<PAGE> 1
SUBJECT TO COMPLETION, DATED NOVEMBER 3, 2000
REGISTRATION NO. 333-43732
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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1 TO
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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INDUSTRIALEX MANUFACTURING CORP.
(Exact name of small business issuer as specified in its charter)
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COLORADO 3479 84-145-4260
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
AHMAD AKRAMI
63-A S. PRATT PARKWAY 63-A S. PRATT PARKWAY 63-A S. PRATT PARKWAY
LONGMONT, COLORADO 80501 LONGMONT, COLORADO 80501 LONGMONT, COLORADO 80501
(303) 651-6672 (303) 651-6672 (303) 651-6672
(Address and telephone number of (Address of principal place of business) (Name, address and telephone number
principal executive offices) of agent for service)
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Copies to:
LESTER R. WOODWARD, ESQ.
ROBERT P. ATTAI, ESQ.
DAVIS, GRAHAM & STUBBS LLP
370 SEVENTEENTH STREET, SUITE 4700
DENVER, COLORADO 80202
(303) 892-9400
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APPROXIMATE DATE OF PROPOSED SALE TO PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
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If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS OF AMOUNT TO BE PROPOSED MAXIMUM OFFERING PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PRICE PER SHARE(3) AGGREGATE OFFERING PRICE REGISTRATION FEE
--------------------------- ------------ ------------------------- ------------------------ ----------------
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Common Stock, par value $.01 per share.... 8,292,000(1) $ 1.00 $8,292,000 $2,189*
Common Stock, par value $.01 per share.... 3,800,000(2) $ 1.50 5,700,000(3) $1,505
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(1) 3,800,000 of the securities registered hereunder are to be offered in the
form of Units consisting of one share of common stock and one common stock
purchase warrant.
(2) Includes 3,800,000 shares issuable upon exercise of common stock warrants.
(3) Estimated solely for the purpose of calculating the registration fee, based
upon the expected price at which the shares of common stock, $.01 par
value, are to be offered.
* $2,110 previously paid
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.
<PAGE> 2
EXPLANATORY NOTE
This registration statement covers (a) the primary public offering by
Industrialex of 3,500,000 units consisting of one share of common stock, $.01
par value and one share purchase warrant exercisable for one share of common
stock for two years from the date of the initial public offering at a price of
$1.25 in the first year and $1.50 in the second year; (b) 125,000 shares paid to
the placement agent, Thomson Kernaghan & Co. Limited, as a corporate fee for
acting as lead agent in the offering; (c) 300,000 units underlying a warrant
paid to Thomson Kernaghan & Co. Limited in consideration of Thomson Kernaghan &
Co. Limited's commitment to sell 3,000,000 of the shares in the offering; and
(d) the concurrent offering on a delayed basis by certain selling stockholders
of Industrialex of 4,067,000 shares of common stock of which 200,000 shares are
presently issued and outstanding and 3,867,000 shares are issuable upon exercise
of warrants and special warrants. The initial public offering prospectus covers
the shares being offered by Industrialex. A separate selling stockholders
prospectus will be used by the selling stockholders in connection with an
offering by them for their accounts of up to 4,067,000 shares of common stock.
The selling stockholders prospectus is identical to the initial public offering
prospectus, except for (1) alternate front and back cover pages, which alternate
cover pages are noted in the registration statement, (2) the sections entitled
"Summary," "Use of Proceeds," "Plan of Distribution" and "Risk Factors" which
alternate sections are indicated in the registration statement, and (3) the
sections entitled "Determination of Offering Price" and "Dilution" which
sections shall appear only in the initial public offering prospectus.
<PAGE> 3
THIS INFORMATION IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT DELIVER THESE
SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE
SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY
STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED NOVEMBER 3, 2000
INITIAL PUBLIC OFFERING
PROSPECTUS
3,500,000 Units
[INDUSTRIALEX MANUFACTURING LOGO]
INDUSTRIALEX MANUFACTURING CORP.
Each unit consists of one share of common stock, $.01 par value and one common
stock purchase warrant. Each warrant entitles the holder to purchase one share
of common stock for two years from the close of the initial public offering at a
price of $1.25 in the first year and $1.50 in the second year.
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PARTIALLY UNDERWRITTEN BY THOMSON KERNAGHAN & CO. LIMITED
Thomson Kernaghan & Co. Limited, Industrialex's agent, has entered into
a best efforts commitment agreement to sell 3,000,000 of the units in this
public offering to investors in Canada at a price of $1.00 per unit.
SALES IN THE UNITED STATES BY INDUSTRIALEX
Industrialex will sell up to 500,000 of the units in this public
offering directly to investors in the United States at a price of $1.00 per
unit. The offering of these 500,000 units will terminate 60 days from the date
the registration statement is declared effective.
SALES BY SELLING STOCKHOLDERS
Industrialex is concurrently registering 4,067,000 shares of its common
stock on behalf of selling stockholders.
OFFERING CONTINGENT UPON LISTING ON CANADIAN VENTURE EXCHANGE
Prior to this offering there has been no market for the common stock,
the units or the warrants. Before offers to sell units are made, the shares of
Industrialex common stock must have been approved for listing on the facilities
of the Canadian Venture Exchange. Industrialex common stock has never been
listed on any national securities exchange, and there is no present intention to
list on any exchange other than the Canadian Venture Exchange.
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TOTAL PER UNIT
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Public offering price (aggregate proceeds) $ 3,500,000 $ 1.00
Underwriter commissions $ 240,000 $ 0.08
Proceeds $ 3,260,000 $ 0.92
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THE UNITS OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" LOCATED AT PAGES 2 TO 4.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is o, 2000
<PAGE> 4
TABLE OF CONTENTS
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PAGE
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Summary..................................................................................1
Risk Factors.............................................................................2
Dilution.................................................................................4
Use of Proceeds..........................................................................5
Description of Industrialex..............................................................6
Description of Business..................................................................6
Acquisitions............................................................................18
Management's Discussion and Analysis of
Financial Condition and Results of Operations...........................................22
Description of Securities...............................................................27
Plan of Distribution....................................................................30
Directors, Senior Officers and Management...............................................33
Certain Relationships and Related Transactions..........................................37
Executive Compensation..................................................................38
Cautionary Statement Concerning
Forward-Looking Statements..............................................................38
Dividend record and policy..............................................................38
Experts.................................................................................39
Legal Matters...........................................................................39
Where You Can Find More Information.....................................................39
Outside Back Cover......................................................................40
Index to Financial Statements..........................................................F-1
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SUMMARY
BUSINESS OF INDUSTRIALEX: Industrialex is a provider of protective
coating services to various manufacturing
industries. Our services include the
application of chemical adhesions to four
categories of products: metal, plastic,
glass and printed circuit board assemblies.
The chemical process that we use provides
many benefits such as enhanced aesthetics
and protection from hostile environments,
corrosion and electrostatic discharge.
Our principal office is located at 63-A S.
Pratt Parkway; Longmont, Colorado 80501. The
telephone number is (303) 651-6672.
OFFERING: The offering consists of 3,500,000 units to
be offered to the public. Each unit consists
of one share of common stock and one common
stock purchase warrant that entitles the
holder to purchase one share of common stock
for two years from the close of the initial
public offering at a price of $1.25 for the
first year and $1.50 for the second year.
Thomson Kernaghan & Co. Limited will use its
best efforts to underwrite 3,000,000 of the
units and sell to investors in Canada.
Industrialex will offer for sale directly to
investors in the United States up to 500,000
units. Simultaneously with this offering,
Industrialex is registering 4,067,000 shares
of common stock on behalf of selling
stockholders. Upon completion of the
offering, there will be approximately
7,875,000 shares of common stock issued and
outstanding. In addition:
o Industrialex has granted stock
options pursuant to which up to
687,000 shares may be issued in the
future.
o Industrialex has issued warrants and
special warrants pursuant to which
up to 4,067,000 shares may be issued
in the future. Upon completion of
the offering, there will be
approximately 7,907,000 warrants and
special warrants outstanding
pursuant to which up to 7,907,000
shares may be issued in the future.
USE OF PROCEEDS: The net proceeds from this offering will be
$3,260,000. The net proceeds from the
offering will be used to pay the costs of
this offering, establish new manufacturing
facilities, finance future acquisitions, pay
off continuing payment obligations from
previous acquisitions, and to fund general
corporate marketing.
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RISK FACTORS
An investment in Industrialex involves certain risks. Prospective
investors should carefully consider the following risk factors, in addition to
all of the other information in this prospectus, in determining whether to
purchase shares of Industrialex stock.
OUR BUSINESS MODEL IS BASED ON ACQUIRING EXISTING COATING COMPANIES AND
CONSOLIDATING, AND WE MAY FAIL TO ACHIEVE THE BENEFITS OF INTEGRATING OPERATIONS
FROM ACQUIRED COMPANIES.
Industrialex's success depends upon our ability to successfully
integrate the operations of Industrialex, Broomfield Industrial Painting, Inc.,
Decorative & Coating Systems, Inc., Screen Tech Graphics, Inc. and future
acquisitions. There can be no assurance that past or future acquisitions will
increase production capacity, provide for improved economies of scale, improve
gross profit margins or reduce consolidated expenses as anticipated. In
addition, there can be no assurance that we will create a common interface for
the overall support of the several production lines, or that we will be able to
market previously separate product lines. Acquisitions also require increased
capacity through installation of new automated equipment. Failure to increase
capacity could inhibit our ability to grow as planned.
THE LOSS OF KEY PERSONNEL, ESPECIALLY IF WITHOUT ADVANCE NOTICE, OR THE
INABILITY TO HIRE OR RETAIN QUALIFIED PERSONNEL, COULD HAVE A MATERIAL ADVERSE
EFFECT UPON OUR BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Our future success depends in significant part upon the continued
service of certain key management personnel. Key personnel of Industrialex
include Ahmad Akrami, Michael Scott Robidart, Gary Landgren, Joseph Triolo, Jr.,
Stephen King, Vincent DiNapoli and Mark Trawinski. Industrialex has entered into
employment agreements with all key personnel. All of the agreements contain
confidentiality provisions that are unrestricted as to time, and non-competition
and non-solicitation provisions.
Competition for such personnel is particularly intense in the coating
industry, and there can be no assurance that Industrialex can retain its key
personnel or that it can attract, assimilate or retain other highly qualified
personnel in the future.
WE RELY ON SALES TO A SMALL NUMBER OF CUSTOMERS, THE LOSS OF ANY ONE OF WHICH
COULD HAVE AN ADVERSE IMPACT ON REVENUES.
We derive a substantial portion of our revenue from a limited number of
customers, the loss of any one of which could adversely impact our operations.
For the pro forma six months ended June 30, 2000, the five largest customers of
Industrialex and its subsidiaries represented 63.5% of total revenues. We
anticipate that our operating results will continue to depend on sales to a
relatively small number of customers. None of our current customers has any
minimum purchase obligations, and they may stop placing orders with us at any
time, regardless of any forecast they may have previously provided.
EVEN WITH THE PROCEEDS FROM THIS OFFERING, WE MAY NOT HAVE SUFFICIENT FUNDS TO
COVER NECESSARY EXPENSES.
There can be no assurance that cash flow from operations together with
working capital and net proceeds from this offering will be sufficient to fully
fund the planned expansion of our operations. If necessary, we may seek
additional funds through equity or debt financing. There can be no assurance
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<PAGE> 7
that additional financing will be available when needed or on terms acceptable
to us. If adequate funds are not available, we may need to delay or cancel
planned acquisitions or expansion of operations.
THE POTENTIAL SUPPLY OF MARKETABLE SHARES FOR IMMEDIATE SALE MAY ADVERSELY
IMPACT THE MARKET PRICE OF THE SHARES.
Concurrently with the registration of the units and shares offered
under this prospectus, Industrialex has registered under the U.S. securities
laws 4,067,000 shares of its common stock that are presently owned by our
stockholders, or that underlie special warrants. If a significant portion of
those shares are offered for sale within a short period of time, the price of
the shares in the market would likely decline. As of the date of this
prospectus, we have not yet issued any of the shares underlying special
warrants. If the supply substantially exceeds the demand, it might become
impossible to find buyers for all the units that are being offered, which would
likely further depress the price and, perhaps, make it impossible for you to
sell all of your shares as quickly as you may desire.
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<PAGE> 8
DILUTION
The following sets forth the dilution per share (as of June 30, 2000)
after giving effect to this offering.
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Effective price of shares of common stock offered hereunder: $ 1.00
Pro forma combined net tangible book value per share before the offering: (0.004)
Increase in pro forma combined net tangible book value per share attributable to
the offering: 0.334
Pro forma combined net tangible book value after the offering: 0.33
------
Dilution to investor: 0.67
Dilution to investor (as a percentage): 67.0%
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The following sets forth the dilution per share (as of June 30, 2000)
after giving effect to this offering and the exercise of all special warrants
that have been issued in the private placement and business acquisitions.
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Effective price of common stock offered hereunder: $ 1.00
Pro forma combined net tangible book value per share assuming exercise of all
special warrants prior to the offering: $(0.002)
Increase in pro forma net tangible book value per share attributable to the offering: $ 0.222
Pro forma combined net tangible book value after the offering: $ 0.22
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Dilution to investor: $ 0.78
Dilution to investor (as a percentage): 78.0%
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USE OF PROCEEDS
The gross proceeds from this offering will be $3,500,000. From these
proceeds, Industrialex will pay an aggregate commission of $240,000 to Thomson
Kernaghan. After deducting the commission and prior to expenses of the offering,
the net proceeds from this offering will be $3,260,000. The gross proceeds from
the offering will be used as follows:
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Funds available: $ 3,500,000
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Proposed uses:
Additional costs of this offering:
Legal fees $ 162,000
Accounting fees 150,000
Printing 10,000
Other 28,000
Agent's work fee 18,000
Agent's commission 240,000
Cost of setting up new facility 800,000
Note Payable for Decorative acquisition 700,000
Note Payable for Screen Tech acquisition 610,000
Payment of debt 250,000
Cost of future acquisitions(1) 400,000
Marketing 75,000
Working capital to fund ongoing operations and unallocated working capital 57,000
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$ 3,500,000
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(1) We may use a portion of the net proceeds for potential acquisitions of
complementary businesses although we have no current agreements signed or
negotiations in process.
If Thomson Kernaghan exercises its warrant to purchase up to 300,000
shares at a price of $1.00 per share, Industrialex will receive additional
proceeds of up to $300,000 if exercised at any time up to one year from the date
that shares of Industrialex common stock are first listed for trading on the
facilities of the Canadian Venture Exchange. If Thomson Kernaghan exercises the
warrant, the proceeds will also be added to Industrialex's working capital.
Management intends to invest the net proceeds in money market funds until such
time as those proceeds are required for the uses discussed above.
If the holders of the warrants included in each unit sold in this
offering exercise the warrants, Industrialex will receive additional proceeds of
up to $4,375,000 if the warrants are exercised during the first year following
the date of this offering and $5,250,000 if the warrants are exercised during
the second year following the date of this offering which will also be added to
Industrialex's working capital.
If we sell less than 500,000 of the units that will be offered for sale
to investors in the United States, then we will reduce the amount of proceeds
from the offering that we allocate to working capital. In addition, we would
also have to reduce the amounts we currently anticipate allocating to future
acquisition and marketing.
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DESCRIPTION OF INDUSTRIALEX
Industrial Services LLC was formed under the laws of the State of
Colorado on September 23, 1994. In 1997 it changed its name to Industrialex
Manufacturing LLC. On December 30, 1999, New Industrial Manufacturing Corp. was
formed under the laws of the State of Colorado for the purpose of acquiring
Industrial Manufacturing LLC. On January 19, 2000 Industrial Manufacturing LLC
was merged into New Industrial Manufacturing Corp. and New Industrial
Manufacturing Corp. changed its name to Industrialex Manufacturing Corp.
Our principal office is located at 63-A S. Pratt Parkway, Longmont,
Colorado 80501. The telephone number is (303) 651-6672.
DESCRIPTION OF BUSINESS
INTRODUCTION
In recent years, the outsourced manufacturing or contract manufacturing
industry has witnessed tremendous growth as product manufacturers move to
transfer their manufacturing requirements to outside companies in order to
concentrate their efforts on their core business. Technology companies are
focusing their efforts on developing and marketing their products and contract
with other companies to manufacture their products. This trend has created a
multi-billion dollar a year market opportunity. Several major telecommunications
companies, including Lucent Technologies Inc., Motorola Inc. and Nortel Networks
Corp. have recently announced dramatic increases in outsourcing their
manufacturing process. These telecom companies join the ranks of other big
electronics and computer system and component makers that have already realized
that letting another company assemble their products is an excellent way to keep
costs under control and margins high.
Products with protective coated materials have become commonplace and
range from metal lawn furniture to computers to cell phones. Major markets for
coatings include motor vehicles, appliances, furniture, industrial equipment,
consumer goods and electronics.
Protective coating is one step in the manufacturing of components in
the contract manufacturing industry, all of which require 24 hour to 48 hour
turn-around. In describing the electronics manufacturing services industry in
the October 25, 1999 issue of Fortune Magazine, Jim Savage, an analyst at Thomas
Weisel, stated that "what was a $90 billion industry in 1998 will be a $200
billion by 2001." Based on management's estimate that 1% of the cost of
manufacturing of a product is the cost of protective coating, we estimate that
the market for protective coating services could grow from $900 million in 1998
to $2.0 billion by 2001. Industrialex already provides protective coating
services of conformal coating, shielding, powder coating, liquid painting and is
planning to combine these operations under one automated plant in order to avoid
capacity restraints of the various existing smaller facilities.
Industrialex is a provider of protective coating services to a broad
range of companies in the manufacturing industry. Our services include conformal
coating, shielding, powder coating, liquid painting and screen printing. The
specific markets served by Industrialex include the following: high technology,
medical, aerospace, defense, consumer electronics, data storage, semiconductor,
transportation and general manufactured goods. Our services include the
application of chemical adhesions to four categories of general products: metal,
plastic, glass and printed circuit board assemblies. These various adhesion
processes provide many benefits including enhanced general aesthetics and
protection from a hostile environment, corrosion, and electrostatic discharge.
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Management believes there are approximately 14 private companies in the coating
sector comparable to Industrialex in Colorado, ranging in size up to $2,000,000
in annual gross sales.
Industrialex began operations in Longmont, Colorado, initially focusing
on the provision of conformal coating applications, primarily using silicon, for
painted circuit board assemblies. These services were subsequently expanded to
provide potting and electro-magnetic interference/radio frequency interference
shielding applications of painted circuit board assemblies. Electro-magnetic
interference/radio frequency interference shieldings are designed to be
conductive and maintain conductivity and to protect internal and external
sources from the emissions of electromagnetic interference and radio frequency
interference. In 1997, Industrialex expanded its conformal coating applications
to include using urethane and acrylic by opening a facility in Mead, Colorado.
In addition to providing a full spectrum of coating applications for painted
circuit board assembly products, the Mead facility was equipped to provide
powder coating services for metal products.
On April 4, 2000, Industrialex acquired Broomfield Industrial Painting,
Inc., located in Westminster, Colorado. Founded in 1983, Broomfield has been in
the business of providing industrial finishing to metal products for the high
technology, medical and aerospace industries, utilizing liquid paint and powder
coating applications. As a result of this acquisition, our service offering
expanded into liquid painting of metal and plastic products. In 1999, Broomfield
generated sales of approximately $993,000.
On May 1, 2000, Industrialex acquired Decorative & Coating Systems,
Inc., located in Denver, Colorado. Founded in 1976, Decorative was the first
company to provide powder coating services in the State of Colorado. As a result
of this acquisition, Industrialex's service offering of powder coating
applications for metal products were significantly enhanced. In 1999, Decorative
generated sales of approximately $1,353,000.
On July 17, 2000, Industrialex acquired Screen Tech Graphics, Inc.,
located in Colorado Springs. Founded in 1976, management believes that Screen
Tech is one of the largest providers of powder coating, liquid painting and
screen printing services in southern Colorado. As a result of this acquisition,
Industrialex expanded its services into the southern region of Colorado. In
1999, Screen Tech generated sales of approximately $1,899,000.
OVERVIEW OF OPERATIONS
The specific coating services required by our customers will vary
depending upon the nature of the product to be coated and the environment within
which that product will be used. The following table demonstrates the specific
application for each segment provided by Industrialex and each of its
subsidiaries:
<TABLE>
<CAPTION>
Metal and Plastic Products Painted Circuit Board Assembly Products
----------------------------------------- ------------------------------------------------------
Screen
Printing Powder Paint Urethane Potting Silicon Shielding
------------- ------------ ------------- ------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Industrialex X X X X
Broomfield X X
Decorative X X
Screen Tech X X X
</TABLE>
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<PAGE> 12
We currently operate out of four facilities, all located in Colorado.
These facilities are equipped with a total of 15 coating chambers. Three of the
facilities are located in northern Colorado and one facility is located in
southern Colorado. These facilities range in size from 6,500 square feet to
16,000 square feet of production space. Currently, the combined facilities
employ 106 personnel. Each facility is managed by a general manager who oversees
day-to-day operations.
Our operations must comply with federal, state and local environmental
controls on the storage, handling, discharge and disposal of chemicals and gases
used in the manufacturing process. Industrialex holds permits from the Colorado
State Air Pollution Control Divisions and various wastewater treatment entities.
All of our facilities meet electro static discharge and United States
Occupational Safety and Health Administration requirements and their personnel
have been internally certified for operational procedures, quality standards,
document control and safety.
One of the key factors in our success is that our operations have the
ability to provide 24 hour to 48 hour turn-around with high quality and customer
service while maintaining competitive pricing. To maintain such quality and
customer service, we have refined our processes, requiring three coating
chambers dedicated to conformal coating, seven coating chambers dedicated to
powder coating and five chambers dedicated to liquid paint. This allows for
reduction of cross contamination among different coating applications.
The general process that each facility undergoes in the application of
its coating process for metal and plastic products is as follows:
1. Products are received at the facilities where they are
prepared for placement into the specialized chemical washing
equipment.
2. After drying, critical areas that do not require coating are
masked, and the part is placed on specially designed fixtures
for entry into the coating chambers.
3. Custom designed spray guns apply the coating material to the
surface of the part.
4. Once the parts are coated, they are placed into a heating
oven. Heat ensures proper adhesion of chemicals onto the
surface of the part and promotes drying.
5. At the final stage of the process, the masking is removed and
coated parts are inspected for quality purposes. All inspected
parts are packaged and shipped to the customer.
We plan to capitalize on the well-recognized names of acquired
subsidiaries and on the brand recognition that each subsidiary has developed. We
propose to utilize that brand recognition to establish a "brands and standards"
for the coating industry as part of its overall strategy to roll up several of
its local competitors. The first phase of the strategy started with the
acquisitions of Broomfield, Decorative and Screen Tech. We plan to consolidate
the operations of Broomfield, Decorative and Screen Tech into two facilities.
One facility, with approximately 70,000 square feet, will be based in northern
Colorado. The second facility, previously operated by Screen Tech, has
approximately 16,000 square feet and is based in southern Colorado. These
facilities will be equipped with state-of-the-art automation technologies to
provide highly efficient processes with flexibility to switch among product
lines while providing cost effective high volume throughout production
capabilities. Management anticipates that these automated facilities, together
with economies of scale, will provide savings in usage of chemicals and
manpower.
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[FLOWCHART]
THE COATING PROCESSES
CONFORMAL COATING:
Conformal coatings of printed circuit board assemblies function as a
dielectric insulator, providing a durable barrier against environmental
contaminants and moisture over a wide temperature and humidity range. Conformal
coatings also act as shock and vibration absorbers, thus protecting the final
product from possible damage. Coating types include silicone, acrylic, epoxy
resin and urethane.
The process of conformal coating normally begins with masking of
critical areas of the board. Circuit boards are carefully masked, leaving only
the desired coating area exposed. Coatings are then applied either by spraying
the board surface, brushing, or by dipping the boards directly into the coating
material. Each process offers a system for precisely coating the boards to the
exact specifications.
ACRYLIC COATING
Acrylic coating is a clear, tough coating that protects printed circuit
boards against moisture, corrosion, thermal shock and static discharge. It also
protects and insulates electrical and electronic components and assemblies,
including generators, motors, transformers, relays, and solenoid coils.
EPOXY COATING
Epoxy coating is a non-porous, water and chemical resistant material
that contains a form of nylon material. It is normally black in color, is
non-conductive and is therefore suitable for electrical insulation.
URETHANE COATINGS
Urethane provides excellent dielectric properties. It is also used to
protect coated parts from moisture and other harsh environmental elements.
SILICONE COATING
Silicone is a clear, durable material that protects printed circuit
boards against moisture, corrosion, thermal shock and static discharge. Silicone
becomes flexible at temperatures ranging from -65C to +200C. Silicone dries
within minutes and cures at room temperature in 4 to 12 hours. Silicone
illumines under ultra violet light source which makes it an ideal agent for
quality control inspection because one can then determine proper application to
the product.
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<PAGE> 14
ENCAPSULATION/POTTING:
The encapsulation process (also known as "potting") involves submerging
an assembly into resin (usually epoxy) and allowing the resin to harden.
Encapsulation provides effective resistance and environmental protection against
humidity, while acting as an insulator against shock and vibration. It also
works effectively in maintaining the security of the printed circuit board
assembly design by preventing third parties from accessing the printed circuit
board assembly without destroying the encapsulated technology.
Encapsulation/potting is used in a variety of electro-mechanical applications
including automotive, ballasts, relays, mold making, high voltage power
supplies, solenoids, batteries, switches, circuit breakers, transformers,
medical equipment and other devices.
POWDER COATING:
Powder coating has become the fastest growing finishing technology and
according to a U.S. Department of Commerce report released in February 2000
currently represents over 10 percent of the total industrial finishing market.
Powder coating is a dry finishing process, using finely ground particles of
pigment and resin that are electrostatically charged and sprayed onto the part
to be coated. The parts to be coated are electrically grounded so that the
charged powder particles projected at them adhere to the parts and are held
there until melted and fused into a smooth coating in the curing oven. The
result is a uniform, durable, high quality finish. Because of the unique process
of powder coating, many problems and issues inherent in liquid finishing are
eliminated or minimized.
Powder coating contains no solvents and emits negligible, if any,
polluting volatile organic compounds into the atmosphere. Exhaust air from the
coating booth can be safely returned to the coating room, and less oven air is
exhausted to the outside, making the powder coating process a safer and cleaner
finishing alternative. In addition, since powder coating uses a dry powder, up
to 98% of powder coating over spray can be retrieved and reused with proper
recycling units. The unused powder is reclaimed by a recovery unit and
recirculated through the system. The waste that results is negligible, and can
be disposed of easily and economically with United States Environmental
Protection Agency certified disposal facilities.
There are two basic types of powder, indoor and outdoor. Most outdoor
powders are polyester and most indoor powders are epoxy. Powders come in a
rainbow of colors, glosses and textures. Powder coatings provide a wide range of
performance properties, offering excellent resistance to heat, corrosion,
impact, abrasion, fading from sunlight, and extreme weather.
