David J. Will a 100% Shareholder, President,
Secretary & Director.
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.
269-5341 Canada Ltd., is controlled by Tom Jacques, a 90% Shareholder and
President, Secretary & Director.
352649 Alberta Ltd., is controlled by Randy James, a 100% Shareholder,
President, Secretary & Director.
Heritage Nurseries Ltd., is controlled by Gerald Van Bruggen a 50% Shareholder,
President & Director and Joanne Van Bruggen a 50% Shareholder, Secretary &
Director.
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 Pultronex.
The Selling Securities Holders do not own any other securities of the Company.
34
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<PAGE>
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.
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.
35
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<PAGE>
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 Regulation M, 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 Computershare Trust Company, 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, Littleton, Colorado.
Independent Auditors
The consolidated balance sheet as of August 31, 1999 and August 31, 2000 and the
related statements of operations, shareholders' equity, and cash flows for the
fiscal periods ended August 31, 1999 and August 31, 2000, 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.
36
(38)
<PAGE>
PRICEWATERHOUSECOOPERS (PCW)
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
November 17, 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, 2000 and 1999 and the consolidated statements of operations,
shareholders' equity and cash flows for the year ended August 31, 2000, 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 United States 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, 2000
and 1999 and the results of its operations and its cash flows for the year ended
August 31, 2000, 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
PricewaterhouseCoopers refers to the Canadian firm of PricewaterhouseCoopers LLP
and other member of the worldwide PricewaterhouseCoopers organization.
(39)
<PAGE>
Pultronex Corporation
Consolidated Balance Sheets
As at August 31, 2000 and 1999
________________________________________________________________________________
(expressed un U.S. dollars)
<TABLE>
<CAPTION>
August 31, August 31,
2000 1999
$ $
Assets
<S> <C> <C>
Current assets
Accounts receivable - net of allowance of $63,200; 1999 - $27,800 1,096,676 636,702
Prepaid expenses and deposits 162,629 111,093
Income taxes recoverable 4,622 -
Inventory (note 4) 2,057,014 1,556,617
Deferred tax asset (note 8) 158,005 -
-------------------------
3,478,946 2,304,412
Deferred tax asset (note 8) 56,241 -
Capital assets (note 5) 603,247 526,247
-------------------------
4,138,434 2,830,659
=========================
Liabilities
Current liabilities
Bank indebtedness (note 7) 874,309 505,180
Trade accounts payable 676,322 484,018
Other payables and accrued liabilities 35,825 59,807
Income taxes payable - 3,744
Current portion of obligations under capital leases (note 6) 7,805 6,781
Current portion of long-term debt (note 7) 47,561 46,811
-------------------------
1,641,822 1,106,341
Obligations under capital leases (note 6) 6,415 14,130
Long-term debt (note 7) 102,982 148,168
Other long-term obligations 33,963 -
Deferred tax liability (note 8) 65,698 13,772
-------------------------
1,850,880 1,282,411
-------------------------
Commitment (note 10)
Shareholders' Equity
Preferred stock - $.001 par value, 1,000,000 shares authorized
Common stock - $.001 par value, 200,000,000 shares authorized; 4,130,755
issued and outstanding (1999 - 2,813,435) 4,131 2,813
Additional paid in capital 2,510,366 1,464,796
(Deficit) retained earnings (252,265) 80,562
Accumulated other comprehensive income 25,322 77
-------------------------
2,287,554 1,548,248
-------------------------
4,138,434 2,830,659
=========================
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-2
(40)
<PAGE>
Pultronex Corporation
Consolidated Statements of Shareholders' Equity
For the periods ended August 31, 2000 and August 31, 1999
________________________________________________________________________________
(expressed in U.S. dollars)
<TABLE>
<CAPTION>
Accumulated
Additional Retained other comprehen-
Number of Common paid-in earnings sive income
shares stock capital (deficit) (loss) Total
# $ $ $ $ $
--------------------------------------------------------------------------------------------------------------------------
Balance - April 2, 1998 - - - - - -
<S> <C> <C> <C> <C> <C> <C>
Comprehensive income
Net earnings for the period - - - 75,683 - 75,683
Foreign currency translation - - - - (19,966) (19,966)
-------
Comprehensive income 55,717
