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SUBJECT TO COMPLETION, DATED AUGUST 14, 2000
REGISTRATION NO. 333-_____
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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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 _______ 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 PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED OFFERING PRICE PER SHARE(1) AGGREGATE OFFERING PRICE(1) REGISTRATION FEE
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Common Stock, par value $.01
per share 7,992,000 $ 1.00 $7,992,000 $2,110
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(1) 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.
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.
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EXPLANATORY NOTE
This registration statement covers (a) the primary public offering by
Industrialex of 3,500,000 shares of common stock, $.01 par value, (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 shares
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 of 4,067,000
shares of common stock underlying special warrants by certain selling
stockholders of Industrialex. 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.
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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 AUGUST 14, 2000
INITIAL PUBLIC OFFERING
PROSPECTUS
3,500,000 Shares
[INDUSTRIALEX MANUFACTURING LOGO]
INDUSTRIALEX MANUFACTURING CORP.
Common Stock, $.01 par value
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Thomson Kernaghan & Co. Limited, Industrialex's agent, has entered into
a firm commitment agreement to sell 3,000,000 of the shares in this public
offering to investors in Canada, and Industrialex will sell up to 500,000 of the
shares in this public offering directly to investors in the United States, at a
price of $1.00 per share, for aggregate gross proceeds of $3,500,000.
Industrialex is concurrently registering 4,067,000 shares of its common
stock on behalf of selling stockholders.
Before offers to sell shares of common stock are made, the shares of
Industrialex common stock will have been approved for listing on the facilities
of the Canadian Venture Exchange.
UNDERWRITTEN BY:
THOMSON KERNAGHAN & CO. LIMITED
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PER
TOTAL SHARE
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Public offering price $ 3,500,000 $ 1.00
Underwriter commissions $ 225,000 $ 0.075
Proceeds $ 3,275,000 $ 0.925
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Industrialex has paid Thomson Kernaghan a work fee of $18,000 and
granted to Thomson Kernaghan a warrant entitling it to purchase shares
of common stock in the future. Industrialex also will pay Thomson
Kernaghan a corporate finance fee of 125,000 shares of common stock.
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THE SHARES OF COMMON STOCK 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 __, 2000
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TABLE OF CONTENTS
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PAGE
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Summary....................................................................................1
Risk Factors...............................................................................2
Dilution...................................................................................5
Use of Proceeds............................................................................6
Description of Industrialex................................................................7
Description of Business....................................................................7
Management Discussion and Analysis of Financial Condition and Results of Operations.......25
Description of Securities.................................................................30
Plan of Distribution......................................................................32
Directors and Senior Officers.............................................................35
Certain Relationships and Related Transactions............................................37
Executive Compensation....................................................................37
Cautionary Statement Concerning Forward-Looking Statements................................38
Dividend Record and Policy................................................................38
Experts...................................................................................39
Legal Matters.............................................................................39
Where You Can Find More Information.......................................................39
Index to Financial Statements............................................................F-1
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SUMMARY
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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.
Industrialex has three wholly-owned subsidiaries: Broomfield Industrial
Painting, Inc. ("BIP"); Decorative and Coating Systems, Inc. ("DACS");
and Screen Tech Graphics, Inc. ("STG"). In this prospectus, all references
to the "Company" shall mean the combined operations of Industrialex, BIP,
DACS and STG, and "Industrialex" shall mean Industrialex Manufacturing
Corp.
OFFERING: The offering consists of 3,500,000 shares of common stock to be offered to
the public. 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 granted warrants and special warrants pursuant to
which up to 4,407,000 shares may be issued in the future.
USE OF PROCEEDS: The net proceeds from this offering will be $3,275,000. Industrialex's
working capital as of March 31, 2000 was approximately $1,112,541. The
net proceeds from the offering plus the working capital totals
approximately $4,387,541 before expenses, and 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 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, BIP, DACS, STG 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.,
Gary Triolo, 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.
THE INABILITY TO CONTINUE DEVELOPING AND SELLING NEW PRODUCTS MAY RESULT IN
CONTINUED LOSSES.
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.
WE OPERATE IN A HEAVILY REGULATED INDUSTRY.
We must comply with federal, state and local regulations that impose
various environmental controls on the storage, handling, discharge and disposal
of chemicals and gases used in its manufacturing process. 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.
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 three months ended March 31, 2000, sales to the
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five largest customers of Industrialex, BIP, DACS and STG represented 87%, 54%,
58% and 63% respectively, 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
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 PUBLIC OFFERING PRICE WAS DETERMINED THROUGH NEGOTIATIONS AND MAY NOT BE
RELATED TO THE VALUE OF THE STOCK.
The initial public offering price of Industrialex's common stock on the
Canadian Venture Exchange of $1.00 per share was arrived at arbitrarily by
negotiation between Industrialex and Thomson Kernaghan, and represents their
independent assessment of the value of the shares 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 of the shares following the completion of the
offering.
THE POTENTIAL SUPPLY OF MARKETABLE SHARES FOR IMMEDIATE SALE MAY ADVERSELY
IMPACT THE MARKET PRICE OF THE SHARES.
Concurrently with the registration of the 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, or that underly special
warrants that are presently owned, by its stockholders. 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. If the supply substantially
exceeds the demand, it might become impossible to find buyers for all the shares
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.
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.
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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.
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DILUTION
The following sets forth the dilution per share (as of March 31, 2000)
after giving effect to this offering and the acquisitions of DACS, BIP and STG:
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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 0
offering: (0.087)
Increase in pro forma combined net tangible book value per share
attributable to the offering: 0.417
Pro forma combined net tangible book value after the offering: 0.330
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Dilution to investor: 0.67
Dilution to investor (as a percentage): 67%
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The table excludes the effect of the conversion of all special warrants
which have been issued in the private placement and business acquisitions. If
all currently exercisable special warrants were to be converted, then the
issuance of common stock underlying them would have a $0.09 per share effect on
the dilution calculation above. In such a case, the "Dilution to investor" and
the "Dilution to investor (as a percentage)" in the table above would read $0.76
and 76%, respectively. If all such special warrants are converted after
completion of this offering, then there would be a total of approximately
10,577,000 shares issued and outstanding.
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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 $225,000 to Thomson
Kernaghan. After deducting the commission and prior to expenses of the offering,
the net proceeds from this offering will be $3,275,000. 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 225,000
Cost of setting up new facility 800,000
Note Payable for Decorative & Coating Systems, Inc. acquisition 700,000
Note Payable for Screen Tech Graphics, Inc. acquisition 610,000
Debt for payoff of STG bank lines 220,000
Cost of future acquisitions(1) 500,000
Marketing 75,000
Working capital to fund ongoing operations and unallocated working capital 2,000
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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.
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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. 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
our protective coating services could grow from $900 million in 1998 to $2.0
billion by 2001. The Company is planning to position itself as a provider of a
full range of coating offerings.
The Company is a provider of protective coating services to a broad
range of companies in the manufacturing industry. The Company's services include
conformal coating, shielding, powder coating, liquid painting and screen
printing. The specific markets served by the Company include the following: high
technology, medical, aerospace, defense, consumer electronics, data storage,
semiconductor, transportation and general manufactured goods. The Company's
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. Management believes there are approximately 14 private
companies in the coating sector comparable to the Company in Colorado, ranging
in size up to $2,000,000 in annual gross sales.
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Industrialex began its 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 BIP, located in Westminster,
Colorado. Founded in 1983, BIP 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, Industrialex's service offering expanded into liquid
painting of metal and plastic products. In 1999, BIP generated sales of
approximately $993,000.
On May 1, 2000, Industrialex acquired DACS, located in Denver,
Colorado. Founded in 1976, DACS 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, DACS generated sales of
approximately $1,353,000.
On July 17, 2000, Industrialex acquired STG, located in Colorado
Springs. Founded in 1976, management believes that STG 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 STG generated sales of
approximately $1,899,000.
Overview of operations
The specific coating services required by Industrialex's 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:
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Metal and Plastic Products Painted Circuit Board Assembly Products
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Screen
Printing Powder Paint Urethane Potting Silicon Shielding
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Industrialex X X X
BIP X X
DACS X X
STG X X X
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The Company currently operates 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 116 personnel. Each facility is managed by a general manager
who oversees day-to-day operations.
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The Company's 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. The Company holds permits
from the Colorado State Air Pollution Control Divisions and various wastewater
treatment entities. All of the Company's 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 the success of the Company is that its
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, the Company has refined its 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.
The Company plans to capitalize on the well-recognized names of its
acquired subsidiaries and on the brand recognition that each subsidiary has
developed. The Company proposes 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 BIP, DACS and STG. The Company plans to
consolidate the operations of BIP, DACS and STG into two facilities. One
facility, with approximately 70,000 square feet, will be based in northern
Colorado. The second facility, previously operated by STG, 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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Masking
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-> ->
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Receiving -> Preparation -> Washing -> Coating -> Heating -> Inspection -> Shipping
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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.
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.
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<PAGE> 15
POWDER COATING:
Since its introduction in North America almost 40 years ago, powder
coating has become the fastest growing finishing technology, and 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.
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.
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<PAGE> 16
SCREEN PRINTING:
The screen printing capability of the Company includes in-house screen
fabrications, computerized art department and darkrooms. These capacities allow
the Company 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.
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, Jim Savage, an analyst at Thomas Weisel,
suggested that "what was a $90 billion industry in 1998 will be a $200 billion
by 2001."(1) 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 U.S. Department of Commerce "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."(2) The
fastest growing segment of this market is powder coatings. The United States
Census Bureau further reports that: "shipments of powder coatings increased
13.4% to $669.7 million in 1998 from $590.5 million in 1997."(3)
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 the Company's 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."(4) 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."(5)
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
----------------
(1) Eric Nee, "The Low-Tech King of High Tech," Fortune Magazine, October 25,
1999.
(2) U.S. Department of Commerce, Economic and Statistics Administration, U.S.
Census Bureau Report, February 2000.
(3) U.S. Department of Commerce, Economic and Statistics Administration, U.S.
Census Bureau Report, February 2000.
(4) Paint and Powder Magazine, December 1998.
(5) World Power Coating Markets, October 1999.