LIQUID PAINTING:
Liquid painting, also known as liquid coating, uses polyurethane, bake
enamels, water based paints, and conductive coatings. These environmentally
compliant coating materials were developed in response to limitations recently
placed on the emission of volatile organic compounds in certain areas of the
United States. Volatile organic compounds are toxic gases that are harmful to
the environment.
Even as the demand for powder coatings increases, there exists a need
for liquid coatings. Certain cosmetic requirements can only be achieved through
the application of liquid coatings as well as the application of conductive
coatings on plastics requiring electro-magnetic interference/radio frequency
interference. Most government and military specifications refer to liquid
coatings. Even though powder coating is superior to most liquids, industrial
coating manufacturers have produced materials that stand up to highly abrasive
chemicals and solvents, making them a continued desirable coating in many
original equipment manufacturer product lines.
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<PAGE> 15
ELECTRO-MAGNETIC INTERFERENCE/RADIO FREQUENCY INTERFERENCE SHIELDING:
This process involves the application of conductive shielding
materials. Through reflection and/or absorption, these materials effectively
reduce electro-magnetic interference/radio frequency interference emitted by
certain printed circuit board assembly based products used primarily in the
telecommunications industry. We supply several chemical materials that meet a
wide range of specifications.
SCREEN PRINTING:
Our screen printing capability includes in-house screen fabrications,
computerized art department and darkrooms. These capacities allow us to
manufacture custom labeling and to print directly onto customer-supplied
substrates. Applications include polycarbonate overlays, foil labels, aluminum
nameplates, decals/bumper stickers, panels, chassis, die cutting and art and
screen fabrication.
All of our coating processes must comply with federal, state and local
regulations that impose various environmental controls on the storage, handling,
discharge and disposal of chemicals and gases. There can be no guarantee that
new environmental laws will not be imposed which will have an adverse impact on
our manufacturing process and ability to compete effectively.
THE MARKET FOR THE PRODUCTS
Protective coating is one step in the manufacturing of components in
the outsourced manufacturing services industry. In describing the electronics
manufacturing services industry in an article in Fortune Magazine published
October 25, 1999, Jim Savage, an analyst at Thomas Weisel, suggested that "what
was a $90 billion industry in 1998 will be a $200 billion industry by 2001."
Based on management's estimate that 1% of the cost of manufacturing a product is
the cost of protective coating, the Company estimates that the market for its
protective coating services could grow from $900 million in 1998 to $2.0 billion
by 2001. According to a U.S. Department of Commerce report released in February
2000, "In 1998, total manufacturers' shipments of paint and allied products
amounted to $17.2 billion, an increase of 4.2% from 1997 shipments of $16.5
billion." The fastest growing segment of this market is powder coatings. The
same report states that "shipments of powder coatings increased 13.4% to $669.7
million in 1998 from $590.5 million in 1997."
THE COATING INDUSTRY
The coating industry in the United States is divided into several major
categories including product coating for original equipment manufacturers,
architectural coatings, special purpose coatings and miscellaneous allied paint
products. The segment of the market that applies to our business is the product
coatings market. All paint and coatings that are designed for use by the
original equipment manufacturers of industrial and consumer goods are called OEM
product coatings. According to reports published in the December 1998 issue of
Paint & Powder Magazine, "OEM's and their custom coater suppliers represent one
of the largest customer groups for the paint and coating industry, consuming 37%
of all coatings shipped in 1998." According to another published report by Frost
& Sullivan in the October 1999 issue of World Powder Coating Markets, "In 1998,
the world powder coating markets reached $3.76 billion in revenues and is
expected to continue growing." One universal possibility is expansion into new
end-user markets such as engineered wood furniture. The growing need for
environmental compliance, combined with proven lower application costs, will
help forge new powder coating markets, such as wood substrates coating,
according to reports in the October 1999 issue of World Power Coating Markets.
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<PAGE> 16
Liquid and powder coatings are frequently positioned as competitive
products. Like their liquid counterparts, powder coatings can serve both
protective and decorative functions. They are applied to many types of
manufactured goods, furniture, appliances, automotive parts and electronic
components. According to an August 1995 report published by National Paint &
Coatings Association, "Liquid technologies will continue to dominate in areas
where the coating is field-applied and heat curing is not feasible. Areas where
powder technology may increase its presence are those where the coating process
can be very tightly controlled." We provide both powder and liquid paint
applications. The following tables demonstrate the usage of OEM product coatings
by type of coating and by industry.
OEM Product Coatings Usage by Type of Coating
1998
[PIE CHART]
THE MARKET FOR OEM PRODUCT COATINGS
[PIE CHART]
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<PAGE> 17
PARTNERSHIPS
Partnerships amongst coating companies are becoming more common and
demonstrate a growing effort in the industry to form teams to solve customer
problems. Although we have no immediate plans or agreements to do so, management
will consider developing partnership arrangements, where appropriate, provided
that the focus is on establishing cooperative efforts with our equipment
suppliers. Pittsburg Paint and Glass, for example, recently formed an alliance
with Advanced Robotic Technologies, Inc. to integrate coatings and application
technology. Similarly, DuPont Powder Coatings is working with Thermal
Innovations Ltd. and TRI Innovations, AB, a Swedish manufacturer of a UV-curing
system, to develop a new powder coating line for MDF Systems, Ltd. in the United
Kingdom for wood finishing applications.
In order to capitalize on what management estimates to be a $2.0
billion market opportunity in the United States, we will position our marketing
efforts as a provider of a full range of coating offerings. Specifically these
offering include conformal coating of printed circuit board assemblies, powder
coating of metal, plastic and glass products, and liquid painting of metal based
products.
MARKETS
The industrial coating market is defined by the categories of products
it services. The major product categories include metal, plastic, glass and
printed circuit board assemblies, which are manufactured by companies in the
following industries: electronic manufacturing, general manufactured goods,
aerospace, transportation and medical devices. We are able to provide a full
range of coating services. These services are defined as:
o conformal coating utilizing silicone or arethane,
o potting/encapsulation and electro-magnetic interference/radio
frequency interference shielding for printed circuit board
assemblies,
o powder coating and liquid painting of metal, plastic and glass,
o screen printing of metal and plastic products.
Our business is currently divided into two major categories: short
production runs (24 - 48 hour turnaround of unique production runs to the
customer) and long production runs (repetitive production runs of the same
product based on prescheduled time of receiving the orders and delivery). Short
production runs provide approximately 70% of total revenue whereas long
production runs provide approximately 20%.
The requirements of our customers are generally met either through
short-term purchase orders or long-term contracts. The short-term purchase
orders are serviced in an efficient and cost effective manner because of our
ability to perform on a short runs basis where providing 24 to 48 hour
turnaround is essential. Industrialex's operating subsidiaries are set up with
the facilities, tooling and processes that provide such turnaround. Our powder
coating and liquid paint service offerings are primarily provided in such
business setting and operations.
Long-term contracts are typically established with original equipment
manufacturers where production runs are predictable and can be designed with
production control systems. The Longmont facility is equipped with class A
chambers, where we can provide clean, dust free isolated coating environments
which are the prime requirements of printed circuit board assemblies products.
Conformal coating, potting/encapsulation and shielding of printed circuit boards
are primarily coated in this type of facility.
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<PAGE> 18
The business strategy calls for changing the current ratio between
short runs business and long runs business so as to establish long runs as the
primary revenue generator. To achieve this goal, we plan to establish an
integrated, state-of-the-art automated factory. This facility will consolidate
the operations of current subsidiaries and is being designed to provide maximum
efficiency in the coating processes.
In Colorado, we have over 180 customers. Major customers include SMTC
Manufacturing Corp., EPOCS Corp., CEH Corp. and Cobe Laboratories, Inc.
THE MARKETING PLAN
Our goal is to become a leading provider of a full spectrum of coating
applications for the manufacturing industry. We will grow the business
regionally in two phases. Phase one will be in the Colorado region and Phase two
will encompass all of North America. During Phase one, we will establish three
facilities in the Colorado region. These facilities will integrate the
operations of the acquired companies and will be replicated and rolled out
throughout the subsequent phases. Management expects to begin Phase two in the
year 2001.
To accomplish these goals, our sales and marketing plans will focus on
establishing two areas that management believes are lacking in today's
protective coating services industry. One is the establishment of a brand and
the second is the establishment of a standard. To achieve this, we will attempt
to leverage relationships with customers to secure long-term contracts for our
base business. We also plan to utilize the internet in establishing a direct
line of communication and commerce with the original manufacturers. Such tools
will be utilized to provide proposals and quotes directly to the customers.
Our base business has traditionally been established through long-term
relationships and our reputation in the region. We plan to utilize a direct
sales approach to grow its business by developing new customers and finding new
opportunities. Currently, there are two full time sales persons covering
customers in the Colorado region. In order to develop new business, we plan to
utilize additional sales personnel. Sales strategy will be based on developing
key account relationships where Industrialex is involved at the very early part
of the customers' product design so that coating specifications are established
at the beginning of the product cycle. In the process of establishing such key
accounts, we plan to establish high executive level relationships with the
customers' management.
Once Phase 1 of the roll-up has been completed, management expects that
our state-of-the-art Colorado facility will be among the largest, most advanced
and efficient protective coating operation in the region. By utilizing a direct
sales force and leveraging its operational efficiencies, combined with the
creation of a strong brand identity program, management expects to establish
long-term contracts with ongoing long-term revenue streams.
THE RESEARCH AND DEVELOPMENT PLAN
Industrialex utilizes advanced technologies in two primary areas: the
application of chemicals on products, and the utilization of advanced process
equipment in its coating operations. Our longstanding relationships with the
manufacturers of chemicals allow for access to the latest advancements in
chemical materials. We do not expend any capital in research and development
activities. We will work with customers who wish to experiment with the
application of specific chemical materials on unique products, however, this
type of research and development on new products is customer driven and is
funded by the customer. Industrialex is working with its customers in
experimenting with applying
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<PAGE> 19
powder coating chemicals on glass, wood and different grade steel products.
Effective utilization of these applications may create a growth opportunity in
segments that can use such coatings.
Industrialex experiments with advanced equipment for use in its coating
operations. Such equipment coupled with internally engineered fixtures and
mechanization improves efficiency, reduction of chemical usage and overall cost
effectiveness of its processes.
THE SYNERGIES
The synergies among Industrialex and each of its subsidiaries can be
demonstrated in four categories, as follows:
PRODUCT OFFERINGS
With the combined entities, we expect to offer a full spectrum of
coating applications to customers in Colorado. Our primary expertise is in
conformal coating, potting and electro-magnetic interference/radio frequency
interference shielding of printed circuit board assemblies. Broomfield's primary
offering is liquid paint for industrial applications of metal products.
Decorative's primary expertise is powder coating of metal and plastic products.
Screen Tech offers liquid paint, powder coating and screen printing for
customers in the southern region of Colorado area.
The coating industry is characterized by a consistent flow of new,
improved chemical applications that render existing coating products obsolete.
There can be no assurance that we will be able to convert our processes quickly
enough to take advantage of such new chemical applications and market these
products.
ECONOMIES OF SCALE
Management expects that the combined entities will be able to generate
larger purchasing power in materials procurement, thus being able to gain
favorable pricing from materials suppliers. The gross profit margin can also
increase as a result of sharing of personnel. Each acquired company currently
utilizes separate accounting systems, purchasing, and human resource and
benefits functions. The expenses can be minimized by combining administration,
accounting and general management.
MARKET EXPANSION
The combined companies will utilize a common marketing and sales
organization with the goal of expanding the base business and growing the new
business. The key account sales process will attempt to establish new customers
with long-term relationships. The cohesive marketing plan will focus heavily on
the creation of a brand and standard for our products and services. As a result,
management believes we can grow the sales more effectively as a combined entity.
OPERATIONS
Currently, Industrialex operates out of four facilities located in
Longmont, Denver, Westminster and Colorado Springs. We propose to integrate
operations into three facilities by February 2001 when we will occupy a new
facility of approximately 70,000 square feet in the Denver Metro Area. This new
facility will utilize advanced automated production systems and will also serve
as the Company's new headquarters. The current businesses of Decorative and
Broomfield will be moved and integrated into this new facility. The Screen Tech
facility in Colorado Springs, which is approximately 16,000 square
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<PAGE> 20
feet, will remain as the major base in southern Colorado region. The Longmont
facility, which is approximately 6,500 square feet, will remain in place to
focus on providing silicone based conformal coating. Prior to the integration of
operations, we will continue to service customers from the four existing
facilities. This approach will allow us to maximize plant capacity, which is
restricted by the amount of oven capacity of the combined entities. The goal of
the integration is to increase economies of scale and to garner additional sales
as a result of an expansion of services not possible by the current facilities,
operating separately.
BUSINESS OBJECTIVES AND MILESTONES
Management plans to focus on Colorado as a model for a national roll-up
plan. The market size for protective coating services in Colorado is estimated
by management to be approximately $40 million annually. Management believes
there are approximately 14 private companies providing protective coating
service to manufacturing industries in Colorado. Industrialex's plans call for a
consolidation of five coating service companies, of which three have already
been acquired, during the first phase of its 18 month roll-up in Colorado.
Management estimates that once the consolidation is completed it will have
captured a significant share of the market in Colorado.
With funds from this offering and cash on hand, if any, management
hopes to accomplish the following business objectives within the 12-month period
following the completion of this offering:
1. Integrate the operations of Industrialex and the following
acquired companies:
(a) Broomfield (which was acquired on April 4, 2000);
(b) Decorative (which was acquired on May 1, 2000); and
(c) Screen Tech (which was acquired on July 17, 2000);
and complete all matters associated with the acquisitions,
including payment of any amounts owing pursuant to the
acquisitions
2. Acquire two additional coating companies by the end of the
first quarter of 2001. (We have been approached by coating
companies but have deferred further discussions until this
offering is complete.)
3. Open a new 70,000 square foot facility for the integration of
Broomfield and Decorative and future acquisitions.
During the 12-month period following the completion of the offering,
management would like to complete the consolidation of the coating services
industry in Colorado. It has allocated $2.6 million to pursue this objective. In
order to attain this objective, we would have to meet the following milestones:
o Pay off $700,000 (plus interest) of acquisition debt for the
Decorative acquisition within ____ days after the completion
of this offering.
o Pay off $610,000 (plus interest) of acquisition debt for the
Screen Tech acquisition by December 31, 2000.
o Pay off $250,000 of existing debt incurred as a result of the
acquisition of Screen Tech.
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<PAGE> 21
o Have $800,000 to be spent between December 2000 and April 2001
for the establishment of the new facility.
o Have $400,000 to pay the estimated cash portion for the
acquisition of 2 new companies by December 31, 2000.
COMPETITION
There are both competing technologies and competing companies in the
protective coating services industry. Our strategy calls for being an effective
consolidator in the industry. To be an effective consolidator, we must strive to
be the first to identify and use new materials in chemicals and advanced
application techniques.
We do not propose to engage in research and development or to incur
expenses associated with new product development. Instead, we will focus on
developing and strengthening our current competitive advantage, which is breadth
of knowledge in the coating process. Because management believes we have better
knowledge of the coating process than our competitors and can use that knowledge
to generate economies of scale and shorter turn around times, Industrialex can
compete with other companies on the basis of price and customer services.
Our competition within the Colorado market consists of companies that
compete in our business segment or that provide the same full complement of
services. Management believes these companies range in size up to $2.0 million
in annual revenues and include the following: Ameratech, Inc., A & T Powder
Coating, Applied Plastic Coatings Inc., Denver Bumper Works Inc., Environmental
Powder Coatings, Foothills Powder Coating, Inc., Lincoln Plating Co., Powder
Coating Specialities Inc., Sons' Powdercoating Inc., Associated Finishers,
Powder Pro Inc., Rainbow Cycle Craft Inc., and Front Range Powder.
Management believes Ameratech, Inc. and Foothills Powder Coating, Inc.
represent the largest potential competition in the region. Ameratech is a
provider of powder coating services in the Colorado Springs region. Ameratech's
production facility is believed to utilize semi-automated coating lines which
should provide efficient, cost effective processes. Located in Golden, Colorado,
Foothills has captured a significant share of the protective coating market in
the western metro-Denver area.
PATENTS, TRADEMARKS AND COPYRIGHTS
We rely solely on general trademark and copyright law to protect our
products and have neither formally registered trademarks or copyrights nor
obtained any patent protection for any products.
PERSONNEL
Industrialex currently has a total of 106 full and part-time employees,
11 of which work on a part- time basis and 95 of which work on a full-time
basis. Of these, 14 employees serve in a management and administration capacity,
two employees serve in a sales and marketing capacity, 11 employees serve in a
manufacturing management capacity and 79 employees serve in production. These
employees operate out of the following offices of the Company:
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<PAGE> 22
<TABLE>
<CAPTION>
MANAGEMENT & SALES &
OFFICE LOCATION ADMINISTRATION MARKETING MANUFACTURING PRODUCTION TOTAL
--------------- -------------- --------- ------------- ---------- -----
<S> <C> <C> <C> <C> <C>
Longmont, CO 5 1 1 11 18
Westminster, CO 2 0 3 14 19
Denver, CO 2 0 3 26 31
Colorado Springs, CO 5 1 4 28 38
Totals: 14 2 11 79 106
</TABLE>
The foregoing full and part-time personnel are sufficient to meet our
stated business objectives. Additional personnel will be added, mainly in
production, as and when circumstances warrant and profits or additional funding
permits. None of our employees are subject to collective bargaining agreements.
Management believes relations with employees are good.
DESCRIPTION OF OFFICES
The Longmont facility occupies approximately 6,500 square feet of
leased space at 63-A S. Pratt Parkway, Longmont, CO, U.S.A., under a lease
expiring May 1, 2001. A total of 18 employees operate out of this office and
manufacturing facility.
The Westminster facility occupies approximately 7,500 square feet of
leased space at 3220 West 71st Avenue, Unit 9, Longmont, Colorado, under a lease
expiring May 31, 2001. A total of 19 employees operate out of this manufacturing
facility.
The Denver facility occupies approximately 10,000 square fee of leased
space at 4355 Monaco Parkway, Denver, Colorado under a lease expiring May 31,
2001. A total of 31 employees operate out of this office and manufacturing
facility.
The Colorado Springs facility occupies approximately 16,000 square fees
of leased space at 171 Talamine Court, Colorado Springs, Colorado, under a lease
expiring May 31, 2005. A total of 38 employees operate out of this office and
manufacturing facility.
ACQUISITIONS
The following is a description of the acquisitions made by Industrialex
during the past five fiscal years and during the period since the completion of
the most recently completed fiscal year.
ACQUISITION OF BROOMFIELD INDUSTRIAL PAINTING INC.
Under a stock purchase agreement dated March 22, 2000 between
Industrialex, Mark S. Trawinski, Donald R. Lauer and Angela Bennet Lauer,
Industrialex purchased all of the issued and outstanding shares of Broomfield.
The purchase price for the Broomfield shares was $925,000 comprised as
follows:
(a) a closing payment of $425,000 delivered to the Broomfield
stockholders at closing; and
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<PAGE> 23
(b) an aggregate of 500,000 special warrants, valued at $1.00 each,
delivered to the Broomfield stockholders at closing.
The acquisition of Broomfield shares by Industrialex closed on April 4,
2000.
Each special warrant is convertible, for no additional consideration,
into one share of Industrialex common stock at the option of the holder with no
expiration. Under the terms of the stock purchase agreement, Industrialex agreed
that in the event a public offering of its common stock had not been completed
within one year of the closing, Industrialex would, within six months of a
request by any Broomfield stockholder, repurchase the special warrants held by
the Broomfield stockholder at a price of $1.00 per special warrant.
Each Broomfield stockholder agreed, in the event of an initial public
offering of Industrialex common stock within one year of the closing, to enter
into a lock-up agreement, pursuant to which each Broomfield stockholder agreed
not to sell or transfer 70% of their Industrialex shares for a period of nine
months following the closing.
Founded in 1983, Broomfield has been in the business of providing
industrial finishing, utilizing liquid paint of metal and plastic products for
the high technology manufacturing, and medical and aerospace industries.
Broomfield primarily utilized liquid paint and powder coating applications to
service its customers. Broomfield has 19 employees and occupies 7,500 square
feet of facility.
As a result of this acquisition, Industrialex's service offering
expanded into liquid painting of metal and plastic products.
ACQUISITION OF DECORATIVE & COATING SYSTEMS, INC.
Under a stock purchase agreement dated May 1, 2000 between Decorative &
Coating Systems, Inc., Joseph Triolo, Jr., Joseph Triolo, Sr., Gary Triolo and
John Triolo and Industrialex, Industrialex purchased all the issued and
outstanding shares of Decorative from the Decorative stockholders.
The purchase price for the Decorative Shares was $1,200,000 paid as
follows:
(a) A closing payment of $300,000 delivered to the Decorative
stockholders at closing;
(b) a promissory note in the principal amount of $700,000 bearing
interest at a rate of 12% per annum and originally due on or
before October 1, 2000, but extended to be due ____ days
following completion of this offering, delivered to the
Decorative stockholders on closing; and
(c) an aggregate of 200,000 special warrants, valued at $1.00
each, delivered to the Decorative stockholders at closing.
The acquisition of the Decorative shares by Industrialex closed on May
1, 2000.
Each special warrant is convertible, for no additional consideration,
into one share of Industrialex common stock at the option of the holder with no
expiration. Under the terms of the stock purchase agreement, Industrialex agreed
that in the event a public offering of its common stock had not been completed
within one year of the closing, Industrialex would, within six months of a
request by any
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<PAGE> 24
Decorative stockholder, repurchase the special warrants held by the Decorative
stockholder at a price of $1.00 per special warrant.
Each Decorative stockholder agreed, in the event of an initial public
offering of Industrialex common stock within one year of the closing, to enter
into a lock-up agreement pursuant to which each Decorative stockholder agreed
not to sell or transfer 70% of their Industrialex shares for a period of nine
months following the closing.
Founded in 1976, Decorative was the first company to provide powder
coating services in the State of Colorado for metal and plastics products for
high technology manufacturing, transportation, defense and general manufactured
goods industries. Decorative utilizes primarily powder coating applications to
service its customers. Decorative has 31 employees and occupies 10,000 square
feet of facility.
As a result of this acquisition, Industrialex's service offering
expanded to include powder coating applications for metal and plastic products.
ACQUISITION OF SCREEN TECH GRAPHICS, INC.
Under a stock purchase agreement dated June 7, 2000 between
Industrialex and Susan Elizabeth DiNapoli and Vincent DiNapoli, Industrialex
purchased all of the issued and outstanding shares of Screen Tech from the
Screen Tech stockholders.
The purchase price for the Screen Tech shares was $1,000,000, comprised
as follows:
(a) a closing payment of $300,000 delivered to the Screen Tech
stockholders at closing;
(b) a promissory note in the principal amount of $610,000, bearing
interest at 12% per annum and due on or before December 31,
2000, delivered to the Screen Tech stockholders at closing;
and
(c) an aggregate of 90,000 special warrants, valued at $1.00 each,
delivered to the Screen Tech stockholders at closing.
In addition to the Screen Tech Purchase Price, Industrialex will be
obligated to issue and deliver to the Screen Tech stockholders an additional
300,000 Screen Tech Special Warrants or shares of common stock, if Screen Tech
meets or exceeds the performance requirements that, for the 12 month period
ended December 31, 2000, net sales revenue are equal to or greater than
$1,750,000 and pre-tax profit exceeds 10% of net revenues.
The acquisition of the Screen Tech shares by Industrialex closed on
July 5, 2000.
Each Screen Tech special warrant is convertible, for no additional
consideration, into one share of Industrialex common stock at the option of the
holder with no expiration. Under the terms of the stock purchase agreement,
Industrialex agreed that in the event a public offering of its common stock had
not been completed within one year of the closing, Industrialex would, within
six months of a request by any Screen Tech stockholder, repurchase the special
warrants held by the Screen Tech stockholder at a price of $1.00 per special
warrant.
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<PAGE> 25
Each Screen Tech stockholder agreed, in the event of an initial public
offering of Industrialex common stock within one year of the closing, to enter
into a lock-up agreement pursuant to which each Screen Tech stockholder agreed
not to sell or transfer 90% of their Industrialex shares for a period of nine
months following the closing.
Founded in 1976, Screen Tech is the largest provider of powder coating,
liquid painting and screen printing services in Colorado Springs, Colorado.
Screen Tech utilizes both powder coating and liquid paint applications for metal
and plastic products for high technology manufacturing, electronics, fabricated
metal manufacturers and transportation industries. Screen Tech has 38 employees
and occupies 16,000 square feet of facility.
As a result of this acquisition, Industrialex's services expanded into
the southern region of Colorado.
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<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read together with Industrialex's
financial statements and accompanying notes included elsewhere in this
prospectus.
This information should be read in conjunction with the financial
statements of Industrialex and related notes thereto included elsewhere in this
prospectus. Financial information for each of the two years in the period ended
December 31, 1999 has been derived from audited financial statements. Financial
information for the year ended December 31, 1997 and the six months ended June
30, 2000 and 1999 has been derived from unaudited financial statements.
<TABLE>
<CAPTION>
6 MONTHS ENDED JUNE 30 YEARS ENDED DECEMBER 31
2000 1999 1999 1998
<S> <C> <C> <C> <C>
INCOME STATEMENT
INFORMATION:
Revenues $ 942,682 $ 432,962 $ 1,113,685 $ 810,821
Cost of sales 754,129 317,298 783,746 473,723
General and administrative expenses 401,318 108,095 270,119 163,667
Net income (loss) (222,476) 7,588 59,088 173,336
BALANCE SHEET
INFORMATION:
Total assets 3,255,692 N/A 454,154 416,421
Total current liabilities 1,130,124 N/A 70,071 89,437
Working capital (285,632) N/A 226,719 243,395
Equity 1,391,557 N/A 343,380 326,984
</TABLE>
RESULT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2000
Revenues
Revenues increased from $433,000 in 1999 to $943,000 for the six months
ended June 30, 2000. This resulted in an increase of $510,000, or 118% over the
same period in 1999. Industrialex acquired Broomfield and Decorative in April
and May of 2000, respectively. These acquisitions represented an increase in
revenues of $542,000 during the period ended June 30, 2000. This increase was
offset by a decrease in revenues at Industrialex, due primarily to the transfer
of powder coating customers from Industrialex to Broomfield and Decorative.
Redundant facilities at Industrialex were eliminated, subsequent to the
acquisitions noted above, in favor of the facilities at Broomfield and
Decorative.
Gross margins
Gross margin for the six months ended June 30, 2000 was $189,000, or
20% based on sales. This compares with a gross margin of 27% based on sales, for
the same period in 1999. The acquisitions of Broomfield and Decorative
contributed gross margins of 22% and 27%, respectively, whereas Industrialex's
gross margin decreased to 14%. The decline at Industrialex is related to costs
associated with the operation of the powder coating facility to ensure customer
satisfaction as customers were transferred to Broomfield and Decorative. During
this period, labor costs were above the normal range,
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<PAGE> 27
as a percentage of sales. Management anticipates that this decline in gross
margins will be temporary. Additionally, management plans to add and/or expand
second shift operations which should result in higher gross margins as more
revenue can be produced without a pro rata increase in certain fixed expenses
such as rent, insurance and utilities.