Issuance of common shares 1,390,908 1,391 868,821 - - 870,212
Repurchase of common shares (195,454) (196) (111,258) (55,086) - (166,540)
--------- ------ -------- ------- -------- --------
December 31, 1998 1,195,454 1,195 757,563 20,597 (19,966) 759,389
--------
Comprehensive income
Net earnings for the period - - - 59,965 - 59,965
Foreign currency translation - - - - 20,043 20,043
------
Comprehensive income 80,008
------
Issuance of common shares 1,511,560 1,512 599,299 - - 600,811
Issuance of common shares on
Conversion of advances from
shareholders 106,421 106 107,934 - - 108,040
---------- ------- -------- ------- ------- -------
August 31, 1999 2,813,435 1,195 1,484,796 80,562 77 1,548,248
---------
Comprehensive loss
Net loss for the year - - - (332,827) - (332,827)
Foreign currency translation - - - - 25,245 25,245
Comprehensive loss (307,582)
Issuance of common shares 1,018,700 1,019 1,034,348 - - 1,035,367
Share compensation 298,620 299 298,321 - - 298,620
Share issue costs - - (287,099) - - (287,099)
--------- ------- --------- ------- -------- ---------
Balance - August 31, 2000 4,130,755 4,131 2,510,366 (252,265) 25,322 2,287,554
========= ======= ========= ======== ======== =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
(41)
<PAGE>
Pultronex Corporation
Consolidated Statements of Operations
For the periods ended August 31, 2000 and 1999 and December 31, 1999
________________________________________________________________________________
(expressed in U.S. dollars)
<TABLE>
<CAPTION>
Year ended Eight-month Nine-month
August 31, period ended period ended
2000 August 31, December 31,
$ 1999 1998
$ $
<S> <C> <C> <C>
Revenue 2,810,122 1,448,974 1,403,271
Cost of goods sold - exclusive of depreciation
shown separately below 1,771,726 745,077 750,302
--------- --------- ---------
Gross margin 1,038,396 703,897 652,969
--------- --------- ---------
Operating expenses
Selling, general and administration 1,339,405 525,648 470,817
Interest 79,038 40,806 30,235
Depreciation 68,944 42,189 40,869
Provision for doubtful accounts 54,378 21,410 18,000
--------- --------- ---------
1,541,765 630,053 559,921
--------- --------- ---------
(503,369) 73,844 93,048
Other income (expense) 7,942 - 1,110
--------- --------- ---------
(Loss) earnings before income taxes (495,427) 73,844 94,158
--------- --------- ---------
Income taxes (recovery)
Current - 3,702 14,456
Deferred (162,600) 10,177 4,019
--------- --------- ---------
(162,600) 13,879 18,475
--------- --------- ---------
Net (loss) earnings for the period (332,827) 59,965 75,683
========= ========= =========
Basic and diluted (loss) earnings per share (0.09) 0.03 0.08
========= ========= =========
Average shares outstanding 3,720,785 2,189,700 900,016
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
(42)
<PAGE>
Pultronex Corporation
Consolidated Statements of Cash Flows
For the periods ended August 31, 2000 and 1999 and December 31, 1998
________________________________________________________________________________
(expressed in U.S. dollars)
<TABLE>
<CAPTION>
Year ended Eight-month Nine-month
August 31, period ended period ended
2000 August 31, Decmeber 31,
$ 1999 1998
$ $
Cash provided by (used in)
Operating activities
<S> <C> <C> <C>
Net (loss) earnings for the period (332,827) 59,965 75,683
Items not affecting cash
Depreciation 68,944 42,189 40,869
Share compensation 99,620 - -
Deferred income taxes (162,600) 10,177 4,019
Other (4,757) 4,626 (1,110)
--------- ------- -------
(331,620) 116,957 119,461
Net change in non-cash working capital items
(note 11) (829,473) (416,233) (1,355,951)
--------- --------- ----------
(1,161,093) (299,276) (1,236,490)
---------- --------- ----------
Financing activities
Proceeds from bank indebtedness 369,129 290,544 214,456
Issuance of common shares 947,268 595,372 884,999
Redemption of common shares - - (172,434)
Advances from shareholder - - 109,939
Proceeds from note payable - - 1,900,173
Repayment of note payable - (495,655) (1,391,198)
Proceeds from long-term debt - - 237,522
Repayment of long-term debt (44,436) (30,850) (7,920)
Other long-term obligations 33,982 - -
Repayment of obligations under capital leases (6,691) (1,768) -
---------- --------- ----------
1,299,252 357,643 1,775,537
---------- --------- ----------
Investing activities
Purchase of capital assets (138,159) (58,367) (1,347,730)
Proceeds on disposal of capital assets - - 808,683
---------- --------- ----------
(138,159) (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-5
(43)
<PAGE>
Pultronex Corporation
Notes to Consolidated Financial Statements
August 31, 2000 and 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 changed its year-end after the nine-month period ending
December 31, 1998 to August 31.
