U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 2 TO FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Utah Clay Technology, Inc.
--------------------------
(Name of small business issuer in its charter)
Utah 1400 87-0520575
---- ---- ----------
(state of (Primary Standard Industrial (IRS Employer
incorporation) Classification Code Number) I.D. Number)
3985 South 2000 East
Salt Lake City, UT 84124
801-424-0223
--------------------------------------------------------------------------------
(Address and telephone number of registrant's principal
executive offices and principal place of business)
Dennis S. Engh
3985 South 2000 East
Salt Lake City, UT 84124
801-424-0223
--------------------------------------------------------------------------------
(Name, address and telephone number of agent for service)
Copies to:
Thomas J. Kenan, Esq., Fuller, Tubb, Pomeroy & Stokes
201 Robert S. Kerr Avenue, Suite 1000
Oklahoma City, OK 73102
Approximate date of proposed sale to the public: As soon as practicable
after the Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(c) under the Securities Act, please 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(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. [ ]
<PAGE>
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
Calculation of Registration Fee
================================================================================
Title of Proposed Proposed
each class maximum maximum
of securities Amount offering aggregate Amount of
to be to be price offering registration
registered registered per unit price fee
--------------------------------------------------------------------------------
Common Stock 590,000 (1) (1) $103(1)
================================================================================
(1) These 590,000 shares are to be offered by three selling shareholders from
time to time at fluctuating market prices. The registration fee for these
shares is based on the average of a bid price of $0.5 and an ask price of
$0.656 on March 30, 2000 on the OTC Bulletin Board. Reg. 230.457(c).
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission acting pursuant to said section 8(a)
may determine.
<PAGE>
PROSPECTUS
UTAH CLAY TECHNOLOGY, INC.
590,000 Shares of Common Stock
590,000 shares of common stock are being offered by three selling security
holders, Dennis S. Engh, James Groscost and the law firm of McKay, Burton and
Thurman, all of Salt Lake City, Utah. None of the proceeds of sale will go to
the company. All proceeds will go to the selling security holders and for the
payment of their brokerage commissions. Mr. Engh is the chief executive officer
and a director of Utah Clay Technology.
The selling security holders will offer the 590,000 shares from time to
time in the over-the-counter market through brokers at fluctuating market
prices. They may also offer the shares in negotiated transactions, through the
writing of options on the securities, a combination of such methods of sale, or
otherwise. Sales may be made at fixed prices which may be changed, at market
prices prevailing at the time of sale, or at negotiated prices.
-------------------------
Our common stock formerly traded on the OTC Bulletin Board.
Its trading symbol was "UTCL". It is presently quoted in the "Pink Sheets."
We anticipate the restoration of Bulletin Board trading priviliges within days
days after the date on this prospectus.
-------------------------
The purchase of these shares involves a Neither the Securities and Exchange
high degree of risk. See "Risk Factors," Commission nor any state securities
beginning on page 1. commission has approved or
disapproved these securities or
determined if this offering
memorandum is truthful or complete.
Any representation to the contrary
is a criminal offense.
Utah Clay Technology, Inc.
3985 South 2000 East
Salt Lake City, UT 84124
Telephone 801-424-0223
June ___, 2000
<PAGE>
TABLE OF CONTENTS
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Page
----
Summary ............................................................. 1
Our Company ................................................ 1
Risk Factors ........................................................ 1
No commercially viable deposits of kaolin
have been found. .................................. 1
We require, but do not have, the funds
needed to conduct an exploration
program that would determine whether
our properties do or do not contain
reserves of kaolin. ............................... 2
The exercise prices of three options
we have to acquire properties have
not been set. ..................................... 2
The loss of one or more of our executive and
operating officers could have a
materially adverse effect on our
company. .......................................... 2
The market for our common stock is poorly
developed. Purchasers of our securities
should anticipate a thin and
volatile market. .................................. 2
Use of Proceeds ...................................................... 2
Determination of Offering Prices ..................................... 2
The Selling Security Holders ......................................... 3
Plan of Distribution ................................................. 3
Legal Proceedings .................................................... 4
Directors, Executive Officers, Promoters and
Control Persons ............................................. 5
Significant Consultants and Other Personnel ................. 7
Securities Ownership of Certain Beneficial
Owners and Management ....................................... 8
Description of Securities ............................................ 8
Common Stock ................................................ 9
Voting Rights ...................................... 9
Dividend Rights .................................... 9
Liquidation Rights ................................. 9
Preemptive Rights .................................. 9
Registrar and Transfer Agent ....................... 9
Dissenters' Rights ................................. 9
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Preferred Stock ............................................. 9
Series A Preferred Stock .................................... 10
Interest of Named Experts and Counsel ................................ 10
Indemnification ...................................................... 10
Description of Business .............................................. 11
Business Development ........................................ 11
Description of Property .............................................. 12
Location and Means of Access to the
Properties ......................................... 12
Description of Our Title .................................... 13
History of Mineral Exploration .............................. 18
Plant and Equipment ......................................... 19
Plan of Operations for the Next Twelve Months ............... 20
Rock Formations and Mineralizations ......................... 20
Geology ..................................................... 22