Operating Expenses
Operating expenses increased $293,000, or 271%, from $108,000 for the
six months ended June 30, 1999 to $401,000 for the same period in 2000. The
acquisition of Broomfield and Decorative increased operating expenses by
approximately $92,000. The remaining increase is comprised primarily of: (a)
$25,000 in amortization of goodwill related to the acquisitions noted above; (b)
an increase in auditing and accounting fees of approximately $51,000 related to
the preparation for and reviews and audits of Industrialex accounts for the
years of 1997, 1998, 1999 and six months ended June 30, 2000; (c) an increase in
salary expense of approximately $38,000 due to the addition of two executive
officers during May of 2000 to lead the expansion of the company; and (d) an
increase in salary expense of approximately $50,000 due to Industrialex LLC
becoming a C corporation and member draws subsequently recorded as salary
expense.
Net Loss
Net loss for the six months ended June 30, 2000 was $222,000 compared
to net income of $8,000 during the same period in 1999. This is attributed to a
decline in gross margin as noted above and the addition of certain executive
officers to the management team to lead the growth of the company through
customer-base growth, the acquisition of additional companies and the
consolidation and improvement of facilities to realize economies of scale.
RESULT OF OPERATIONS FOR YEAR ENDED DECEMBER 31, 1999
Revenues
Revenues increased from $811,000 in 1998 to $1,114,000 for the fiscal
year ended December 31, 1999. This resulted in an increase of $303,000 or 37%
over fiscal 1998. This increase in sales is due to Industrialex expanding its
original sales in the silicone applications in the conformal coating industry.
Additionally, in 1999 Industrialex expanded into the powder coating segment of
the industrial coating industry. Industrialex opened its Mead facility, which is
solely dedicated to powder coating. With the addition of the Mead facility
Industrialex was able to generate $108,000 in additional powder coating
encapsulation sales. The silicone portion of the business grew by 24% or
$195,000 over 1998 revenues.
Gross margins
Industrialex's gross profit margin in 1999 was $330,000 or 30% based on
sales. This compares with a margin of 42% in fiscal 1998. The margin reduction
is attributed to Industrialex's decision to proceed with the acquisition of
other powder coating entities and to end the lease of its Mead facility,
resulting in a $25,000 impaired asset charge to gross margins. Without this
impaired asset charge Industrialex would have reported a 32% gross profit margin
for fiscal 1999. The margin decreased due to the expansion in 1999 into the
powder coating business. The new business line resulted in lower margin due to
the operational start-up of acquiring the knowledge of the powder coating
process. Material costs increased from 15% to 22% of sales in 1999 with the
addition of the powder coating product line.
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<PAGE> 28
General and administrative ("G&A")
G&A expenses increased from $164,000 in 1998 to $270,000 in 1999, a 65%
increase. The majority of the increase is attributed to the expansion of the
business into the powder coating facility in Mead. Industrialex added additional
administrative personnel to handle the administrative requirements of its
expansion in the powder coating segment of the business and its increased sales.
$4,000 of the increase is associated with asset impairment associated with the
closing of the Mead facility in June 2000.
Net Income
Net Income decreased from $173,000 in 1998 to $59,000 in 1999 or from
21% to 5% of sales. This is attributed to Industrialex's expansion into the
powder coating arena and the additional costs incurred in starting a new powder
coating product line. Additionally, Industrialex will be terminating the lease
of the Mead facility, set to expire in June of 2000. This resulted in the
impairment of leasehold improvements and equipment installed in the facility,
resulting in a $29,000 reduction of income from the facility being vacated.
Without this charge Industrialex would have reported $88,000 in net income or 8%
of sales. Any powder coating business from this facility will be transferred to
the acquired production facilities during the year 2000. Management does not
anticipate that there will be any material additional costs in 2000 relating to
the closing of the Mead facility.
Income taxes
As discussed in Note 2 to the accompanying financial statements, in
1999 Industrialex was treated as a limited liability corporation ("LLC"). As
such the income taxes related to Industrialex's operations are the
responsibility of the LLC members and no tax liabilities were recognized. On a
pro forma basis, assuming we have had always been subject to taxes, the income
tax provision would have been $22,000 for 1999 compared to $65,000 during 1998.
This reduction in pro forma tax expense is due to the reduced income as
discussed above.
EFFECT OF RECENT DEVELOPMENTS ON OPERATIONS
In the course of implementing its business strategy Industrialex has
acquired three conformal coating companies in the Denver Metro area. These
acquisitions have increased revenues and gross profit of the combined entity.
With this consolidation Industrialex has begun a process of reducing overall
cost. The lease for the Mead facility expired in June of 2000. The Mead facility
has been closed and production is being transferred to the Broomfield and
Decorative facilities. Industrialex plans to utilize in the short term the
synergies of Industrialex, Decorative and Broomfield to maximize the production
capacity of these facilities to grow revenues. Additionally, Industrialex will
begin a consolidation plan to lease a combined facility for the consolidation of
the production of Decorative and Broomfield. The consolidation of these
operations will assist Industrialex in leveraging the manufacturing reputation
of these separate entities with a combined accounting, human resource, labour,
and equipment automation program to improve profits over the long term. The
consolidation plan is dependent upon Industrialex having access to sufficient
working capital through either equity financing, bank debit and equipment
leasing to execute the consolidation plan.
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<PAGE> 29
CAPITAL RESOURCES AND LIQUIDITY
Equity and debt financing
In March 2000, Industrialex undertook a private placement of 2,357,000
special warrants at $0.50 per special warrant. 2,087,000 of the special warrants
were placed prior to March 31, 2000. Each special warrant can be converted into
one share of common stock for no additional consideration.
Working capital at December 31, 1999 decreased to approximately
$227,000 from $243,000 at December 31, 1998. The decrease in working capital is
associated with Industrialex's utilization of internally generated funds to open
the Mead powder coating facility. Working capital at March 31, 2000 increased to
approximately $1,113,000 from $227,000 at December 31, 1999. The increase in
working capital is associated with Industrialex's private placement fund raising
activities to embark on the acquisition of other industrial painting companies
in Colorado.
Cash flow
December 31, 1999
During the year ended December 31, 1999, Industrialex generated cash
from operations in the amount of $162,000 compared to $92,000 in the prior year.
This is a result of the collection of accounts receivable.
Cash used in investing activities totaled $62,000 during the year ended
December 31, 1999 compared to $67,000 in the prior year.
Cash used by financing activities was $61,000 for year ended December
31, 1999 compared to $24,000 in the previous year. Industrialex distributed
$43,000 to shareholders and loaned shareholders $11,000. Industrialex also
incurred debt to purchase equipment for the Mead facility.
Industrialex generated a net increase of $40,000 in cash. Management
believes the generation of cash flow will continue during 2000 due to
Industrialex's focus on optimizing the expansion of its conformal coating
business and through the acquisition of other entities in Colorado.
June 30, 2000
During the six months ended June 30, 2000, Industrialex cash from
operations decreased by $44,000 compared to generating cash of $114,000 for the
same quarter in 1999. This is a result of increased spending relating to other
assets acquired in the acquisition and financing activities.
Cash used in investing activities totaled $741,000 during the six
months ended June 30, 2000 compared to $28,000 in the six months ended June 30,
1999.
Cash generated by financing activities was $1,039,000 for six months
ended June 30, 2000 compared to $18,000 for the same period in 1999.
Industrialex distributed $16,000 to shareholders, issued a total of $1,179,000
in common stock warrants to finance acquisitions and operations and loaned
$130,000 to an officer of Industrialex.
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<PAGE> 30
Industrialex generated a net increase of $294,000 in cash. Management
believes the Company will require additional funding during 2000 due to
Industrialex's acquisitions and a need to repay acquisition debts.
Capital resources
Industrialex's cash flow increased during the 12 months ended December
31, 1999 over the same period in 1998, due to improved management of the
collection of accounts receivable and the decrease in expenditures for capital
equipment. Accounts receivable decreased from $324,000 at the end of 1998 to
$251,000 at the end of 1999 and capital expenditures decreased by $5,000.
Industrialex's cash flow increased from December 31, 1999 to June 30, 2000. Cash
and cash equivalents totaled $294,000 at June 30, 2000 with the increase
associated with the private placement that began in March of 2000 to fund the
consolidation activities. Accounts receivable increased from $251,000 at
December 31, 1999 to $460,000 at June 20, 2000 decreasing cash provided by
operating activities of $209,000. This compares with a decrease in accounts
receivables from $324,000 at December 31, 1998 to $159,000 at March 31, 1999
contributing to cash provided by operating activities of $165,000. Industrialex
will be required to raise additional capital through external equity financing
activities to fund the Company's obligations to pay the former Broomfield
shareholders, former Decorative shareholders, and the former Screen Tech
shareholders the remaining purchase price and contingency payments due
post-closing. Management anticipates that Industrialex will continue to invest
significant resources in completing the roll-up of other industrial coating
companies in 2000 and may required additional funds to support the expansion and
consolidation of these entities.
Management believes that it has access to capital in the form of
additional equity financing, capital equipment leasing and bank debt. Management
anticipates it will continue to have access to additional capital through these
sources in amounts necessary to support its growth plans. In the event that cash
flow from operations, if any, together with the proceeds of any future
financings, are insufficient to meet the expenditures for acquisition debt and
facility expansion, Industrialex will be required to re-evaluate its planned
expenditures and allocate its total resources in such manner as the board of
directors and management deems to be in Industrialex's best interests.
Industrialex does not have any commitments for material capital
expenditures over either the near or long term and none are presently
contemplated over normal operating requirements. Industrialex, as part of this
Offering, intends to expend $800,000 on equipment and facility enhancements to
consolidate Broomfield and Decorative facilities into a new 70,000 square foot
leased facility equipped with automated manufacturing lines. These expenditures
are contemplated as part of Industrialex's consolidation of the conformal
coating companies in Colorado.
Industrialex currently has 687,000 stock options outstanding which are
exercisable at between $0.50 to $1.00 per share, and 960,000 share purchase
warrants outstanding that are exercisable at prices between $0.25 and $1.00 per
share. If all of the stock options and warrants are exercised, Industrialex
would receive proceeds of $1,297,000. All of these funds would be available to
Industrialex as working capital.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities"
which requires companies to record derivatives on the balance sheet as assets or
liabilities, measured at fair market value. Gains or losses resulting from
changes in the value of those derivatives are accounted for depending on the use
of the
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<PAGE> 31
derivative and whether it qualifies for hedge accounting. The key criterion for
hedge accounting is that the hedging relationship must be highly effective in
achieving offsetting changes in fair value or cash flows. SFAS No. 133 as
amended by SFAS No. 138, will be adopted by Industrialex on January 1, 2001.
Management believes that the adoption of SFAS No. 133 will have no material
effect on its financial statements.
In March 2000, the FASB issued FIN 44, "Accounting for Certain
Transactions Involving Stock Compensation, an interpretation of APB Opinion No.
25." FIN 44 clarifies the application of APB Opinion No. 25 to issuances of
equity instruments to employees and non-employees and was effective July 1,
2000. Management believes that the adoption of FIN 44 will have no material
effect on its financial statements.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements" (SAB
No. 101). SAB No. 101, which is effective in the fourth quarter of 2000,
provides guidance on the recognition, presentation, and disclosure of revenue in
financial statements of all public companies. Management believes that the
adoption of SAB No. 101 will have no material effect on its financial
statements.
DESCRIPTION OF SECURITIES
CAPITAL STOCK
The authorized capital stock of Industrialex consists of 50,000,000
shares of common stock with a par value of $0.01 per share. There are four
holders of Industrialex common stock and as of the date of this prospectus
Industrialex has a total of 4,250,000 shares issued and outstanding. All of the
issued shares of Industrialex common stock are fully paid and not subject to any
future call or assessment. Industrialex has filed an application to list its
common stock on the facilities of the Canadian Venture Exchange, and before
offers to sell any shares are made, such application will have been approved.
Under Industrialex's articles of incorporation, all of the common
shares rank equally as to voting rights, participation in a distribution of the
assets of Industrialex on a liquidation, dissolution or winding- up of
Industrialex and the entitlement to dividends. The holders of the common shares
are entitled to receive notice of all meetings of shareholders and to attend and
vote the shares at the meetings. Each share of common stock carries with it the
right to one vote.
In the event of the liquidation, dissolution or winding-up of
Industrialex or other distribution of its assets, the holders of the shares of
common stock will be entitled to receive, on a pro rata basis, all of the assets
remaining after Industrialex has paid out its liabilities. Distribution in the
form of dividends, if any, will be set by the board of directors.
Provision as to the modification, amendment or variation of the rights
attached to the capital of Industrialex are contained in Industrialex's
certificate of incorporation and the Colorado Business Corporation Act.
VOLUNTARY RESALE RESTRICTIONS ON COMMON STOCK
Under lock-up agreements dated July 5, 2000 to be effective as of the
date of the initial public offering, each of Ahmad Akrami, Mansour Akrami, Gary
E. Landgren and Afshin K. Sarvestani agreed to the following resale
restrictions:
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<PAGE> 32
(a) Such shareholder will not sell or transfer any shares for a
period of 12 months following completion of the initial public
offering.
(b) 50% of the aggregate 4,250,000 shares held by the four
signatures, on a pro-rata basis, will be free from any resale
restriction on the date that is 12 months from the date of the
initial public offering.
(c) The balance of the shares held by the four signatures will be
free from any resale restriction on the date that is 15 months
after the date of the initial public offering.
STOCK OWNERSHIP
The following are the holdings of the directors, senior officers and
promoters of Industrialex and of any other shareholder who, to the knowledge of
Industrialex, beneficially owns, directly or indirectly, more than five percent
of the issued common stock of Industrialex. Mr. Akrami and Bolder Venture
Partners LLC are the only persons in the table who own common stock. The
remaining individuals are deemed to be beneficial owners based on their holding
options, warrants or special warrants that are convertible into shares of common
stock. All of the shares beneficially owned by Payam Zamani, Mark Trawinski, and
Daryl Yurek are issuable, for no additional consideration, upon exercise of
common stock warrants designated as special warrants under Canadian law. The
special warrants are convertible, for no additional consideration, into one
share of common stock. 760,000 of the shares beneficially owned by Bolder
Venture Partners L.L.C. are issuable upon exercise of common stock purchase
warrants at exercise prices ranging from $.25 to $1.00 per share. The details of
each person's holding are described in the notes below the table.
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF SHARES PERCENTAGE OF OUTSTANDING SHARES AFTER
NAME AND MUNICIPALITY OF OF COMMON STOCK OUTSTANDING THE COMPLETION OF THIS
RESIDENCE OF SHAREHOLDER BENEFICIALLY OWNED SHARES OFFERING
------------------------ ------------------ ------------- ------------------------
<S> <C> <C> <C>
Ahmad Akrami 4,136,000(1) 94.30% 51.62%
c/o Industrialex Manufacturing Corp.
63-A South Pratt Parkway
Longmont, Colorado 80501
Thomas Tennessen 116,000 2.66% -0-
c/o Industrialex Manufacturing Corp.
63-A South Pratt Parkway
Longmont, Colorado 80501
Thomas Plunkett 50,000 1.18% -0-
9641 N. 63rd Street
Longmont, Colorado 80503
Scott Robidart 50,000(2) 1.16%
c/o Industrialex Manufacturing Corp.
63-A South Pratt Parkway
Longmont, Colorado 80501
[DIRECTORS AND OFFICERS] 4,352,000 96.88% 51.62%
Payam Zamani 300,000 6.59% -0-
900 Pepper Tree Lane 1125
Santa Clara, California
</TABLE>
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<PAGE> 33
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF SHARES PERCENTAGE OF OUTSTANDING SHARES AFTER
NAME AND MUNICIPALITY OF OF COMMON STOCK OUTSTANDING THE COMPLETION OF THIS
RESIDENCE OF SHAREHOLDER BENEFICIALLY OWNED SHARES OFFERING
------------------------ ------------------ ------------- ------------------------
<S> <C> <C> <C>
Mark S. Trawinski 245,000 5.45% -0-
10944 Alcott Dr.
Westminster, Colorado 80234
Bolder Venture Partners L.L.C. 960,000 22.5% -0-
1327 Spruce Street, Suite 300
Boulder, Colorado 80302
Daryl Yurek 776,000 15.44% -0-
1327 Spruce Street, Suite 300
Boulder, Colorado 80302
</TABLE>
----------
(1) Includes 40,000 shares issuable, for no additional consideration, upon
exercise of common stock purchase warrants designated as "special
warrants" under Canadian law. Also includes 300,000 shares owned by Mr.
Akrami that Scott Robidart has an option to purchase pursuant to a Stock
Option Agreement dated May 8, 2000 between Mr. Akrami and Mr. Robidart.
(2) Mr. Robidart has an option to purchase these shares from Ahmad Akrami
pursuant to a Stock Option Agreement dated May 8, 2000.
OPTIONS TO PURCHASE SECURITIES
Industrialex's stock option plan was approved by Industrialex's board
of directors on June 15, 2000.
The stock option plan reserves a maximum of 1,200,000 shares for
issuance. Industrialex has granted stock options pursuant to which up to 687,000
shares may be issued in the future with exercise prices ranging from $.50 to
$1.00. Options granted pursuant to the plan shall vest in accordance with the
terms set forth in each particular grant, but no option shall vest 100% before
the recipient has at least two years of continuous service to Industrialex. No
option granted shall be for a term in excess of five years, and the exercise
price per share shall not be less than the fair market value on the date of
grant.
SPECIAL WARRANTS AND SHARE PURCHASE WARRANTS
Industrialex has issued an aggregate 790,000 warrants described under
Canadian law as "special warrants." These 790,000 special warrants were issued
to the former shareholders of Broomfield, Decorative and Screen Tech as partial
consideration for each acquisition. Each special warrant becomes exerciseable on
the earlier of seven business days after a receipt for a final prospectus is
issued in the Province of Alberta with respect to the distribution of the shares
underlying the special warrants or 12 months following the closing date of the
applicable acquisition. In addition, Industrialex will issue an additional
300,000 special warrants to the former Screen Tech shareholders if certain
performance criteria are met. Those performance criteria are set forth in the
stock purchase agreement pursuant to which we acquired Screen Tech. Each of
those special warrants is convertible, for no additional consideration, into one
share of common stock.
Of the 500,000 shares issuable upon conversion of the Broomfield
acquisition, 349,500 of the shares may not be sold or disposed of until nine
months after the completion of our initial public offering on the facilities of
the Canadian Venture Exchange.
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<PAGE> 34
All 200,000 shares issuable upon conversion of the special warrants
issued in the Decorative acquisition may not be sold until nine months after the
completion of our initial public offering on the Canadian Venture Exchange.
All 90,000 shares issuable upon conversion of the special warrants
issued in the Screen Tech acquisition may not be sold until nine months after
the completion of our initial public offering on the Canadian Venture Exchange.
Industrialex has also issued 2,357,000 special warrants at $.50 per
warrant. These special warrants, like those issued in the acquisitions, are
convertible, for no additional consideration, into one share of common stock.
WARRANTS ISSUED AS PART OF THE UNITS OFFERED IN THE INITIAL PUBLIC OFFERING
Each unit offered in the initial public offering consists of one share
of common stock and one common stock purchase warrant. Each warrant entitles the
holder to purchase one share of common stock for a period of two years from the
closing date of the initial public offering on the Canadian Venture Exchange at
a price of $1.25 per share for the first year and $1.50 for the second year.
These warrants will not be listed on the Canadian Venture Exchange or any other
securities market.
If during the term of the warrants, the closing price of Industrialex's
common stock on the Canadian Venture Exchange, or any other exchange on which
our common stock is traded, is not less than the exercise price of the warrant
for 20 consecutive trading days, then we will send out a written notice of such
fact to all holders of unexercised warrants. If the warrants are not exercised
within 30 days after receipt of such notice, then the warrants remaining
unexercised will expire on the 30th day after receipt of notice. The notice will
be deemed to have been received on the eighth calendar day after we mail the
notice by ordinary mail, postage prepaid, addressed to the holder.
PLAN OF DISTRIBUTION
Industrialex will offer to sell up to 3,500,000 units in this offering.
Up to 3,000,000 of the units in the public offering will be sold to investors in
Canada through a best efforts underwriting by Thomas Kernaghan & Co. Limited.
Industrialex will sell up to 500,000 of the units in this public offering
directly to investors in the United States.
OFFERING AND APPOINTMENT OF AGENT
By an agency agreement dated for reference o, Industrialex appointed
Thomson Kernaghan & Co. Limited as its agent to offer a total of 3,000,000 units
in Canada through the facilities of the Canadian Venture Exchange. The units
will be offered at a price of $1.00 per unit on a day, as determined by Thomson
Kernaghan and Industrialex, with the consent of the Canadian Venture Exchange,
that is not more than 90 days following the date of the receipt issued by the
British Columbia Securities Commission for the prospectus filed in connection
with the Industrialex's application for listing on the Canadian Venture
Exchange. In accordance with Canadian Venture Exchange rules, Industrialex will
receive the net proceeds of the offering within ten business days of the date
the units are first offered to the public.
Under the terms of the agency agreement, Industrialex has agreed to pay
to Thomson Kernaghan a commission of $0.08 per unit for each unit sold in Canada
from this offering. Thomson Kernaghan will
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<PAGE> 35
also receive $29,463 representing 2.5% of the net proceeds received by
Industrialex as consideration for the sale of 2,357,000 special warrants
previously issued by Industrialex in a private placement conducted in February
2000.
Before offers to sell units are made, the shares of Industrialex common
stock must have been approved for listing on the facilities of the Canadian
Venture Exchange.
Thomson Kernaghan has reserved the right to offer selling group
participation in the normal course of the brokerage business to selling groups
of other licensed broker-dealers, brokers and investment dealers who may or may
not be offered part of the commissions or warrants offered to Thomson Kernaghan.
We have granted Thomson Kernaghan a right of first refusal to provide
further public equity financing for a period of 18 months from May 15, 2000, the
date of the engagement letter that preceded the agency agreement.
The obligations of Thomson Kernaghan under the agency agreement may be
terminated prior to the opening of the market on the day Industrialex's shares
are to commence trading on the Canadian Venture Exchange at the discretion of
Thomson Kernaghan on the basis of its assessment of the state of the financial
markets. The Agency Agreement may also be terminated at any time upon the
occurrence of certain stated events.
SALES OF SHARES IN THE UNITED STATES BY SELLING STOCKHOLDERS
The common stock registered on behalf of current Industrialex
stockholders may be sold from time to time to purchasers directly by the selling
stockholders. Alternatively, the selling stockholders may from time to time
offer the shares through underwriters, dealers or agents, who may receive
compensation in the form of underwriting discounts, concessions or commissions
from the selling stockholders and/or the purchasers of the shares for whom they
may act as agent. At the time a particular offer of shares is made, to the
extent required, a prospectus supplement will be distributed that will set forth
the specific shares to be sold and the terms of the offering, including the name
or names of any underwriters or dealer agents, any discounts, commissions and
other items constituting compensation from the selling stockholders and any
discounts, commissions or concessions allowed or reallowed or paid to dealers.
The shares may be sold from time to time in one or more transactions at a fixed
offering price that may be changed or at varying prices determined at the time
of sale or negotiated prices.
AGENT'S WARRANT
Thomson Kernaghan has agreed to use its best efforts to sell 3,000,000
of the units in this offering to investors in Canada at a price of $1.00 per
unit. In consideration of this guarantee, Thomson Kernaghan has been granted a
warrant. The warrant entitles Thomson Kernaghan to purchase up to 300,000 units
at a price of $1.00 per unit at any time up to 5:00 p.m. on the second
anniversary of the date shares of Industrialex common stock are first listed for
trading on the Canadian Venture Exchange.
Additionally, as consideration for services provided to Industrialex by
Thomson Kernaghan, including providing advice with respect to the structure,
timing and price of the offering, Industrialex paid Thomson Kernaghan a work fee
of $18,000 and a corporate finance fee of 125,000 shares.
The shares of common stock comprising the corporate finance fee and the
shares underlying the warrant granted to Thomson Kernaghan are being registered
pursuant to this registration statement.
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<PAGE> 36
THE PUBLIC OFFERING PRICE WAS DETERMINED THROUGH NEGOTIATIONS AND MAY NOT BE
RELATED TO THE VALUE OF THE STOCK.
The public offering price of the units of $1.00 per unit was arrived at
arbitrarily by negotiation between Industrialex and Thomson Kernaghan, and
represents their independent assessment of the value of the units being offered.
As such, the initial public offering price is not necessarily related to
Industrialex's net worth or any other established criteria of value and may not
bear any relationship to the market price following the completion of the
offering.
THE UNITED STATES PENNY STOCK RULES MAY MAKE IT MORE DIFFICULT FOR INVESTORS TO
SELL THEIR SHARES.
Because shares of Industrialex common stock will not be quoted on a
national securities exchange in the United States, the shares will be subject to
rules adopted by the U.S. Securities and Exchange Commission regulating
broker-dealer practices in connection with transactions in "penny stocks." Such
rules require that prior to effecting any transaction in a penny stock, a broker
or dealer must give the customer a risk disclosure document that describes
various risks associated with an investment in penny stocks, as well as various
costs and fees associated with such an investment. It is possible that some
brokers may be unwilling to engage in transactions of shares of Industrialex
common stock because of these added disclosure requirements, which would make it
more difficult for a purchaser in this offering to sell his shares.
LISTING THE STOCK ON THE CANADIAN VENTURE EXCHANGE DOES NOT ASSURE A MARKET FOR
THE SHARES AT ALL TIMES.
The shares of Industrialex common stock will be approved for listing on
the Canadian Venture Exchange and will be primarily traded on that exchange. The
rules of the Canadian Venture Exchange do not require any market maker or
specialist to maintain a market for the listed shares at all times. Therefore,
the Canadian Venture Exchange listing does not assure a stockholder that there
will be a purchaser for the shares when the stockholder wishes to sell.
THE PURPOSE OF THIS PROSPECTUS
This prospectus has been included in a registration statement filed
under the U.S. Securities Act of 1933 in order to permit the units to be legally
sold to the United States purchasers. Copies of this prospectus are being
furnished to each purchaser of the shares, whether in the United States, Canada,
or elsewhere. In addition, the United States securities laws require that the
prospectus be furnished to all subsequent purchasers of the units for a period
of 90 days from the date of the U.S. registration statement. Copies of the
prospectus will therefore be made available to any securities broker-dealer who
proposes to sell any of the units for a customer to a U.S. purchaser.
-32-
<PAGE> 37
DIRECTORS, SENIOR OFFICERS AND MANAGEMENT
The following is a list of our current directors and senior officers,
and their municipalities of residence, current positions with Industrialex, and
principal occupations during the past five years. The list also includes
information on our management team.