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<PAGE> 17
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." The Company provides 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]
UV-Cure 4%
Electrocoat 8%
Powder 14%
Waterborne 20%
High-solids 25%
Solventborne 29%
SOURCES: INDUSTRIAL PAINT AND POWDER DEPT. OF COMMERCE POWDER COATING INSTITUTE
[PIE CHART]
THE MARKET FOR OEM PRODUCT COATINGS
Appliances/HVAC Equipment 7%
Non-Wood Furniture/Business Equipment 9%
Wood Products 12%
Metal Containers and Closures 13%
General Industrial Finishing 26%
Automotive 33%
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<PAGE> 18
PARTNERSHIPS
Partnerships amongst coating companies are becoming more common and
demonstrate a growing effort in the industry to form teams to solve customer
problems. The Company will consider developing such partnership arrangements,
where appropriate, provided that the focus is on establishing cooperative
efforts with the Company's 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 the estimated $2.0 billion market opportunity
in the United States, the Company will position its 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.
MARKET SEGMENTS
The Company's market is segmented 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. The Company is able to provide a full range
of coating services. These services are defined as: conformal coating utilizing
silicone or arethane, potting/encapsulation and EMI/RFI shielding for printed
circuit board assemblies, powder coating and liquid painting of metal, plastic
and glass and finally screen printing of metal and plastic products.
The Company's business is currently dividend into two major categories:
short runs and long runs. Short runs provide 70% of the Company's total revenue
whereas long runs provide 20%.
The requirements of the Company's 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 the Company's 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. The
Company's 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 Company's Longmont facility is equipped with
class A chambers, where they 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.
The Company's 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 for the Company. To achieve this goal, the
Company plans 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.
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<PAGE> 19
In Colorado, the Company has over 180 customers. Major customers
include SMTC Manufacturing Corp., EPOCS Corp., CEH Corp. and Cobe Laboratories,
Inc.
THE MARKETING PLAN
The Company's goal is to establish itself as a leading provider of a
full spectrum of coating applications for the manufacturing industry. The
Company will grow its business regionally in 2 phases. Phase 1 will be in the
Colorado region and Phase 2 will encompass all of North America. During Phase 1,
the Company 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 II in the year 2001.
To accomplish these goals, the Company 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, the Company will
attempt to leverage its long history of relationships with its customers to
secure long-term contracts for its base business. The Company also plans 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.
The Company's base business has traditionally been established through
long-term relationships and its reputation in the region. The Company plans 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, the
Company plans to utilize additional sales personnel. Sales strategy will be
based on developing key account relationships where the Company 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, the Company plans to establish high
executive level relationships with the customers' management.
Once Phase 1 of the roll-up has been completed, the Company expects
that its 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, the Company expects to
establish long-term contracts with ongoing long-term revenue streams.
THE RESEARCH AND DEVELOPMENT PLAN
The Company utilizes advanced technologies in two primary areas: the
application of chemicals on products, and the utilization of advanced process
equipment in its coating operations. The Company's longstanding relationships
with the manufacturers of chemicals allow for access to the latest advancements
in chemical materials. The Company does not expend any capital in research and
development activities. The Company 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. The Company is currently
experimenting with applying 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.
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<PAGE> 20
The Company 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, the Company expects to be able to offer a
full spectrum of coating applications to customers in Colorado. The Company's
primary expertise is in conformal coating, potting and electro-magnetic
interference/radio frequency interference shielding of printed circuit board
assemblies. BIP's primary offering is liquid paint for industrial applications
of metal products. DACS's primary expertise is powder coating of metal and
plastic products. STG offers liquid paint, powder coating and screen printing
for customers in the southern region of Colorado area.
ECONOMIES OF SCALE
The Company 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 the Company's products and services. As
a result, the Company believes it can grow the sales more effectively as a
combined entity.
OPERATIONS
Currently, the Company operates out of four facilities located in
Longmont, Denver, Westminster and Colorado Springs. The Company is proposing to
integrate its operations into three facilities by February 2001 when the Company
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
DACS and BIP will be moved and integrated into this new facility. The STG
facility in Colorado Springs, which is approximately 16,000 square 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 its
operations the Company will continue to service its customers from its four
existing facilities. This approach will allow the Company 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.
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<PAGE> 21
BUSINESS OBJECTIVES AND MILESTONES
The Company plans to focus on Colorado as a model for its national
roll-up plan. The market size for protective coating services in Colorado is
estimated by the Company 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. The Company 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, the Company
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) BIP (which was acquired on April 4, 2000);
(b) DACS (which was acquired on May 1, 2000); and
(c) STG (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 December 31, 2000.
3. Open a new 70,000 square foot facility for the integration of BIP
and DACS and future acquisitions.
During the 12-month period following the completion of the offering,
the Company 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, the Company would have to meet the following
milestones:
o Pay off $700,000 (plus interest) of acquisition debt for the DACS
acquisition by October 1, 2000.
o Pay off $610,000 (plus interest) of acquisition debt for the STG
acquisition by December 31, 2000.
o Have $800,000 by September 30, 2000 to be spent between October
2000 and February 2001 for the establishment of the new facility.
o Have $500,000 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. The Company's strategy calls for being an
effective consolidator in the industry. This will require
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<PAGE> 22
the Company to be the first to identify and use new materials in chemicals and
advanced application techniques.
The Company does not propose to engage in research and development or
to incur expenses associated with new product development. Instead, the Company
will focus on developing and strengthening its current competitive advantage,
which is its breadth of knowledge in the coating process. Because the Company
believes it has better knowledge of the coating process than its competitors and
can use that knowledge to generate economies of scale and shorter turn around
times, the Company can compete with other companies on the basis of price and
customer services.
The Company's competition within the Colorado market consists of
companies that compete in its business segment or that provide the same full
complement of services as the Company. 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.
The Company believes Ameratech, Inc. and Foothills Powder Coating, Inc.
represent the largest potential competition to the Company's business 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
The Company relies solely on general trademark and copyright law to
protect its products. The Company has not formally registered trademarks or
copyrights nor has it obtained any patent protection for any of its products.
MANAGEMENT
The Company has a total of 116 employees. The employees who form the
management team of the Company and their resumes are described briefly below.
AHMAD AKRAMI
Mr. Akrami, age 41, has been the Chairman and Chief Executive Officer
of the Company since its inception and is employed by the Company on a full-time
basis. Mr. Akrami has served the Company in this capacity since October 1, 1994.
Mr. Akrami has been a director of Panoramic Care Systems, Inc. since October 1,
1999 and was Interim Chief Executive Officer from October 1999 to May 2000.
Prior to joining the Company he was employed by Zygo Corporation, a precision
optics and equipment company, from September 1996 to September 1999. He held the
position of Vice President of Worldwide Sales, Marketing and Customer Services
from June 1998 to September 1999 and was Corporate Vice President from August
1997 to June 1998. Prior to his position at Zygo Corporation, Mr. Akrami was
President and Chief Executive Officer at NexStar Automation, Inc., a robotics
and automation equipment company, from December 1992 to September 1996. From
August 1987 through October 1992, Mr. Akrami was the
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<PAGE> 23
Chairman, President and Chief Executive Officer of TechniStar Corporation of
Longmont, Colorado. Additionally, Mr. Akrami has been a partner in Bolder
Venture Partners since September 1999.
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 the Company.
MICHAEL SCOTT ROBIDART
Mr. Robidart, age 45, was appointed the President and Chief Operating
Officer of the Company on May 8, 2000. Mr. Robidart has over 20 years experience
in development, costing, manufacturing and engineering in high technology
companies, is employed by the Company on a full-time basis. Mr. Robidart has
served the Company in this capacity since May 2000.
Prior to joining the Company in May 2000, Mr. Robidart was with Seagate
Technology where he served as Executive Director from March 1997 to May 2000. As
Executive Director Mr. Robidart managed cross-functional teams in the areas of
product development, scheduling, costing, manufacturing and customer
qualification and support of disk drives for the consumer and commercial
personal computer markets. Mr. Robidart was responsible for a four product line
that generated over $1.0 billion in sales revenue on an original equipment
manufacturer basis to companies including Dell, Compaq, and Hewlett Packard
Company.
From February 1996 to August 1996 Mr. Robidart was employed by Maxtor
Corporation as its Vice President of Desktop Business responsible for the
customer and supplier support, product definitions, costing, program scheduling,
business planning, product development, manufacturing, staffing, and quality for
a line of products that generated $250 million in revenue for the company.
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 the
Company that includes employment terms and non-competition and non-disclosure
provisions.
STEPHEN J. KING
Mr. King, age 48, is the Chief Financial Officer of the Company, and is
employed by the Company on a full-time basis. Mr. King has served the Company in
this capacity since May 2000.
Prior to joining the Company, Mr. King was a self-employed business
consultant from March 1999 to May 2000. From June 1993 to March 1999 he was
Chief Financial Officer of Back Yard Burgers Inc., a publicly held operator and
franchiser of fast food restaurants comprised of 33 company operated and 48
franchised restaurants. From May 1988 to June 1993 he was Controller of
Southland Racing Corp., a $200 million racing facility in West Memphis,
Arkansas. Prior to that Mr. King was with Price Waterhouse for 6 years.
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<PAGE> 24
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 the Company setting
out the terms of his employment and has entered into a non-competition and
non-disclosure agreement with the Company.
GARY E. LANDGREN, GENERAL MANAGER, LONGMONT OPERATIONS
Mr. Landgren, age 54, is the General Manager of Industrialex's Longmont
Operations and is employed by the Company on a full-time basis. Mr. Landgren has
served Industrialex in this capacity since its inception in 1994.
Prior to joining the Company, 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 the
Company that includes employment terms and non-competition or non-disclosure
terms.
MARK S. TRAWINSKI, GENERAL MANAGER, BIP
Mr. Trawinski, age 41, is the General Manager of BIP, located in
Westminster, CO. and is employed by the Company on a full-time basis. Mr.
Trawinski has served in this capacity since the acquisition of BIP by
Industrialex in April 2000. Prior to joining Industrialex, Mr. Trawinski was a
co-founder of BIP and served as its President since inception.
Mr. Trawinski has entered into a contractual arrangement with the
Company that includes employment terms and non-competition and non-disclosure
terms.
JOSEPH P. TRIOLO, JR. GENERAL MANAGER, DACS
Mr. Triolo, age 40, is the General Manager of DACS, located in Denver,
CO. and is employed by the Company on a full-time basis. Mr. Triolo has served
in this capacity since the acquisition of DACS by Industrialex in May 2000.
Prior to joining Industrialex, Mr. Triolo was a co-founder of DACS and served as
its President since its inception.
Mr. Triolo has entered into a contractual arrangement with the Company
that includes employment terms and non-competition and non-disclosure terms.
VINCENT DINAPOLI. GENERAL MANAGER, STG
Mr. DiNapoli, age 58, is the General Manager of STG, located in
Colorado Springs, CO. Once the acquisition of STG by Industrialex is complete,
it is anticipated that Mr. DiNapoli will be employed by the
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<PAGE> 25
Company on a full-time basis. Mr. DiNapoli was the founder of STG and has served
as its President since inception.