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. Warranty costs have not been material to
date, and accordingly, no reserves have been provided for.
F-6
(1)
(44)
<PAGE>
Pultronex Corporation
Notes to Consolidated Financial Statements
August 31, 2000 and 1999 and December 31, 1998
________________________________________________________________________________
(expressed in U.S. dollars)
(d) Capital assets
The Company records capital 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%
The recoverability of capital assets is assessed at least annually, or when
events or changes in circumstances indicate a possible impairment exists,
based on estimated future cash flows.
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 when current evidence indicates that it is not likely
that these benefits will 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 equals basic
earnings per share for August 2000 as the inclusion of common stock
equivalents would be antidilutive. There were no common stock equivalents
prior to August 2000.
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. Revenue, expenses and cash flow amounts are
translated at the average exchange rates for the period. Transaction gains
and losses are included in Other Comprehensive Income in the statement of
shareholders' equity. Transaction gains and losses are included in income
as incurred. There is no resulting tax from these transaction gains and
losses.
h) Stock based compensation
Compensation expense relating to stock and/or stock options issued to
employees is accounted for over the resting period of the stock in
accordance with APB 25. Shares issued to non-employees for services are
recorded at fair value at the date of issue.
F-7
(2)
(45)
<PAGE>
Pultronex Corporation
Notes to Consolidated Financial Statements
August 31, 2000 and 1999 and December 31, 1998
________________________________________________________________________________
(expressed in U.S. dollars)
(i) 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 completed its evaluation but currently does not anticipate
that the adoption of SFAS No. 133 will have a material impact on its
financial position or results of operations.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No.101 (as amended), related to revenue recognition.
The company has not determined the potential impact of this pronouncement
on its results of operations or financial position.
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44 with respect to accounting for certain transactions
involving stock compensation. This standard became effective July 1, 2000.
The adoption of this standard had no impanct on the results of operations
or financial position of the company.
3 Acquisition
Effective April 1, 1998, the Company acquired the assets and business of
the pultrusion manufacturing division of ZCL Composites Inc. ("ZCL") for
$2,035,831 (CAN$3,000,000). The acquisition has been accounted for by the
purchase method and the results of operations have been included since the
date of acquisition:
$
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 (CAN$200,000) 135,658
Promissory note (CAN$2,800,000) 1,900,173
---------
2,035,831
=========
As collateral for the Promissory Note, the Company granted a General Security
Agreement on all present and after acquired property of the Company and a
mortgage on the specific land and building acquired. The Promissory Note bore
interest at 7.5% per annum payable monthly. Principal was repayable in
instalments of $135,727 (CAN$200,000) on each of May 15, 1998 and June 30, 1998;
$610,770 (CAN$900,000) September 30, 1998; and $1,017,949 (CAN$1,500,000) by
monthly instalments of $169,658 (CAN$250,000) on the last day of each month for
the months of October 1998 to March 1999. The holder of the Promissory Note
agreed to discharge the mortgage upon receipt of the first $1,051,881
(CAN$1,550,000) of principal and the remainder of their security interest upon
receipt of a further $508,975 (CAN$750,000) of principal. On October 1, 1998,
the land and building were sold to an unrelated party as described in note 10.