<TABLE>
<CAPTION>
NAME AND MUNICIPALITY OF RESIDENCE PRINCIPAL OCCUPATION FOR PREVIOUS FIVE YEARS
---------------------------------- --------------------------------------------
<S> <C>
Ahmad Akrami Mr. Akrami founded Industrialex Manufacturing Corp. in 1994
Superior, CO, USA and has provided strategic direction and business guidance
Chief Executive Officer and Chairman continuously in the capacity of founding member and chief
and Director executive officer. Industrialex has hired a professional
Age 41 management team to perform day-to-day operational activities
on site, allowing Mr. Akrami to engage in other business
activities. Other activities of Mr. Akrami have included
acting as President & CEO of NexStar Automation, Inc. from
December 1992 through September 1996, Vice President of Zygo
Corp. from September 1996 through September 1999, interim-CEO
of Panoramic Care Systems, Inc. from October 1999 through
February 2000 and Partner at Bolder Venture Partners from
September 1999 through the present. Currently Mr. Akrami is
full-time Chairman of the Board and Chief Executive Officer of
Industrialex in addition to being a Partner at Bolder Venture
Partners.
From August 1987 through October 1992, Mr. Akrami was the
Chairman, President and Chief Executive Officer of TechniStar
Corporation of Longmont, Colorado.
Mr. Akrami attended the University of California at Los
Angeles from 1977 to 1981 in the School of Engineering and
Applied Science and obtained a Bachelors degree in Applied
Science from Western Illinois University in December 1995.
Mr. Akrami has entered into a non-competition and
non-disclosure agreement with Industrialex.
Michael Scott Robidart President and Chief Operating Officer of the Company since May
Boulder, CO, USA 2000. Prior to that he was Executive Director at Seagate
Chief Operating Officer and President Technology, a data storage products manufacturer located in
Age 45 Scotts Valley, California, from March 1997 to May 2000. Prior
to that he was a Vice President of Maxtor Corporation, a data
storage products manufacturer, located in Longmont,
California, from February 1996 to August 1996.
</TABLE>
-33-
<PAGE> 38
<TABLE>
<S> <C>
From June 1990 to January 1996 Mr. Robidart was Vice President
of Syquest Technology, a hard disc drive manufacturing
company, where he was responsible for new produce development.
Mr. Robidart obtained a Bachelor of Science (Mechanical
Engineering) degree from California Polytechnical University,
San Luis Obispo, California in December 1977.
Mr. Robidart has entered into a contractual arrangement with
Industrialex that includes employment terms and
non-competition and non-disclosure provisions.
Stephen J. King Chief Financial Officer of the Company since May 2000. Prior
Superior, CO, USA to that he was a self-employed business consultant from March
Chief Financial Officer 1999 to May 2000. Mr. King was Chief Financial Officer of Back
Age 49 Yard Burgers, Inc. an operator and franchisor of restaurants
located in Memphis, Tennessee, from June 1993 to March 1999.
Mr. King obtained a Masters of Business Administration degree
from the University of Memphis, Memphis, Tennessee in May
1982, a Masters of Education degree from the University of
Memphis, Memphis, Tennessee in May 1974 and a Bachelor of
Science (Education) degree from the University of Arkansas,
Fayetteville, Arkansas in May 1973.
Mr. King has entered into a letter agreement with Industrialex
setting out the terms of his employment and has entered into a
non-competition and non-disclosure agreement with
Industrialex.
Thomas Stephen Plunkett Director of the Company since May 2000; Chief Financial
Longmont, CO, USA Officer and Chief Operating Officer of RT One Inc., a
Director communications company in Boulder, Colorado, since August
Age 45 1999; prior to that he was Chief Financial Officer of Webb
Interactive, an internet communications company in Denver,
Colorado, from October 1996 to April 1999; prior to that he
was Vice President of Business Planning of Maxtor Corp., a
data storage products manufacturer located in Longmont,
Colorado, from December 1995 to September 1996.
Francis Lundy Director of the Company since June 2000; Chairman of TISF, a
Mill Valley, CA, USA precision optical and metrology company located in San
Director Francisco, California, since 1996. Prior to that he was a Vice
Age 63 President of Zygo Corporation, a precision optics and
metrology equipment company located in Middlefield,
Connecticut, from August 1996 to December 1999.
</TABLE>
-34-
<PAGE> 39
<TABLE>
<S> <C>
Thomas Tennessen, Director Director of the Company since June 2000; partner at Bolder
c/o Industrialex Manufacturing Corp. Venture Partners LLC, a venture capital company based in
63-A S. Pratt Parkway Boulder, Colorado, since August 1999. Prior to that Mr.
Longmont, CO 80501 Tennessen was Chief Financial Officer of eSoft, Inc., an
Age 41 internet appliance company located in Broomfield, Colorado,
from February 1998 to March 1999. From March 1997 to January
1998 he was self-employed as a financial consultant. From
September 1994 to March 1997 he was Principal Accounting
Officer and controller of Topro, Inc. a NASDAQ Small Cap
Market listed, system integration company based in Denver,
Colorado.
Gary E. Landgren, General Manager, Mr. Landgren, age 54, is the General Manager of Longmont
Longmont Operations Operations and is employed on a full-time basis. Mr.
Landgren has served Industrialex in this capacity since its
inception in 1994.
Prior to joining Industrialex, Mr. Landgren was employed by
Caldwell Banker Real Estate from January 1993 to October 1994.
Mr. Landgren also held various positions with IBM Corporation
from April 1976 to August 1992.
Mr. Landgren obtained a Bachelor of Science (Business) degree
from the University of Northern California in June 1982.
Mr. Landgren has entered into a contractual arrangement with
Industrialex that includes employment terms and
non-competition or non-disclosure terms.
Mark S. Trawinski, General Manager, Mr. Trawinski, age 41, is the General Manager of
Broomfield Broomfield, located in Westminster, Colorado and is
employed on a full-time basis. Mr. Trawinski has served in
this capacity since the acquisition of Broomfield by
Industrialex in April 2000. Prior to joining Industrialex, Mr.
Trawinski was a co-founder of Broomfield and served as its
President since inception.
Mr. Trawinski has entered into a contractual arrangement with
Industrialex that includes employment terms and non-
competition and non-disclosure terms.
Joseph P. Triolo, Jr., General Manager, Mr. Triolo, age 40, is the General Manager of Decorative,
Decorative located in Denver, Colorado and is employed on a full-time
basis. Mr. Triolo has served in this capacity since the
acquisition of Decorative by Industrialex in May 2000.
</TABLE>
-35-
<PAGE> 40
<TABLE>
<S> <C>
Prior to joining Industrialex, Mr. Triolo was a co-founder of
Decorative and served as its President since its inception.
Mr. Triolo has entered into a contractual arrangement with
Industrialex that includes employment terms and non-
competition and non-disclosure terms.
Vincent DiNapoli, General Manager, Mr. DiNapoli, age 58, is the General Manager of Screen Tech,
Screen Tech located in Colorado Springs, Colorado and is employed on a
full-time basis. Mr. DiNapoli was the founder of Screen Tech
and has served as its President since inception.
Mr. DiNapoli has entered into a contractual arrangement with
Industrialex that includes employment terms and non-
competition and non-disclosure terms.
</TABLE>
Other than receiving stock options from time to time, the directors of
Industrialex are not compensated for serving as directors.
OTHER ASSOCIATIONS
During the past five years, the principals of Industrialex have served
as principals of the following reporting issuers during the periods and in the
capacities noted below:
<TABLE>
<CAPTION>
PRINCIPAL REPORTING ISSUER CAPACITY PERIOD
--------- ---------------- -------- ------
<S> <C> <C> <C>
Ahmad Akrami Panoramic Care Systems Inc. Chief Executive Officer (Interim) 10/99 - 05/00
Director 10/99 - 05/00
Zygo Corporation Vice President 09/96 - 09/99
NexStar Automation Inc. President 12/92 - 09/96
Chief Executive Officer 12/92 - 09/96
Director 12/92 - 09/96
Michael Robidart Maxtor Corporation Vice President 02/96 - 08/96
Syquest Technology Vice President 06/90 - 01/96
Stephen King Back Yard Burgers Inc. Chief Financial Officer 06/93 - 03/99
Director 05/95 - 09/00
Francis Lundy Dresdner RCM Director 06/96 - 05/00
Zygo Corporation Vice President 08/96 - 12/99
Thomas Stephen Plunkett Webb Interactive Chief Financial Officer 10/96 - 04/99
Thomas Tennessen eSoft Inc. Chief Financial Officer 02/98 - 03/99
Topro, Inc. Principal Accounting Officer 09/94 - 03/97
</TABLE>
-36-
<PAGE> 41
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Michael Scott Robidart, President and Chief Operating Officer of
Industrialex, is indebted to Industrialex in the principal amount of $130,000,
secured by a promissory note made May 8, 2000. The promissory note is due April
30, 2003, or immediately if Mr. Robidart ceases to be employed by Industrialex,
and bears interest at the rate of 7% per annum until paid. On April 30, 2003,
provided Mr. Robidart is still employed by Industrialex, the amount due under
the promissory note will be paid to Mr. Robidart as a bonus.
Ahmad Akrami, Chief Executive Officer and a director of Industrialex,
was indebted to Industrialex in the principal amount of $11,149, secured by a
loan agreement made January 12, 1999. The debt, which was paid in full by Mr.
Akrami in June 2000, bore interest, at the rate of 8% per annum.
On July 5, 2000, Mr. Akrami loaned Industrialex $83,100 to be used in
connection with the acquisition of Screen Tech. The debt, which was repaid in
full by Industrialex on July 13, 2000, bore interest at the rate of 10.5%.
On July 13, 2000, Mr. Akrami guaranteed a line of credit issued to
Industrialex by FirstBank of Longmont. The line of credit was in the amount of
$400,000 and has a maturity date of January 19, 2001.
Bolder Venture Partners L.L.C.
Industrialex is party to a consulting agreement with Bolder Venture
Partners L.L.C. dated January, 2000 (as amended June 28, 2000). Bolder Venture
Partners is a limited liability company incorporated under the laws of the State
of Colorado and is owned 60% by Daryl Yurek, and 10% by each of Cliff Mah, Ahmad
Akrami (the Chief Executive Officer and a director of Industrialex), Kent Nuzum
and Tom Tennessen (a director of Industrialex).
Under the terms of the consulting agreement, Bolder agrees to provide
consulting services to the officers of Industrialex relating to matters of
corporate development, strategic planning, raising of capital and other
financial matters, and to assist with certain private placements and public
offerings of Industrialex's securities, including this offering.
In consideration of these services, Industrialex agreed to pay Bolder
Venture Partners a monthly fee of $4,500, $50,000 upon closing of the private
placement of special warrants, and granted warrants to acquire up to 960,000
shares of Industrialex for a period of five years from January, 2000. The
warrants become exercisable as follows:
o 400,000 at $0.25 per share as of January, 2000 (200,000 of
which were exercised in September 2000);
o 360,000 at $1.00 per share as of May, 2000; and
o 200,000 at $1.00 per share upon completion of this offering.
The term of the consulting agreement ends on November 30, 2000.
-37-
<PAGE> 42
EXECUTIVE COMPENSATION
The following table is a summary of the compensation paid to the most
highly paid executive officer of Industrialex during the most recently completed
financial year for services rendered to Industrialex:
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
-------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
--------------------------------------- ------------------------- -----------
NAME AND OTHER ANNUAL OPTIONS/SARS LTIP ALL OTHER
PRINCIPLE POSITION PERIOD SALARY BONUS COMPENSATION GRANTED(#) PAYOUTS COMPENSATION
------------------ ------------- -------- ----- ------------ ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Ahmad Akrami, Year ended N/a N/a 42,692 N/a N/a N/a
President and CEO Dec. 31, 1999
</TABLE>
Directors of Industrialex are not paid for their service on the board
of directors. Other annual compensation in the table represents distributions
from member's equity. Ahmad Akrami drew no salary for his services as President
and CEO through December 31, 1999.
CAUTIONARY STATEMENT CONCERNING
FORWARD-LOOKING STATEMENTS
We have made certain forward-looking statements in this document and in
the documents referred to in this document which are subject to risks and
uncertainties. These statements are based on the beliefs and assumptions of the
management of the companies and on the information currently available to such
management. Forward-looking statements include information concerning possible
or assumed future results of Industrialex. These statements may be preceded by,
followed by, or otherwise include the words "believes," "expects,"
"anticipates," "intends," "plans," "estimates" or similar expressions.
Forward-looking statements are not guarantees of performance. They
involve risks, uncertainties and assumptions. The future results and stockholder
values of Industrialex may differ materially from those expressed in these
forward-looking statements. Many of the factors that will determine these
results and values are beyond our ability to control or predict. Investors are
cautioned not to put undue reliance on any forward-looking statements. Except
for their ongoing obligations to disclose material information as required by
the federal securities law, we do not have any intention or obligation to update
forward-looking statements after this Prospectus is delivered, even if new
information, future events or other circumstances have made them incorrect or
misleading.
You should understand that various factors, in addition to those
discussed elsewhere in this document and in the documents referred to in this
document, could affect the future results of the combined company following the
merger and could cause results to differ materially from those expressed in such
forward-looking statements.
DIVIDEND RECORD AND POLICY
Other than distributions to members made by Industrialex Manufacturing
LLC, Industrialex has not paid any dividends since incorporation and it has no
plans to pay dividends in the immediate future. Industrialex expects to retain
its earnings to finance further growth and, when appropriate, retire debt. The
directors of Industrialex will determine if and when dividends should be
declared and paid in the
-38-
<PAGE> 43
future based on Industrialex's financial position at the relevant time. All of
the shares of Industrialex are entitled to an equal share in any dividends
declared and paid.
EXPERTS
The financial statements of Industrialex Manufacturing Corp. and
Decorative & Coating Systems, Inc. included in this prospectus have been audited
by Deloitte & Touche LLP, independent auditors, as stated in their reports
appearing herein and are included in reliance upon the reports of such firm
given upon their authority as experts in accounting and auditing.
The financial statements of Broomfield as of June 30, 1999 and 1998 and
for the years ended June 30, 1999 and 1998 and the financial statements of
Screen Tech as of December 31, 1999 and 1998, and for the years ended December
31, 1999 and 1998 included in this prospectus have been audited by Hein &
Associates LLP, independent auditors, as stated in their reports appearing
herein, and are included in reliance upon the reports of such firm given upon
their authority as experts in accounting and auditing.
LEGAL MATTERS
The Company knows of no material pending legal proceedings to which the
Company is or is likely to be a party or to which any of its properties are or
are likely to be the subject.
Campney & Murphy, Barristers and Solicitors, 2100-1111 West Georgia
Street, Vancouver, British Columbia, Canada, V7X 1K9 has served as legal counsel
of Industrialex in connection with the offering of the securities in Canada on
the Canadian Venture Exchange.
The validity of the securities offered will be passed upon for
Industrialex by Davis, Graham & Stubbs LLP, Denver, Colorado.
WHERE YOU CAN FIND MORE INFORMATION
You may read and copy any reports, statements or other information that
we file with the Securities and Exchange Commission at the SEC's public
reference rooms in Washington, D.C.; New York, New York; and Chicago, Illinois.
Please call the Securities and Exchange Commission at 1 (800) SEC-0330 for
further information on the public reference rooms. Our SEC filings are also
available to the public from commercial document retrieval services and at the
web site maintained by the Securities and Exchange Commission at
"http://www.sec.gov."
-39-
<PAGE> 44
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Pro Forma Combined Financial Statements
Basis of presentation................................................................................... F-2
Unaudited Pro Forma Combined Balance Sheet - March 31, 2000............................................. F-3
Unaudited Pro Forma Combined Statement of Operations - Three Months Ended March 31, 2000................ F-4
Unaudited Pro Forma Combined Statement of Operations - Year Ended December 31, 1999..................... F-5
Notes to Unaudited Pro Forma Combined Financial Statements.............................................. F-6
Industrialex Manufacturing Corp.
Report of Deloitte & Touche LLP, Independent Auditors................................................... F-9
Balance Sheets - December 31, 1998, December 31, 1999 and March 31, 2000................................ F-10
Statement of Operations - Three Months Ended March 31, 2000 and March 31, 1999 for Years Ended
December 31, 1999 and December 31, 1998............................................................. F-11
Statements of Equity - March 31, 2000, December 31, 1999, December 31, 1998 and January 1, 1998......... F-12
Statements of Cash Flows - Three Months Ended March 31, 2000 and March 31, 1999 and Years Ended
December 31, 1999 and December 31, 1998............................................................. F-13
Notes to Financial Statements........................................................................... F-14
Decorative & Coating Systems, Inc.
Report of Deloitte & Touche LLP, Independent Auditors................................................... F-19
Balance Sheets - December 31, 1998, December 31, 1999 and March 31, 2000................................ F-20
Statement of Operations - Three Months Ended March 31, 2000 and March 31, 1999 for Years Ended
December 31, 1999 and December 31, 1998............................................................. F-21
Statements of Shareholders' Equity - December 31, 1999 and January 1, 1998.............................. F-22
Statements of Cash Flows - Three Months Ended March 31, 2000 and March 31, 1999 and Years Ended
December 31, 1999 and December 31, 1998............................................................. F-23
Notes to Financial Statements........................................................................... F-24
Broomfield Industrial Painting, Inc.
Independent Auditor's Report............................................................................ F-28
Accountant's Review Report.............................................................................. F-29
Balance Sheets - March 31, 2000 (Unaudited) and For the Years Ended June 30, 1999, 1998,
and 1997 (Unaudited)................................................................................ F-30
Statements of Operations and Retained Earnings - For the Nine Months Ended March 31, 2000 and
1999 (Unaudited) and For The Years Ended June 30, 1999, 1998, and 1997 (Unaudited).................. F-31
Statements of Cash Flows - For the Nine Months Ended March 31, 2000 and 1999 (Unaudited) and
For the Years Ended June 30, 1999, 1998, and 1997 (Unaudited)....................................... F-32
Notes to Financial Statements........................................................................... F-33
Screen Tech Graphics, Inc.
Independent Auditor's Report............................................................................ F-36
Accountant's Review Report.............................................................................. F-36
Accountant's Review Report.............................................................................. F-36
Balance Sheet - June 30, 2000 and 1999 (Unaudited) and December 31, 1999, 1998, and
1997 (Unaudited).................................................................................... F-37
Statements of Operations and Retained Earnings - For the Six Months Ended June 30, 2000 and
1999 (Unaudited) and the Three Years Ended December 31, 1999, 1998 and 1997 (Unaudited)............. F-38
Statements of Cash Flows - For the Six Months Ended June 30, 2000 and 1999 (Unaudited) and the
Three Years Ended December 31, 1999, 1998, and 1997 (Unaudited)..................................... F-39
Notes to Financial Statements........................................................................... F-40
</TABLE>
F-1
<PAGE> 45
INDUSTRIALEX MANUFACTURING CORP.
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The following unaudited pro forma combined financial statements give effect to
the acquisitions by Industrialex Manufacturing Corp. ("IMC") (the
"Combination"), of the outstanding capital stock of Broomfield Industrial Paint
Inc. ("BIP"), Decorative & Coating Systems, Inc. ("DACS"), and Screen Tech.
Graphics Inc. ("STG") (collectively the "Acquired Companies"). IMC acquired BIP
on April 4, 2000, DACS on May 1, 2000 and STG on July 17, 2000. The Combination
will be accounted for using the purchase method of accounting.
The June 30, 2000 unaudited pro forma consolidated combined balance sheet
reflects the combination of the consolidated balance sheet of IMC which includes
its wholly owned subsidiaries, BIP and DACS and STG as if the STG combination
had occurred on June 30, 2000. The unaudited pro forma combined statements of
operation for the six months ended June 30, 2000 give effect to these
transactions as if they had occurred on January 1, 2000. The unaudited pro forma
combined statements of operations for the twelve months ended December 31, 1999
give effect to these transactions as if they had occurred on January 1, 1999.
The estimated excess of the cost of the acquisition of STG over the sum of the
fair values of tangible and identifiable intangible assets less liabilities
assumed (goodwill) may be revised for changes in assets and liabilities to date
of closing as well as changes in fair value of assets acquired and liabilities
assumed based upon conditions existing at date of closing. However, it is not
expected that the revisions, if any, will be significant. The excess costs of
acquisition of BIP and DACS over the sum of fair values of tangible and
identifiable intangible assets less liabilities assumed (goodwill) resulted in a
total of $1,842,046 of goodwill being recorded.
The pro forma adjustments are based on preliminary estimates, available
information and certain assumptions that IMC management deems appropriate and
may be revised as additional information becomes available. The pro forma
financial data do not purport to represent what IMC's combined financial
position or results of operations would actually have been if such transactions
in fact had occurred on those dates and are not necessarily representative of
IMC's combined financial position or combined results of operations for any
future period. The unaudited pro forma combined financial statements should be
read in conjunction with the historical financial statements and notes thereto
included elsewhere in this Prospectus.
F-2
<PAGE> 46
INDUSTRIALEX MANUFACTURING CORP.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
JUNE 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Pro Forma
IMC ADJUSTMENTS PRO FORMA
Consolidated STG Combined (Note 3) Combined
------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 294,426 $ 29,892 $ 324,318 $ (300,000) $ 24,318
Trade accounts receivable, no
allowance for doubtful accounts
necessary 460,127 283,471 743,598 -- 743,598
Inventories 79,725 60,668 140,393 -- 140,393
Other current assets 10,214 -- 10,214 -- 10,214
------------ ----------- ----------- ----------- -----------
Total current assets 844,492 374,031 1,218,523 (300,000) 918,523
PROPERTY, PLANT AND EQUIPMENT,
net of accumulated depreciation 216,966 183,017 399,983 -- 399,983
OTHER ASSETS:
Goodwill 1,817,326 -- 1,817,326 881,453 2,698,779
Deferred acquisition & IPO costs 244,408 -- 244,408 (118,456) 125,952
Note receivable officer 122,740 -- 122,740 -- 122,740
Security deposit 9,760 -- 9,760 -- 9,760
------------ ----------- ----------- ----------- -----------
Total other assets 2,194,234 -- 2,194,234 762,997 2,957,231
------------ ----------- ----------- ----------- -----------
Total assets $ 3,255,692 $ 557,048 $ 3,812,740 $ 462,997 $ 4,275,737
============ =========== =========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 342,521 $ 53,338 $ 395,859 $ -- $ 395,859
Accrued liabilities 54,114 3,919 58,033 -- 58,033
Deferred tax liability 23,000 -- 23,000 -- 23,000
Current portion of long-term debt -- 22,354 22,354 -- 22,354
Notes payable - acquisition debt 700,000 -- 700,000 610,000 1,310,000
Current portion of capital lease
obligations 10,489 -- 10,489 -- 10,489
------------ ----------- ----------- ----------- -----------
Total current liabilities 1,130,124 79,611 1,209,735 610,000 1,819,735
CAPITAL LEASE OBLIGATIONS,
less current maturities 34,011 -- 34,011 -- 34,011
LONG-TERM DEBT, less current
maturities -- 240,434 240,434 -- 240,434
COMMON STOCK WARRANTS 700,000 -- 700,000 90,000 790,000
EQUITY:
Common stock 42,500 5,000 47,500 (5,000) 42,500
Additional paid-in capital 1,619,373 -- 1,619,373 -- 1,619,373
Deferred compensation (47,840) -- (47,840) -- (47,840)
Retained earnings (accumulated deficit) (222,476) 232,003 9,527 (232,003) (222,476)
------------ ----------- ----------- ----------- -----------
Total shareholders' equity 1,391,557 237,003 1,628,560 (237,003) 1,391,557
------------ ----------- ----------- ----------- -----------
Total liabilities and shareholders'
equity $ 3,255,692 $ 557,048 $ 3,812,740 $ 462,997 $ 4,275,737
============ =========== =========== =========== ===========
</TABLE>
See notes to unaudited pro forma combined financial statements.
F-3
<PAGE> 47
INDUSTRIALEX MANUFACTURING CORP.
UNAUDITED PRO FORMA CONSOLIDATED COMBINED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CONSOLIDATED IMC BIP DACS DACS STG
Six Months Three Months Three Months One Month Six Months
ENDED ENDED ENDED ENDED ENDED
June 30, 2000 March 31, 2000 March 31, 2000 April 30, 2000 June 30, 2000
---------------- -------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
SALES $ 942,682 $ 242,019 $ 380,944 $ 127,648 $ 1,083,619
COST OF SALES 754,129 143,390 217,712 58,607 639,863
----------- ----------- ----------- ----------- -----------
Gross profit 188,553 98,629 163,232 69,041 443,756
OPERATING EXPENSES
Selling, general and
administrative 376,598 79,900 119,377 48,135 320,356
Goodwill amortization 24,720 -- -- -- --
----------- ----------- ----------- ----------- -----------
Total Operating expenses 401,318 79,900 119,377 48,135 320,356
----------- ----------- ----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS (212,765) 18,729 43,855 20,906 123,400
OTHER EXPENSE (9,711) (2,265) 212 (294) (11,294)
----------- ----------- ----------- ----------- -----------
NET INCOME (LOSS) $ (222,476) $ 16,464 $ 44,067 $ 20,612 $ 112,106
=========== =========== =========== =========== ===========
BASIC AND DILUTED LOSS PER
SHARE
SHARES USED IN COMPUTING PRO
FORMA LOSS PER SHARE
<CAPTION>
PRO FORMA
ADJUSTMENTS PRO FORMA
COMBINED (NOTE 4) COMBINED
----------- ----------- -----------
<S> <C> <C> <C>
SALES $ 2,776,912 $ -- $ 2,776,912
COST OF SALES 1,813,701 -- 1,813,701
----------- ----------- -----------
Gross profit 963,211 -- 963,211
OPERATING EXPENSES
Selling, general and
administrative 944,366 -- 944,366
Goodwill amortization 24,720 66,063 90,783
----------- ----------- -----------
Total Operating expenses 969,086 66,063 1,035,149
----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS (5,875) (66,063) (71,938)
OTHER EXPENSE (23,352) (64,600) (87,952)
----------- ----------- -----------
NET INCOME (LOSS) $ (29,227) $ (130,663) $ (159,890)
=========== =========== ===========
BASIC AND DILUTED LOSS PER
SHARE $ (0.02)
===========
SHARES USED IN COMPUTING PRO
FORMA LOSS PER SHARE 7,397,000
===========
</TABLE>
See notes to unaudited pro forma combined financial statements.
F-4
<PAGE> 48
INDUSTRIALEX MANUFACTURING CORP.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Pro Forma
Adjustments Pro Forma
IMC BIP DACS STG Combined (Note 4) Combined
----------- --------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
SALES $ 1,113,685 $ 974,153 $ 1,353,373 $ 1,898,720 $ 5,339,931 $ -- $ 5,339,931
COST OF SALES 783,746 687,223 831,166 1,186,562 3,488,697 -- 3,488,697
----------- --------- ----------- ----------- ----------- ----------- -----------
Gross profit 329,939 286,930 522,207 712,158 1,851,234 -- 1,851,234
OPERATING EXPENSES:
Selling, general and administrative 270,119 334,341 468,149 580,907 1,653,516 -- 1,653,516
Goodwill amortization -- -- -- -- -- 181,567 181,567
----------- --------- ----------- ----------- ----------- ----------- -----------
Total operating expenses 270,119 334,341 468,149 580,907 1,653,516 181,567 1,835,083
----------- --------- ----------- ----------- ----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS 59,820 (47,411) 54,058 131,251 197,718 (181,567) 16,151
OTHER INCOME (EXPENSE) (732) 868 (1,077) (19,314) (20,255) (157,200) (177,455)
----------- --------- ----------- ----------- ----------- ----------- -----------
NET INCOME (LOSS) $ 59,088 $ (46,543) $ 52,981 $ 111,937 $ 177,463 $ (338,767) $ (161,304)
=========== ========= =========== =========== =========== =========== ===========
BASIC AND DILUTED LOSS PER SHARE $ (0.03)
===========
SHARES USED IN COMPUTING PRO
FORMA LOSS PER SHARE 5,040,000
===========
</TABLE>
See notes to unaudited pro forma combined financial statements.