Mr. DiNapoli has entered into a contractual arrangement with the
Company that includes employment terms and non-competition and non-disclosure
terms.
PERSONNEL
The Company currently has a total of 116 full and part-time employees.
Of these, 18 employees serve in a management and administration capacity, two
employees serve in a sales and marketing capacity, 12 employees serve in a
manufacturing management capacity and 84 employees serve in production. These
employees operate out of the following offices of the Company:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
MANAGEMENT & SALES &
OFFICE LOCATION ADMINISTRATION MARKETING MANUFACTURING PRODUCTION TOTAL
--------------------------- ----------------- ----------- --------------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Longmont, CO(1) 6 1 2 22 31
Westminster, CO(2) 3 0 3 14 20
Denver, CO(3) 4 0 3 20 27
Colorado Springs, CO(4) 5 1 4 28 38
Totals: 18 2 12 84 116
-------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Company's initial production facility.
(2) This facility was initially operated by BIP, which was acquired by
Industrialex on April 4, 2000.
(3) This facility was initially operated by DACS, which was acquired by
Industrialex on May 1, 2000.
(4) This facility is operated by STG, which was acquired by Industrialex on
July 17, 2000.
The foregoing full and part-time personnel are sufficient to meet the
Company's stated business objectives. Additional personnel will be added, mainly
in production, as and when circumstances warrant and profits or additional
funding permits. None of the Company's employees are subject to collective
bargaining agreements. Management believes relations with the Company's
employees are good.
DESCRIPTION OF OFFICES
The Company's 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 31 employees operate out of this office
and manufacturing facility.
The Company's 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 20 employees operate out of this
manufacturing facility.
The Company's 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 27 employees operate out of this office and
manufacturing facility.
The Company's 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.
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<PAGE> 26
ACQUISITIONS AND DISPOSITIONS
The following is a description of the acquisitions and dispositions of
Industrialex undertaken during the past five fiscal years of Industrialex or
during the period since the completion of the most recently completed fiscal
year to the date of this prospectus.
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 BIP.
The purchase price for the BIP shares was $925,000 comprised as
follows:
(a) a closing payment of $425,000 delivered to the BIP stockholders at
closing; and
(b) an aggregate of 500,000 special warrants, valued at $1.00 each,
delivered to the BIP stockholders at closing.
The acquisition of BIP 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 BIP stockholder, repurchase the special warrants held by the BIP
stockholder at a price of $1.00 per special warrant.
Each BIP 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 BIP stockholder agreed not to sell or
transfer 70% of their Industrialex shares for a period of nine months following
the closing.
Founded in 1983, BIP 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. BIP primarily
utilized liquid paint and powder coating applications to service its customers.
BIP has 20 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 DACS from the DACS stockholders.
The purchase price for the DACS Shares was $1,200,000 paid as follows:
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<PAGE> 27
(a) A closing payment of $300,000 delivered to the DACS stockholders
at closing;
(b) a promissory note in the principal amount of $700,000 bearing
interest at a rate of 12% per annum and due on or before October
1, 2000, delivered to the DACS stockholders on closing; and
(c) an aggregate of 200,000 special warrants, valued at $1.00 each,
delivered to the DACS stockholders at closing.
The acquisition of the DACS 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 DACS stockholder, repurchase the special warrants held by the
DACS stockholder at a price of $1.00 per special warrant.
Each DACS 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 DACS stockholder agreed not to
sell or transfer 70% of their Industrialex shares for a period of nine months
following the closing.
Founded in 1976, DACS 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. DACS utilizes primarily powder coating applications to service its
customers. DACS has 27 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 STG from the STG
stockholders.
The purchase price for the STG shares was $1,000,000, comprised as
follows:
(a) a closing payment of $300,000 delivered to the STG 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 STG stockholders at closing; and
(c) an aggregate of 90,000 special warrants, valued at $1.00 each,
delivered to the STG stockholders at closing.
In addition to the STG Purchase Price, Industrialex will be obligated
to issue and deliver to the STG stockholders an additional 300,000 STG Special
Warrants or shares of common stock, if STG meets or
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<PAGE> 28
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 STG shares by Industrialex closed on July 5,
2000.
Each STG 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 STG stockholder, repurchase the special warrants
held by the STG stockholder at a price of $1.00 per special warrant.
Each STG 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 STG stockholder agreed not to sell or
transfer 90% of their Industrialex shares for a period of nine months following
the closing.
Founded in 1976, STG is the largest provider of powder coating, liquid
painting and screen printing services in Colorado Springs, Colorado. STG
utilizes both powder coating and liquid paint applications for metal and plastic
products for high technology manufacturing, electronics, fabricated metal
manufacturers and transportation industries. STG 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> 29
MANAGEMENT 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 and "Management's
Discussion and Analysis of Financial Condition and Result of Operations"
included elsewhere in this Preliminary 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 three months ended March 31, 2000 and 1999 has been
derived from unaudited financial statements.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
3 MONTHS ENDED MARCH 31 YEARS ENDED DECEMBER 31
2000 1999 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INCOME STATEMENT
INFORMATION:
Revenues $ 187,866 $ 168,054 $ 1,113,685 $ 810,821
Cost of sales 178,797 150,912 783,746 473,723
General and
administrative expenses 102,317 31,428 270,119 163,667
Net income (loss) (94,339) (14,498) 59,088 173,336
BALANCE SHEET
INFORMATION:
Total assets 1,486,957 N/A 454,154 416,421
Total current liabilities 91,057 N/A 70,071 89,437
Working capital 1,112,541 N/A 226,719 243,395
Equity 1,357,530 N/A 343,380 326,984
------------------------------------------------------------------------------------
</TABLE>
RESULT OF OPERATIONS FOR QUARTER ENDED MARCH 31, 2000
Revenues
Revenues increased from $168,000 in 1999 to $188,000 for the quarter
ended March 31, 2000. This resulted in an increase of $20,000 or 12% over the
same quarter 1999. In June 1999 Industrialex expanded into the powder coating
segment of the conformal coating industry by opening its Mead facility. This
resulted in an increase in revenues from powder coating sales.
Gross margins
Industrialex's gross profit margin for the quarter ended March 2000 was
$9,000 or 5% based on sales. This compares with a margin of 10% in the quarter
end March 31, 1999. The margin decreased due to the expansion in 1999 into the
powder coating business and less profitable conformal coating margins. The
Company anticipates increasing gross profit margin by better managing a
significant portion of its costs of
-25-
<PAGE> 30
goods sold - labor costs. The Company will attempt to manage its labor costs
which currently represents approximately 39% of its cost of goods sold. This
will be handled by utilizing more temporary labor to manage the ups and downs of
product requirements. The Company is also focusing on developing more consistent
production from its customers to better manage labor utilization.
General and administrative ("G&A")
G&A expenses increased from $29,000 in 1999 to $97,000 in 2000, a 231%
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.
Net loss
Net loss increased from $14,000 in 1999 to $94,000 in 2000, an increase
of $80,000 or 571%. This is attributed to Industrialex's expansion into the
powder coating arena and the additional costs incurred in expanding its powder
coating product line. Traditionally Industrialex's first quarter business is
lower due to manufacturers reducing purchases from the fourth quarter ramps.
This results in Industrialex carrying additional overhead until subsequent
quarters are ramped up by its customers.
Future outlook
Management believes that Industrialex will return to higher net income
with the acquisition and consolidation of their coating companies. Expenditures
may increase slightly until the consolidation of operations can occur and the
redundant costs of having four distinct operations can be eliminated. With the
acquisition of BIP and DACS, Industrialex is currently in the process of closing
its Mead facility and consolidating it into the acquired production facilities.
Industrialex anticipates continuing to generate operating income in the interim
as the new acquisitions are assimilated into Industrialex's operations.
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
-26-
<PAGE> 31
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.
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 the Company 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 the Company has begun a process of reducing its overall
cost. The lease for the Company's Mead facility expired in June of 2000. The
Mead facility has been closed and production is being transferred to the BIP and
DACS facilities. The Company plans to utilize in the short term the synergies of
Industrialex, DACS and BIP to maximize the production capacity of these
facilities to grow revenues. Additionally, the Company will begin a
consolidation plan to lease a combined facility for the consolidation of the
production of DACS and BIP. The consolidation of these operations will assist
the Company 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 the Company 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> 32
CAPITAL RESOURCES AND LIQUIDITY
Capital and debt financing
In March 2000, Industrialex undertook a private placement of 2,357,000
special warrants (the "Private Placement Special Warrants") at $0.50 per special
warrant. 2,087,000 of the Private Placement Special Warrants were placed prior
to March 31, 2000. Each Private Placement Special Warrant can be converted into
one Common Share 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.
March 31, 2000
During the quarter ended March 31, 2000, Industrialex cash from
operations decreased by $105,000 compared to generating cash of $117,000 for the
same quarter in 1999. This is a result of increased spending relating to other
assets relating to acquisition activities and financing activities.
Cash used in investing activities totaled $5,000 during the quarter
ended March 31, 2000 compared to $9,000 in the quarter ending March 31, 1999.
Cash used by financing activities was $1,106,000 for quarter ended
March 31, 2000 compared to $5,000 for the same period in 1999. Industrialex
distributed $16,000 to shareholders and issued a total of $1,125,000 in common
stock warrants to finance acquisitions and operations.
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<PAGE> 33
Industrialex generated a net increase of $996,000 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 March 31, 2000.
Cash and cash equivalents totaled $1,036,000 at March 31, 2000 with the increase
associated with the private placement that began in March of 2000 to fund the
consolidation activities. Accounts receivable decreased from $251,000 at
December 31, 1999 to $163,000 contributing to cash provided by operating
activities of $88,000. 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 BIP Vendors and the DACS Vendors the
remaining purchase price due post-closing and to close the STG acquisition.
Management anticipates that Industrialex will continue to invest significant
resources in completing the roll- up of other industrial coating companies in
2000 and may require 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.
See below and as described under "Description of Business - Business
Objectives and Milestones" and "Use of Proceeds", 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 BIP and DACS 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. See also "Options to Purchase and Agreements to
Issue Securities".
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
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<PAGE> 34
resulting from changes in the value of those derivatives are accounted for
depending on the use of the 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
the Company 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.
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<PAGE> 35
VOLUNTARY RESALE RESTRICTIONS
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:
(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 reduction on the date that is 15 months
after the date of the initial public offering.