Proceeds from the sale were applied to the Promissory Note. By March 31, 1999,
the Promissory Note was fully repaid and all security interest in the assets
acquired from ZCL, including the mortgage and the GSA were fully discharged.
F-8
(3)
(46)
<PAGE>
Pultronex Corporation
Notes to Consolidated Financial Statements
August 31, 2000 and 1999 and December 31, 1998
________________________________________________________________________________
(expressed in U.S. dollars)
Pursuant to the agreement with ZCL, the Company was assigned all rights and
obligations under certain contracts with distributors. These obligations
included a commitment to repurchase material returned by distributors to ZCL at
a cost to the Company of 50% of the credit issued by ZCL. No amount was accrued
at the acquisition as no amount was determinable. The Company subsequently
purchased inventory under this arrangement for approximately $33,000. The
company assumed no other significant obligations with respect to the
acquisition.
4 Inventory
August 31, August 31,
2000 1999
$ $
Raw materials 289,616 280,658
Finished goods 1,767,398 1,275,959
--------- ---------
2,057,014 1,556,617
========= =========
5 Capital Assets
August 31,
2000
____________________________________________________________________________
Cost Accumulated Net
$ depreciation $
$
Plant equipment 679,993 135,076 544,917
Computer equipment 61,521 14,484 47,037
Furniture and fixtures 14,908 3,615 11,293
-------- -------- -------
756,422 153,175 603,247
======== ======== =======
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
======= ====== =======
F-9
(4)
(47)
<PAGE>
Pultronex Corporation
Notes to Consolidated Financial Statements
August 31, 2000 and 1999 and December 31, 1998
________________________________________________________________________________
(expressed in U.S. dollars)
The above amounts include $14,155 (1999 - $22,701) of capital assets under
capital leases and related accumulated depreciation of $5,622 (1999 - $3,405).
The above amounts also include plant equipment with a net carrying value of
$59,700 that was not being depreciated as the equipment was under construction
and not available for use at year end. Depreciation of $63,098 (1999 - $38,346)
was allocated to cost of goods sold and inventory during the period.
6 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:
$
2001 8,934
2002 6,700
--------
15,634
Less: Amounts representing interest 1,414
--------
Balance of obligation 14,220
Less: Current portion 7,805
--------
6,415
========
Specific leased equipment with a net book value of $8,533 has been pledged as
collateral for obligations under capital leases.
7 Long-term debt and bank indebtedness
August 31, August 31,
2000 1999
$ $
Bank loan repayable in monthly payments
of $3,963, plus interest at prime
plus 1.0% (8.50% at August 31, 2000;
7.50 at August 31, 1999) 150,543 194,979
Less: Current portion 47,561 46,811
-------- -------
102,982 148,168
======== =======
F-10
(5)
(48)
<PAGE>
Pultronex Corporation
Notes to Consolidated Financial Statements
August 31, 2000 and 1999 and December 31, 1998
________________________________________________________________________________
(expressed in U.S. dollars)
Principal payments required in each of the next four years are as follows:
$
2001 47,556
2002 47,556
2003 47,556
2004 7,875
-------
150,543
=======
Bank indebtedness bears interest at prime plus 0.75% (8.25% at August 31, 2000;
7.00% at August 31, 1999) payable monthly. The Company has a $1,042,981 (1999 -
$668,540) operating line of credit based on qualified accounts receivable and
inventory of which $168,672 (1999 - $163,360) is available at August 31, 2000.
The amount outstanding under the operating line of credit is repayable on
demand.
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.
The Company is subject to certain restrictive warrants under its loan agreements
with respect to maintaining specified working capital ratios, net worth ratios
and limiting capital expenditures and payments to shareholders. The Company was
in compliance with these covenants at August 31, 2000 and 1999.