F-5
<PAGE> 49
INDUSTRIALEX MANUFACTURING CORP.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
1. GENERAL
The historical financial statements reflect the financial position and
results of operations of IMC and the Acquired Companies and were derived
from IMC's and the respective Acquired Companies' financial statements.
The consolidated statement of operations includes the actual results of
operations for of IMC and its two wholly owned subsidiaries (BIP acquired
on April 4, 2000 and DACS acquired on May 1, 2000) and the six months of
operations for STG and the historical financial statements for BIP and
DACS to give effect to these transaction as if they had occurred on
January 1, 2000. The periods included in the historical financial
statements for IMC and the individual Acquired Companies are as of and for
the six months ended June 30, 2000 and for the year ended December 31,
1999. The historical financial statements of BIP presented elsewhere
within this prospectus reflect BIP's operations for the year ended June
30, 1999 (BIP's fiscal year end). The pro forma financial information
presented for BIP has been restated to reflect the twelve months of
operations for the period from January 1, 1999 to December 31, 1999 and
the six months of operations from January 1, 2000 to June 30, 2000.
2. ACQUISITONS
IMC has acquired or will acquire all of the outstanding common stock of
the Acquired Companies. The Combination will be accounted for using the
purchase method of accounting.
The following table sets forth the consideration paid or to be paid in (a)
cash, (b) notes and (c) in special warrants to the common shareholders of
each of the acquired Companies. Each special warrant can be converted into
one share of IMC common stock at no cost. For purposes of computing the
estimated purchase price for accounting purposes, the value of the special
warrants was determined using an estimated fair value of $1 per warrant.
<TABLE>
<CAPTION>
SPECIAL
CASH NOTES WARRANTS TOTAL
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
BIP $ 425,000 $ -- $ 500,000 $ 925,000
DACS 300,000 700,000 200,000 1,200,000
STG 300,000 610,000 90,000 1,000,000
----------- ----------- ---------- -----------
Total $ 1,025,000 $ 1,310,000 $ 790,000 $ 3,125,000
=========== =========== ========== ===========
</TABLE>
Additional consideration of 300,000 special warrants will be issued to the
shareholders of STG if certain earn-out provisions are attained.
3. UNAUDITED PRO FORMA CONSOLIDATED COMBINED BALANCE SHEET ADJUSTMENTS
(A) Records the acquisition of the STG, including the cash and special
warrants due STG, and records all fair value adjustments necessary in
purchase accounting.
(B) Records the elimination of the historical equity accounts of the
Acquired Companies.
F-6
<PAGE> 50
The following tables summarize unaudited pro forma consolidated combined
balance sheet adjustments:
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS TOTAL
-------------------------- PRO FORMA
(A) (B) ADJUSTMENTS
----------- ----------- -----------
<S> <C> <C> <C>
Cash $ (300,000) $ -- $ (300,000)
Goodwill 1,118,456 (237,003) 881,453
Deferred acquisition costs (118,456) -- (118,456)
Notes Payable 610,000 -- 610,000
Common stock warrants 90,000 90,000
Common stock -- (5,000) (5,000)
Accumulated deficit -- (232,003) (232,003)
----------- ----------- -----------
Total $ -- $ -- $ --
=========== =========== ===========
</TABLE>
4. UNAUDITED PRO FORMA CONSOLIDATED COMBINED STATEMENTS OF OPERATIONS
ADJUSTMENTS FOR THE SIX MONTHS ENDED JUNE 30, 2000
(A) Records amortization of goodwill for Acquired Companies as a result
of the Combination over an estimated life of 15 years, less amount of
amortization already included in the consolidated results of
operations for the six months ended June 30, 2000.
(B) Records interest expense incurred on notes payable issued in relation
to acquisitions of the Acquired Companies, less amount of interest
expense already included in the consolidated results of operations
for the six months ended June 30, 2000.
The following tables summarize unaudited pro forma consolidated combined
balance sheet adjustments:
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS TOTAL
-------------------------- PRO FORMA
(A) (B) ADJUSTMENTS
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING EXPENSES:
Goodwill amortization $ 66,063 $ -- $ 66,063
----------- ----------- -----------
Income (loss) from operations (66,063) -- (66,063)
Other expense -- (64,600) (64,600)
----------- ----------- -----------
Net income $ (66,063) $ (64,600) $ (130,663)
=========== =========== ===========
</TABLE>
5. UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS ADJUSTMENTS FOR THE
TWELVE MONTHS ENDED DECEMBER 31, 1999
(A) Records amortization of goodwill for acquired companies as a result
of the Combination over an estimated life of 15 years.
F-7
<PAGE> 51
(B) Records interest expense incurred on notes payable issued in relation
to acquisitions of the Acquired Companies.
The following tables summarize unaudited pro forma combined statements of
operations adjustments at December 31, 1999:
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS TOTAL
-------------------------- PRO FORMA
(A) (B) ADJUSTMENTS
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING EXPENSES:
Goodwill amortization $ 181,567 $ -- $ 181,567
----------- ----------- -----------
Income (loss) from operations (181,567) -- (181,567)
----------- ----------- -----------
Other income (expense) -- (157,200) (157,200)
----------- ----------- -----------
Net income $ (181,567) $ (157,200) $ (338,767)
=========== =========== ===========
</TABLE>
6. EARNINGS PER SHARE
The pro forma share outstanding were computed as follows:
<TABLE>
<CAPTION>
SIX-MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
2000 1999
<S> <C> <C>
Shares issued upon merger of LLC and the Company 4,250,000 4,250,000
Special warrants issued in the private placement 2,357,000 --
Special warrants to be issued in acquisitions 790,000 790,000
-------------- ------------
7,397,000 5,040,000
============== ============
</TABLE>
The computation above excludes 960,000 warrants issued or to be issued to BVP as
well as options to purchase 687,000 shares of common stock the Company will
grant to employees and directors of the Company immediately following the
offering.
F-8
<PAGE> 52
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholders
of Industrialex Manufacturing Corp.
Longmont, Colorado
We have audited the accompanying consolidated balance sheets of Industrialex
Manufacturing Corp. (the Company) as of December 31, 1998 and 1999, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Industrialex Manufacturing Corp. as of
December 31, 1998 and 1999, and the results of its operations and its cash flows
for the years then ended in conformity with accounting principles generally
accepted in the United States of America.
DELOITTE & TOUCHE LLP
Denver, Colorado
April 7, 2000
(September 18, 2000 as to Notes 3 and 10)
F-9
<PAGE> 53
INDUSTRIALEX MANUFACTURING CORP.
CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- JUNE 30,
ASSETS 1998 1999 2000
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 849 $ 39,930 $ 294,426
Accounts receivable:
Trade, net of allowance for doubtful accounts of $0 in 1999 and 1998 323,701 250,532 460,127
Other 1,150 1,300 --
Inventories -- -- 79,725
Other current assets 7,132 5,028 10,214
----------- ----------- -----------
Total current assets 332,832 296,790 844,492
PROPERTY, PLANT AND EQUIPMENT, net 78,884 137,685 216,966
OTHER ASSETS:
Note receivable from related parties -- 11,449 122,740
Goodwill -- -- 1,817,326
Other 4,705 8,230 254,168
----------- ----------- -----------
Other assets 4,705 19,679 2,194,234
----------- ----------- -----------
TOTAL $ 416,421 $ 454,154 $ 3,255,692
=========== =========== ===========
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Bank overdrafts $ 40,717 $ -- $ --
Accounts payable 19,823 34,706 342,521
Notes payable -- -- 700,000
Accrued liabilities:
Payroll 17,329 20,204 44,479
Other 11,568 6,398 9,635
Deferred income taxes -- -- 23,000
Current portion of capital lease obligations -- 8,763 10,489
----------- ----------- -----------
Total current liabilities 89,437 70,071 1,130,124
CAPITAL LEASE OBLIGATIONS, less current maturities -- 40,703 34,011
COMMITMENT AND CONTINGENCIES (Note 6)
COMMON STOCK WARRANTS -- -- 700,000
EQUITY:
Common stock, $.01 par value - 50,000,000 authorized, 4,250,000 issued
and outstanding -- -- 42,500
Additional paid-in capital -- -- 1,619,373
Accumulated deficit -- -- (222,476)
Deferred compensation -- -- (47,840)
Member's equity 326,984 343,380 --
----------- ----------- -----------
Total equity 326,984 343,380 1,391,557
----------- ----------- -----------
TOTAL LIABILITIES AND EQUITY $ 416,421 $ 454,154 $ 3,255,692
=========== =========== ===========
</TABLE>
See notes to financial statements.
F-10
<PAGE> 54
INDUSTRIALEX MANUFACTURING CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended Six Months Ended
December 31, June 30,
-------------------------- -------------------------
1998 1999 1999 2000
----------- ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
SALES $ 810,821 $ 1,113,685 $ 432,962 $ 942,682
COST OF SALES:
Cost of sales 473,723 758,787 317,298 754,129
Asset impairment -- 24,959 -- --
----------- ----------- ----------- -----------
Total cost of sales 473,723 783,746 317,298 754,129
----------- ----------- ----------- -----------
Gross profit 337,098 329,939 115,664 188,553
GENERAL AND ADMINISTRATIVE
EXPENSES:
General and administrative 163,667 265,686 108,095 401,318
Asset impairment -- 4,433 -- --
----------- ----------- ----------- -----------
Total general and administrative
expenses 163,667 270,119 108,095 401,318
----------- ----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS 173,431 59,820 7,569 (212,765)
OTHER INCOME (EXPENSE), net (95) (732) 19 (9,711)
----------- ----------- ----------- -----------
NET INCOME (LOSS) 173,336 59,088 7,588 (222,476)
PRO FORMA INCOME TAX EXPENSE 64,654 22,040 2,830 --
----------- ----------- ----------- -----------
PRO FORMA NET INCOME (LOSS) $ 108,682 $ 37,048 $ 4,758 $ (222,476)
=========== =========== =========== ===========
EARNINGS (LOSS) PER SHARE -
BASIC AND DILUTED $ 0.03 $ 0.01 $ -- $ (0.04)
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING - BASIC AND
DILUTED 4,250,000 4,250,000 4,250,000 6,145,667
=========== =========== =========== ===========
</TABLE>
See notes to financial statements.
F-11
<PAGE> 55
INDUSTRIALEX MANUFACTURING CORP.
CONSOLIDATED STATEMENTS OF EQUITY
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Stock Additional
------------------------- Paid-In Member's Accumulated Deferred
Shares Amount Capital Equity Deficit Compensation Total
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
JANUARY 1, 1998 -- $ -- $ -- $ 177,869 $ -- $ -- $ 177,869
Distributions -- -- -- (24,221) -- -- (24,221)
Net income -- -- -- 173,336 -- -- 173,336
----------- ----------- ----------- ---------- ----------- ------------ ----------
BALANCE,
DECEMBER 31, 1998 -- -- -- 326,984 -- -- 326,984
Distributions -- -- -- (42,692) -- -- (42,692)
Net income -- -- -- 59,088 -- -- 59,088
----------- ----------- ----------- ---------- ----------- ------------ ----------
BALANCE,
DECEMBER 31, 1999 -- -- -- 343,380 -- -- 343,380
Distributions (unaudited) -- -- -- (16,034) -- -- (16,034)
Merger with Industrialex
Manufacturing Corp.
(unaudited) 4,250,000 42,500 284,846 (327,346) -- -- --
Issuance of common stock
warrants (unaudited) -- -- 1,284,527 -- -- -- 1,284,527
Deferred employee stock
compensation (unaudited) -- -- 50,000 -- -- (50,000) --
Amortization of deferred
employee stock compensation
(unaudited) -- -- -- -- -- 2,160 2,160
Net loss (unaudited) -- -- -- -- (222,476) -- (222,476)
----------- ----------- ----------- ---------- ----------- ------------ ----------
BALANCE,
JUNE 30, 2000 (unaudited) 4,250,000 $ 42,500 $ 1,619,373 $ -- $ (222,476) $ (47,840) $1,391,557
=========== =========== =========== ========= =========== ============ ==========
</TABLE>
See notes to the financial statements.
F-12
<PAGE> 56
INDUSTRIALEX MANUFACTURING CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
---------------------------- ----------------------------
1998 1999 1999 2000
------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 173,336 $ 59,088 $ 7,588 $ (222,476)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operations:
Depreciation 10,668 29,856 13,329 39,470
Asset impairment -- 29,392 -- --
Non-cash stock and deferred compensation -- -- -- 9,420
Changes in operating assets and liabilities, excluding
effects of acquisitions:
Accounts receivable (129,091) 73,019 78,642 67,283
Inventory -- -- -- 4,400
Other currents assets (4,735) 2,104 (7,136) 64
Other assets (1,783) (3,525) -- (207,283)
Bank overdrafts 21,001 (40,717) (40,717) --
Accounts payable 11,568 14,883 61,132 240,645
Accrued liabilities 11,376 (2,295) 1,502 24,945
------------ ------------ ------------ ------------
Net cash provided by (used in) operating activities 92,340 161,805 114,340 (43,532)
------------ ------------ ------------ ------------
CASH FLOWS USED IN INVESTING ACTIVITIES -
Payments for acquisitions, net of cash acquired -- -- -- (714,595)
Capital expenditures (67,270) (62,099) (28,362) (26,326)
------------ ------------ ------------ ------------
Net cash used in investing activities (67,270) (62,099) (28,362) (740,921)
------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock and common stock
warrants -- -- -- 1,178,500
Amounts collected from related parties -- -- -- 11,449
Amounts loaned to member under note receivable -- (11,449) (17,998) (130,000)
Distribution to member (24,221) (42,692) -- (16,034)
Payments on capital lease obligations -- (6,484) -- (4,966)
------------ ------------ ------------ ------------
Net cash provided by (used in) financing activities (24,221) (60,625) (17,998) 1,038,949
------------ ------------ ------------ ------------
NET INCREASE IN CASH AND CASH
EQUIVALENTS 849 39,081 67,980 254,496
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR -- 849 849 39,930
------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS,
END OF YEAR $ 849 $ 39,930 $ 68,829 $ 294,426
============ ============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION - Cash paid for interest $ 98 $ 3,554 $ -- $ 15,989
============ ============ ============ ============
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING AND FINANCING TRANSACTIONS -
Assets acquired under capitalized leases $ -- $ 55,950 $ -- $ --
============ ============ ============ ============
</TABLE>
See notes to financial statements.
F-13
<PAGE> 57
INDUSTRIALEX MANUFACTURING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
--------------------------------------------------------------------------------
1. ORGANIZATION
The accompanying financial statements present the financial position and
results of operations of Industrialex Manufacturing LLC ("LLC"), a limited
liability company organized under the laws of the state of Colorado in
1994. Ahmad Akrami and The Rudder Group, LLC were the original members of
the Company. On May 10, 1997, The Rudder Group, LLC sold its 50% interest
to Ahmad Akrami. As discussed in Note 10, in January 2000 LLC merged with
Industrialex Manufacturing Corp. (the "Company") and the Company became
the surviving entity. Because the Company and LLC are entities under
common control, the financial statements of LLC represent the historical
financial statements of the Company.
The Company operates in one segment and provides specialized protective
coating services to the high technology manufacturing industry located
along the front range of Colorado.
As further discussed in Notes 3 and 10, the Company has completed the
acquisition of certain businesses during the period subsequent to December
31, 1999. All references to the Company in these financial statements
include all acquired subsidiaries.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INTERIM FINANCIAL INFORMATION - The interim financial statements as of
June 30, 2000 and for the six months ended June 30, 2000 and 1999 are
unaudited, and certain information and footnote disclosures normally
included in annual financial statements prepared in accordance with
accounting principles generally accepted in the United States of America
have been omitted. In the opinion of management, all adjustments,
consisting only of normal recurring items, necessary to fairly present the
financial position, results of operations and cash flows with respect to
the interim financial statements have been included. The results of
operations for the interim period are not necessarily indicative of the
results for an entire fiscal year.
CASH AND CASH EQUIVALENTS - The Company considers all highly liquid debt
instruments with original maturities of three months or less to be cash
equivalents.
PROPERTY, PLANT AND EQUIPMENT - The Company records property, plant and
equipment at cost. Depreciation is computed using the straight-line method
over the estimated useful lives as follows:
<TABLE>
<S> <C>
Machinery and equipment 7 years
Furniture and fixtures 3 years
</TABLE>
Improvements on leased property are amortized on the straight-line method
over the life of the lease. Expenditures for repairs and maintenance are
charged to operations as incurred.
Upon retirement or disposition of property, plant or equipment, the
related cost and accumulated depreciation are removed from the accounts
and any resulting gain or loss is recognized in income or loss for the
period.
F-14
<PAGE> 58
IMPAIRMENTS OF ASSETS - Long-lived assets are reviewed for impairment if
events or circumstances indicate the carrying amount of these assets may
not be recoverable. If this review indicates that these assets will not be
recoverable, based on the forecasted undiscounted future operating cash
flows expected to result from the use of these assets and their eventual
disposition, the Company's carrying value of these assets is reduced to
fair value. The Company has recorded impairment losses in the accompanying
statements of operations of $29,392 during 1999.
REVENUE RECOGNITION - The Company recognizes revenue upon completion of
conformal coating and shipment of product to customer.
ESTIMATES - The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the
reported amounts of assets, liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements, and the
reported amounts of revenues and expenses. Actual results could differ
materially from those estimates.
INCOME TAXES - Through December 1999, the Company elected to be treated as
a limited liability corporation (LLC) as provided by the Internal Revenue
Code; accordingly, income taxes related to the Company's operations were
the responsibility of the LLC member.
The Company has elected to be treated as a "C" corporation as provided for
by the Internal Revenue Code, and accordingly, income taxes related to the
Company's operations will become the responsibility of the Company. As of
January 1, 2000, the Company will account for income taxes in accordance
with Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" (SFAS No. 109). SFAS No. 109 requires the recognition of
deferred tax liabilities and assets for the expected future tax
consequences of temporary differences between the financial reporting
basis and income tax basis of assets and liabilities, based on enacted tax
rates.
Pro forma income tax expense is computed in accordance with the Securities
and Exchange Commission Staff Accounting Bulletin No. 55, "Pro Forma
Financial Statements and Earnings per Share" (SAB 55). In accordance with
SAB 55, pro forma financial information and earnings per share is required
when the historical financial statements are not indicative of the
on-going entity. As a result of the Company's change to a "C" corporation
during 2000, the historical statements of operations have been adjusted to
reflect a pro forma tax provision as if the Company had always been a
taxable entity. Also, in accordance with SAB 55, historical earnings
(loss) per share has not been reflected because it is not relevant and pro
forma earnings (loss) per share have been presented (see Note 9).
COMPREHENSIVE INCOME - In 1998, the Company adopted Statement of Financial
Accounting Standard No. 130, "Reporting Comprehensive Income" (SFAS No.
130). SFAS No. 130 established standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains, and
losses) in a full set of general-purpose financial statements. The Company
had no items of other comprehensive income in 1998 or 1999.
NEW ACCOUNTING PRONOUNCEMENTS - In June 1998, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 133
"Accounting for Derivative Instruments and Hedging Activities" (SFAS No.
133). The standard, which is effective for fiscal years beginning after
June 15, 2000, sets forth guidelines and requirements for measuring
derivative instruments at fair value as assets and liabilities to be
reported in the financial statements and that the changes in the fair
value of the instruments shall be recognized in the results of operations.
The Company has not completed the process of evaluating the impact that
will result from adopting this pronouncement.
F-15
<PAGE> 59
3. ACQUISITIONS SUBSEQUENT TO DECEMBER 31, 1999 (UNAUDITED)
On April 4, 2000, the Company acquired all of the outstanding stock of
Broomfield Industrial Printing, Inc. (BIP). The purchase price, net of
cash acquired, amounted to approximately $965,000 and consisted of the
following:
<TABLE>
<S> <C>
Cash $430,000
500,000 special warrants to BIP shareholders 500,000
Warrants to third party for acquisition services 35,000
--------
Total $965,000
========
</TABLE>
The fair value of the assets acquired, excluding cash acquired, amounted
to $220,000 and liabilities assumed were $36,000. The cost in excess of
net assets acquired amounted to $781,000 and has been recorded as goodwill
in the accompanying consolidated balance sheet as of June 30, 2000.
On May 1, 2000, the Company acquired all of the outstanding stock of
Decorative & Coating Systems, Inc. (DACS). The purchase price, net of cash
acquired, amounted to approximately $1,233,000 and consisted of the
following:
<TABLE>
<S> <C>
Cash $ 298,000
Note payable to DACS 700,000
200,000 special warrants to DACS shareholders 200,000
Warrants to third party for acquisition services 35,000
----------
Total $1,233,000
==========
</TABLE>
The fair value of the assets acquired, excluding cash acquired, amounted
to $229,000 and liabilities assumed were $57,000. The cost in excess of
net assets acquired amounted to $1,061,000 and has been recorded as
goodwill in the accompanying consolidated balance sheet as of June 30,
2000.
Each special warrant issued to the former BIP and DACS shareholders can be
converted into one share of Company common stock at no additional cost at
the option of the holder, with no expiration. The BIP and DACS purchase
agreements also include provisions whereby the former shareholders of BIP
and DACS can require the Company to buy the special warrants back at $1
per special warrant if a public offering the Company's common stock has
not been effected within one year of each respective closing date. As a
result, these warrants are excluded from equity in the accompanying
consolidated balance sheet.
The acquisitions were accounted for by the purchase method of accounting
for business combinations. Accordingly, the accompanying consolidated
statements of income do not include any revenue or expenses related to
these acquisitions prior to their respective closing dates.
4. NOTE RECEIVABLE FROM RELATED PARTY
In 1999, the Company entered into an agreement and signed a note with its
majority shareholder that allows the shareholder to borrow amounts up to
$33,000. The note accrues interest at 8%. Principal and accrued interest
are due on the maturity date of December 30, 2002. The balance outstanding
on the note at December 31, 1999 was $11,449.
F-16
<PAGE> 60
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following as of December 31:
<TABLE>
<CAPTION>
1998 1999
<S> <C> <C>
Machinery and equipment $ 99,232 $ 170,829
Furniture and fixtures 11,652 24,709
Leasehold improvements 2,747 2,747
---------- ----------
113,631 198,285
Less accumulated depreciation (34,747) (60,600)
---------- ----------
Total $ 78,884 $ 137,685
========== ==========
</TABLE>
6. LINE OF CREDIT
The Company had a line of credit with FirstBank of Longmont (the Bank)
which expired on July 25, 1999. The line of credit had a limit of $20,000
and was secured by the Company's cash accounts at the Bank. Interest
accrued at the Bank's commercial base rate plus 1%. There were no amounts
outstanding on the line of credit at December 31, 1998.
7. COMMITMENTS
The Company has various noncancelable capital and operating leases for
office and operating space and equipment which expire at various times
from the year 2002 to 2004. Aggregate minimum annual rentals under such
leases are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDING DECEMBER 31: LEASES LEASES
<S> <C> <C>
2000 $ 13,384 $ 58,376
2001 13,384 23,426
2002 13,384 9,274
2003 13,384 --
2004 8,644 --
---------- ----------
Total minimum lease payments 62,180 $ 91,076
---------- ==========
Less amount representing interest (12,714)
----------
Present value of minimum lease payments 49,466
Less current portion (8,763)
----------
Long-term portion of capital lease obligations $ 40,703
==========
</TABLE>
The obligations under capital leases are collateralized by equipment with
a cost of $55,950 and associated accumulated amortization of $8,393.
During 1998 and 1999, rental expense under operating leases amounted to
$43,393 and $59,867, respectively.
F-17
<PAGE> 61
In January 2000, the Company entered into an agreement with Bolder Venture
Partners ("BVP"). BVP has agreed to provide the Company with certain
corporate development and financial advisor services through November
2000. In consideration of these advisory services, the Company will pay
BVP a monthly fee of $4,500 through November 2000.
8. CONCENTRATIONS OF CREDIT AND OTHER RISKS
CONCENTRATION OF CREDIT RISK - The Company's financial instruments that
potentially subject the Company to significant concentration of credit
risk consist of accounts receivable. The Company manages credit risk with
respect to accounts receivable through a credit evaluation process.
Historically, the Company has not incurred any significant credit related
losses.
SIGNIFICANT CUSTOMERS - The Company had one customer which represented 83%
and 82% of total 1998 and 1999 revenues, respectively, and 89% and 67% of
total accounts receivable in 1998 and 1999, respectively.
9. EARNINGS PER SHARE
The weighted average shares outstanding for the years ended December 31,
1999 and 1998 and for the six months ended June 30, 1999 was 4,250,000,
which represents the shares issued upon the merger of LLC and the Company.
There were no potentially dilutive securities outstanding during any of
these periods. The weighted average shares outstanding for the six months
ended June 30, 2000 is calculated as follows:
<TABLE>
<S> <C>
Shares issued upon merger of LLC and the Company 4,250,000
Special warrants issued in private placement 1,579,000
Special warrants issued in acquisitions 316,667
---------
6,145,667
=========
</TABLE>
In January 2000, the Company issued 400,000 warrants to acquire shares of
common stock with an exercise price of $0.25 per share (see Note 11).
These warrants were excluded from the computation of diluted earnings per
share as their effect would have been anti-dilutive. Had the effect of
these warrants been dilute, the Company would have included an additional
350,000 shares in diluted earnings per share.
10. SUBSEQUENT EVENTS
In January 2000, the Company entered into an agreement with Bolder Venture
Partners (BVP) to assist in making acquisitions and raising capital. One
of the minority shareholders of BVP is the Company's majority shareholder.
The Company granted BVP 400,000 warrants to acquire Company common stock
at $.25 per share upon execution of the agreement in consideration for
assistance in acquisitions. The Company will issue to BVP an additional
560,000 warrants upon completion of the Company's initial public offering.
The exercise price of these warrants will be equal to the price in the
public offering. The issuance of these warrants with be accounted for in
accordance with SFAS No. 123. Any value assigned to the warrants will be
allocated to the purchase price of the businesses acquired or as a cost of
the offerings.
In February 2000, LLC was merged into the Company, with the Company
becoming the surviving entity. Ahmad Akrami is a 94.1% shareholder in the
Company.
F-18
<PAGE> 62
In March 2000, the Company raised $1,018,500 in a private placement of
2,037,000 special warrants to the Company officers and other individuals.
Each special warrant can be converted into one share of the Company common
stock at no additional cost.