Kaolin ...................................................... 22
Results of Tests on the Utah Clay Deposits .................. 22
Patents ..................................................... 23
Government Approval of Principal Products ................... 23
Government Regulations ...................................... 23
Costs and Effects of Complying with
Environmental Laws ................................. 24
Employees ................................................... 24
Working Capital Requirements ................................ 24
Product Research and Development During
the Next Twelve Months ............................. 24
Additional Employees ........................................ 24
Certain Relationships and Related Transactions ....................... 24
Market for Common Equity and Related
Stockholder Matters ......................................... 26
Holders ..................................................... 27
Dividends ................................................... 27
Penny Stock Regulations .............................................. 27
The Penny Stock Suitability Rule ............................ 27
The Penny Stock Disclosure Rule ............................. 28
Effects of the Rule ......................................... 29
Potential De-Listing of Common Stock ........................ 29
Reports to Security Holders ................................. 29
Executive Compensation ............................................... 30
Stock Options ............................................... 30
Directors ................................................... 30
Employment Contracts ........................................ 30
Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure ......................... 30
iii
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Additional Information ............................................... 31
Financial Statements ................................................. 31
iv
<PAGE>
SUMMARY
Our Company. Our company, Utah Clay Technology, Inc., is an
exploration-stage corporation organized to explore, define and test kaolin clay
from our White Mountain and Oro Blanco leases and three other properties under
option to lease to us. Subject to our obtaining the necessary funds, we propose
to continue to explore our properties and to develop our properties if the
exploration and tests should indicate that development is warranted. All
properties are in the State of Utah.
There is no assurance that there is a commercially viable mineral deposit
on any of the properties. Laboratory tests conducted by independent laboratories
have determined that our properties, to some extent, contain a mineral
composition of hydrothermal kaolin that has met industry standards for fillers
in paint. We must conduct further exploration before we can make a final
evaluation as to the economic and legal feasibility of developing our
properties.
Some 200 tons of kaolin were taken from our White Mountain site, tested and
processed at an independent mill. This material was sold to a paint company and
used by it in a commercial paint product.
RISK FACTORS
------------
The following principal factors make the offering described herein
speculative and one of high risk. An investment in the shares should not be made
by persons who cannot afford the loss of their entire investment.
No commercially viable deposits of kaolin have been found.
The efforts of our founders and then of our company after its
incorporation in 1994 have been to locate the principal kaolin deposits in Utah,
place them under lease, and conduct exploratory drilling for property appraisal
purposes.
Our limited exploratory drilling to date has outlined a potential product
slate of small particle size calcined and uncalcined clays. Calcined clays are
clays that have been heated to such a high temperature that the clays' molecular
structure has been modified. The extracted minerals have been tested both in the
laboratory and with commercial buyers, but our limited exploratory drilling has
been insufficient in scope to outline commercially viable reserves.
Since we have no reserves, we cannot estimate how long we will be able to
provide marketable kaolin from our properties.
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We require, but do not have, the funds needed to conduct an exploration
program that would determine whether our properties do or do not contain
reserves of kaolin.
A proper drilling and testing program on our Oro Blanco and White
Mountain leases will cost approximately $500,000.
We lack this capital and have not identified a source for this capital
need.
The exercise prices of three options we have to acquire properties have not
been set.
These prices, should we decide to exercise the options, will be set by
the fair market value of the properties as determined by an independent
engineer.
The loss of one or more of our executive and operating officers could have
a materially adverse effect on our company.
Utah Clay is held together by the day-to-day services of Dennis S.
Engh, our chief executive officer, and Thomas F. Harrison, a vice president and
chief financial officer, and the part-time services of Carmen J. (Tony) Lotito,
marketing director. They serve without receiving a regular monthly salary check.
It will be difficult to replace any of them unless we obtain the liquid
resources to pay salaries.
The market for our common stock is poorly developed. Purchasers of our
securities should anticipate a thin and volatile market.
There are many days when our common stock does not trade at all in the
over-the-counter market. The spread between the quoted bid and ask prices is
usually great. The stock has never traded above $5, the price required to remove
certain trading requirements imposed on Bulletin Board "penny stocks." Until
these trading requirements are removed, many brokerage firms will not allow
their brokers to recommend our stock for purchase by their customers.
USE OF PROCEEDS
All proceeds from the sale of the 590,000 shares of common stock will go to
the selling security holders for their own personal use after the payment of any
brokerage commissions.
DETERMINATION OF OFFERING PRICES
Each of the selling security holders proposes to sell his shares primarily
through broker-dealers at prevailing market prices. They may also offer the
securities in private transactions at negotiated prices.
2
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THE SELLING SECURITY HOLDERS
There are three selling security holders: Dennis S. Engh, 500,000 shares; James
Groscost, 10,000 shares; and the law firm of McKay, Burton and Thurman, 80,000
shares
Dennis S. Engh has been a director and the chief executive officer of Utah
Clay Technology since its organization in 1994. All of the company's mining
leases and options to acquire mining leases were acquired from entities under
the direct control and partial ownership of Mr. Engh and other members of his
family.
James Groscost is the owner of a trucking company in the Salt Lake City,
Utah area. He is not affiliated with Utah Clay.