8 Income taxes
The domestic and foreign components of earnings (loss) before taxes were as
follows:
August 31, August 31, December 31,
2000 1999 1998
$ $ $
Domestic (9,631) - -
Foreign (485,796) 73,844 94,158
--------- ------- ------
(495,427) 73,844 94,158
========= ======= ======
F-11
(6)
(49)
<PAGE>
Pultronex Corporation
Notes to Consolidated Financial Statements
August 31, 2000 and 1999 and December 31, 1998
________________________________________________________________________________
(expressed in U.S. dollars)
The components of the provision for income taxes consist of:
August 31, August 31, December 31,
2000 1999 1998
$ $ $
Current
Domestic - - -
Foreign - 3,702 14,456
-------- ------- -------
- 3,702 14,456
======== ======= =======
Deferred
Domestic (3,719) - -
Foreign (158,881) 10,177 4,019
--------- ------- -------
(162,600) 10,177 4,019
========= ======= =======
Significant component of deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
August 31, August 31, December 31,
2000 1999 1998
$ $ $
Deferred tax assets
<S> <C> <C> <C>
Loss carry forwards 214,246 - -
Valuation allowance - - -
--------- ------- -------
214,246 - -
Deferred tax liabilities
Capital assets (65,698) (13,772) (3,398)
--------- ------- -------
Net deferred tax asset (liability) 148,548 (13,772) (3,398)
========= ======= =======
</TABLE>
F-12
(7)
(50)
<PAGE>
Pultronex Corporation
Notes to Consolidated Financial Statements
August 31, 2000 and 1999 and December 31, 1998
________________________________________________________________________________
(expressed in U.S. dollars)
The provision for income taxes differs from the amount computed by applying the
federal and provincial statutory income tax rates to the company's earnings
(loss) for the periods ended August 31, 2000 and 1999 as follows:
<TABLE>
<CAPTION>
2000 1999 1998
$ $ $
<S> <C> <C> <C>
Income taxes (recoveries) at statutory rates (220,482) 32,949 41,900
Increase (decrease) related to manufacturing
and small business tax 29,148 (19,070) (23,425)
Increase related to expenses not deductible
for tax purposes 3,593 - -
Increased rates due to change in tax status 24,638 - -
Other 503 - -
-------- ------- -------
(162,600) 13,879 18,475
======== ======= =======
</TABLE>
The Company has Canadian non-capital losses of approximately $560,000 that will
expire in 2007 if not utilized.
9 Share capital
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 offer closed October 31, 1999. Gross proceeds received from the
offering totalled $990,700 from the issue of 990,700 shares of common stock and
990,700 warrants. In addition, the company issued 28,000 common shares for
proceeds of $44,667 during 2000.
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. This rate was
established by the Board of Directors based on the price paid to buy out a
shareholder in September 1998.
F-13
(8)
(51)
<PAGE>
Pultronex Corporation
Notes to Consolidated Financial Statements
August 31, 2000 and 1999 and December 31, 1998
________________________________________________________________________________
(expressed in U.S. dollars)
Shares issued for services
On December 15, 1999, the Company issued 298,620 common shares in exchange for
services of employees and to satisfy obligations of the October 31, 1999
offering. 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 of $99,620 and to share issue costs of $199,000.
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. No options have been
granted to date.
SB-2 Registration
On February 22, 2000, the Company filed a Form SB-2 Registration Statement
registering 1,800,400 shares of common stock. This registration statement is not
yet effective.
10 Commitment
During the period ended December 31, 1998, the Company disposed of previously
acquired land and building under a sale leaseback arrangement with an unrelated
party. The assets were disposed of for net proceeds of $808,683, which
approximated the net book value of the assets at the time of the sale. Proceeds
from the sale were used to repay the Promissory Note as described in note 3.
Pursuant to the terms of the leaseback agreement, the Company is committed to
lease the premises on a triple-net basis for a period of ten years commencing
October 1, 1998 and expiring September 30, 2008. Any renewal after that time is
to be on a month to month basis. In accordance with FAS 113, the lease has been
recorded as an operating lease.