In March 2000, the Company signed letters of intent to buy all of the
outstanding stock of Screen Tech Graphics, Inc. (STG) for approximately
$1,300,000. The purchase price includes $300,000 which is subject to
earn-out provisions. The consideration for this acquisition will be paid
in cash, notes payable to sellers and special warrants. The acquisition of
STG closed in July 2000.
In May 2000, the Company entered into an agreement and signed a note with
an officer in the amount of $130,000. The note is due April 30, 2003, or
immediately if the officer ceases to be employed by Industrialex, and
bears interest at a rate of 7% per annum until paid. On April 30, 2003,
provided the officer is stilled employed by Industrialex, the amount due
under the promissory note will be paid to the officer as a bonus.
In June 2000, the Company's board of directors approved a stock option
(the Plan). The Plan provides that a maximum number of common shares
issued or covered by outstanding stock options granted under the Plan
shall not, in the aggregate, exceed 1,200,000, that the exercise price of
each stock option granted shall not be less than the fair market value as
defined in the Plan, and that the term of a stock option shall not exceed
five years. Through September 18, 2000, 687,000 shares have been granted
at strike prices ranging from $0.50 to $1.00. Because the public offering
price of the Company's common stock is expected to be $1.00 per share, all
options issued with a strike price less than $1.00 have been deemed to be
compensatory and, accordingly, compensation expense has been recorded.
In July 2000, the Company entered into a line of credit agreement with
FirstBank of Longmont. The line of credit has a maximum limit of $400,000
and is secured by substantially all assets of the Company. As of September
18, 2000, the line of credit had an outstanding balance of $346,000.
Interest accrues at Prime plus 1% and is payable monthly. All outstanding
principal and accrued interest is due on the maturity date of January 19,
2001.
* * * * *
F-19
<PAGE> 63
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Decorative & Coating Systems, Inc.
Denver, Colorado
We have audited the accompanying balance sheets of Decorative & Coating Systems,
Inc. (the Company) as of December 31, 1998 and 1999, and the related statements
of operations, shareholders' equity, and cash flows for the years then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1998 and
1999, and the results of its operations and its cash flows for the years then
ended in conformity with accounting principles generally accepted in the United
States of America.
DELOITTE & TOUCHE LLP
Denver, Colorado
April 7, 2000
(August 10, 2000 as to Note 8)
F-20
<PAGE> 64
DECORATIVE & COATING SYSTEMS, INC.
BALANCE SHEETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
ASSETS 1998 1999 2000
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 39,353 $ 34,194 $ 91,039
Trade accounts receivable, net of allowance for
doubtful accounts of $0 in 1999 and 1998 112,081 139,075 159,593
Notes receivable from related parties (Note 7) -- 3,729 4,668
Inventories 30,496 36,468 34,782
Prepaid expenses 4,829 3,103 3,132
------------ ------------ ------------
Total current assets 186,759 216,569 293,214
PROPERTY, PLANT AND EQUIPMENT, net 10,281 30,215 29,625
------------ ------------ ------------
TOTAL ASSETS $ 197,040 $ 246,784 $ 322,839
============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 27,542 $ 43,933 $ 85,922
Accrued liabilities:
Payroll 18,769 12,144 --
Other 2,321 3,156 6,225
Current maturities of long-term debt 2,081 3,798 3,867
------------ ------------ ------------
Total current liabilities 50,713 63,031 96,014
------------ ------------ ------------
LONG-TERM DEBT, less current maturities -- 14,445 13,450
COMMITMENTS AND CONTINGENCIES
(Note 5)
SHAREHOLDERS' EQUITY:
Common stock, $1 par value, 200,000 shares
authorized, 50,930 shares issued and outstanding 50,930 50,930 50,930
Additional paid-in capital 7,769 7,769 7,769
Retained earnings 87,628 110,609 154,676
------------ ------------ ------------
Total shareholders' equity 146,327 169,308 213,375
------------ ------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $ 197,040 $ 246,784 $ 322,839
============ ============ ============
</TABLE>
See notes to the financial statements.
F-21
<PAGE> 65
DECORATIVE & COATING SYSTEMS, INC.
STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
---------------------------- ---------------------------
1998 1999 1999 2000
------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
NET SALES $ 1,220,667 $ 1,353,373 $ 301,564 $ 380,944
COST OF SALES 789,124 831,166 174,071 217,712
------------ ------------ ------------ ------------
GROSS PROFIT 431,543 522,207 127,493 163,232
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 440,623 468,149 112,341 119,377
------------ ------------ ------------ ------------
INCOME (LOSS) FROM
OPERATIONS (9,080) 54,058 15,152 43,855
OTHER INCOME (EXPENSE) (773) (1,077) 248 212
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ (9,853) $ 52,981 $ 15,400 $ 44,067
============ ============ ============ ============
</TABLE>
See notes to the financial statements.
F-22
<PAGE> 66
DECORATIVE & COATING SYSTEMS, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
--------------------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1998 50,930 $ 50,930 $ 7,769 $ 124,358 $ 183,057
Distributions -- -- -- (26,877) (26,877)
Net loss -- -- -- (9,853) (9,853)
------------ ------------ ------------ ------------ ------------
BALANCE,
JANUARY 1, 1998 50,930 50,930 7,769 87,628 146,327
Distributions -- -- -- (30,000) (30,000)
Net income -- -- -- 52,981 52,981
------------ ------------ ------------ ------------ ------------
BALANCE,
DECEMBER 31, 1999 50,930 50,930 7,769 110,609 169,038
Distributions (unaudited) -- -- -- -- --
Net income (unaudited) -- -- -- 44,067 44,067
------------ ------------ ------------ ------------ ------------
BALANCE,
MARCH 31, 2000 (unaudited) 50,930 $ 50,930 $ 7,769 $ 154,676 $ 213,375
============ ============ ============ ============ ============
</TABLE>
See notes to the financial statements.
F-23
<PAGE> 67
DECORATIVE & COATING SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
------------------------ ------------------------
1998 1999 1999 2000
---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (9,853) $ 52,981 $ 15,400 $ 44,067
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation 4,752 8,883 1,035 2,688
Changes in operating assets and liabilities:
Accounts receivable 24,712 (26,994) (8,151) (21,457)
Inventories 1,834 (5,972) (1,681) 1,686
Prepaid expenses (806) 1,726 4,769 (29)
Accounts payable and accrued liabilities (5,550) 10,601 25,726 32,914
---------- ---------- ---------- ----------
Net cash provided by operating activities 15,089 41,225 37,098 59,869
---------- ---------- ---------- ----------
CASH FLOWS USED IN INVESTING
ACTIVITIES - Purchases of fixed assets (3,754) (28,817) (7,897) (2,098)
---------- ---------- ---------- ----------
CASH FLOWS USED IN FINANCING ACTIVITIES:
Amounts loaned to related party under note
receivable -- (3,729) -- --
Proceeds from long-term debt -- 20,915 -- --
Repayment of long-term debt (9,616) (4,753) (2,081) (926)
Distributions to shareholders (26,877) (30,000) -- --
---------- ---------- ---------- ----------
Net cash used in financing activities (36,493) (17,567) (2,081) (926)
---------- ---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (25,158) (5,159) 27,120 56,845
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 64,511 39,353 39,353 34,194
---------- ---------- ---------- ----------
CASH AND CASH EQUIVALENTS,
END OF YEAR $ 39,353 $ 34,194 $ 66,473 $ 91,039
========== ========== ========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION -
Cash paid for interest $ 773 $ 1,077 $ 324 $ 773
========== ========== ========== ==========
</TABLE>
See notes to the financial statements.
F-24
<PAGE> 68
DECORATIVE & COATING SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1999
--------------------------------------------------------------------------------
1. ORGANIZATION
Decorative & Coating Systems, Inc. (the Company), was incorporated on June
8, 1976 in the State of Colorado. The Company commenced operations with
its liquid coating lines in 1976, expanding into Powder Coating in 1986.
The Company operates in a single business segment, powder coating of metal
products. The Company's operations are concentrated in Denver, Colorado.
2. SIGNIFICANT ACCOUNTING POLICIES
INTERIM FINANCIAL INFORMATION - The interim financial statements as of
March 31, 2000 and for the three months ended March 31, 2000 and 1999 are
unaudited, and certain information and footnote disclosures normally
included in annual financial statements prepared in accordance with
accounting principles generally accepted in the United States of America
have been omitted. In the opinion of management, all adjustments,
consisting only of normal recurring items, necessary to fairly present the
financial position, results of operations and cash flows with respect to
the interim financial statements have been included. The results of
operations for the interim period are not necessarily indicative of the
results for an entire fiscal year.
CASH AND CASH EQUIVALENTS - The Company considers all highly liquid debt
instruments with original maturities of three months or less to be cash
equivalents.
INVENTORIES - Inventories are valued at the lower of average cost or
market value.
PROPERTY, PLANT AND EQUIPMENT - The Company records property, plant and
equipment at cost. Depreciation is being computed using accelerated
methods over the estimated useful lives as follows:
<TABLE>
<S> <C>
Machinery, furniture and equipment 3-5 years
Vehicles 3 years
</TABLE>
Improvements on leased property are amortized on the straight line method
over the life of the lease. Expenditures for repairs and maintenance are
charged to operations as incurred.
Upon retirement or disposition of property, plant or equipment, the
related cost and accumulated depreciation are removed from the accounts
and any resulting gain or loss is recognized in income or loss for the
period.
IMPAIRMENT OF ASSETS - Long-lived assets are reviewed for impairment if
events or circumstances indicate the carrying amount of these assets may
not be recoverable. If this review indicates that these assets will not be
recoverable, based on the estimated undiscounted future operating cash
flows expected to result from the use of these assets and their eventual
disposition, the Company's carrying value of these assets is reduced to
fair value. As of December 31, 1998 and 1999, management determined that
there was no impairment of the Company's long-lived assets.
F-25
<PAGE> 69
COMMON STOCK - The Company has reacquired shares of its common stock which
have been presented as constructively retired to reflect present Colorado
Revised Statutes which provide that all shares of a company which have
been reacquired are considered authorized but unissued shares.
REVENUE RECOGNITION - The Company recognizes revenue upon completion of
its powder/liquid coating process and shipment of the product to the
customer.
INCOME TAXES - The Company has elected a Subchapter S Corporation status,
as defined by the Internal Revenue Code, which provides that shareholders
are taxed on their proportionate share of a company's taxable income.
Therefore, no provision for federal or state income taxes has been
presented in the accompanying financial statements.
ESTIMATES - The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the
reported amounts of assets, liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements, and the
reported amounts of revenues and expenses. Actual results could differ
materially from those estimates.
COMPREHENSIVE INCOME - In 1998, the Company adopted Statement of Financial
Accounting Standard No. 130, "Reporting Comprehensive Income" (SFAS No.
130). SFAS No. 130 established standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains, and
losses) in a full set of general-purpose financial statements. The Company
had no items of other comprehensive income in 1998 or 1999.
NEW ACCOUNTING PRONOUNCEMENTS - In June 1998, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 133
"Accounting for Derivative Instruments and Hedging Activities" (SFAS No.
133). The standard, which is effective for fiscal years beginning after
June 15, 2000, sets forth guidelines and requirements for measuring
derivative instruments at fair value as assets and liabilities to be
reported in the financial statements and that the changes in the fair
value of the instruments shall be recognized in the results of operations.
The Company has not completed the process of evaluating the impact that
will result from adopting this pronouncement.
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following as of December 31:
<TABLE>
<CAPTION>
1998 1999
<S> <C> <C>
Machinery, furniture and equipment $ 122,528 $ 130,431
Vehicles 51,191 72,105
Leasehold improvements 48,224 48,224
---------- ----------
221,943 250,760
Less: Accumulated depreciation (211,662) (220,545)
---------- ----------
Total property, plant and equipment $ 10,281 $ 30,215
========== ==========
</TABLE>
F-26
<PAGE> 70
4. LONG-TERM DEBT
Long-term debt consists of the following at December 31:
<TABLE>
<CAPTION>
1998 1999
<S> <C> <C>
Note payable; payments of $417 including principal and interest at 7.25% per
annum due monthly through March 22, 2004; secured by Company automobile $ -- $ 18,243
Note payable 2,081 --
-------- --------
2,081 18,243
Less current portion 2,081 3,798
-------- --------
Long-term debt $ -- $ 14,445
======== ========
</TABLE>
Future maturities of long-term debt as of December 31, 1999 are as
follows:
<TABLE>
<S> <C>
2000 $ 3,798
2001 4,086
2002 4,392
2003 4,722
2004 1,245
--------
Total $ 18,243
</TABLE>
5. COMMITMENTS AND CONTINGENCIES
The Company leases its office and production facility under an operating
lease which expires in January 2002. Aggregate minimum annual rentals
under this operating lease are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31:
<S> <C>
2000 $ 53,256
2001 53,256
2002 4,438
--------
Total $110,950
</TABLE>
Rent expense under this lease was $66,312 and $64,788 for 1999 and 1998,
respectively.
6. CONCENTRATION OF CREDIT AND OTHER RISKS
CONCENTRATION OF CREDIT RISK - The Company's financial instruments that
potentially subject the Company to significant concentration of credit
risk consist of accounts receivable. The Company manages credit risk with
respect to accounts receivable through maintaining long-term relationships
with its customers. Historically, the Company has not incurred any
significant credit related losses.
SIGNIFICANT CUSTOMERS - The Company had two customers which represented
20% and 14% of total 1998 and 1999 revenues, individually in each year.
F-27
<PAGE> 71
7. RELATED PARTY TRANSACTIONS
During 1999 the Company entered into a lending agreement and accepted a
note receivable from an entity controlled by the directors of the Company.
The note is interest free, and payable on demand. The balance outstanding
on the note at December 31, 1999 was $3,729.
8. SUBSEQUENT EVENT
In March 2000, the Company signed a letter of intent with Industrialex
Manufacturing, Inc. (IMC) whereby IMC would acquire all of the outstanding
stock of the Company for $1,200,000. The consideration for the acquisition
will be paid in cash, a note payable to the Company and special warrants.
The purchase closed in May 2000.
* * * *
F-28
<PAGE> 72
INDEPENDENT AUDITOR'S REPORT
March 28, 2000
Board of Directors
Broomfield Industrial Painting, Inc.
Westminster, Colorado
We have audited the accompanying balance sheets of Broomfield Industrial
Painting, Inc. as of June 30, 1999 and 1998, and the related statements of
operations and retained earnings, and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Broomfield Industrial Painting,
Inc. as of June 30, 1999 and 1998, and the results of its operations and its
cash flows for the years then ended, in conformity with accounting principles
generally accepted in the United States of America.
Certified Public Accountants
F-29
<PAGE> 73
ACCOUNTANT'S REVIEW REPORT
March 28, 2000
Board of Directors
Broomfield Industrial Painting, Inc.
Westminster, Colorado
We have reviewed the accompanying balance sheet of Broomfield Industrial
Painting, Inc. as of June 30, 1997, and the related statements of operations and
retained earnings, and cash flows for the year then ended, respectively, in
accordance with standards established by the American Institute of Certified
Public Accountants. All information included in these financial statements is
the representation of the management of Broomfield Industrial Painting, Inc.
A review consists principally of inquiries of company personnel and analytical
procedures applied to financial data. It is substantially less in scope than an
audit in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements in order for them to be in
conformity with accounting principles generally accepted in the United States of
America.
Certified Public Accountants
F-30
<PAGE> 74
BROOMFIELD INDUSTRIAL PAINTING, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, JUNE 30,
------------ ------------------------------------------
2000 1999 1998 1997
------------ ------------ ------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 35,353 $ 72,648 $ 33,249 $ 25,455
Accounts receivable 90,814 91,120 105,250 88,161
Prepaid taxes 1,800 -- 3,257 --
Other prepaids 3,450 3,188 3,188 2,708
Inventory, less allowance of $3,800 in 1999,
1998, and 1997 (Note 1) 48,402 49,816 49,843 49,886
------------ ------------ ------------ ------------
Total current assets 179,819 216,772 194,787 166,210
PROPERTY AND EQUIPMENT, at cost, less accumulated 59,252 65,045 63,568 62,658
depreciation of $205,913, $198,037, $168,971, and
$143,481, respectively (Note 3)
OTHER ASSETS:
Deposits 2,629 2,629 2,629 2,629
------------ ------------ ------------ ------------
TOTAL ASSETS $ 241,700 $ 284,446 $ 260,984 $ 231,497
============ ============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 13,179 $ 24,692 $ 8,975 $ 5,787
Income taxes payable -- 1,798 -- 2,406
Deferred tax liability (Note 6) 23,000 23,000 29,000 26,000
Line-of-credit (Note 5) -- 35,772 20,000 9,500
------------ ------------ ------------ ------------
Total current liabilities 36,179 85,262 57,975 43,693
COMMITMENTS (Note 4)
STOCKHOLDERS' EQUITY:
Common stock, voting $.0001 par value;
100,000 shares authorized and issued 10 10 10 10
Additional paid-in capital 2,399 2,399 2,399 2,399
Retained earnings 203,112 196,775 200,600 185,395
------------ ------------ ------------ ------------
Total stockholders' equity 205,521 199,184 203,009 187,804
------------ ------------ ------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 241,700 $ 284,446 $ 260,984 $ 231,497
============ ============ ============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS AND
ACCOUNTANT'S REVIEW REPORT.
F-31
<PAGE> 75
BROOMFIELD INDUSTRIAL PAINTING, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED FOR THE YEARS ENDED
MARCH 31, JUNE 30,
---------------------------- --------------------------------------------
2000 1999 1999 1998 1997
------------ ------------ ------------ ------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
NET REVENUES:
Sales $ 701,091 $ 742,481 $ 1,000,547 $ 1,032,388 $ 964,730
Less: sales discounts, credits and refunds (4,526) (5,014) (7,521) (2,786) --
------------ ------------ ------------ ------------ ------------
Net revenues 696,565 737,467 993,026 1,029,602 964,730
OPERATING EXPENSES:
General and administrative 226,862 225,613 308,425 306,068 289,970
Cost of goods sold 453,594 461,602 658,996 680,013 656,105
Depreciation and amortization 7,875 13,524 29,066 25,490 10,081
------------ ------------ ------------ ------------ ------------
Total expenses 688,331 700,739 996,487 1,011,571 956,156
------------ ------------ ------------ ------------ ------------
OPERATING INCOME (LOSS) 8,234 36,728 (3,461) 18,031 8,574
OTHER INCOME (EXPENSE):
Interest income 501 -- 695 1,299 776
Interest expense (2,527) (1,471) (2,031) (332) (2,182)
Loss on sale of assets -- -- -- -- (171)
Other 1,629 27 27 350 (500)
------------ ------------ ------------ ------------ ------------
Total other income (expense) (397) (1,444) (1,309) 1,317 (2,077)
INCOME (LOSS) BEFORE INCOME TAXES 7,837 35,284 (4,770) 19,348 6,497
INCOME TAX (EXPENSE) BENEFIT (Note 6) (1,500) (7,100) 945 (4,143) (1,787)
------------ ------------ ------------ ------------ ------------
NET INCOME (LOSS) 6,337 28,184 (3,825) 15,205 4,710
RETAINED EARNINGS, beginning of period 196,775 200,600 200,600 185,395 180,685
------------ ------------ ------------ ------------ ------------
RETAINED EARNINGS, end of period $ 203,112 $ 228,784 $ 196,775 $ 200,600 $ 185,395
============ ============ ============ ============ ============
</TABLE>
1. SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS AND
ACCOUNTANT'S REVIEW REPORT
F-32
<PAGE> 76
BROOMFIELD INDUSTRIAL PAINTING, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED FOR THE YEARS ENDED
MARCH 31, JUNE 30,
--------------------------- ------------------------------------------
2000 1999 1999 1998 1997
------------ ------------ ------------ ------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 6,337 $ 28,184 $ (3,825) $ 15,205 $ 4,710
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Loss on sale of fixed assets -- -- -- -- 171
Depreciation and amortization 7,875 13,524 29,066 25,490 10,081
Changes in operating assets and
liabilities:
Accounts receivable 306 (32,366) 14,130 (17,089) 21,423
Prepaid income taxes (1,800) 3,257 3,257 (3,257) 3,381
Other prepaids (262) -- -- (480) 968
Inventory 1,414 (1,225) 27 43 27
Accounts payable and accrued expenses (11,513) 19,214 15,717 3,188 (10,827)
Income taxes payable (1,798) 3,843 1,798 (2,406) 1,593
Deferred taxes -- -- (6,000) 3,000 (4,000)
------------ ------------ ------------ ------------ ------------
Net cash provided by operating activities 559 34,431 54,170 23,694 27,527
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment -- -- -- -- 300
Purchase of property and equipment (2,082) (18,704) (30,543) (26,400) (2,148)
------------ ------------ ------------ ------------ ------------
Net cash used in investing activities (2,082) (18,704) (30,543) (26,400) (1,848)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line-of-credit -- 7,349 20,505 20,000 --
Payments on line-of-credit (35,772) -- (4,733) (9,500) (21,590)
------------ ------------ ------------ ------------ ------------
Net cash provided by (used in) financing (35,772) 7,349 15,772 10,500 (21,590)
activities
INCREASE IN CASH (37,295) 23,076 39,399 7,794 4,089
CASH, at beginning of period 72,648 33,249 33,249 25,455 21,366
------------ ------------ ------------ ------------ ------------
CASH, at end of period $ 35,353 $ 56,325 $ 72,648 $ 33,249 $ 25,455
============ ============ ============ ============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash payments for:
Interest $ 2,527 $ 1,471 $ 2,031 $ 332 $ 2,182
============ ============ ============ ============ ============
Income taxes $ 5,098 $ -- $ -- $ 6,806 $ 813
============ ============ ============ ============ ============
</TABLE>
1.1 SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS AND
ACCOUNTANT'S REVIEW REPORT
F-33
<PAGE> 77
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES:
Organization - Broomfield Industrial Painting, Inc. (the "Company") was
incorporated in Colorado in 1990 to perform industrial painting
services. The Company provides most of these services to companies in
the Denver metropolitan area.
Cash and Cash Equivalents - The Company considers all highly liquid
debt instruments purchased with an original maturity of three months or
less to be cash equivalents.
Income Taxes - The Company accounts for income taxes under the
liability method, which requires recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that
have been included in the financial statements or tax returns. Under
this method, deferred tax assets and liabilities are determined based
on the difference between the financial statements and tax bases of
assets and liabilities using enacted tax rates in effect for the year
in which the differences are expected to reverse.
Revenue Recognition - Revenue is recognized upon completion of the
services and shipment of the product to the customer.
Property and Equipment - Property and equipment are stated at cost.
Depreciation of property and equipment is calculated using the
straight-line method over the estimated useful lives (ranging from 3 to
15 years) of the respective assets. Leasehold improvements are
amortized over the lesser of the estimated useful life or the remaining
lease term. The cost of normal maintenance and repairs is charged to
operating expenses as incurred. Material expenditures which increase
the life of an asset are capitalized and depreciated over the estimated
remaining useful life of the asset. The cost of properties sold, or
otherwise disposed of, and the related accumulated depreciation or
amortization are removed from the accounts, and any gains or losses are
reflected in current operations.
Unaudited Information - The balance sheets as of March 31, 2000 and
June 30, 1997 and the statements of operations for the 9-month periods
ended March 31, 2000 and 1999 and the 12-month period ended June 30,
1997 were taken from the Company's books and records without audit. The
balance sheet as of June 30, 1997 and the statement of operations for
the year ended June 30, 1997 were reviewed. However, in the opinion of
management, such information includes all adjustments (consisting only
of normal recurring accruals) which are necessary to properly reflect
the financial position of the Company as of March 31, 2000 and June 30,
1997 and the results of operations for the 9-month periods ended March
31, 2000 and 1999, and the 12-month period ended June 30, 1997. The
results of operations for the interim periods are not necessarily
indicative of those to be expected for the year.
Use of Estimates - The preparation of the financial statements in
conformity with generally accepted accounting principles requires the
Company's management to make estimates and assumptions that affect the
amounts reported in these financial statements and accompanying notes.
Actual results could differ from those estimates.
F-34
<PAGE> 78
Inventories - Inventories are stated at the lower of cost or market,
determined by the first-in, first-out method and consist primarily of
the following:
<TABLE>
<CAPTION>
June 30,
------------------------------------------
1999 1998 1997
------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C>
Inventory $ 53,616 $ 53,643 $ 53,686
Less allowance for obsolete inventory (3,800) (3,800) (3,800)
------------ ------------ ------------
Total $ 49,816 $ 49,843 $ 49,886
============ ============ ============
</TABLE>
1. SIMPLE IRA:
The Company has a simple IRA plan (the Plan) which was adopted in July
1998. Eligible employees may make voluntary contributions to the Plan,
which are matched by the Company up to 3% of the employee's
compensation. The amount of employee contributions is limited as
specified in the Plan. The Company may, at its discretion, make
additional contributions to the Plan. The Company made contributions of
$12,439, $-0-, and $-0- at June 30, 1999, 1998, and 1997, respectively.
2. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
June 30,
------------------------------------------
1999 1998 1997
------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C>
Furniture and fixtures $ 17,460 $ 7,120 $ 7,120
Machinery and equipment 183,036 162,833 136,433
Vehicles 31,787 31,787 31,787
Leasehold improvements 30,799 30,799 30,799
------------ ------------ ------------
263,082 232,539 206,139
Less accumulated depreciation (198,037) (168,971) (143,481)
------------ ------------ ------------
$ 65,045 $ 63,568 $ 62,658
============ ============ ============
</TABLE>
Related depreciation expense for the years ended June 1999, 1998, and
1997 was $29,066, $25,490, and $10,081, respectively.
F-35
<PAGE> 79
1. COMMITMENTS:
The Company rents office space and equipment under various lease
agreements. The future minimum rental commitments of the Company for
office space and equipment as of June 30, 1999, are as follows:
<TABLE>
<CAPTION>
Years Ending
June 30 Amount
------------ ------------
<S> <C>
2000 $ 41,473
2001 40,517
2002 --
2003 --
2004 --
------------
$ 81,990
============
</TABLE>
Rent expense for office space and equipment was $38,250, $33,790, and
$31,289 for the years ended June 30, 1999, 1998, and 1997,
respectively.
1. LINE-OF-CREDIT:
The Company has a $50,000 line-of-credit pursuant to a loan agreement.
Borrowing under this line-of-credit bears interest at the prime rate
(totalling 8.0% as of June 30, 1999), payable monthly with outstanding
principal due March 15, 2001. The amounts available to be borrowed
under the agreement are based on a borrowing base as defined in the
agreement relating to allowable inventory and accounts receivable. The
note is collateralized by substantially all of the Company's assets.
The principal balance was $35,772, $20,000, and $9,500 at June 30,
1999, 1998, and 1997, respectively. This line-of-credit was cancelled
by the Company in May 2000.