McKay, Burton and Thurman is a Salt Lake City, Utah law firm that has
represented Utah Clay in many matters over the past several years. It is not
affiliated with Utah Clay. The beneficial owner of the law firm's shares is one
person, William H. Thurman.
The selling security holders' ownership of the company's common stock, both
before and after the offering, is as follows:
Percent
Selling Security Holder Amount of Total
----------------------- ------ --------
Dennis S. Engh:
---------------
Owns now 4,641,197 19.89
Owned after sale of
500,000 shares 4,141,197 17.75
James Groscost:
---------------
Owns now 10,000 0.04
Owned after sale of
10,000 shares 0 0
McKay, Burton & Thurman:
------------------------
Owns now 80,000 0.34
Owned after sale of
80,000 shares 0 0
PLAN OF DISTRIBUTION
Each of the selling security holders may effect sales from time to time in
transactions in the over-the-counter market at market prices prevailing at the
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time of sale or in negotiated transactions at negotiated prices. Sales could be
made at fixed prices, which each could change.
Each of the selling security holders may effect such transactions by
selling the securities directly to a purchaser, through broker-dealers acting as
agents or to broker-dealers who may purchase the securities as principals and
thereafter sell the securities from time to time in the over-the-counter market,
in negotiated transactions or otherwise. Such broker-dealers, if any, may
receive compensation in the form of discounts, concessions or commissions from
the selling security holders or the purchaser for whom such broker-dealers may
act as agents or to whom they may sell as principals. The compensation as to a
particular broker-dealer may be in excess of customary commissions.
The selling security holders and broker-dealers, if any, acting in
connection with any such sale might be deemed to be "underwriters" within the
meaning of Section 2(11) of the Securities Act. Any commission received by them
and any profit on the resale of the securities might be deemed to be
underwriting discounts and commissions under the Securities Act.
With respect to the plan of distribution for the sale by the selling
security holders as stated above,
o to the extent that the securities are sold at a fixed price or by
option at a price other than the prevailing market price, such price
would need to be set forth in this prospectus;
o if the securities are sold in block transactions and the purchaser
wishes to resell the securities purchased, such arrangements would
need to be described in this prospectus; and
o if the compensation paid to broker-dealers is other than usual and
customary discounts, concessions or commissions, disclosure of the
terms of the transaction in this prospectus would be required.
We have been advised that the selling security holders understand the
prospectus delivery requirements for sales made pursuant to this prospectus and
that, if there are changes to the stated plan of distribution or if additional
information as noted above is needed, a post-effective amendment with current
information would need to be filed before offers are made and no sales could
occur until such amendment is declared effective.
LEGAL PROCEEDINGS
Neither Utah Clay Technology nor any of its property is a party to or
the subject of a pending legal proceeding.
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We are unaware of any proceeding that a governmental authority is
contemplating that would involve us or any of our property.
We are unaware of any material proceeding to which any director, officer or
affiliate of the company, any owner of record or beneficially of more than five
percent of any class of voting securities of the company, or security holder is
a party adverse to the company or has a material interest adverse to the
company.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
A list of the current officers, directors and significant consultants
appears below. The directors of the company are elected annually by the
shareholders. The officers serve at the pleasure of the board of directors. The
directors do not receive fees or other remuneration for their services.
Position
Held
Person Office Since
------ ------ -----
Dennis S. Engh, 60 President and Director 1994
Thomas F. Harrison, 49 Vice President and Director 1994
Daniel H. Engh, 49 Vice President and Director 1994
Darin D. Engh, 29 Secretary, Treasurer and Director 1994
Carmen J. (Tony) Lotito, 55 Director of Marketing and Director 1994
Robert F. Conley, Ph.D., 65 Consultant 1994
Daniel H. Engh, listed in the above table, is the brother of Dennis S.
Engh. Darin D. Engh is the son of Dennis S. Engh and the nephew of Daniel H.
Engh.
Dennis S. Engh. Mr. Engh studied botanical science and business at the
University of Utah. After college he became the manager for Engh Floral
Corporation, a family-owned business, advancing to president over a ten-year
period. In 1981 he became president of Dienco Oil Development, Inc., an oil well
development company later purchased by a company in Texas. In 1986 he became
president of The Clothes Link, a seven-store women's clothing store system in
Utah. From 1985 to 1990 he also supervised all land acquisition for industrial
minerals for Pioneer Minerals, Inc., a Utah corporation. He then became
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president of that company. During that same period he also organized and
operated a landscape and grounds maintenance business which performed contract
work in Utah, Idaho and Nevada. He organized Utah Clay Technology in 1994 and
has served as its president since its organization.
Thomas F. Harrison. Mr. Harrison received a bachelor of science degree in
biology in 1972 and a master's of business administration degree from the
University of Utah in 1988. He was a microfilming supervisor for Mineral
Records, Inc. from 1976 to 1979. He served as the executive vice president and
the director of program development for CompHealth, Inc. from 1980 to 1992. In
this capacity he supervised the operations of 200 persons in three offices.
There were approximately 300 physicians working for the company at any one time.