STOCK OWNERSHIP
The following are the shareholdings of the directors, senior officers
and promoters of Industrialex and of any other shareholders which, to the
knowledge of Industrialex, beneficially own, directly or indirectly, more than
five percent of the issued common stock of Industrialex:
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OF PERCENTAGE OF ISSUED SHARE
NAME AND MUNICIPALITY OF OF COMMON STOCK ISSUED SHARE CAPITAL AFTER THE
RESIDENCE OF SHAREHOLDER BENEFICIALLY OWNED CAPITAL COMPLETION OF THIS 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) 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(3) 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(4) 6.59% -0-
900 Pepper Tree Lane 1125
Santa Clara, California
Mark S. Trawinski 245,000(5) 5.45% -0-
10944 Alcott Dr.
Westminster, Colorado 80234
</TABLE>
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<PAGE> 36
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OF PERCENTAGE OF ISSUED SHARE
NAME AND MUNICIPALITY OF OF COMMON STOCK ISSUED SHARE CAPITAL AFTER THE
RESIDENCE OF SHAREHOLDER BENEFICIALLY OWNED CAPITAL COMPLETION OF THIS OFFERING
-------------------------------------------- --------------------- ---------------- ---------------------------
<S> <C> <C> <C>
Bolder Venture Partners L.L.C. 960,000(6) 22.5% -0-
1327 Spruce Street, Suite 300
Boulder, Colorado 80302
Daryl Yurek 776,000(7) 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 and 96,000 shares in which Mr. Akrami has a beneficial
ownership through his ownership of 10% of Bolder Venture Partners L.L.C.
Also 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 between Mr. Akrami and Mr. Robidart.
(2) Includes 20,000 shares issuable, for no additional consideration, upon
exercise of common stock purchase warrants designated as special warrants
under Canadian law and 96,000 shares in which Mr. Tennessen has a
beneficial ownership through his ownership of 10% of Bolder Venture
Partners L.L.C.
(3) Mr. Robidart has an option to purchase these shares from Ahmad Akrami
pursuant to a Stock Option Agreement dated May 8, 2000.
(4) All 300,000 of these shares are issuable, for no additional consideration,
upon exercise of common stock purchase warrants designated as special
warrants under Canadian law.
(5) All 245,000 of these shares are issuable, for no additional consideration,
upon exercise of common stock purchase warrants designated as special
warrants under Canadian law.
(6) Bolder Venture Partners L.L.C. is owned 60% by Daryl Yurek and 10% by each
of Thomas Tennessen, Cliff Mah, Kent Nuzum and Ahmad Akrami.
(7) Includes 576,000 shares in which Mr. Yurek has a beneficial ownership
through his ownership of 60% of Bolder Venture Partners L.L.C.
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.
PLAN OF DISTRIBUTION
Industrialex will offer to sell up to 3,500,000 in this offering.
3,000,000 of the shares in the public offering will be sold to investors in
Canada through a firm commitment underwriting by Thomas Kernaghan & Co. Limited.
Industrialex will sell up to 500,000 of the shares in this public offering
directly to investors in the United States.
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<PAGE> 37
OFFERING AND APPOINTMENT OF AGENT
By an agency agreement dated for reference __________, Industrialex
appointed Thomson Kernaghan & Co. Limited as its agent to offer a total of
3,000,000 shares in Canada through the facilities of the Canadian Venture
Exchange. The shares will be offered at a price of $1.00 per share 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 shares are first offered to the public. The
offering will be made in accordance with the rules and policies of the Canadian
Venture Exchange.
Under the terms of the agency agreement, Industrialex has agreed to pay
to Thomson Kernaghan a commission of $0.075 per share for each share sold in
Canada from this offering.
Before offers to sell shares of Industrialex common stock are made, the
shares of Industrialex common stock will 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.
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.
AGENT'S GUARANTEE AND WARRANT
Thomson Kernaghan has agreed to purchase the balance of any shares
remaining unsold on the day Industrialex's shares commence trading on the
Canadian Venture Exchange, up to a maximum of 3,000,000 shares. In consideration
of this guarantee, Thomson Kernaghan has been granted a warrant. The warrant
entitles Thomson Kernaghan to purchase up to 300,000 shares at a price of $1.00
per share 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.
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 shares 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
-33-
<PAGE> 38
elsewhere. In addition, the United States securities laws require that the
prospectus be furnished to all subsequent purchasers of the shares 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
shares for a customer to a U.S. purchaser.
-34-
<PAGE> 39
DIRECTORS AND SENIOR OFFICERS
The following is a list of the current directors and senior officers of
Industrialex, and their municipalities of residence, current positions with
Industrialex, and principal occupations during the past five years:
<TABLE>
<CAPTION>
NAME AND MUNICIPALITY OF RESIDENCE PRINCIPAL OCCUPATION FOR PREVIOUS FIVE YEARS
---------------------------------- --------------------------------------------
<S> <C>
Ahmad Akrami Chief Executive Officer of the Company since October 1994;
Superior, CO, USA Interim Chief Executive Officer of Panoramic Care Systems, a
Chief Executive Officer and Chairman and medical software development company located in Wheat Ridge,
Director Colorado from October 1999 to February 2000; prior to that he was
employed by Zygo Corporation, a precision optics and equipment
company located in Middlefield, Connecticut, from September 1996
to September 1999 (holding position of Corporate Vice President
from August 1997 to June 1998 and Vice President, Worldwide
Sales, Marketing and Customer Service from June 1998 to
September 1999); prior to that he was President and Chief
Executive Officer of NexStar Automation, Inc., a robotics and
automation equipment company located in Longmont, Colorado,
from December 1992 to September 1996.
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 Scotts
Valley, California, from March 1997 to May 2000; prior to that he
was a Vice President of Maxtar Corporation, a data storage
products manufacturer, located in Longmont, California, from
February 1996 to August 1996; prior to that he was a Vice
President of Syquest Technology, a hard disc drive manufacturing
company located in Fremont, California, from June 1990 to January
1996.
Stephen J. King Chief Financial Officer of the Company since May 2000; prior to
Superior, CO, USA that he was a self-employed business consultant from March 1999
Chief Financial Officer to May 2000; prior to that he was Chief Financial Officer of Back
Yard Burgers, Inc. an operator and franchisor of restaurants located
in Memphis, Tennessee, from June 1993 to March 1999.
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
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.
</TABLE>
-35-
<PAGE> 40
<TABLE>
<CAPTION>
NAME AND MUNICIPALITY OF RESIDENCE PRINCIPAL OCCUPATION FOR PREVIOUS FIVE YEARS
---------------------------------- --------------------------------------------
<S> <C>
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 Francisco,
Director California, since 1996; prior to that he was a Vice President of Zygo
Corporation, a precision optics and metrology equipment company
located in Middlefield, Connecticut, from August 1996 to
December 1999.
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 Boulder,
63-A S. Pratt Parkway Colorado, since August 1999; prior to that he was Chief Financial
Longmont, CO 80501 Officer of eSoft, Inc., an internet appliance company located in
Broomfield, Colorado, from February 1998 to March 1999; prior
to that he was self-employed as a financial consultant from March
1997 to January 1998; prior to that he was Principal Accounting
Officer and controller of Topro, Inc. a NASDAQ Small Cap Market
listed, system integration company based in Denver, Colorado, from
September 1994 to March 1997.
</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 - 05/00
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.
Bolder Venture Partners L.L.C.
Industrialex is party to a consulting agreement with Bolder Venture
Partners L.L.C. dated December 28, 1999 (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 December 28, 1999. The
warrants become exercisable as follows:
o 400,000 at $0.25 per share as of December 28, 1999;
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.
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:
-37-
<PAGE> 42
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
LONG TERM COMPENSATION
------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------------------------ ----------------- ---------
NAME AND PRINCIPLE OTHER ANNUAL OPTIONS/SARS LTIP(1) ALL OTHER
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(2) N/a N/a N/a
President and CEO Dec. 31, 1999
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) "LTIP" or "long term incentive plan" means any plan which provides
compensation intended to serve as incentive for performance to occur over a
period longer than one financial year, but does not include option or stock
appreciation right plans.
(2) Distribution from member's equity.
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 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.
-38-
<PAGE> 43
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 BIP as of June 30, 1999 and 1998 and for
the years ended June 30, 1999 and 1998 and the financial statements of STG 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 of Hein & Associates....................................................... F-28
Balance Sheets - March 31, 2000 (unaudited), June 30, 1999 and 1998..................................... F-29
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 and 1998.................. F-30
Statements of Cash Flow - For the Nine Months Ended March 31, 2000 and 1999 (unaudited) and
Years Ended June 30, 1999 and 1998.................................................................. F-31
Notes to Financial Statements........................................................................... F-32
Screen Tech Graphics, Inc.
Independent Auditor's Report of Hein & Associates....................................................... F-36
Balance Sheet - March 31, 2000 (unaudited) and December 31, 1999 and 1998............................... F-37
Statements of Operations and Retained Earnings - For the Three Months Ended March 31, 2000 and
1999 (unaudited ) and Years Ended December 31, 1999 and 1998........................................ F-38
Statements of Cash Flows - For the Three Months Ended March 31, 2000 and 1999 (unaudited) and
Years Ended December 31, 1999 and 1998.............................................................. 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"). The Combination
will be accounted for using the purchase method of accounting.
The unaudited pro forma combined balance sheet gives effect to these
transactions as if they had occurred on March 31, 2000. The unaudited pro forma
combined statements of operations give effect to these transactions as if they
had occurred on January 1, 1999.