F-36
<PAGE> 80
2. INCOME TAXES:
The components of the provision for income taxes for the years ended
June 30, 1999, 1998, and 1997 are as follows:
<TABLE>
<CAPTION>
June 30,
------------------------------------------
1999 1998 1997
------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C>
Current:
Federal $ 4,350 $ 1,143 $ 4,329
State 705 -- 1,458
------------ ------------ ------------
5,055 1,143 5,787
Deferred:
Federal (4,440) 2,220 (2,960)
State (1,560) 780 (1,040)
------------ ------------ ------------
(6,000) 3,000 (4,000)
------------ ------------ ------------
Total tax expense (benefit) $ (945) $ 4,143 $ 1,787
============ ============ ============
</TABLE>
The Company prepares its income taxes on a cash basis. Differences
between the carrying value of accounts receivable, inventory, and
accounts payable under GAAP and the carrying value for income tax
purposes created the cumulative temporary differences that give rise to
a significant portion of the deferred tax liability at June 30, 1999,
1998, and 1997.
1. SUBSEQUENT EVENTS:
In April 2000, the Company's stock was acquired by Industrialex
Manufacturing, Inc. (Industrialex) for approximately $925,000, of which
$425,000 was paid in cash and the remainder in 500,000 special warrants
convertible, for no additional consideration, into one share each of
Industrialex common stock.
F-37
<PAGE> 81
INDEPENDENT AUDITOR'S REPORT
April 28, 2000
Board of Directors
Screen Tech Graphics, Inc.
Colorado Springs, Colorado
We have audited the accompanying balance sheets of Screen Tech Graphics, Inc. as
of December 31, 1999 and 1998, and the related statements of operations and
retained earnings, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Screen Tech Graphics, Inc. as
of December 31, 1999 and 1998, and the results of its operations and its cash
flows for the years then ended, in conformity with accounting principles
generally accepted in the United States of America.
Certified Public Accountants
F-38
<PAGE> 82
ACCOUNTANT'S REVIEW REPORT
April 28, 2000
Board of Directors
Screen Tech Graphics, Inc.
Colorado Springs, Colorado
We have reviewed the accompanying balance sheet of Screen Tech Graphics, Inc. as
of December 31, 1997, and the related statements of operations and retained
earnings, and cash flows for the year then ended, in accordance with standards
established by the American Institute of Certified Public Accountants. All
information included in these financial statements is the representation of the
management of Screen Tech Graphics, Inc.
A review consists principally of inquiries of company personnel and analytical
procedures applied to financial data. It is substantially less in scope than an
audit in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements in order for them to be in
conformity with accounting principles generally accepted in the United States of
America.
Certified Public Accountants
F-39
<PAGE> 83
September 12, 2000
Board of Directors
ScreenTech Graphics, Inc.
Colorado Springs, Colorado
We have reviewed the accompanying balance sheet of ScreenTech Graphics, Inc. as
of June 30, 2000, and the related statements of operations and retained
earnings, and cash flows for the six months ended June 30, 2000 and 1999, in
accordance with Statements on Standards for Accounting and Review Services by
the American Institute of Certified Public Accountants. All information included
in these financial statements is the representation of the management of
ScreenTech Graphics, Inc.
A review consists principally of inquiries of company personnel and analytical
procedures applied to financial data. It is substantially less in scope than an
audit in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based upon our reviews, we are not aware of any material modifications that
should be made to the accompanying financial statements in order for them to be
in conformity with generally accepted accounting principles.
Certified Public Accountants
F-40
<PAGE> 84
SCREEN TECH GRAPHICS, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ------------------------------------------
2000 1999 1998 1997
------------ ------------ ------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 29,892 $ 64,166 $ 44,136 $ 38,351
Accounts receivable, with no allowance for 283,471 251,313 121,547 180,015
doubtful accounts deemed necessary
Inventory 60,668 60,668 63,328 61,009
------------ ------------ ------------ ------------
Total current assets 374,031 376,147 229,011 279,375
PROPERTY AND EQUIPMENT, at cost 183,017 206,523 259,534 315,235
------------ ------------ ------------ ------------
TOTAL ASSETS $ 557,048 $ 582,670 $ 488,545 $ 594,610
============ ============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 53,338 $ 63,826 $ 67,616 $ 216,496
Line-of-credit -- 63,509 29,065 62,000
Current portion of long-term debt 22,354 46,707 62,446 60,233
Other accrued expenses 3,919 8,802 5,179 4,176
------------ ------------ ------------ ------------
Total current liabilities 79,611 182,844 164,306 342,905
LONG-TERM DEBT 240,434 178,407 187,060 57,978
COMMITMENTS (Notes 2 and 4)
STOCKHOLDERS' EQUITY:
Common stock, no par value; 50,000 shares authorized; 5,000 5,000 5,000 5,000
1,000 shares issued and outstanding
Retained earnings 232,003 216,419 132,182 188,727
------------ ------------ ------------ ------------
Total stockholders' equity 237,003 221,419 137,182 193,727
------------ ------------ ------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 557,048 $ 582,670 $ 488,548 $ 594,610
============ ============ ============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS AND
ACCOUNTANT'S REVIEW REPORT.
F-41
<PAGE> 85
SCREEN TECH GRAPHICS, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE YEARS ENDED
JUNE 30, DECEMBER 31,
---------------------------- --------------------------------------------
2000 1999 1999 1998 1997
------------ ------------ ------------ ------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
NET REVENUES: $ 1,083,619 $ 885,567 $ 1,898,720 $ 1,645,900 $ 1,430,570
Cost of goods sold 639,863 622,860 1,186,562 1,017,764 831,485
------------ ------------ ------------ ------------ ------------
GROSS MARGIN 443,756 262,707 712,158 628,136 599,085
OPERATING EXPENSES:
General and administrative 286,382 155,212 488,321 534,219 420,769
Depreciation 33,974 38,947 92,586 95,259 67,323
------------ ------------ ------------ ------------ ------------
Total expenses 320,356 194,159 580,907 629,478 488,092
------------ ------------ ------------ ------------ ------------
OPERATING INCOME (LOSS) 123,400 68,548 131,251 (1,342) 110,993
OTHER INCOME (EXPENSE):
Interest income 701 587 683
Interest expense (12,061) (12,130) (21,902) (25,334) (6,876)
Gain (loss) on sale of assets -- -- (796) 950 950
Other income 767 578 2,683 2,734 3,022
------------ ------------ ------------ ------------ ------------
Total other income (expense) (11,294) (11,552) (19,314) (21,063) (2,221)
NET INCOME (LOSS) 112,106 56,996 111,937 (22,405) 108,772
DISTRIBUTIONS (96,522) (5,880) (27,700) (34,140) (357,290)
RETAINED EARNINGS, beginning of period 216,419 132,182 132,182 188,727 437,245
------------ ------------ ------------ ------------ ------------
RETAINED EARNINGS, end of period $ 232,003 $ 183,298 $ 216,419 $ 132,182 $ 188,727
============ ============ ============ ============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS AND
ACCOUNTANT'S REVIEW REPORT.
F-42
<PAGE> 86
SCREEN TECH GRAPHICS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE YEARS ENDED
JUNE 30, DECEMBER 31
--------------------------- ------------------------------------------
2000 1999 1999 1998 1997
------------ ------------ ------------ ------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 112,106 $ 56,996 $ 111,937 $ (22,405) $ 108,772
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating
activities:
Depreciation and amortization 33,974 38,947 92,586 95,259 67,323
Changes in operating assets and
liabilities:
Accounts receivable (32,158) (95,079) (129,766) 58,468 8,253
Inventory -- -- 2,660 (2,319) (61,009)
Accounts payable and accrued expenses (15,373) 27,241 373 (143,752) 171,798
------------ ------------ ------------ ------------ ------------
Net cash provided by (used in) operating
activities 98,549 28,105 77,790 (14,749) 295,137
CASH FLOWS FROM INVESTING ACTIVITY:
(Purchase) proceeds of property and equipment (10,468) 3,184 (39,551) (43,093) (308,002)
------------ ------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions (96,522) (5,880) (27,700) (34,140) (357,290)
Proceeds from debt -- 25,000 100,999 220,000 164,572
Payments on debt (25,833) (21,684) (91,508) (122,233) (49,398)
------------ ------------ ------------ ------------ ------------
Net cash provided by (used in) financing
activities (122,355) (2,564) (18,209) 63,627 (242,116)
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (34,274) 28,725 20,030 5,785 (254,981)
CASH AND CASH EQUIVALENTS, at beginning of period 64,166 44,136 44,136 38,351 293,332
------------ ------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS, at end of period $ 29,892 $ 72,861 $ 64,166 $ 44,136 $ 38,351
============ ============ ============ ============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash payments for interest $ 12,061 $ 12,130 $ 21,902 $ 25,334 $ 6,876
============ ============ ============ ============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS AND
ACCOUNTANT'S REVIEW REPORT.
F-43
<PAGE> 87
SCREEN TECH GRAPHICS, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES:
Organization - Screen Tech Graphics, Inc. (the "Company") was
incorporated in Colorado in 1980 to perform industrial painting
services. The Company provides most of these services to companies in
the Colorado Springs metropolitan area.
Cash and Cash Equivalents - The Company considers all highly liquid
debt instruments purchased with an original maturity of three months or
less to be cash equivalents.
Income Taxes - No provision has been made for income taxes since the
Company has elected to be taxed as an "S Corporation" as defined by the
Internal Revenue Code. The Company's sole stockholder will report the
Company's taxable income or loss on his individual income tax return.
Revenue Recognition - Revenue is recognized upon completion of the
services and shipment of the product to the customer.
Property and Equipment - Property and equipment are stated at cost.
Depreciation of property and equipment is calculated using the
straight-line method over the estimated useful lives (ranging from 5 to
15 years) of the respective assets. Leasehold improvements are
amortized over the lesser of the estimated useful life or the remaining
lease term. The cost of normal maintenance and repairs is charged to
operating expenses as incurred. Material expenditures which increase
the life of an asset are capitalized and depreciated over the estimated
remaining useful life of the asset. The cost of properties sold, or
otherwise disposed of, and the related accumulated depreciation or
amortization are removed from the accounts, and any gains or losses are
reflected in current operations.
Unaudited Information - The balance sheet as of June 30, 2000 and
December 31, 1997 and the statements of operations for the six months
ended June 30, 2000 and 1999, and the year ended December 31, 1997 were
taken from the Company's books and records without audit. The balance
sheet as of December 31, 1997 and the statement of operations for the
year ended December 31, 1997 were reviewed. However, in the opinion of
management, such information includes all adjustments (consisting only
of normal recurring accruals) which are necessary to properly reflect
the financial position of the Company as of June 30, 2000 and December
31, 1997 and the results of operations for the Six months ended June
30, 2000 and 1999, and the year ended December 31, 1997. The results of
operations for the interim periods presented are not necessarily
indicative of those to be expected for the year.
Use of Estimates - The preparation of the financial statements in
conformity with generally accepted accounting principles requires the
Company's management to make estimates and assumptions that affect the
amounts reported in these financial statements and accompanying notes.
Actual results could differ from those estimates.
F-44
<PAGE> 88
SCREEN TECH GRAPHICS, INC.
NOTES TO FINANCIAL STATEMENTS
Inventories - Inventories are stated at the lower of cost or market,
determined by the first-in, first-out method and consist primarily of
the following:
<TABLE>
<CAPTION>
December 31,
----------------------------------------
1999 1998 1997
------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C>
Inventory - paint $ 38,808 $ 38,204 $ 35,886
Inventory - magnisight 21,860 25,124 25,123
------------ ------------ ------------
Total $ 60,668 $ 63,328 $ 61,009
============ ============ ============
</TABLE>
2. 401(K) SAVINGS:
The Company has a 401(k) profit sharing plan (the Plan). Eligible
employees may make voluntary contributions to the Plan, which are
matched by the Company up to 3% of the employee's compensation. The
amount of employee contributions is limited as specified in the Plan.
The Company may, at its discretion, make additional contributions to
the Plan. The Company made contributions of $14,814, $11,837, and
$11,923, at December 31, 1999, 1998, and 1997, respectively.
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
------------------------------------------
1999 1998 19997
------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C>
Machinery and equipment $ 581,905 $ 576,416 $ 543,013
Vehicles 86,252 60,858 60,858
Leasehold improvements -- 6,000 --
------------ ------------ ------------
668,157 643,274 603,871
Less accumulated depreciation (461,634) (383,740) (288,636)
------------ ------------ ------------
$ 206,523 $ 259,534 $ 315,235
============ ============ ============
</TABLE>
Related depreciation expense for the years ended December 31, 1999,
1998, and 1997 was $92,586, $95,259, and $67,323, respectively.
F-45
<PAGE> 89
SCREEN TECH GRAPHICS, INC.
NOTES TO FINANCIAL STATEMENTS
4. COMMITMENTS:
The Company rents office space from the owner under a lease agreement.
The future minimum rental commitments of the Company for office space
as of December 31, 1999, are as follows:
<TABLE>
<CAPTION>
Years Ending
December 31, Amount
------------ ------------
<S> <C>
2000 $ 46,398
Thereafter --
------------
$ 46,398
============
</TABLE>
Rent expense for office space and equipment was $85,900, $82,500, and
$79,100 for the years ended December 31, 1999, 1998, and 1997,
respectively.
5. LINE-OF-CREDIT:
The Company has a line-of-credit pursuant to a loan agreement.
Borrowing under this line-of-credit bears interest at the prime rate
(totaling 8.0% as of December 31, 1999), payable in full on August 1,
2000. The note is collateralized by substantially all of the Company's
assets. The principal balance was $63,509, $29,065, and $62,000
(unaudited) at December 31, 1999, 1998, and 1997, respectively.
6. LONG-TERM DEBT:
The Company has a revolving loan personally guaranteed by the owners
and collateralized by the Company's assets. Payments of principal and
interest totaling $4,352 are due each month with the outstanding
balance due November 20, 2004.
The Company also had an outstanding loan on a vehicle which is
collateralized by the vehicle. Principal and interest payments are due
monthly in the amount of $477 and all outstanding balances are due
December 2003.
F-46
<PAGE> 90
SCREEN TECH GRAPHICS, INC.
NOTES TO FINANCIAL STATEMENTS
The future minimum loan principal payments are as follows:
<TABLE>
<CAPTION>
Years Ending
December 31, Amount
------------ ---------
<S> <C>
2000 $ 46,707
2001 46,707
2002 46,707
2003 46,707
Thereafter 38,286
---------
225,114
Short-term portion (46,707)
---------
Total long-term debt $ 178,407
=========
</TABLE>
7. SUBSEQUENT EVENT (UNAUDITED):
On July 17, 2000, the Company was acquired by Industrialex
Manufacturing Corp. (IMC) for cash of $300,000, notes of $610,000, and
90,000 special warrants. Each special warrant can be converted into one
share of IMC common stock for no additional cost.
F-47
<PAGE> 91
OUTSIDE BACK COVER
Until ___________ __, 2000, all dealers that effect transactions in
these securities, whether or not participating in this offering, may be required
to deliver a prospectus. This is in addition to the dealer's obligation to
deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
<PAGE> 92
THIS INFORMATION IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT DELIVER THESE
SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE
SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY
STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED NOVEMBER 3, 2000
SELLING STOCKHOLDER
PROSPECTUS
4,067,000 Shares
[INDUSTRIALEX MANUFACTURING LOGO]
INDUSTRIALEX MANUFACTURING CORP.
Common Stock, $.01 par value
----------
The shares of common stock may be offered and sold from time to time by
the selling stockholders through underwriters, dealers, agents, or directly to
one or more purchasers in fixed price offerings, in negotiated transactions, at
market prices prevailing at the time of sale or at prices related to such market
prices. The terms of the offering and sale of common stock in respect of which
this prospectus is being delivered, including any initial public offering price,
any discounts, commissions, or concessions allowed or paid to underwriters,
dealers, or agents, the purchase price of the common stock and the proceeds to
the selling stockholders, and any other material terms shall be set forth in a
prospectus supplement.
All 4,067,000 shares of common stock of Industrialex Manufacturing
Corp. are being offered for sale by the selling stockholders identified in this
prospectus. Industrialex will not receive any proceeds from the sale of the
common stock by the selling stockholders.
----------
THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVE A HIGH DEGREE OF
RISK. SEE "RISK FACTORS" LOCATED AT ALTERNATE PAGES 4 TO 6.
----------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is o, 2000
<PAGE> 93
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Summary.................................................................................................Alternate 3
Risk factors............................................................................................Alternate 4
Selling stockholders....................................................................................Alternate 5
Plan of distribution...................................................................................Alternate 12
Use of proceeds........................................................................................Alternate 12
Cautionary statement concerning forward-looking statements.............................................Alternate 13
Dividend record and policy.............................................................................Alternate 13
Experts................................................................................................Alternate 14
Legal matters..........................................................................................Alternate 14
Where you can find more information....................................................................Alternate 14
Outside Back Cover.....................................................................................Alternate 14
</TABLE>
Alternate 2
<PAGE> 94
SUMMARY
<TABLE>
<S> <C>
BUSINESS OF INDUSTRIALEX: Industrialex is a provider of protective coating services to various
manufacturing industries. Our services include the application of chemical
adhesions to four categories of products: metal, plastic, glass and
printed circuit board assemblies. The chemical process that we use
provides many benefits such as enhanced aesthetics and protection from
hostile environments, corrosion and electrostatic discharge.
Our principal office is located at 63-A S. Pratt Parkway; Longmont,
Colorado 80501. The telephone number is (303) 651-6672.
THE OFFERING: Common stock
offered by the
selling stockholders: 4,067,000 shares
USE OF PROCEEDS: All proceeds from the offering will be received by the selling
stockholders.
SELLING STOCKHOLDERS: The selling stockholders are founders of Industrialex or purchased their
shares in a private placement pursuant to an exemption provided by
Regulation D or Regulation S under the Securities Act of 1933, as amended.
</TABLE>
Alternate 3
<PAGE> 95
RISK FACTORS
An investment in Industrialex common stock involves certain risks.
Prospective investors should carefully consider the following risk factors, in
addition to all of the other information in this prospectus, in determining
whether to purchase shares of Industrialex stock.
OUR BUSINESS MODEL IS BASED ON ACQUIRING EXISTING COATING COMPANIES AND
CONSOLIDATING, AND WE MAY FAIL TO ACHIEVE THE BENEFITS OF INTEGRATING OPERATIONS
FROM ACQUIRED COMPANIES.
Industrialex's success depends upon our ability to successfully
integrate the operations of Industrialex, Broomfield Industrial Painting, Inc.,
Decorative & Coating Systems, Inc., Screen Tech Graphics, Inc. and future
acquisitions. There can be no assurance that past or future acquisitions will
increase production capacity, provide for improved economies of scale, improve
gross profit margins or reduce consolidated expenses as anticipated. In
addition, there can be no assurance that we will create a common interface for
the overall support of the several production lines, or that we will be able to
market previously separate product lines. Acquisitions also require increased
capacity through installation of new automated equipment. Failure to increase
capacity could inhibit our ability to grow as planned.
THE LOSS OF KEY PERSONNEL, ESPECIALLY IF WITHOUT ADVANCE NOTICE, OR THE
INABILITY TO HIRE OR RETAIN QUALIFIED PERSONNEL, COULD HAVE A MATERIAL ADVERSE
EFFECT UPON OUR BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Our future success depends in significant part upon the continued
service of certain key management personnel. Key personnel of Industrialex
include Ahmad Akrami, Michael Scott Robidart, Gary Landgren, Joseph Triolo, Jr.,
Stephen King, Vincent DiNapoli and Mark Trawinski. Industrialex has entered into
employment agreements with all key personnel. All of the agreements contain
confidentiality provisions that are unrestricted as to time, and non-competition
and non-solicitation provisions.
Competition for such personnel is particularly intense in the coating
industry, and there can be no assurance that Industrialex can retain its key
personnel or that it can attract, assimilate or retain other highly qualified
personnel in the future.
WE RELY ON SALES TO A SMALL NUMBER OF CUSTOMERS, THE LOSS OF ANY ONE OF WHICH
COULD HAVE AN ADVERSE IMPACT ON REVENUES.
We derive a substantial portion of our revenue from a limited number of
customers, the loss of any one of which could adversely impact our operations.
For the pro forma six months ended June 30, 2000, the five largest customers of
Industrialex and its subsidiaries represented 63.5% of total revenues. We
anticipate that our operating results will continue to depend on sales to a
relatively small number of customers. None of our current customers has any
minimum purchase obligations, and they may stop placing orders with us at any
time, regardless of any forecast they may have previously provided.
EVEN WITH THE PROCEEDS FROM THIS OFFERING, WE MAY NOT HAVE SUFFICIENT FUNDS TO
COVER NECESSARY EXPENSES.
There can be no assurance that cash flow from operations together with
working capital and net proceeds from this offering will be sufficient to fully
fund the planned expansion of our operations. If
Alternate 4
<PAGE> 96
necessary, we may seek additional funds through equity or debt financing. There
can be no assurance that additional financing will be available when needed or
on terms acceptable to us. If adequate funds are not available, we may need to
delay or cancel planned acquisitions or expansion of operations.
SELLING STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of Industrialex's common stock as of September 30, 2000,
and as adjusted to reflect the sale of shares being offered hereby, for each of
the selling stockholders. Except as otherwise noted, the persons or entities in
this table have sole voting and investing power with respect to all of the
shares owned by them.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY SHARES
OWNED PRE- OFFERED IN SHARES BENEFICIALLY POST-OFFERING
NAME AND ADDRESS OFFERING THE OFFERING OWNED POST-OFFERING % OWNERSHIP
---------------------------------------- ------------------ -------------- ---------------------- ---------------
SHARES ISSUED UPON INCORPORATION
<S> <C> <C> <C> <C>
Ahmad Akrami 4,000,000(1) -0- 4,000,000 51.62%
c/o Industrialex Manufacturing Corp.
63-A S. Pratt Parkway
Longmont, CO 80501
Chief executive officer and director of
Industrialex
Mansour Akrami 75,000 -0- 75,000 0.95%
1115 Bacchus Drive, #E
Longmont, CO 80026
Gary E. Landgren 100,000 -0- 100,000 1.27%
908 Parker Drive
Longmont, CO 80501
Afshin K. Sarvestani 75,000 -0- 75,000 0.95%
1742 High Plains Drive
Superior, CO 80027
TOTAL 4,250,000 -0-
</TABLE>
SHARES ISSUED IN CONNECTION WITH A PRIVATE PLACEMENT COMMENCING
MARCH, 2000 AND CLOSING MAY, 2000
All of the shares beneficially owned pre-offering, except those
beneficially owned by Bolder Venture Partners LLC, are issuable upon the
exercise of share purchase warrants, some of which are designated under Canadian
law as "special warrants." 760,000 of the shares beneficially owned by Bolder
Venture Partners LLC are issuable upon exercise of common stock purchase
warrants at exercise prices ranging from $.25 to $1.00 per share. Each special
warrant is convertible, for no additional consideration, into one share of
Industrialex common stock.
In the following table, the shares beneficially owned by Ahmad Akrami,
Cliff Mah, Kent Nuzum, Tom Tennessen and Daryl Yurek includes shares
beneficially owned by each of them through their ownership of a percentage of
Bolder Venture Partners L.L.C. Shares offered in the offering, however, does not
include those shares. Bolder Venture Partners L.L.C., owned 60% by Daryl Yurek
and 10% by each of Cliff Mah, Ahmad Akrami, Kent
Alternate 5
<PAGE> 97
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY SHARES
OWNED PRE- OFFERED IN SHARES BENEFICIALLY POST-OFFERING
NAME AND ADDRESS OFFERING THE OFFERING OWNED POST-OFFERING % OWNERSHIP
---------------------------------------- ------------------ -------------- ---------------------- ---------------
<S> <C> <C> <C> <C>
Nuzum and Thomas Tennessen, is the only person in the table whose shares are
issuable upon exercise of a share purchase warrant as opposed to a special
warrant.
Ahmad Akrami 136,000 -0- 136,000 51.62%
c/o Industrialex Manufacturing Corp.
63-A S. Pratt Parkway
Longmont, CO 80501
Chief executive officer and director of
Industrialex
Richard Anderson 20,000 20,000 -0- -0-
5820 Cantrell Rd.
Richmond, B.C.
V7C 3H1 Canada
Melanie Baranec 10,000 10,000 -0- -0-
856 Riverland Dr. S.E.
Calgary, A.B.
T2C 3N5 Canada
Craig Colin 10,000 10,000 -0- -0-
3920 - 23rd Ave. S.W.
Calgary, A.B.
T3E 0J8 Canada
Bolder Venture Partners L.L.C. 960,000(2) 960,000 -0- -0-
1327 Spruce Street, Suite 300
Boulder, Colorado 80302
Claudia DiMaio 20,000 20,000 -0- -0-
2300 Oakmoor Dr. S.W.
Calgary, A.B.
T2V 4N7 Canada
Salvatore DiMaio 20,000 20,000 -0- -0-
51 Patterson Blvd. S.W.
Calgary, A.B.
T3H 2C9 Canada
Far Behrooz 60,000 60,000 -0- -0-
7521 La Quinta Cove
Lone Tree, CO 80124
Massimo M. Geremia 100,000 100,000 -0- -0-
3962 Edenstone Rd. N.W.
Calgary, A.B.
T3A 3Y9 Canada
Randall Harrison 20,000 20,000 -0- -0-
35 Edgerridge Court N.W.
Calgary, A.B.
T3A 4N Canada
</TABLE>
Alternate 6
<PAGE> 98
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY SHARES
OWNED PRE- OFFERED IN SHARES BENEFICIALLY POST-OFFERING
NAME AND ADDRESS OFFERING THE OFFERING OWNED POST-OFFERING % OWNERSHIP
---------------------------------------- ------------------ -------------- ---------------------- ---------------
<S> <C> <C> <C> <C>
Doug Hicks 9,000 9,000 -0- -0-
307 2250 W. 3rd Ave.
Vancouver, B.C.
V1K 1L4 Canada
Bill Hodal 20,000 20,000 -0- -0-
P.O. Box 10337
Pacific Centre 2200-609
Granville St.
Vancouver, B.C. V7Y 1H2
Laura Hubenig 20,000 20,000 -0- -0-
221 Sandpiper Circle N.W.
Calgary, A.B.
T3K 3T Canada
Geoffrey D. Hunter 100,000 100,000 -0- -0-
4704 Capel Road N.W.
Calgary, A.B.
T2L 1A6 Canada
Ivanhoe Holdings, Inc. 50,000 50,000 -0- -0-
P.O. Box 1561
Zephyr House
Mary St., Grand Cayman
British West Indies
George Jackson 100,000 100,000 -0- -0-
535 10th Ave. S.W.
Suite 107
Calgary, A.B.
T2R 0A8 Canada
Pamela Wendy Johnston 10,000 10,000 -0- -0-
248 Point McKay Terrace N.W.
Calgary, A.B.
T3B 4V6 Canada
Daniel LaPlante 70,000 70,000 -0- -0-
423 Brookpark Dr. S.W.
Calgary, A.B.
T2W 2W8 Canada
Barry Mackie 20,000 20,000 -0- -0-
16680 85A Ave.
Surrey, B.C.
V4N 5A7 Canada
Paul MacNeill 100,000 100,000 -0- -0-
2100-1111 West Georgia St.
Vancouver, B.C.