Since 1995 Mr. Harrison has been president of Buffalo Energy Corp., which
develops energy projects for Indian Nations.
Daniel H. Engh. Mr. Engh received a bachelor of science degree in
accounting from the University of Utah in 1973. Upon graduation he joined the
Engh Floral Corporation where he managed the accounts, payroll, receivables and
handled tax matters. He trained personnel in numerous phases of accounting and
supervised a staff of 130 persons in this $3 million-a-year business. In 1984 he
became controller and buyer for Della's Flower & Gifts, Inc. He than joined the
staff of The Clothes Link where he was responsible for lease negotiations,
personnel and overseeing various store operations. In 1988 he became the
secretary and treasurer for Pioneer Minerals, Inc. and was in charge of all
accounting costs, controls, lease procurement and title operations. Since the
formation of that organization Mr. Engh has been active in the field work,
exploration and assessment of industrial minerals in the State of Utah. Mr. Engh
has served since 1985 as a tax audit manager for the Utah Tax Commission.
Darin D. Engh. Darin D. Engh is President of Engh Flowers, Inc., a retail
and wholesale garden center and nursery stock outlet which was organized in
1990, expanded to four locations along the Wasach Front of Utah, has 40
employees, and has gross annual sales today of approximately $1 million. Mr.
Engh has received a bachelor of science in political geography at the University
of Utah.
Carmen J. (Tony) Lotito. Mr. Lotito received a bachelor of science degree
in accounting in 1967 from the University of Southern California. He joined the
accounting firm of Pannell, Kerr, Forester & Co. as the senior accountant in
charge of management and audit services for that company's San Diego, California
office. In 1974 he formed his own management and financial services
organization. In this respect, he provides direct management assistance and
consulting financial services to oil and gas industry clients, retail
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operations, and food manufacturing and distribution companies. In 1988 he joined
ConAgra, Inc. in San Antonio, Texas where he oversaw research and development,
sales and marketing of specialty products under development. In 1994 he joined
Utah Clay Technology and has served and still serves as its director of
marketing.
Significant Consultants and Other Personnel.
--------------------------------------------
Robert F. Conley, Ph.D.. Dr. Conley acts as a consultant to the company. He
received a bachelor of science degree in chemistry, a masters of science degree
in electro-chemistry and a doctor of philosophy degree in inorganic chemistry
and mineralogy, all from Indiana University. He was employed for four years at
the Indiana Geological Survey in evaluating industrial minerals and development
technologies. Then, he joined the Georgia Kaolin Company and was in charge of
research into high technology processes, electrochemical studies, and research
into a variety of new products. At the request of the Engineering Conference, he
developed a series of lectures on the mechanics and chemistry of delamination
grinding. He continues to give annual seminars in the U.S. and in Europe on this
topic.
In 1974 Dr. Conley formed Mineral and Resource Technology with three other
scientists to perform contract research on minerals and to develop new products,
especially pigments. He is the author of approximately 30 patents on mineral and
specialty material systems, their process of generation and separation. He is
the coauthor of two books on industrial fine grinding and chemical treatment of
mineral systems for Polymer Corporation.
In 1977 Dr. Conley developed the electric process for producing ultra high
purity solder now used by most electronic circuit board manufacturers in the
U.S. From 1978 through 1981 Dr. Conley worked under contract by the Federal
Power Commission in Mexico to design a system and to work with the mineral
reserves in Mexico to produce alumina and aluminum metal from low-grade mexican
ores. Dr. Conley is active in the general area of high technology and has been
an annual guest lecturer for 15 years for the chemistry department at Kent State
University on mineral pigment development, dispersion techniques and other
aspects of pigment processing for the paint, plastics and polymer industries.
No executive officer, director, person nominated to become a director,
promoter or control person of our company has been involved in legal proceedings
during the last five years such as
o bankruptcy,
o criminal proceedings (excluding traffic violations and other minor
offenses), or
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o proceedings permanently or temporarily enjoining, barring, suspending
or otherwise limiting his involvement in any type of business,
securities or banking activities.
o Nor has any such person been found by a court of competent
jurisdiction in a civil action, or the Securities and Exchange
Commission or the Commodity Futures Trading Commission to have
violated a federal or state securities or commodities law.
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The table below sets forth the beneficial ownership of securities of the
company by the officers and directors, individually, and as a group, and each
person who is known to the company to be the beneficial owner of more than five
percent of any class of the company's voting securities:
<TABLE>
<CAPTION>
Shares of
Shares of Series A
Common Stock Percent Preferred Stock Percent
------------ ------- --------------- -------
<S> <C> <C> <C> <C>
Dennis S. Engh 4,641,197 19.8 27,180 32.0
Thomas F. Harrison 4,555,592 19.5 51,037 60.2
Daniel H. Engh 4,786,307 20.4 -- --
Carmen J. (Tony) Lotito 2,447,492 10.4 6,600 7.8
Darin D. Engh 100,000 0.4 -- --
Robert and Jeannette Nelson 1,312,500 5.6 -- --
Officers and Directors as a group (5
persons) 16,530,588 70.6 84,817 100.0
</TABLE>
Jeannette Nelson, listed in the above table, is the sister of Dennis S.