The estimated excess of the cost of the acquisitions 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 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
MARCH 31, 2000
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS PRO FORMA
IMC BIP DACS STG COMBINED (NOTE 3) COMBINED
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,035,770 $ 35,353 $ 91,039 $ 65,973 $ 1,228,135 $(1,025,000) $ 203,135
Trade accounts receivable, no
allowance for doubtful accounts
necessary 162,596 90,814 159,593 281,045 694,048 -- 694,048
Inventories -- 48,402 34,782 59,493 142,677 -- 142,677
Prepaid expenses 600 5,250 3,132 -- 8,982 -- 8,982
Other current assets 4,632 -- -- -- 4,632 -- 4,632
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total current assets 1,203,598 179,819 288,546 406,511 2,078,474 (1,025,000) 1,053,474
PROPERTY, PLANT AND EQUIPMENT,
net of accumulated depreciation 138,206 59,252 29,625 200,004 427,087 -- 427,087
OTHER ASSETS:
Goodwill -- -- -- -- -- 2,516,402 2,516,402
Note receivable from member and
related parties 11,449 -- 4,668 -- 16,117 -- 16,117
Deposit -- 2,629 -- -- 2,629 -- 2,629
Other 133,704 -- -- -- 133,704 (62,008) 71,696
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total other assets 145,153 2,629 4,668 -- 152,450 2,454,394 2,606,844
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total assets $ 1,486,957 $ 241,700 $ 322,839 $ 606,515 $ 2,658,011 $ 1,429,394 $ 4,087,405
=========== =========== =========== =========== =========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank line of-credit $ -- $ -- $ -- $ 60,509 $ 60,509 $ -- $ 60,509
Accounts payable 62,479 13,179 85,922 88,590 250,170 -- 250,170
Accrued liabilities 19,591 -- 6,225 4,713 30,529 -- 30,529
Deferred tax liability -- 23,000 -- -- 23,000 -- 23,000
Current portion of long-term debt -- -- -- 39,904 39,904 -- 39,904
Notes payable - acquisition debt -- -- -- -- -- 1,310,000 1,310,000
Current portion of capital lease
obligations 8,987 -- 3,867 -- 12,854 (3,867) 8,987
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total current liabilities 91,057 36,179 96,014 193,716 416,966 1,306,133 1,723,099
CAPITAL LEASE OBLIGATIONS,
less current maturities 38,370 -- -- -- 38,370 -- 38,370
LONG-TERM DEBT, less current
maturities -- -- 13,450 178,406 191,856 (13,450) 178,406
SHAREHOLDERS' EQUITY:
Common stock 42,500 10 50,930 5,000 98,440 (55,940) 42,500
Additional paid-in capital 1,409,369 2,399 7,769 -- 1,419,537 779,832 2,199,369
Retained earnings (accumulated
deficit) (94,339) 203,112 154,676 229,393 492,842 (587,181) (94,339
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total shareholders' equity 1,357,530 205,521 213,375 234,393 2,010,819 136,711 2,147,530
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total liabilities and
shareholders' equity $ 1,486,957 $ 241,700 $ 322,839 $ 606,515 $ 2,658,011 $ 1,429,394 $ 4,087,405
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
See notes to unaudited pro forma combined financial statements.
F-3
<PAGE> 47
INDUSTRIALEX MANUFACTURING CORP.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS PRO FORMA
IMC BIP DACS STG COMBINED (NOTE 4) COMBINED
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
SALES $ 187,866 $ 242,019 $ 380,944 $ 529,639 $ 1,340,468 $ -- $ 1,340,468
COST OF SALES 178,797 143,390 217,712 346,441 886,340 -- 886,340
----------- ----------- ----------- ----------- ----------- ----------- -----------
Gross profit 9,069 98,629 163,232 183,198 454,128 -- 454,128
GENERAL AND ADMINISTRATIVE
EXPENSES 102,317 79,900 119,377 155,990 457,584 41,940 499,524
----------- ----------- ----------- ----------- ----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS (93,248) 18,729 43,855 27,208 (3,456) (41,940) (45,396)
OTHER EXPENSE (1,091) (765) (212) (4,234) (6,302) (39,300) (45,602)
----------- ----------- ----------- ----------- ----------- ----------- -----------
NET INCOME (LOSS) $ (94,339) $ 17,964 $ 43,643 22,974 $ (9,758) $ (81,240) (90,998)
=========== =========== =========== =========== =========== =========== ===========
BASIC AND DILUTED LOSS PER SHARE $ (0.01)
===========
SHARES USED IN COMPUTING PRO
FORMA LOSS PER SHARE 7,077,000
===========
</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
GENERAL AND ADMINISTRATIVE
EXPENSES 270,119 334,341 468,149 580,907 1,653,516 167,760 1,821,276
----------- ----------- ----------- ----------- ----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS 59,820 (47,411) 54,058 131,251 197,718 (167,760) 29,958
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 $ (324,960) $ (147,497)
=========== =========== =========== =========== =========== =========== ===========
BASIC AND DILUTED LOSS PER SHARE $ (0.02)
===========
SHARES USED IN COMPUTING PRO
FORMA LOSS PER SHARE 7,077,000
===========
</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 periods included in these financial statements for IMC and the
individual Acquired Companies are as of and for the three months ended
March 31, 2000 and for the year ended December 31, 1999.
The unaudited pro forma combined balance sheet gives effect to these
transactions as if they had occurred on March 31, 2000. The unaudited pro
forma combined statements of operations give effect to these transactions
as if they had occurred on January 1, 1999.
2. ACQUISITIONS
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 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 COMBINED BALANCE SHEET ADJUSTMENTS
(A) Records the acquisition of the Acquired Companies, including
the cash and special warrants due those companies, and records
all fair value adjustments necessary in purchase accounting.
(B) Records the elimination of all non-operating liabilities to be
retained by the owners of the Acquired Companies.
(C) Records the elimination of the historical equity accounts of
the Acquired Companies.
F-6
<PAGE> 50
The following tables summarize unaudited pro forma combined balance sheet
adjustments:
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS TOTAL
----------------------------------------- PRO FORMA
(A) (B) (C) ADJUSTMENTS
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Cash $(1,025,000) $ -- $ -- $(1,025,000)
Goodwill 3,187,008 (17,317) (653,289) 2,516,402
Other noncurrent assets (62,008) -- -- (62,008)
Notes Payable 1,310,000 -- -- 1,310,000
Current portion of
capital lease obligations -- (3,867) -- (3,867)
Capital lease obligations -- (13,450) -- (13,450)
Common stock -- -- (55,940) (55,940)
Additional paid-in
capital 790,000 -- (10,168) 779,832
Retained earnings
(accumulated deficit) -- -- (587,181) (587,181)
----------- ----------- ----------- -----------
Total $ -- $ -- $ -- $ --
=========== =========== =========== ===========
</TABLE>
4. UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS ADJUSTMENTS
(A) Records amortization of goodwill to be recorded as a result of the
Combination over an estimated life of 15 years.
(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 March 31, 2000:
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS TOTAL
-------------------------- PRO FORMA
(A) (B) ADJUSTMENTS
----------- ----------- -----------
<S> <C> <C> <C>
General and administrative expenses $ 41,940 $ -- $ 41,940
----------- ----------- -----------
Income (loss) from operations (41,940) -- (41,940)
Other expense -- (39,300) (39,300)
----------- ----------- -----------
Net income $ (41,940) $ (39,300) $ (81,240)
=========== =========== ===========
</TABLE>
F-7
<PAGE> 51
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>
General and administrative expenses $ 167,760 $ -- $ 167,760
----------- ----------- -----------
Income (loss) from operations (167,760) -- (167,760)
----------- ----------- -----------
Other income (expense) -- (157,200) (157,200)
----------- ----------- -----------
Net income $ (167,760) $ (157,200) $ (324,960)
=========== =========== ===========
</TABLE>
5. EARNINGS PER SHARE
The pro forma share outstanding were computed as follows:
<TABLE>
<S> <C>
Shares issued upon merger of LLC and the Company 4,250,000
Special warrants issued in the private placement 2,037,000
Special warrants to be issued in acquisitions 790,000
---------
7,077,000
=========
</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 AUDITORS' REPORT
To the Board of Directors and Shareholders
of Industrialex Manufacturing Corp.
Longmont, Colorado
We have audited the accompanying balance sheets of Industrialex Manufacturing
Corp. (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 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.
/s/ Deloitte & Touche LLP
April 7, 2000
(August 10, 2000 as to Note 9)
DENVER, COLORADO
F-9
<PAGE> 53
INDUSTRIALEX MANUFACTURING CORP.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- MARCH 31,
ASSETS 1998 1999 2000
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 849 $ 39,930 $ 1,035,770
Accounts receivable:
Trade, net of allowance for doubtful accounts
of $0 in 1999 and 1998 323,701 250,532 162,596
Other 1,150 1,300 600
Other current assets 7,132 5,028 4,632
----------- ----------- -----------
Total current assets 332,832 296,790 1,203,598
PROPERTY, PLANT AND EQUIPMENT, net 78,884 137,685 138,206
OTHER ASSETS:
Note receivable from related party -- 11,449 11,449
Other 4,705 8,230 133,704
----------- ----------- -----------
Other assets 4,705 19,679 145,153
----------- ----------- -----------
TOTAL $ 416,421 $ 454,154 $ 1,486,957
=========== =========== ===========
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Bank overdrafts $ 40,717 $ -- $ --
Accounts payable 19,823 34,706 62,479
Accrued liabilities:
Payroll 17,329 20,204 15,776
Other 11,568 6,398 3,815
Current portion of capital lease obligations -- 8,763 8,987
----------- ----------- -----------
Total current liabilities 89,437 70,071 91,057
CAPITAL LEASE OBLIGATIONS, less current maturities -- 40,703 38,370
COMMITMENT AND CONTINGENCIES (Note 6)
EQUITY:
Common stock, $.01 par value - 50,000,000 authorized,
4,250,000 issued and outstanding -- -- 42,500
Additional paid-in capital -- -- 1,409,369
Accumulated deficit -- -- (94,339)
Member's equity 326,984 343,380 --
----------- ----------- -----------
Total equity 326,984 343,380 1,357,530
----------- ----------- -----------
TOTAL LIABILITIES AND EQUITY $ 416,421 $ 454,154 $ 1,486,957
=========== =========== ===========
</TABLE>
See notes to financial statements.
F-10
<PAGE> 54
INDUSTRIALEX MANUFACTURING CORP.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
-------------------------- --------------------------
1998 1999 1999 2000
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
SALES $ 810,821 $ 1,113,685 $ 168,054 $ 187,866
COST OF SALES:
Cost of sales 473,723 758,787 150,912 178,797
Asset impairment -- 24,959 -- --
----------- ----------- ----------- -----------
Total cost of sales 473,723 783,746 150,912 178,797
----------- ----------- ----------- -----------
Gross profit 337,098 329,939 17,142 9,069
GENERAL AND ADMINISTRATIVE
EXPENSES:
General and administrative 163,667 265,686 31,428 102,317
Asset impairment -- 4,433 -- --
----------- ----------- ----------- -----------
Total general and administrative
expenses 163,667 270,119 31,428 102,317
----------- ----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS 173,431 59,820 (14,286) (93,248)
OTHER EXPENSE, net 95 732 212 1,091
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ 173,336 $ 59,088 $ (14,498) $ (94,339)
=========== =========== =========== ===========
NET INCOME (LOSS) PER SHARE -
BASIC AND DILUTED $ 0.04 $ 0.01 $ -- $ (0.02)
=========== =========== =========== ===========
PRO FORMA INFORMATION
(UNAUDITED):
Net income (loss) $ 173,336 $ 59,088 $ (14,498) $ (94,339)
Pro forma income tax (expense) benefit (64,654) (22,040) 5,408 --
----------- ----------- ----------- -----------
PRO FORMA NET INCOME (LOSS) $ 108,682 $ 37,048 $ (9,090) $ (94,339)
=========== =========== =========== ===========
PRO FORMA NET INCOME (LOSS)
PER SHARE - BASIC AND DILUTED $ 0.02 $ 0.01 $ -- $ (0.02)
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING - BASIC AND
DILUTED 4,250,000 4,250,000 4,250,000 4,929,000
=========== =========== =========== ===========
</TABLE>
See notes to financial statements.