Future minimum lease payments required in each of the next five years and to the
end of the lease term are as follows:
$
2001 89,662
2002 89,662
2003 89,662
2004 97,134
2005 97,813
Thereafter to September 30, 2008 301,589
--------
765,522
F-14
(9)
(52)
<PAGE>
Pultronex Corporation
Notes to Consolidated Financial Statements
August 31, 2000 and 1999 and December 31, 1998
________________________________________________________________________________
(expressed in U.S. dollars)
11 Statement of cash flows
August 31, August 31, December 31,
2000 1999 1998
$ $ $
Accounts receivable (448,322) (232,434) (407,636)
Prepaid expenses and deposits (49,531) (13,632) (98,772)
Inventory (472,524) (459,501) (1,108,271)
Trade accounts payable 141,816 266,749 225,049
Other accounts payable and accruals 7,512 32,961 19,224
Income taxes payable (8,424) (10,376) 14,455
-------- -------- ----------
(829,473) (416,233) (1,355,951)
======== ======== ==========
Interest paid 60,500 41,100 30,200
======== ======== ==========
Income taxes paid 8,600 14,100 -
======== ======== ==========
12 Geographic 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 in North America and
accordingly has only one reportable segment. Sales to external customers in the
United States and Canada accounted for 76% and 24% respectively (1999 - 70% and
30%; 1998 - 60% and 40%) of the Company's total sales for the period ended
August 31, 2000.
The Company was dependent upon one customer for 8% of external sales in the year
ended August 31, 2000 (1999 - 16%, 1998 - 9%).
13 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.
Pursuant to an agreement with the Canadian Export Development Corporation, the
company insures its accounts receivable from United States customers. Under the
terms and conditions of the policy, approved accounts receivable are insured for
up to 90% of their value. The company must submit monthly reports and comply
with cretain credit limits.
The Company had 19% and 15% of its receivables with one customer as at August
31, 2000 and 1999, 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.
F-15
(10)
(53)
<PAGE>
Pultronex Corporation
Notes to Consolidated Financial Statements
August 31, 2000 and 1999 and December 31, 1998
________________________________________________________________________________
(expressed in U.S. dollars)
14 Comparative figures
Certain prior period comparative figures have been reclassified to conform with
the current period's presentation.
F-16
(11)
(54)
<PAGE>
Pultronex Corporation
Consolidated Balance Sheets
(Unaudited)
As at November 30, 2000 and August 31, 2000
________________________________________________________________________________
(Expressed in U.S. dollars)
<TABLE>
<CAPTION>
November 30, August 31,
2000 2000
$ $
Assets
<S> <C> <C>
Current assets
Accounts receivable 806,452 1,096,676
Prepaid expenses and deposits 140,143 162,629
Income taxes recoverable 5,449 4,622
Inventory 2,029,622 2,057,014
Deferred tax asset 162,352 158,005
----------- ----------
3,144,018 3,478,946
Deferred tax asset 103,984 56,241
Capital assets 595,997 603,247
------------ ----------
3,843,999 4,138,434
============ ==========
Liabilities
Current liabilities
Bank indebtedness 775,317 874,309
Trade account payables 493,140 676,322
Other payables and accrued liabilities 56,891 35,825
Current portion of obligations under
capital leases 7,445 7,805
Current portion of long-term debt 45,370 47,561
------------ ----------
1,378,163 1,641,822
Obligations under capital leases 4,325 6,415
Long-term debt 230,095 102,982
Other long-term obligations 32,398 33,963
Deferred tax liability 80,698 65,698
------------ ----------
1,725,679 1,850,880
------------ ----------
Shareholders' Equity
Preferred stock - $.001 par value,
1,000,000 shares authorized
Common stock - $.001 par value,
200,000,000 shares authorized,
4,130,755 issued and outstanding 4,131 4,131
Additional paid-in capital 2,510,366 2,510,366
Deficit (316,748) (252,265)
Accumulated other comprehensive loss (79,429) 25,322
------------ ----------
2,118,320 2,287,554
------------ ----------
3,843,999 4,138,434
============ ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-17
(55)
<PAGE>
Pultronex Corporation
Consolidated Statement of Operations
(Unaudited)
For the three-month periods ended November 30, 2000 and 1999