Engh, and Daniel H. Engh and the aunt of Darin D. Engh.
There are no arrangements which may result in a change in control of the
company.
DESCRIPTION OF SECURITIES
The company is authorized to issue 30 million shares of common stock,
$0.001 par value, and 10 million shares of preferred stock, $0.001 par value.
The presently outstanding 23,421,874 shares of common stock and 84,817 shares of
preferred stock are fully paid and nonassessable.
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<PAGE>
Common Stock
------------
Voting Rights. Holders of shares of common stock are entitled to one vote a
share on all matters submitted to a vote of the shareholders. Shares of common
stock do not have cumulative voting rights, which means that the holders of a
majority of the shareholder votes eligible to vote and voting for the election
of the board of directors can elect all members of the board of directors.
Dividend Rights. Holders of record of shares of common stock are entitled
to receive dividends when and if declared by the board of directors out of funds
of the company legally available therefor.
Liquidation Rights. Upon any liquidation, dissolution or winding up of the
company, holders of shares of common stock are entitled to receive pro rata all
of the assets of the company available for distribution to shareholders after
distributions are made to the holders of the company's preferred stock.
Preemptive Rights. Holders of common stock do not have any preemptive
rights to subscribe for or to purchase any stock, obligations or other
securities of the company.
Registrar and Transfer Agent. The company's registrar and transfer agent is
Interwest Transfer Company, Inc., 1981 East Murray Holladay Road, Suite 100,
Salt Lake City, Utah 84117.
Dissenters' Rights. Under current Utah law, a shareholder is afforded
dissenters' rights which, if properly exercised, may require the company to
purchase his shares. Dissenters' rights commonly arise in extraordinary
transactions such as
o mergers,
o consolidations,
o reorganizations,
o substantial asset sales,
o liquidating distributions, and
o certain amendments to the company's certificate of incorporation.
Preferred Stock
---------------
The company is also authorized to issue 10 million shares of preferred
stock, $0.001 par value.
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The preferred stock or any series of preferred stock has no qualities or
preferences over the common stock until the board of directors acts. The board
can designate discreet series of the preferred stock. By board resolution it can
carve out a series of preferred stock with specific qualities or preferences.
Series A Preferred Stock
------------------------
We have issued 84,817 shares of Series A Preferred Stock at $5.00 a share
for a total of $424,085, which stock -
o is entitled to annual dividends of $0.50 a share payable only from
earnings of the company and cumulative if payable but missed,
o is non-voting,
o does not carry preemption rights and
o is preferred over the company's common stock in the event of the
liquidation and dissolution of the company.
The Series A Preferred Stock is neither convertible into Common Stock nor
redeemable at the option of the holder. It is redeemable at the option of the
company.
There are no provisions in the company's charter or bylaws that would
delay, defer or prevent a change in control of the company.
INTEREST OF NAMED EXPERTS AND COUNSEL
Thomas J. Kenan is named in the registration statement of which this
prospectus is a part as having given an opinion on the validity of the offered
securities. His spouse, Marilyn C. Kenan, is the trustee and sole beneficiary of
the Marilyn C. Kenan Trust, which is the record owner of 764,194 shares of
common stock of the company. Mr. Kenan disavows any beneficial interest in the
shares owned of record by such trust.
INDEMNIFICATION
Under Utah corporation law, a corporation is authorized to indemnify
officers, directors, employees and agents who are parties or threatened to be
made parties to any civil, criminal, administrative or investigative suit or
proceeding by reason of the fact that they are or were a director, officer,
employee or agent of the corporation or are or were acting in the same capacity
for another entity at the request of the corporation. Such indemnification
includes reasonable expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement if they acted in good faith and in a manner
reasonably believed to be in or not opposed to the best interests of the
corporation.
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With respect to any criminal action or proceeding, these same
indemnification authorizations apply if these persons had no reasonable cause to
believe their conduct was unlawful.
In the case of any action by the corporation against such persons, the
corporation is authorized to provide similar indemnification. But, if any such
persons should be adjudged to be liable for negligence or misconduct in the
performance of duties to the corporation, the court conducting the proceeding
must determine that such persons are nevertheless fairly and reasonably entitled
to indemnification.
To the extent any such persons are successful on the merits in defense of
any such action, suit or proceeding, Utah law provides that they shall be
indemnified against reasonable expenses, including attorney fees. A corporation
is authorized to advance anticipated expenses for such suits or proceedings upon
an undertaking by the person to whom such advance is made to repay such advances
if it is ultimately determined that such person is not entitled to be
indemnified by the corporation.
Indemnification and payment of expenses provided by Utah law are not deemed
exclusive of any other rights by which an officer, director, employee or agent
may seek indemnification or payment of expenses or may be entitled to under any
bylaw, agreement, or vote of stockholders or disinterested directors. In such
regard, a Utah corporation behalf of any person who is or was a director,
officer, employee or agent of the corporation.
As a result of such corporation law, Utah Clay may, at some future time, be
legally obligated to pay judgments (including amounts paid in settlement) and
expenses in regard to civil or criminal suits or proceedings brought against one
or more of its officers, directors, employees or agents, as such.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
company pursuant to the foregoing provisions or otherwise, the company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable.