F-11
<PAGE> 55
INDUSTRIALEX MANUFACTURING CORP.
STATEMENTS OF EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------------ PAID-IN MEMBER'S ACCUMULATED
SHARES AMOUNT CAPITAL EQUITY DEFICIT TOTAL
----------- ----------- ----------- ----------- ----------- -----------
<S> <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) -- -- 1,124,523 -- -- 1,124,523
Net loss (unaudited) -- -- -- -- (94,339) (94,339)
----------- ----------- ----------- ----------- ----------- -----------
BALANCE,
MARCH 31, 2000 (unaudited) 4,250,000 $ 42,500 $ 1,409,369 $ -- $ (94,339) $ 1,357,530
=========== =========== =========== =========== =========== ===========
</TABLE>
See notes to the financial statements.
F-12
<PAGE> 56
INDUSTRIALEX MANUFACTURING CORP.
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) $ 173,336 $ 59,088 $ (14,498) $ (94,339)
Adjustments to reconcile net income (loss) to net
cash provided by operations:
Depreciation 10,668 29,856 7,464 4,945
Asset impairment -- 29,392 -- --
Changes in operating assets and liabilities:
Accounts receivable (129,091) 73,019 165,104 88,636
Other currents assets (4,735) 2,104 -- 396
Other assets (1,783) (3,525) -- (125,474)
Bank overdrafts 21,001 (40,717) (40,717) --
Accounts payable 11,568 14,883 (4,411) 27,773
Accrued liabilities 11,376 (2,295) 3,983 (7,011)
----------- ----------- ----------- -----------
Net cash provided by (used in) operating activities 92,340 161,805 116,925 (105,074)
----------- ----------- ----------- -----------
CASH FLOWS USED IN INVESTING ACTIVITIES -
Capital expenditures (67,270) (62,099) (8,573) (5,466)
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock and common stock
warrants -- -- -- 1,124,523
Amounts loaned to member under note receivable -- (11,449) (4,999) --
Distribution to member (24,221) (42,692) -- (16,034)
Payments on capital lease obligations -- (6,484) -- (2,109)
----------- ----------- ----------- -----------
Net cash provided by (used in) financing activities (24,221) (60,625) (4,999) 1,106,380
----------- ----------- ----------- -----------
NET INCREASE IN CASH AND CASH
EQUIVALENTS 849 39,081 103,353 995,840
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR -- 849 849 39,930
----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS,
END OF YEAR $ 849 $ 39,930 $ 104,202 $ 1,035,770
=========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION - Cash paid for interest $ 98 $ 3,554 $ -- $ 1,237
=========== =========== =========== ===========
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 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 9, 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 and have been
presented on an as-if pooled basis for all periods presented.
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.
2. SUMMARY OF 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.
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.
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.
F-14
<PAGE> 58
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 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.
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 (FASB) 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.
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 the Company's 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 the Company's financial statements.
3. 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
F-15
<PAGE> 59
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.
4. 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>
5. 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.
6. 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.
F-16
<PAGE> 60
During 1998 and 1999, rental expense under operating leases amounted to
$43,393 and $59,867, respectively.
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.
7. 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.
8. EARNINGS PER SHARE
The weighted average shares outstanding for the years ended December 31,
1999 and 1998 and for the three months ended March 31, 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 three months
ended March 31, 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 679,000
---------
4,929,000
=========
</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 9). 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 dilutive, the Company would have included an additional
300,000 shares in diluted earnings per share.
9. 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-17
<PAGE> 61
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 Decorative & Coating System, Inc. (DACS) and Screen
Tech Graphics, Inc. (STG) for approximately $1,200,000 and $1,300,000
respectively. The purchase price of STG includes $300,000 which is subject
to earn-out provisions. The consideration for these acquisitions will be
paid in cash, notes payable to sellers and special warrants. The
acquisition of DACS closed in May 2000 and the acquisition of STG closed
in July 2000.
On April 4, 2000, the Company acquired all of the outstanding stock of
Broomfield Industrial Printing, Inc. (BIP) for $925,000 consisting of
$425,000 of cash and $500,000 of special warrants. BIP became a
wholly-owned subsidiary of the Company.
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. The Company has granted 687,000 options under the Plan at
prices ranging from $0.50 to $1.00 per share.
* * * * *
F-18
<PAGE> 62
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.
/s/ Deloitte & Touche LLP
April 7, 2000
(August 10, 2000 as to Note 8)
DENVER, COLORADO
F-19
<PAGE> 63
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-20
<PAGE> 64
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-21
<PAGE> 65
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-22
<PAGE> 66
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-23
<PAGE> 67
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.
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.
F-24
<PAGE> 68
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-25
<PAGE> 69
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>
<S> <C>
YEAR ENDING DECEMBER 31:
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-26
<PAGE> 70
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-27
<PAGE> 71
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.
/s/ Hein & Associates LLP
Certified Public Accountants
DENVER, COLORADO
F-28
<PAGE> 72
BROOMFIELD INDUSTRIAL PAINTING, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
March 31, June 30,
-------- ------------------
2000 1999 1998
-------- -------- --------
(Unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 35,353 $ 72,648 $ 33,249
Accounts receivable 90,814 91,120 105,250
Prepaid taxes 1,800 -- 3,257
Other prepaids 3,450 3,188 3,188
Inventory, less allowance of $3,800 in 2000
(unaudited), 1999 and 1998 48,402 49,816 49,843
-------- -------- --------
Total current assets 179,819 216,772 194,787
PROPERTY AND EQUIPMENT, at cost, less accumulated
depreciation of $205,913 (unaudited), $198,037 and
$168,97, respectively
59,252 65,045 63,568
OTHER ASSETS:
Deposits
2,629 2,629 2,629
-------- -------- --------
$241,700 $284,446 $260,984
======== ======== ========
Total Assets
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 13,179 $ 24,692 $ 8,975
Income taxes payable -- 1,798 --
Deferred tax liability 23,000 23,000 29,000
Line-of-credit -- 35,772 20,000
-------- -------- --------
Total current liabilities 36,179 85,262 57,975
COMMITMENTS (Note 4)
STOCKHOLDERS' EQUITY:
Common stock, voting $.0001 par value;
100,000 shares authorized and issued
10 10 10
Additional paid-in capital 2,399 2,399 2,399
Retained earnings 203,112 196,775 200,600
-------- -------- --------
Total stockholders' equity 205,521 199,184 203,009
-------- -------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $241,700 $284,446 $260,984
======== ======== ========
</TABLE>
F-29
<PAGE> 73
BROOMFIELD INDUSTRIAL PAINTING, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
FOR THE NINE FOR THE NINE FOR THE YEARS ENDED
MONTHS ENDED MONTHS ENDED
March 31 March 31 June 30
------------ ------------- -----------------------------
2000 1999 1999 1998
------------- ------------- ------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
NET REVENUES:
Sales $ 701,091 $ 742,481 $ 1,000,547 $ 1,032,388
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
OPERATING EXPENSES:
General and administrative 226,862 225,613 308,425 306,068
Cost of goods sold 453,594 461,602 658,996 680,013
Depreciation and amortization 7,875 13,524 29,066 25,490
------------- ------------- ------------- -------------
Total expenses 688,331 700,739 996,487 1,011,571
OPERATING INCOME (LOSS) 8,234 36,728 (3,461) 18,031
OTHER INCOME (EXPENSE):
Interest income 501 -- 695 1,299
Interest expense (2,527) (1,471) (2,031) (332)
Loss on sale of assets -- -- -- --
Other 1,629 27 27 350
------------- ------------- ------------- -------------
Total other income (expense) (397) (1,444) (1,309) 1,317
INCOME (LOSS) BEFORE INCOME TAXES 7,837 35,284 (4,770) 19,348
INCOME TAX (EXPENSE) BENEFIT (1,500) (7,100) 945 (4,143)
------------- ------------- ------------- -------------
NET INCOME (LOSS) 6,337 28,184 (3,825) 15,205
RETAINED EARNINGS, beginning of year 196,775 200,600 200,600 185,395
------------- ------------- ------------- -------------
RETAINED EARNINGS, end of year $ 203,112 $ 228,784 $ 196,775 $ 200,600
============= ============= ============= =============
</TABLE>
F-30
<PAGE> 74
BROOMFIELD INDUSTRIAL PAINTING, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE NINE FOR THE NINE
MONTHS ENDED MONTHS ENDED FOR THE YEARS ENDED
MARCH 31 MARCH 31 JUNE 30
------------------------------ --------------------------
2000 1999 1999 1998
------------- ------------- ------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 6,337 $ 28,184 $ (3,825) $ 15,205
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Loss on sale of fixed assets -- -- -- --
Depreciation and amortization 7,875 13,524 29,066 25,490
Changes in operating assets and liabilities:
Accounts receivable
306 (32,366) 14,130 (17,089)
Prepaid income taxes (1,800) 3,257 3,257 (3,257)
Other prepaids (262) -- -- (480)
Inventory 1,414 (1,225) 27 43
Accounts payable and accrued expenses (11,513) 19,214 15,717 3,188
Income taxes payable (1,798) 3,843 1,798 (2,406)
Deferred taxes -- -- (6,000) 3,000
------------- ------------- ------------- -------------
Net cash provided by operating activities 559 34,431 54,170 23,694
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment -- -- -- --
Purchase of property and equipment (2,082) (18,704) (30,543) (26,400)
------------- ------------- ------------- -------------
Net cash used in investing activities (2,082) (18,704) (30,543) (26,400)
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)
------------- ------------- ------------- -------------
Net cash provided by (used in) financing activities (35,772) 7,349 15,772 10,500
INCREASE IN CASH (37,295) 23,076 39,399 7,794
CASH, at beginning of year 72,648 33,249 33,249 25,455
------------- ------------- ------------- -------------
CASH, at end of year $ 35,353 $ 56,325 $ 72,648 $ 33,249
============= ============= ============= =============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash payments for:
Interest $ 2,527 $ 1,471 $ 2,031 $ 332
============= ============= ============= =============
Income taxes $ 5,098 $ -- $ -- $ 6,806
============= ============= ============= =============
</TABLE>
F-31
<PAGE> 75
BROOMFIELD INDUSTRIAL PAINTING, INC.