V7X 1K9 Canada
</TABLE>
Alternate 7
<PAGE> 99
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY SHARES
OWNED PRE- OFFERED IN SHARES BENEFICIALLY POST-OFFERING
NAME AND ADDRESS OFFERING THE OFFERING OWNED POST-OFFERING % OWNERSHIP
---------------------------------------- ------------------ -------------- ---------------------- ---------------
<S> <C> <C> <C> <C>
Cliff Mah 196,000 100,000 -0- -0-
1450 Creekside Drive 800
Vancouver, B.C.
V6J 5B3 Canada
Dwayne Nuzum 10,000 10,000 -0- -0-
4330 Sage Court
Boulder, CO 80301
Kent Nuzum 136,000 40,000 -0- -0-
1829 Mapleton
Boulder, CO 80304
Larry O'Brien 20,000 20,000 -0- -0-
1826 13th Ave. W.
Vancouver, B.C.
V6J 2H3 Canada
James Oleynick 31,000 31,000 -0- -0-
136 Glynde Ave.
Burnaby, B.C.
V5B 3J2 Canada
John Pietrovito 14,000 14,000 -0- -0-
7539 Huntervalley Rd. N.W.
Calgary, A.B.
T2K 4K Canada
Thomas Plunkett 50,000 50,000 -0- -0-
9641 N. 63rd St.
Longmont, CO 80503
Director of Industrialex
Precept Capital Corp 80,000 80,000 -0- -0-
205-700 West Pender St.
Vancouver, B.C.
V6C 1 Canada
James Prier 20,000 20,000 -0- -0-
3441 Dundas St.
Vancouver, B.C.
V5K 1R9 Canada
Rich Rice 40,000 40,000 -0- -0-
1750-701 W. Georgia
Vancouver, B.C.
V6C 3E8 Canada
John Rose 200,000 200,000 -0- -0-
13826 Vintage Centre Ave.
Houston, TX 77069
Glen Stevens 10,000 10,000 -0- -0-
38411 Boulder Canyon Dr.
Boulder, CO 80302
</TABLE>
Alternate 8
<PAGE> 100
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY SHARES
OWNED PRE- OFFERED IN SHARES BENEFICIALLY POST-OFFERING
NAME AND ADDRESS OFFERING THE OFFERING OWNED POST-OFFERING % OWNERSHIP
---------------------------------------- ------------------ -------------- ---------------------- ---------------
<S> <C> <C> <C> <C>
Bill Stankovic 68,000 68,000 -0- -0-
5790 Patina Drive S.W.
Unit #24
Calgary, A.B.
T3H 2Y5 Canada
Sutton Group Financial Services Ltd. 200,000 200,000 -0- -0-
1628-555 West Hastings St.
Vancouver, B.C.
V6B HN6 Canada
Thomas Tennessen 116,000 20,000 -0- -0-
c/o Industrialex Manufacturing Corp.
63-A S. Pratt Parkway
Longmont, CO 80501
Director of Industrialex
Greg Tyszko 20,000 20,000 -0- -0-
3815 Parkhill Pl. S.W.
Calgary, A.B.
T2S 2W6 Canada
Sylvia E. Williams 20,000 20,000 -0- -0-
5728-125 A Street
Surrey, B.C.
V3X 3G8 Canada
Lily Wong 10,000 10,000 -0- -0-
307 Edelweiss Pl. N.W.
Calgary, A.B.
T3A 3R2 Canada
Walter Wong 20,000 20,000 -0- -0-
2919 S. Lakeridge Trail
Boulder, CO 80302
Nancy Yee 15,000 15,000 -0- -0-
13293 Amble Greene Crt.
Surrey, B.C.
V4A 6H1 Canada
Daryl Yurek 776,000 200,000 -0- -0-
1327 Spruce Street
Boulder, CO 80302
Jeff Yurek 20,000 20,000 -0- -0-
44 Rhonda Ct.
St. Thomas, Ontario
N5R 4X1 Canada
Mike Yurek 20,000 20,000 -0- -0-
RR #4
Iona Station, Ontario
N0I 1P0 Canada
</TABLE>
Alternate 9
<PAGE> 101
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY SHARES
OWNED PRE- OFFERED IN SHARES BENEFICIALLY POST-OFFERING
NAME AND ADDRESS OFFERING THE OFFERING OWNED POST-OFFERING % OWNERSHIP
---------------------------------------- ------------------ -------------- ---------------------- ---------------
<S> <C> <C> <C> <C>
Peter Yurek 20,000 20,000 -0- -0-
46 Pearl St.
St. Thomas, Ontario
N5P 2P4 Canada
Fred Sam Zaitsoff 10,000 10,000 -0- -0-
8080 197 St.
Langley, B.C.
V2Y 1Y4 Canada
Payam Zamani 300,000 300,000 -0- -0-
900 Pepper Tree Lane 1125
Santa Clara, CA 95051
TOTAL 4,277,000 3,277,000
</TABLE>
SHARES ISSUED TO VARIOUS STOCKHOLDERS IN CONNECTION WITH
THE ACQUISITION OF BROOMFIELD ON APRIL 4, 2000
All of the shares beneficially owned pre-offering are issuable upon the
exercise of share purchase warrants designated under Canadian law as "special
warrants." Each special warrant is convertible, for no additional consideration,
into one share of Industrialex common stock.
<TABLE>
<S> <C> <C> <C> <C>
Dan Almadova 4,000 4,000 -0- -0-
15899 E. 13th Pl., #123
Aurora, CO
Cathy Brown 1,500 1,500 -0- -0-
10211 Ura Ln
Northglenn, CO 80221
Dennis Jamison 4,000 4,000 -0- -0-
4434 Zenobia St.
Denver, CO 80212
Angela Bennett Lauer 50,000 50,000 -0- -0-
3168 W. 100th Ave.
Westminster, CO 80031
Donald J. Lauer 50,000 50,000 -0- -0-
3168 W. 100th Ave.
Westminster, CO 80031
Greg Lauer 65,000 65,000 -0- -0-
8332 Yarrow Ct.
Arvada, CO 80005
Jeff Lauer 65,000 65,000 -0- -0-
5731 W. 92nd Ave., #129
Westminster, CO 80030
Jim Pasko 4,000 4,000 -0- -0-
7340 W. 23rd Ave.
Lakewood, CO 80215
</TABLE>
Alternate 10
<PAGE> 102
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY SHARES
OWNED PRE- OFFERED IN SHARES BENEFICIALLY POST-OFFERING
NAME AND ADDRESS OFFERING THE OFFERING OWNED POST-OFFERING % OWNERSHIP
---------------------------------------- ------------------ -------------- ---------------------- ---------------
<S> <C> <C> <C> <C>
Cheryl Riser 5,000 5,000 -0- -0-
11522 Garfield Way
Thornton, CO 80233
Janice Trawinski 5,000 5,000 -0- -0-
10944 Alcott Dr.
Westminster, CO 80234
Mark S. Trawinski 245,000 245,500 -0- -0-
10944 Alcott Dr.
Westminster, CO 80234
Marilyn K. Walker 1,500 1,500 -0- -0-
4440 Eliot St.
Denver, CO 80211
TOTAL 500,000 500,000
</TABLE>
SHARES ISSUED TO VARIOUS STOCKHOLDERS IN CONNECTION WITH
THE ACQUISITION OF DECORATIVE ON MAY 1, 2000
All of the shares beneficially owned pre-offering are issuable upon the
exercise of share purchase warrants designated under Canadian law as "special
warrants." Each special warrant is convertible, for no additional consideration,
into one share of Industrialex common stock.
<TABLE>
<S> <C> <C> <C> <C>
Gary M. Triolo 50,000 50,000 -0- -0-
8344 Allison Court
Arvada, CO 80005
John A. Triolo 50,000 50,000 -0- -0-
13665 W. 71st Place
Arvada, CO 80004
Joseph P. Triolo, Jr 50,000 50,000 -0- -0-
5721 Estes St.
Arvada, CO 80002
Joseph P. Triolo, Sr. 50,000 50,000 -0- -0-
1200 East 3rd Ave.
Broomfield, CO 80020
TOTAL 200,000 200,000
</TABLE>
SHARES ISSUED TO VARIOUS STOCKHOLDERS IN CONNECTION WITH
THE ACQUISITION OF SCREEN TECH ON JULY 5, 2000
All of the shares beneficially owned pre-offering are issuable upon the
exercise of share purchase warrants designated under Canadian law as "special
warrants." Each special warrant is convertible, for no additional consideration,
into one share of Industrialex common stock.
Alternate 11
<PAGE> 103
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY SHARES
OWNED PRE- OFFERED IN SHARES BENEFICIALLY POST-OFFERING
NAME AND ADDRESS OFFERING THE OFFERING OWNED POST-OFFERING % OWNERSHIP
---------------------------------------- ------------------ -------------- ---------------------- ---------------
<S> <C> <C> <C> <C>
Susan Elizabeth DiNapoli 45,000 45,000 -0- -0-
135 Pinewood Loop
Monument, CO 80132
Vincent DiNapoli 45,000 45,000 -0- -0-
135 Pinewood Loop
Monument, CO 80132
TOTAL 90,000 90,000
</TABLE>
-------------
(1) Includes 300,000 shares owned by Mr. Akrami but that Scott Robidart has an
option to purchase pursuant to a Stock Option Agreement dated May 8, 2000.
(2) 760,000 of these shares may be acquired by exercise of a warrant.
PLAN OF DISTRIBUTION
The common stock offered hereby may be sold from time to time to
purchasers directly by the selling stockholders. Alternatively, the selling
stockholders may from time to time offer the shares through underwriters,
dealers or agents, who may receive compensation in the form of underwriting
discounts, concessions or commissions from the selling stockholders and/or the
purchasers of the shares for whom they may act as agent. The selling
stockholders and any underwriters, dealers or agents that participate in the
distribution of the shares may be deemed to be underwriters and any profit on
the sale of the shares by them and any discounts, commissions or concessions
received by any such underwriters, dealers or agents might be deemed to be
underwriting discounts and commissions under the Securities Act. At the time a
particular offer of shares is made, to the extent required, a prospectus
supplement will be distributed that will set forth the specific shares to be
sold and the terms of the offering, including the name or names of any
underwriters or dealer agents, any discounts, commissions and other items
constituting compensation from the selling stockholders and any discounts,
commissions or concessions allowed or reallowed or paid to dealers.
The shares may be sold from time to time in one or more transactions at
a fixed offering price that may be changed or at varying prices determined at
the time of sale or negotiated prices.
Industrialex has paid substantially all of the expenses incident to the
offering of the shares, other than commissions and discounts of underwriters,
dealers or agents and the fees and expenses of counsel to the selling
stockholders.
USE OF PROCEEDS
Industrialex will not receive any of the proceeds from the offering.
All of such proceeds will be received by the selling stockholders.
Alternate 12
<PAGE> 104
Thomson Kernaghan has been granted a warrant to purchase up to 300,000
units at a price of $1.00 per share in consideration of acting as our agent in
our initial public offering. If Thomson Kernaghan exercises its warrant, then
Industrialex will receive additional proceeds of up to $300,000 if exercised at
any time up to one year from the date that shares of Industrialex common stock
are first listed for trading on the facilities of the Canadian Venture Exchange.
If Thomson Kernaghan exercises the warrant, the proceeds will be added to
Industrialex's working capital. Management intends to invest the net proceeds in
money market funds until such time as those proceeds are required.
If the holders of the warrants included in each unit sold in the
initial public offering exercise the warrants, Industrialex will receive
proceeds of up to $4,375,000 if the warrants are exercised during the first year
following the initial public offering and up to $5,250,000 if the warrants are
exercised during the second year following the initial public offering which
will also be added to Industrialex's working capital. If Bolder Venture
Partners, LLC exercises all 760,000 of its stock purchase warrants, we will
receive proceeds of up to $610,000, which will also be added to Industrialex's
working capital.
If we sell less than 500,000 of the units offered for sale in the
initial public offering to investors in the United States, then we will reduce
the amount of proceeds from the initial public offering that we allocate to
working capital. In addition, we would also have to reduce the amounts we
currently anticipate allocating to future acquisition and marketing.
CAUTIONARY STATEMENT CONCERNING
FORWARD-LOOKING STATEMENTS
We have made certain forward-looking statements in this document and in
the documents referred to in this document which are subject to risks and
uncertainties. These statements are based on the beliefs and assumptions of the
management of the companies and on the information currently available to such
management. Forward-looking statements include information concerning possible
or assumed future results of Industrialex. These statements may be preceded by,
followed by, or otherwise include the words "believes," "expects,"
"anticipates," "intends," "plans," "estimates" or similar expressions.
Forward-looking statements are not guarantees of performance. They
involve risks, uncertainties and assumptions. The future results and stockholder
values of Industrialex may differ materially from those expressed in these
forward-looking statements. Many of the factors that will determine these
results and values are beyond our ability to control or predict. Investors are
cautioned not to put undue reliance on any forward-looking statements. Except
for their ongoing obligations to disclose material information as required by
the federal securities law, we do not have any intention or obligation to update
forward-looking statements after this prospectus is delivered, even if new
information, future events or other circumstances have made them incorrect or
misleading.
You should understand that various factors, in addition to those
discussed elsewhere in this document and in the documents referred to in this
document, could affect the future results of the combined company following the
merger and could cause results to differ materially from those expressed in such
forward-looking statements.
Alternate 13
<PAGE> 105
DIVIDEND RECORD AND POLICY
Other than distributions to members made by Industrialex Manufacturing
LLC, Industrialex has not paid any dividends since incorporation and it has no
plans to pay dividends in the immediate future. Industrialex expects to retain
its earnings to finance further growth and, when appropriate, retire debt. The
directors of Industrialex will determine if and when dividends should be
declared and paid in the future based on Industrialex's financial position at
the relevant time. All of the shares of Industrialex are entitled to an equal
share in any dividends declared and paid.
EXPERTS
The financial statements of Industrialex Manufacturing Corp. and
Decorative & Coating Systems, Inc. included in this prospectus have been audited
by Deloitte & Touche LLP, independent auditors, as stated in their reports
appearing herein, and are included in reliance upon the reports of such firm
given upon their authority as experts in accounting and auditing.
The financial statements of Broomfield as of June 30, 1999 and 1998 and
for the years ended June 30, 1999 and 1998 and the financial statements of
Screen Tech as of December 31, 1999 and 1998, and for the years ended December
31, 1999 and 1998 included in this prospectus have been audited by Hein &
Associates LLP, independent auditors, as stated in their reports appearing
herein, and are included in reliance upon the reports of such firm given upon
their authority as experts in accounting and auditing.
LEGAL MATTERS
The Company knows of no material pending legal proceedings to which the
Company is or is likely to be a party or to which any of its properties are or
are likely to be the subject.
Campney & Murphy, Barristers and Solicitors, 2100-1111 West Georgia
Street, Vancouver, British Columbia, Canada, V7X 1K9 has served as legal counsel
of Industrialex in connection with the offering of the securities in Canada on
the Canadian Venture Exchange.
The validity of the securities offered will be passed upon for
Industrialex by Davis, Graham & Stubbs LLP, Denver, Colorado.
WHERE YOU CAN FIND MORE INFORMATION
You may read and copy any reports, statements or other information that
we file with the Securities and Exchange Commission at the SEC's public
reference rooms in Washington, D.C.; New York, New York; and Chicago, Illinois.
Please call the Securities and Exchange Commission at 1 (800) SEC-0330 for
further information on the public reference rooms. Our SEC filings are also
available to the public from commercial document retrieval services and at the
web site maintained by the Securities and Exchange Commission at
"http://www.sec.gov."
Alternate 14
<PAGE> 106
OUTSIDE BACK COVER
Until ___________ __, 2000, all dealers that effect transactions in
these securities, whether or not participating in this offering, may be required
to deliver a prospectus. This is in addition to the dealer's obligation to
deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
Alternate 15
<PAGE> 107
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF OFFICERS AND DIRECTORS
INDEMNIFICATION OF DIRECTORS AND OFFICERS
(a) As permitted by the Colorado Business Corporation Law, the articles
of incorporation of Industrialex eliminate the liability of directors to
Industrialex or its shareholders for monetary damages for breach of fiduciary
duty as a director, except to the extent otherwise required by the Colorado
Business Corporation Act.
(b) The articles of incorporation provide that Industrialex will
indemnify each person who was or is made a party to any proceeding by reason of
the fact that such person is or was a director or officer of Industrialex
against all expense, liability and loss reasonably incurred or suffered by such
person in connection therewith to the fullest extent authorized by the Colorado
Business Corporation Law. Industrialex's bylaws provide for a similar indemnity
to directors and officers of Industrialex to the fullest extent authorized by
the Colorado Business Corporation Law.
(c) The articles of incorporation also give Industrialex the ability to
enter into indemnification agreements with each of its directors and officers.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
Consultants $ 21,500
Legal fees 162,000
Accounting fees 150,000
Registration fees 2,500
Listing fees 2,000
Transfer agent fees 2,000
Printing 10,000
----------
$ 350,000
==========
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
During the period from Industrialex's incorporation through to the date
of this prospectus, Industrialex has issued the following shares:
o Upon incorporation, Industrialex issued 4,250,000 shares to the
sole member of Industrial Manufacturing LLC in exchange for 100%
of his member interest valued at $327,346.
o During February 2000, Industrialex initiated a private placement
of special warrants under which 950,000 special warrants were
subscribed to by a total of 11 sophisticated investors at a price
of $0.50 per warrant, or total consideration of $475,000. Each
investor had access to the same type of information about
Industrialex that is typically available in a registration
statement. Each special warrant is convertible, for no additional
consideration, into one
<PAGE> 108
share of common stock, at the option of the holder with no
expiration. These special warrants were issued in reliance upon an
exemption from registration under the Securities Act of 1933
pursuant to Section 4(2) in a transaction not involving a public
offering. During March, April and May of 2000, the warrants were
issued as the cash consideration was received.
o During February 2000, Industrialex initiated a private placement
of special warrants under which 1,407,000 special warrants were
subscribed to by a total of 35 non-U.S. persons in jurisdictions
outside of the United States at a price of $0.50 per warrant, or
total consideration of $703,500. These special warrants were
issued in reliance on Regulation S under the Securities Act of
1933. Each special warrant is convertible, for no additional
consideration, into one share of common stock, at the option of
the holder with no expiration. During March, April and May of
2000, the warrants were issued as the cash consideration was
received.
o On May 1, 2000, Industrialex issued 200,000 special warrants, with
a deemed value of $1 per special warrant, to a total of 4
sophisticated investors in connection with the acquisition of
Decorative & Coating Systems, Inc. The warrants were issued in
reliance upon an exemption from registration under Section 4(2) of
the Securities Act of 1933 in a transaction not involving a public
offering. Each investor had access to the same type of information
about Industrialex that is typically available in a registration
statement. Each special warrant is convertible, for no additional
consideration, into one share of common stock, at the option of
the holder with no expiration.
o On April 14, 2000, Industrialex issued 500,000 special warrants,
with a deemed value of $1 per special warrant, to a total of 12
sophisticated investors in connection with the acquisition of
Broomfield Industrial Painting, Inc. The warrants were issued in
reliance upon an exemption from registration under Section 4(2) of
the Securities Act of 1933 in a transaction not involving a public
offering. Each investor had access to the same type of information
about Industrialex that is typically available in a registration
statement. Each special warrant is convertible, for no additional
consideration, into one share of common stock, at the option of
the holder with no expiration.
o On July 5, 2000, Industrialex issued 90,000 special warrants, with
a deemed value of $1 per special warrant, to a total of two
sophisticated purchasers in connection with the acquisition of
Screen Tech Graphics, Inc. The warrants were issued in reliance
upon an exemption from registration under Section 4(2) of the
Securities Act of 1933 in a transaction not involving a public
offering. Each purchaser had access to the same type of
information about Industrialex that is typically available in a
registration statement. Each special warrant is convertible, for
no additional consideration, into one share of common stock, at
the option of the holder with no expiration.
o In June of 2000, the board of directors of Industrialex authorized
the grant of options to purchase up to an aggregate of 687,000
shares of Industrialex common stock to 19 individuals who are
directors, officers, or employees of the Company. The number of
options granted to any one person ranges from 7,000 shares to
300,000 shares. All of these options are exercisable between $.50
and $1.00 per share and vest over a 48-month period. None of the
options have been exercised. The options were granted in reliance
upon the exemption from registration under the Securities Act of
1933 provided for in Rule 701.
II-2
<PAGE> 109
o Pursuant to a consulting agreement entered into in January, 2000
(as amended June 28, 2000), Industrialex granted Bolder Venture
Partners a warrant to purchase up to 960,000 shares of
Industrialex common stock for a period of five years from December
28, 2000. The warrants become exercisable as follows:
o 400,000 at $0.25 per share as of January, 2000
(200,000 of which were exercised in September, 2000)
o 360,000 at $1.00 per share as of May, 2000.
o 200,000 at $1.00 per share upon completion of this
offering.
The warrants were issued in reliance upon an exemption from
registration under the Securities Act of 1933 pursuant to Section
4(2). Bolder Venture Partners had access to the same type of
information about Industrialex that is typically available in a
registration statement.
II-3
<PAGE> 110
ITEM 27. EXHIBITS
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
1 Draft Agency Agreement dated o between Industrialex
Manufacturing Corp. and Thomson Kernaghan & Co. Limited***
3.1 Restated Articles of Incorporation of Industrialex
Manufacturing Corp.*
3.2 Bylaws of Industrialex Manufacturing Corp.*
5.1 Draft Legal Opinion of Davis, Graham & Stubbs LLP***
10.1 Incentive Compensation Plan*
10.2 Letter Agreement dated December 28, 1999 between Industrialex
Manufacturing Corp. and Bolder Venture Partners L.L.C.*
10.3 Letter Agreement dated June 28, 2000 between Industrialex
Manufacturing Corp. and Bolder Venture Partners L.L.C.
amending letter dated December 28, 1999*
10.4 Form of Special Warrant*
10.5 Stock Purchase Agreement dated March 22, 2000, between
Industrialex Manufacturing Corp., Mark S. Trawinski, Donald
R. Lauer and Angela Bennet Lauer*
10.6 Stock Purchase Agreement dated May 1, 2000, between
Industrialex Manufacturing Corp., Decorative & Coating
Systems, Inc., Joseph Triolo, Jr., Joseph Triolo, Sr., Gary
Triolo and John Triolo*
10.7 Stock Purchase Agreement dated June 7, 2000, between
Industrialex Manufacturing Corp., Screen Tech Graphics, Inc.
and Susan Elizabeth DiNapoli and Vincent DiNapoli*
10.8 Employment Agreement dated May 1, 2000 between Industrialex
Manufacturing Corp. and Scott Robidart*
10.9 Secured Promissory Note dated May 8, 2000 in the principal
amount of $130,000*
10.10 Stock Option Agreement dated May 8, 2000 between Ahmad Akrami
and Scott Robidart*
10.11 Form of employee/consultant/confidentiality agreement*
10.12 Form of Unit Warrant*
21 List of Subsidiaries*
23.1 Consents of Deloitte & Touche LLP**
23.2 Consents of Hein & Associates**
II-4
<PAGE> 111
24 Power of Attorney (included on signature page)
27 Financial Data Schedule*
----------
* Previously filed
** Filed herewith
*** Final form to be filed via amendment
UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Act") may be permitted to directors, officers and
controlling persons of Industrialex pursuant to Industrialex's Bylaws or
Certificate of Incorporation, 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 hereby undertakes that:
(1) It will file, during any period in which it offers or sells
securities, a post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the information in
the registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any deviation
from the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price represent no more
than a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration statement.
(iii) 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) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this registration statement
as of the time it was declared effective.
(3) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating
II-5
<PAGE> 112
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.
(4) 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.
(5) To file a post-effective amendment to include any financial
statements required to be filed pursuant to section 210.3-19 at the start of any
delayed offering or throughout a continuous offering.
(6) To provide to the underwriter at the closing specified in the
underwriting agreements certificates in such denominations and registered in
such names as required by the underwriter to permit prompt delivery to each
purchaser.
II-6
<PAGE> 113
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of
Vancouver, Province of British Columbia, on the 3rd day of November, 2000.
INDUSTRIALEX MANUFACTURING CORP.
By: /s/ Ahmad Akrami
------------------------------
Name: Ahmad Akrami
Title: Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Ahmad Akrami and Thomas Tennessen, and
each of them, his true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution for him and his name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this registration statement, and to file the same, with all
exhibits and schedules thereto, including any subsequent registration statement
filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended,
together with all schedules and exhibits thereto and other certificates,
instruments, agreements and other documents as may be necessary or appropriate
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as they might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or their substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to 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 indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
--------------------------- ------------------------------ -------------------------
<S> <C> <C>
/s/ Ahmad Akrami Chief Executive Officer November 3, 2000
---------------------------
Ahmad Akrami
/s/ Thomas Tennessen Director November 3, 2000
---------------------------
Thomas Tennessen
/s/ Thomas Stephen Plunkett Director November 3, 2000
---------------------------
Thomas Stephen Plunkett
/s/ Stephen J. King Chief Financial Officer November 3, 2000
---------------------------
Stephen J. King
</TABLE>
II-7
<PAGE> 114
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
1 Draft Agency Agreement dated o between Industrialex
Manufacturing Corp. and Thomson Kernaghan & Co. Limited***
3.1 Restated Articles of Incorporation of Industrialex
Manufacturing Corp.*
3.2 Bylaws of Industrialex Manufacturing Corp.*
5.1 Draft Legal Opinion of Davis, Graham & Stubbs LLP***
10.1 Incentive Compensation Plan*
10.2 Letter Agreement dated December 28, 1999 between Industrialex
Manufacturing Corp. and Bolder Venture Partners L.L.C.*
10.3 Letter Agreement dated June 28, 2000 between Industrialex
Manufacturing Corp. and Bolder Venture Partners L.L.C.
amending letter dated December 28, 1999*
10.4 Form of Special Warrant*
10.5 Stock Purchase Agreement dated March 22, 2000, between
Industrialex Manufacturing Corp., Mark S. Trawinski, Donald
R. Lauer and Angela Bennet Lauer*
10.6 Stock Purchase Agreement dated May 1, 2000, between
Industrialex Manufacturing Corp., Decorative & Coating
Systems, Inc., Joseph Triolo, Jr., Joseph Triolo, Sr., Gary
Triolo and John Triolo*
10.7 Stock Purchase Agreement dated June 7, 2000, between
Industrialex Manufacturing Corp., Screen Tech Graphics, Inc.
and Susan Elizabeth DiNapoli and Vincent DiNapoli*
10.8 Employment Agreement dated May 1, 2000 between Industrialex
Manufacturing Corp. and Scott Robidart*
10.9 Secured Promissory Note dated May 8, 2000 in the principal
amount of $130,000*
10.10 Stock Option Agreement dated May 8, 2000 between Ahmad Akrami
and Scott Robidart*
10.11 Form of employee/consultant/confidentiality agreement*
10.12 Form of Unit Warrant*
21 List of Subsidiaries*
23.1 Consents of Deloitte & Touche LLP**
23.2 Consents of Hein & Associates**
24 Power of Attorney (included on signature page)
27 Financial Data Schedule*
----------
* Previously filed
** Filed herewith
*** Final form to be filed via amendment
</TABLE>