DESCRIPTION OF BUSINESS
Business Development
Utah Clay Technology, Inc. was incorporated on March 1, 1994 in the State
of Utah. Since our organization we have been engaged in the process of -
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o locating kaolin deposits in Utah,
o obtaining the legal rights to these deposits,
o conducting exploratory operations,
o testing the extracted minerals in the laboratory, and
o selling samples of the processed form of our kaolin to a commercial
company for market evaluation.
We have financed these activities by the sale of capital stock for money,
advances by shareholders and by the exchange of capital stock for services
rendered to our company.
DESCRIPTION OF PROPERTY
We have mining leases to extract minerals from mining claims in the White
Mountain area and the Oro Blanco area in western Utah. We have options to
acquire mining leases to extract minerals from mining claims in the Koosharem
area and the Kimberly area in central Utah and in the Topaz area in western
Utah. The properties are near the Union Pacific rail lines and interstate
tracking routes I-70 and I-15.
Location and Means of Access to the Properties
White Mountain Claims. The White Mountain claims are located in Beaver
County, Utah approximately 25 miles west of Milford, Utah. Forty-one federal
placer and overlapping lode claims are located in Sections 4-10 in Township 29
South, Range 13 West and in Sections 1 and 12 in Township 29 South, Range 14
West.
Access to the area is provided by county gravel roads and 1.6 miles of
unimproved, Bureau of Land Management ("BLM") roads. Limited upgrade of the BLM
roads would be necessary to bring mining equipment to the White Mountain site.
Oro Blanco Claims. The Oro Blanco claims are located six miles west of the
White Mountain claims in Beaver County, Utah. Ninety-one federal placer and
overlapping lode claims and four Utah State mineral leases covering these
deposits are located in Sections 13-15, 21-24, 25-28, 32 and 34-36 in Township
29 South, Range 15 West and in Sections 1-3 and 10, 11 and 18 in Township 30
South, Range 15 West.
Access to the property is provided by county roads and unimproved BLM
roads. Limited upgrades of the BLM roads would be necessary to bring mining
equipment to the Oro Blanco site.
Koosharem Claims. The Koosharem claims are located in Piute and Sevier
Counties, Utah. Twelve unpatented federal placer and overlapping lode claims are
located on lands managed by the National Forest Service in Townships 26 and 27
South, Ranges 1 and 2 West.
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Access to the area is provided by BLM roads. The road is currently used by
another mining operation adjacent to our claims.
Kimberly Claims. The Kimberly claims are located in Sevier County, Utah.
Twenty-six unpatented federal placer and overlapping lode claims are located on
lands managed by the National Forest Service in Township 26 South, Range 4.5
West.
Access to the site is provided by unimproved Forest Service roads. Limited
upgrade of the roads would be necessary to bring mining equipment to the site.
Topaz Claims. The Topaz claims are located in Juab County, Utah
approximately 40 miles west of Delta, Utah. Twenty-six federal placer and
overlapping lode claims are located on lands managed by the National Forest
Service in Township 13 South, Ranges 10, 11 and 12 West and Township 14 South,
Range 11 West.
Access to the area is provided by county gravel roads and unimproved BLM
roads. Limited upgrades to the BLM roads would be required to bring mining
equipment to the site.
Description of Our Title
White Mountain Claims. The lode mining claims are reserved from the BLM in
the name of Don and Anola Fullmer, who are unaffiliated with our company.
The Fullmers have granted a mining lease to Dennis S. Engh and Daniel H.
Engh. Dennis Engh is president and a director of Utah Clay, and Daniel Engh is a
vice president and director of Utah Clay.
o This lease from the Fullmers provides for -
o an annual $5,000 minimum lease payment,
o a minimum production requirement of 6,000 tons a year starting in
2005,
o a $2.50 a ton production royalty payment with a Consumer Price Index
annual escalator clause on the royalty, and
o the payment of all annual fees to the BLM to maintain the claims.
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The lease expires March 15, 2005, unless commercial production of at least
5,000 tons a year is being obtained from any or all of the claims subject to the
lease. The lease extends perpetually thereafter if the production minimums are
met. The Engh family has incorporated the Fullmer lease with their own placer
claims into one lease assigned to Utah Clay as described below.
The White Mountain placer claims are held by the Engh family, who have
granted a mining lease to Utah Clay. These persons include Dennis and Judith
Engh, husband and wife; Daniel H. and Connie Engh, husband and wife; Darin D.
Engh, and Holly Engh Kingdon (the "Engh Family"). Dennis Engh is president and a
director of Utah Clay, the brother of Daniel Engh and the father of Darin Engh
and Holly Engh Kingdon. Daniel Engh is a vice president and a director of Utah
Clay. Darin Engh is a director of Utah Clay.
The Engh family lease provides for -
o a $5,000 minimum annual lease payment to the Enghs or a $2.50 a ton
production royalty payment with a Consumer Price Index escalation
clause, whichever is greater,
o a three percent royalty payment on the gross value of all ores taken
from the property,
o the payment of all fees required to maintain the claims with the BLM,
and
o all the terms of the Engh lease with the Fullmers for the lode claims
to be met by Utah Clay.