________________________________________________________________________________
(Expresses in U.S. dollars)
<TABLE>
<CAPTION>
Three-month Three-month
period ended period ended
November 30, November 30,
2000 1999
$ $
<S> <C> <C>
Revenue 883,882 430,337
Cost of goods sold - exclusive of depreciation
shown separately below 622,721 245,589
------------- ------------
Gross margin 261,161 184,748
------------- ------------
Operating expenses
Selling, general and administration 351,970 197,355
Interest (699) 16,567
Depreciation 19,237 17,942
Provision for doubtful accounts 1,246 -
------------- ------------
371,754 231,864
------------- ------------
(110,593) (47,116)
Other income (expense) 1,480 -
------------- ------------
Loss before income taxes (109,113) (47,116)
------------- ------------
Income taxes recovery
Current - -
Deferred (44,631) (15,631)
------------- ------------
(44,631) (15,631)
------------- ------------
Net loss for the period (64,482) (31,485)
============= ============
Basic and diluted loss per share (0.02) (0.01)
============= ============
Average shares outstanding 4,105,088 3,162,338
============= ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-18
(56)
<PAGE>
Pultronex Corporation
Consolidated Statement of Cash Flows
(Unaudited)
For the three-months periods ended November 30, 2000 and 1999
_______________________________________________________________________________
(Expressed in U.S. dollars)
Three-month Three-month
period ended period ended
November 30, November 30,
2000 1999
$ $
Cash provided by (used in)
Operating activities
Net (loss) earnings for the year (64,483) (31,484)
Items not affecting cash
Depreciation 19,237 17,942
Future income taxes (44,630) (15,631)
------------- ------------
(89,876) (29,173)
Net change in non-cash working capital items 106,591 44,787
------------- ------------
16,715 15,614
------------- ------------
Financing activities
Increase in bank indebtedness (98,992) (513,009)
Issuance of common shares 0 760,972
Proceeds from long term debt 146,096 0
Repayment of long term debt (21,174) (11,737)
Repayment of obligations under capital lease (2,450) (1,792)
------------- ------------
23,480 234,434
------------- ------------
Investing activities
Purchase of capital assets (40,195) (22,023)
------------- ------------
(40,195) (22,023)
------------- ------------
Change in cash and cash at end of period 0 228,025
------------- ------------
The accompanying notes are an integral part of the financial statements.
F-19
(57)
<PAGE>
Pultronex Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
November 30, 2000
________________________________________________________________________________
1. Basis of presentation
The unaudited financial statements for the three months ended November
30, 2000 have been prepared in accordance with United States generally
accepted principles and on the same basis as the audited financial
statements prepared for the year ended August 31, 2000. In the opinion
of management, these unaudited inancial statements include all
adjustments necessary for fair and not misleading presentation of the
financial position, the results of operations and cash flows. The
results of operations for the three months ended November 30, 2000 are
not necessarily indicative of results that may be achieved for the year
ending August 31, 2001, 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 rate as of each balance sheet date. Revenue, expenses and cash
flow amounts are translated at the average exchange rate for the
period. Transaction gains and losses are included in other
comprehensive income in the statement of shareholders' equity. There is
no resulting tax from these translation gains and losses.
3. Shareholders' Equity
<TABLE>
<CAPTION>
Aug 31, 2000 Period Nov 30, 2000
<S> <C> <C> <C>
Number of Shares 4,130,755 - 4,130,755
========= =========
Share Capital $ 4,131 $ - $ 4,131
Additional paid-in capital 2,510,366 - 2,510,366
Deficit (252,265) (64,483) (316,748)
Other Comprehensive Income
(Loss) 25,322 (104,751) (79,429)
------------- ---------- ------------
$ 2,287,554 $ (169,234) $ 2,118,320
============ =========== ============
</TABLE>
On February 22, 2000, the Company filed a Form SB-2 Registration
Statement registering 1,800,400 shares of common stock. This
registration statement is not yet effective.