NOTES TO FINANCIAL STATEMENTS
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 sheet as of March 31, 2000 and the
statements of operations for the 9-month period ended March 31, 2000 were
taken from the Company's books and records without audit. 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 the results of operations for the 9-month period ended March 31,
2000. The results of operations for the interim period 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-32
<PAGE> 76
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
------------ ------------
<S> <C> <C>
Inventory $ 53,616 $ 53,643
Less allowance for obsolete inventory (3,800) (3,800)
------------ ------------
Total $ 49,816 $ 49,843
============ ============
</TABLE>
2. 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 and $-0- at June 30, 1999
and 1998, respectively.
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
June 30
----------------------
1999 1998
--------- ---------
<S> <C> <C>
Furniture and fixtures $ 17,460 $ 7,120
Machinery and equipment 183,036 162,833
Vehicles 31,787 31,787
Leasehold improvements 30,799 30,799
--------- ---------
Less accumulated depreciation (198,037) (168,971)
--------- ---------
$ 65,045 $ 63,568
========= =========
</TABLE>
Related depreciation expense for the years ended June 1999, and 1998 was
$29,066 and $25,490, respectively.
4. 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:
F-33
<PAGE> 77
<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 $30,792 for the nine
months ended March 31, 2000 and was $38,250 and $33,790 for the years
ended June 30, 1999 and 1998 respectively.
5. 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
(totaling 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 and $20,000 at June 30, 1999 and 1998, respectively.
This line-of-credit was canceled by the Company in May 2000.
F-34
<PAGE> 78
6. INCOME TAXES:
The components of the provision for income taxes for the years ended June
30, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
June 30,
1999 1998
----------- -----------
<S> <C> <C>
Current:
Federal $ 4,350 $ 1,143
State 705 --
----------- -----------
5,055 1,143
Deferred:
Federal (4,440) 2,220
State (1,560) 780
----------- -----------
(6,000) 3,000
----------- -----------
Total tax expense (benefit) $ (945) $ 4,143
=========== ===========
</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 and 1998.
7. 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-35
<PAGE> 79
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.
/s/ Hein & Associates LLP
Certified Public Accountants
DENVER, COLORADO
F-36
<PAGE> 80
SCREEN TECH GRAPHICS, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, --------------------------
2000 1999 1998
------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 65,973 $ 64,166 $ 44,136
Accounts receivable, with no allowance for doubtful accounts 281,045 251,313 121,547
deemed necessary
Inventory 59,493 60,668 63,328
------------ ------------ ------------
Total current assets 406,511 376,147 229,011
PROPERTY AND EQUIPMENT, at cost 200,004 206,523 259,534
------------ ------------ ------------
TOTAL ASSETS $ 606,515 $ 582,670 $ 488,545
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 88,590 $ 63,826 $ 67,616
Line-of-credit 60,509 63,509 29,065
Current portion of long-term debt 39,904 46,707 62,446
Other accrued expenses 4,712 8,802 5,179
------------ ------------ ------------
Total current liabilities 193,715 182,844 164,306
LONG-TERM DEBT 178,407 178,407 187,060
COMMITMENTS (Notes 2 and 4)
STOCKHOLDERS' EQUITY:
Common stock, no par value; 50,000 shares authorized; 1,000 shares
issued and outstanding 5,000 5,000 5,000
Retained earnings 229,393 216,419 132,182
------------ ------------ ------------
Total stockholders' equity 234,393 221,419 137,182
------------ ------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 606,515 $ 582,670 $ 488,548
============ ============ ============
</TABLE>
F-37
<PAGE> 81
SCREEN TECH GRAPHICS, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE YEARS ENDED
MARCH 31 DECEMBER 31,
------------------------- -------------------------
2000 1999 1999 1998
----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
NET REVENUES: $ 529,639 $ 426,348 $ 1,898,720 $ 1,645,900
Cost of goods sold 346,441 287,925 1,186,562 1,017,764
----------- ----------- ----------- -----------
GROSS MARGIN 183,198 138,423 712,158 628,136
OPERATING EXPENSES:
General and administrative
139,003 74,861 488,321 534,219
Depreciation 16,987 23,147 92,586 95,259
----------- ----------- ----------- -----------
Total expenses 155,990 98,008 580,907 629,478
----------- ----------- ----------- -----------
OPERATING INCOME (LOSS)
27,208 40,415 131,251 (1,342)
OTHER INCOME (EXPENSE):
Interest income -- -- 701 587
Interest expense (4,801) (5,838) (21,902) (25,334)
Gain (loss) on sale of
assets -- -- (796) 950
Other income 567 84 2,683 2,734
----------- ----------- ----------- -----------
Total other income
(expense) (4,234) (5,754) (19,314) (21,063)
NET INCOME (LOSS) 22,974 34,661 111,937 (22,405)
DISTRIBUTIONS (10,000) -- (27,700) (34,140)
RETAINED EARNINGS, beginning
of year 216,419 132,182 132,182 188,727
----------- ----------- ----------- -----------
RETAINED EARNINGS, end of
year $ 229,393 $ 166,843 $ 216,419 $ 132,182
=========== =========== =========== ===========
</TABLE>
F-38
<PAGE> 82
SCREEN TECH GRAPHICS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED FOR THE YEARS ENDED
MARCH 31 DECEMBER 31,
------------------------- -------------------------
2000 1999 1999 1998
----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 22,974 $ 34,661 $ 111,937 $ (22,405)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 16,987 23,147 92,586 95,259
Changes in operating assets and liabilities:
Accounts receivable (29,732) (58,568) (129,766) 58,468
Inventory 1,175 2,442 2,660 (2,319)
Accounts payable and accrued expenses 20,675 674 373 (143,752)
----------- ----------- ----------- -----------
Net cash provided by (used in) operating activities 32,079 2,356 77,790 (14,749)
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITY:
(Purchase) proceeds of property and equipment (10,468) 3,184 (39,551) (43,093)
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions (10,000) -- (27,700) (34,140)
Proceeds from debt -- 25,000 100,999 220,000
Payments on debt (9,804) (18,609) (91,508) (122,233)
----------- ----------- ----------- -----------
Net cash provided by (used in)
financing activities (19,804) 6,391 (18,209) 63,627
----------- ----------- ----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,807 11,931 20,030 5,785
CASH AND CASH EQUIVALENTS, at beginning of year 64,166 44,136 44,136 38,351
----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS, at end of year $ 65,973 $ 56,067 $ 64,166 $ 44,136
=========== =========== =========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash payments for interest $ 4,801 $ 5,838 $ 21,902 $ 25,334
=========== =========== =========== ===========
</TABLE>
F-39
<PAGE> 83
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 sheets as of March 31, 2000 and the
statements of operations for the three months ended March 31, 2000 and
1999 were taken from the Company's books and records without audit.
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 the results of operations for the three months ended
March 31, 2000 and 1999.
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-40
<PAGE> 84
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
------- -------
<S> <C> <C>
Inventory - paint $38,808 $38,204
Inventory - magnisight 21,860 25,124
------- -------
Total $60,668 $63,328
======= =======
</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 and $11,837at December 31, 1999 and
1998 respectively.
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
------------------------
1999 1998
--------- ---------
<S> <C> <C>
Machinery and equipment $ 581,905 $ 576,416
Vehicles 86,252 60,858
Leasehold improvements -- 6,000
--------- ---------
668,157 643,274
Less accumulated depreciation (461,634) (383,740)
--------- ---------
$ 206,523 $ 259,534
========= =========
</TABLE>
Related depreciation expense for the years ended December 31, 1999 and
1998 was $92,586 and $95,259 respectively.
F-41
<PAGE> 85
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 and $82,500 for
the years ended December 31, 1999 and 1998, 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 and $29,065at December 31, 1999 and 1998,
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-42
<PAGE> 86
The future minimum loan principal payments are as follows:
<TABLE>
<CAPTION>
Years Ending Amount
December 31,
----------------
<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>
F-43
<PAGE> 87
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.
-40-
<PAGE> 88
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 AUGUST 14, 2000
SELLING STOCKHOLDER
PROSPECTUS
4,067,000 Shares
[INDUSTRIALEX MANUFACTURING CORP. 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. offered hereby are being offered for sale by the selling stockholders
identified herein. 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 __, 2000
<PAGE> 89
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Summary Alternate 3
Risk factors Alternate 4
Selling stockholders Alternate 6
Plan of distribution Alternate 14
Use of proceeds Alternate 14
Cautionary statement concerning forward-looking statements Alternate 14
Dividend record and policy Alternate 15
Experts Alternate 15
Legal matters Alternate 15
Where you can find more information Alternate 15
</TABLE>
Alternate 2
<PAGE> 90
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.
Industrialex has three wholly-owned subsidiaries: Broomfield Industrial
Painting, Inc. ("BIP"); Decorative and Coating Systems, Inc. ("DACS"); and Screen
Tech Graphics, Inc. ("STG"). In this prospectus, all references to the "Company"
shall mean the combined operations of Industrialex, BIP, DACS and STG, and
"Industrialex" shall mean Industrialex Manufacturing Corp.
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 under the
Securities Act of 1933, as amended.
</TABLE>
Alternate 3
<PAGE> 91
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, BIP, DACS, STG 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., Gary Triolo,
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.
THE INABILITY TO CONTINUE DEVELOPING AND SELLING NEW PRODUCTS MAY RESULT IN
CONTINUED LOSSES.
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.
WE OPERATE IN A HEAVILY REGULATED INDUSTRY.
We must comply with federal, state and local regulations that impose
various environmental controls on the storage, handling, discharge and disposal
of chemicals and gases used in its manufacturing process. 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.
Alternate 4
<PAGE> 92
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 three months ended March 31, 2000, sales to the five largest customers
of Industrialex, BIP, DACS and STG represented 87%, 54%, 58% and 63%,
respectively, 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
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 PUBLIC OFFERING PRICE WAS DETERMINED THROUGH NEGOTIATIONS AND MAY NOT BE
RELATED TO THE VALUE OF THE STOCK.