The term of the Engh family lease is March 27, 2004 and thereafter as long
as commercial production is obtained.
There appears on the next page a detailed map of Utah Clay's White Mountain
property. There is shown on the map outlines of -
o the claims area,
o the Blue Placer claims,
o the Julie White placer claims, and
o the Julie White lode claims.
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(Detailed map of Utah Clay's
White Mountain property
included in courtesy copies
[not filed electronically])
There is shown on the map outlines of -
o the claims area,
o the Blue Placer claims,
o the Julie White placer claims, and
o the Julie White lode claims.
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Oro Blanco Claims. These 91 federal lode and placer claims and four
Utah State mineral leases are all held by the Engh family. A 5.5 percent
production royalty on ores taken from the four state leases must be paid to
the State of Utah.
The Engh family has granted a lease on these properties to Utah Clay. Utah
Clay is to pay -
o all fees to the BLM to maintain the claims,
o and a $5,000 minimum annual lease payment to the Enghs or a $2.50 a
ton production royalty payment with a Consumer Price Index escalation
clause, whichever is greater, and
o a production royalty of three percent on the gross value of the ores
taken from the property.
The term of the lease is March 27, 2004, and as long thereafter as
commercial production is maintained.
There appears on the next page a detailed map of Utah Clay's Oro Blanco
property. There is shown on the map outlines of -
o the mining area of interest,
o the Engh Family lode claims,
o the Engh Family placer claims, and
o the State of Utah mineral leases.
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(Detailed map of Utah Clay's
Oro Blanco property
included in courtesy copies
[not filed electronically])
There is shown on the map outlines of -
o the mining area of interest,
o the Engh Family lode claims,
o the Engh Family placer claims, and
o the State of Utah mineral leases.
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Koosharem, Kimberly and Topaz Claims. These claims are all reserved from
the BLM in the name of Don and Anola Fullmer, who are unaffiliated with our
company. The Fullmers have granted leases on the claims to Daniel and Dennis
Engh, whose affiliation with Utah Clay is described above. Daniel and Dennis
Engh have granted options to Kaolin of the West, LLC, for it to obtain an
assignment of the leases. The members and owners of Kaolin of the West, LLC, are
Dennis S. Engh, Daniel H. Engh, Thomas F. Harrison and Carmen J. (Tony) Lotito.
The royalty payments for the leases are identical to those of the White
Mountain mining claims, including the royalty payments to the Enghs and the
Fullmers.
Each of the three options expires March 27, 2004. A payment of $10,000 for
each option - $5,000 to the Fullmers and $5,000 to the Enghs - must be paid by
June 10 of each year to extend the options past that date as well as the payment
of all federal and state rentals, taxes and other payments associated with the
mining claims. To exercise each option, Utah Clay must pay to the owners of
Kaolin of the West, LLC, in cash or in common stock of the company, an amount of
cash or common stock equal to the fair market value of the premises subject to
the optioned leases. The fair market value will be determined by reference to an
evaluation of any kaolin reserves as determined by an independent engineer.
The mining claims of the three leases under option to the company expire on
March 27, 2004 unless by such date commercial production of at least 5,000 tons
a year is being obtained from any or all of the claims subject to each of the
leases. Once the required level of commercial production has been obtained, the
term of each lease is extended for so long as the production requirement is met.
History of Mineral Exploration
Both White Mountain and Oro Blanco have a history of mineral exploration.
The following descriptions concern areas on the leases of Utah Clay.
White Mountain. Earth Sciences conducted some exploratory drilling on
property that is now under our control in White Mountain in the late 1960s and
early 1970s. Earth Sciences was a consortium of companies that was looking for
commercial deposits of alunite. They found alunite and associated deposits of
kaolin by rotary percussion drilling. Data for these holes is not available. An
overview of the geology and a summary of their drilling results is outlined in
the published Final Environmental Statement date stamped August 26, 1977 by the
BLM and signed by Curt Berklund, Director, Bureau of Land Management.
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Buena Vista Mining drilled seven holes on the White Mountain lease in 1992.
Buena Vista was a company controlled by the Engh Family. The Enghs have made
that information accessible to Utah Clay. The cores were stored and are
available for chemical and brightness analysis.
Utah Clay has a test pit that reveals high brightness kaolin exposed at the
surface. Samples have been taken from the pit to test the kaolin for use in
paints and other industries.
Neither proven nor probable reserves have been established.
Oro Blanco. Earth Sciences conducted extensive exploration for molybdenum,
uranium, gold and flourite in the Oro Blanco region of the Wah Wah Mountains in
the late 1960s and early 1970s. Earth Sciences drilled 241 core and rotary holes
in the area subject to our claims. They found deposits of both kaolin and
alunite. This information is outlined in a report by Joseph Shearer, a
registered geologist. He was retained by Fire Clay Minerals, Inc., a company
controlled by the Engh Family.
Fire Clay Minerals, Inc. next drilled 104 core holes in the area subject to
our placer claims. The holes total 10,982 feet and outline a deposit of high
brightness kaolin and alunite. This drilling was done in 1989 and is outlined in
a report by R.R. Culpert, Ph.D.