F-20
(58)
<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 - Loss in Most Recent Fiscal Year 3
- Lack of Building Code Approval 3
- Lack of Public Market for Shares 3
- Dependence of Major Customer 3
- Credit Line Restrictions of Dividends 3
Where You Can Get Additional Information 4
Management's Discussion and Analysis
of Financial Condition For Fiscal Year Ended
August 31, 2000 5
Management's Discussion and Analysis
of Financial Consition for Three Months Ended
November 30, 2000 10
Pultronex and its Business 13
Security Ownership of Certain Beneficial
Owners and Management 25
Management 26
Transactions with Management 30
Market for Pultronex's Common Stock
and Related Stockholder Matters 31
Description of Securities 31
Selling Securities Holders 33
Selling Securities Holders Plan of Distribution 35
Transfer and Warrant Agent 36
Legal Matters 36
Independent Auditors 36
Financial Statements F-1
Unaudited Financial Statements for
Three Months ended November 30, 2000 F-17
UNTIL ______, 2001 (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
-------------------------
(59)
<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
(60)
<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
(61)
<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
(62)
<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
(63)
<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 45,000 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
-------
Total 298,620
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.
II-5
(64)
<PAGE>
Shares issued in Regulation D Offering
--------------------------------------
The Registrant was not a reporting company pursuant to the Securities Exchange
Act of 1934 nor was it a development stage company with no business plan. Thus
it was eligible to rely upon Rule 504. Moreover, Rule 504 was available in that
the Registrant sold less than $1,000,000 of securities in the previous 12 month
period and the purchasers were unaffiliated investors. The Units, consisting of
one share of stock and one warrant to acquire an additional share were sold at
$1.00 per Unit in September and October, 1999 pursuant to the Rule 504 safe
harbor. These sales were entirely private transactions pursuant to which all
material information as specified in Rule 502(b)(2) was made available to the
purchasers. No advertising or general solicitation was employed in offering the
securities. The securities were offered for investment only and not for the
purpose of resale or distribution, and the transfer thereof was appropriately
restricted by the Company. The Company does not believe the Shares sold pursuant
to the above described Exchange or granted for Services described below should
be integrated into this offering due to the different consideration and purposes
of these other sales.
Shares issued for Services
--------------------------
The shares issued for services are for compensation to the Company's employees,
consultants and legal counsel pursuant to the exemption contained in Section
4(2) of the Securities Act. The shareholders were provided and had unlimited
access to all material information regarding the Company as a result of their
employment with the Company. With respect to the sales made, the Company relied
on Section 4(2) of the Securities Act of 1933, as amended. No advertising or
general solicitation was employed in offering the securities. The securities
were offered for investment 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. Pultronex has recorded the issue of these shares
atthe estimated fair value of $1 per share, totaling $298,620. Pultronex
believes that each shareholder was a sophisticated investor at the time of the
exchange of shares and were provided and had unlimited access to all material
information regarding Pultronex as a result of their relationship with
Pultronex.
II-6
(65)
<PAGE>
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*
10.5 -- HSBC Banking Agreement
10.6 -- EDC Insurance Policy
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
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
II-7
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<PAGE>
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
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<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 January 11, 2001.
PULTRONEX CORPORATION
BY: /s/ Gary Loblick
-----------------------
Gary Loblick, President
/s/ Luc Guilbault
-----------------
Luc Guilbault, Chief Financial Officer, Controller and
Principal Accounting 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 January 11, 2001
------------ Officer and Director
Gary Loblick
/s/ Krishen Mehra, Ph.D. Chairman January 11, 2001
-------------------
Krishen Mehra, Ph.D
/s/ Kuldip Delhon Chief Executive Officer, January 11, 2001
-------------- Secretary and Director
Kuldip Delhon
/s/ Mave Dhariwal Director January 11, 2001
-------------
Mave Dhariwal
/s/ Gary Steadman Director January 11, 2001
-------------
Gary Steadman
/s/ Michael Vida Director January 11, 2001
------------
Michael Vida
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