The initial public offering price of Industrialex's common stock on the
Canadian Venture Exchange of $1.00 per share was arrived at arbitrarily by
negotiation between Industrialex and Thomson Kernaghan, and represents their
independent assessment of the value of the shares 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 of the shares 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
Alternate 5
<PAGE> 93
Canadian Venture Exchange listing does not assure a stockholder that there will
be a purchaser for his shares when the stockholder wishes to sell.
SELLING STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of Industrialex's common stock as of July 31, 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 OFFERED IN SHARES BENEFICIALLY POST-OFFERING
NAME AND ADDRESS PRE-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
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-
Shares issued in connection with a private placement commencing March, 2000 and closing May, 2000
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Ahmad Akrami 136,000(2) -0- 136,000 51.62%
c/o Industrialex Manufacturing Corp.
63-A S. Pratt Parkway
Longmont, CO 80501
Richard Anderson 20,000 20,000 -0- -0-
5820 Cantrell Rd.
Richmond, B.C.
V7C 3H1 Canada
</TABLE>
Alternate 6
<PAGE> 94
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY SHARES
OWNED OFFERED IN SHARES BENEFICIALLY POST-OFFERING
NAME AND ADDRESS PRE-OFFERING THE OFFERING OWNED POST-OFFERING % OWNERSHIP
----------------------------------------- ------------------ --------------- ---------------------- ---------------
<S> <C> <C> <C> <C>
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(3) 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
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
</TABLE>
Alternate 7
<PAGE> 95
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY SHARES
OWNED OFFERED IN SHARES BENEFICIALLY POST-OFFERING
NAME AND ADDRESS PRE-OFFERING THE OFFERING OWNED POST-OFFERING % OWNERSHIP
----------------------------------------- ------------------ --------------- ---------------------- ---------------
<S> <C> <C> <C> <C>
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
Cliff Mah 196,000(4) 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(5) 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
</TABLE>
Alternate 8
<PAGE> 96
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY SHARES
OWNED OFFERED IN SHARES BENEFICIALLY POST-OFFERING
NAME AND ADDRESS PRE-OFFERING THE OFFERING OWNED POST-OFFERING % OWNERSHIP
----------------------------------------- ------------------ --------------- ---------------------- ---------------
<S> <C> <C> <C> <C>
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 Plunket(6) 50,000 50,000 -0- -0-
9641 N. 63rd St
Longmont, CO 80503
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
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(7) 20,000 -0- -0-
c/o Industrialex Manufacturing Corp.
63-A S. Pratt Parkway
Longmont, CO 80501
</TABLE>
Alternate 9
<PAGE> 97
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY SHARES
OWNED OFFERED IN SHARES BENEFICIALLY POST-OFFERING
NAME AND ADDRESS PRE-OFFERING THE OFFERING OWNED POST-OFFERING % OWNERSHIP
----------------------------------------- ------------------ --------------- ---------------------- ---------------
<S> <C> <C> <C> <C>
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(8) 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
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(9) 3,277,000
</TABLE>
Alternate 10
<PAGE> 98
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY SHARES
OWNED OFFERED IN SHARES BENEFICIALLY POST-OFFERING
NAME AND ADDRESS PRE-OFFERING THE OFFERING OWNED POST-OFFERING % OWNERSHIP
----------------------------------------- ------------------ --------------- ---------------------- ---------------
<S> <C> <C> <C> <C>
Shares issued to various stockholders in connection with the acquisition of BIP on April 4, 2000
------------------------------------------------------------------------------------------------
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
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(9) 500,000
</TABLE>
Alternate 11
<PAGE> 99
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY SHARES
OWNED OFFERED IN SHARES BENEFICIALLY POST-OFFERING
NAME AND ADDRESS PRE-OFFERING THE OFFERING OWNED POST-OFFERING % OWNERSHIP
----------------------------------------- ------------------ --------------- ---------------------- ---------------
<S> <C> <C> <C> <C>
Shares issued to various stockholders in connection with the acquisition of DACS on May 1, 2000
-----------------------------------------------------------------------------------------------
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(10) 200,000
Shares issued to various stockholders in connection with the acquisition of STG on July 5, 2000
-----------------------------------------------------------------------------------------------
<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(11) 90,000
</TABLE>
(1) Chief executive officer and a director of Industrialex. 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) Shares beneficially owned pre-offering includes 96,000 shares in which Mr.
Akrami has a beneficial ownership through his ownership of 10% of Bolder
Venture Partners L.L.C., but shares offered in the offering excludes such
shares.
(3) All of these shares may be acquired by exercise of a warrant. Bolder
Venture Partners, L.L.C. is owned 60% by Daryl Yurek and 10% by each of
Cliff Mah, Ahmad Akrami, Kent Nuzum and Thomas Tennessen.
(4) Shares beneficially owned pre-offering includes 96,000 shares in which Mr.
Mah has a beneficial ownership through his ownership of 10% of Bolder
Venture Partners L.L.C., but shares offered in the offering excludes such
shares.
(5) Shares beneficially owned pre-offering includes 96,000 shares in which Mr.
Nuzum has a beneficial ownership through his ownership of 10% of Bolder
Venture Partners L.L.C., but shares offered in the offering excludes such
shares.
Alternate 12
<PAGE> 100
(6) A director of Industrialex.
(7) A director of Industrialex. Shares beneficially owned pre-offering
includes 96,000 shares in which Mr. Tennessen has a beneficial ownership
through his ownership of 10% of Bolder Venture Partners L.L.C., but shares
offered in the offering excludes such shares.
(8) Shares beneficially owned pre-offering includes 576,000 shares in which
Mr. Yurek has a beneficial ownership through his ownership of 60% of
Bolder Venture Partners L.L.C., but shares offered in the offering
excludes such shares.
(9) 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.
(10) 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.
(11) 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.
(12) 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 13
<PAGE> 101
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.
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.
Alternate 14
<PAGE> 102
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 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 BIP as of June 30, 1999 and 1998 and for the
years ended June 30, 1999 and 1998 and the financial statements of STG 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
Alternate 15
<PAGE> 103
document retrieval services and at the web site maintained by the Securities and
Exchange Commission at "http://www.sec.gov."
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 16
<PAGE> 104
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.
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 individuals at a price of $0.50 per warrant, or
total consideration of $475,000. Each special warrant is convertible,
for no additional consideration, into one share of common stock, at
the option of the holder with no expiration. These special warrants
were issued in reliance upon an exemption from
<PAGE> 105
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 1,407,000,000 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 to a
total of 4 individuals 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 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 to a
total of 12 individuals 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 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 to a
total of two individuals 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 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.
o Pursuant to a consulting agreement dated December 28, 1999 (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 December 28, 1999.
o 360,000 at $1.00 per share as of May, 2000.
II-2
<PAGE> 106
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).
II-3
<PAGE> 107
ITEM 27. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
-------------- ---------------------------------------------------------------------------------------------
<S> <C>
1 Agency Agreement dated __________ 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 Legal Opinion of Davis, Graham & Stubbs LLP**
10.1 Sponsorship Agreement dated __________ between Industrialex Manufacturing Corp. and Thomson
Kernaghan & Co. Limited**
10.2 Incentive Compensation Plan*
10.3 Letter Agreement dated December 28, 1999 between Industrialex Manufacturing Corp. and
Bolder Venture Partners L.L.C.*
10.4 Letter Agreement dated June 28, 2000 between Industrialex Manufacturing Corp. and Bolder
Venture Partners L.L.C. amending letter dated December 28, 1999*
10.5 Form of Special Warrant*
10.6 Stock Purchase Agreement dated March 22, 2000, between Industrialex Manufacturing Corp.,
Mark S. Trawinski, Donald R. Lauer and Angela Bennet Lauer*
10.7 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*
10.8 Stock Purchase Agreement dated June 7, 2000, between Industrialex Manufacturing Corp.,
Screen Tech Graphics, Inc. and Susan Elizabeth DiNapoli and Vincent DiNapoli*
10.9 Employment Agreement dated May 1, 2000 between Industrialex Manufacturing Corp. and Scott
Robidart*
10.10 Secured Promissory Note dated May 8, 2000 in the principal amount of $130,000*
10.11 Stock Option Agreement dated May 8, 2000 between Ahmad Akrami and Scott Robidart*
10.12 Form of employee/consultant/confidentiality agreement*
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)
</TABLE>
II-4
<PAGE> 108
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
-------------- ---------------------------------------------------------------------------------------------
<S> <C>
27 Financial Data Schedule*
</TABLE>
---------------------
* Filed herewith
** 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 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.
II-5
<PAGE> 109
(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> 110
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 14th day of August, 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 August 14, 2000
-------------------------------
Ahmad Akrami
/s/ Thomas Tennessen Director August 14, 2000
-------------------------------
Thomas Tennessen
/s/ Francis Lundy Director August 14, 2000
-------------------------------
Francis Lundy
/s/ Thomas Stephen Plunkett Director August 14, 2000
-------------------------------
Thomas Stephen Plunkett
/s/ Stephen J. King Chief Financial Officer August 14, 2000
-------------------------------
Stephen J. King
</TABLE>
II-7
<PAGE> 111
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
-------------- ---------------------------------------------------------------------------------------------
<S> <C>
1 Agency Agreement dated __________ 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 Legal Opinion of Davis, Graham & Stubbs LLP**
10.1 Sponsorship Agreement dated __________ between Industrialex Manufacturing Corp. and Thomson
Kernaghan & Co. Limited**
10.2 Incentive Compensation Plan*
10.3 Letter Agreement dated December 28, 1999 between Industrialex Manufacturing Corp. and
Bolder Venture Partners L.L.C.*
10.4 Letter Agreement dated June 28, 2000 between Industrialex Manufacturing Corp. and Bolder
Venture Partners L.L.C. amending letter dated December 28, 1999*
10.5 Form of Special Warrant*
10.6 Stock Purchase Agreement dated March 22, 2000, between Industrialex Manufacturing Corp.,
Mark S. Trawinski, Donald R. Lauer and Angela Bennet Lauer*
10.7 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*
10.8 Stock Purchase Agreement dated June 7, 2000, between Industrialex Manufacturing Corp.,
Screen Tech Graphics, Inc. and Susan Elizabeth DiNapoli and Vincent DiNapoli*
10.9 Employment Agreement dated May 1, 2000 between Industrialex Manufacturing Corp. and Scott
Robidart*
10.10 Secured Promissory Note dated May 8, 2000 in the principal amount of $130,000*
10.11 Stock Option Agreement dated May 8, 2000 between Ahmad Akrami and Scott Robidart*
10.12 Form of employee/consultant/confidentiality agreement*
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*
</TABLE>
---------------------
* Filed herewith
** To be filed via amendment