An area of 130 by 300 feet was stripped of overburden to expose a kaolin
deposit. Samples have been taken from this area to test for brightness and
chemistry.
Neither proven nor probable reserves have been established.
Koosharem and Kimberly Claims. There have been no significant operations on
these claims other than the annual assessment work on the perceived deposits.
Topaz Claims. Utah Clay conducted a limited drilling program on the Topaz
claims property in 1995. Evidence of a certain form of kaolite, called
halloysite, was found. Drilling was not sufficient to prove any reserves.
Plant and Equipment
There is no plant or equipment at any of the sites of the mining claims.
Power can be supplied to the White Mountain site from Utah Power & Light's
grid four miles to the east. Power can be supplied to the Oro Blanco site from
Utah Power & Light's grid ten miles to the east.
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Plan of Operations for the Next Twelve Months
White Mountain. White Mountain has an open pit. Seven test holes have been
drilled. We have the information and the cores from this drilling program.
Our exploration plan for the next twelve months is, first, to re-analyze
the core holes that were drilled. This analysis will cover the brightness,
alteration minerals, percent of alteration and color along with other tests.
Then, subject to the availability of funds, we will conduct a new drilling
program. Our plan provides that holes will be drilled on 200- foot spacing to
define the areas of greatest shallow, high brightness kaolinite. The drilling
will commence outward from the test pit where a previous hole encountered 136
feet of white kaolin. The next phase of drilling will concentrate on the highest
potential areas found in the first holes. The spacing will be 100 feet. The
holes will be drilled to 150 feet. The drilling will produce cores. Samples from
these cores will be tested for brightness, color, specific gravity, chemical
composition and contaminates. The goal of this drilling and analysis of the
cores is to establish the presence of mineralized material. We will then combine
this information with the requirements of industry standards, prices of
marketable kaolin and recovery costs to determine the degree of legal and
economic feasibility of further activities.
We have not identified a source of capital for our drilling program. We
propose to approach persons known to our management and familiar with our
company's history as the source of this capital.
Oro Blanco.
----------
A drilling and testing program similar to that planned for White Mountain
is contemplated. There was an indication from the previous program that a
promising trend of kaolin continues to the east past where the previous drilling
program stopped. This trend will be explored in the new drilling program.
Koosharem, Kimberly and Topaz Claims. We have no present proposed program
of exploration on these properties that are subject to our options to acquire.
They are without known reserves.
Rock Formations and Mineralization
White Mountain: Kaolin, hydrated silica and alunite occur as a mixed
mineral system in the White Mountain region of Utah in the lower and upper tuff
members of an unnamed geological formation. These minerals vary in their
percentages throughout the deposits and have formed where acid-rich,
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hydrothermal fluids have strongly altered the tuffs. "Tuff" is a geological term
for rock composed of finer kinds of volcanic detritus commonly fused together by
heat.
The percentages of the three primary components vary depending upon the
composition of the tuff and the heat and character of the hydrothermal fluids.
Kaolin, for example can occur from 99% down to 25%. Alunite typically occurs in
the range 2% to 12%. Hydrated silica in the form of opal and opal CT make up the
major portion of the remainder. Because these three components are all white and
all insoluble in water, their combination makes a good, non-reactive white
pigment for incorporation in paint, plastics, paper and other products. When the
mixtures are calcined at high temperatures, the products are virtually
indistinguishable from 100% kaolin calcined at the same temperature, except that
the hydrothermal materials are whiter.
Strong alteration of the tuff to kaolin, alunite and hydrated silica occurs
for about two miles along east-west faults. Local centers for high kaolin and
alunite occur where north-northwest faults intersect the main east-west
structural feature. Individual centers range in size from 250 to 500 feet in
width and extend 2000 feet in length along the principal feeder fault. In these
alteration zones, the kaolin and alunite grade outward in composition. At their
termination, bands of high iron oxide, red in color, occur, usually followed by
hard silica.
Chemical analyses of the whitest regions within the deposit suggest small
amounts of iron oxide (as hematite and goethite) of 0.3%, occasional calcium
sulfate (0.5%) and some jarosite (0.5%), a mineral similar in character to
alunite but containing iron structurally substituted for aluminum. The remainder
of the impurities, as Mg, Ca, K, Na, and Ti, are less than 2% total and are
similar to impurities in commercial kaolins from Georgia and South Carolina.
These impurities are not separated during the commercial processing and
have no deleterious effect on pigment properties in the end products.
Numerous chemical analyses of the kaolinite have been done. They uniformly
show low amounts of contaminants, specifically iron.
Typical amounts of other minerals are:
Fe 0.172%
Na2O 0.296%
K2O 1.48%
CaO 0.505%
MgO 0.118%
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Oro Blanco. The geology is similar to that at White Mountain, but the
alteration is more complex.
Koosharem, Kimberly and Topaz Claims. Each of these areas shows the
hydrothermal alteration of volcanic tuffs. The geology has not been studied in
sufficient detail to describe it accurately.
Geology
Drilling and testing which has been conducted to date on our properties
suggest that the cap rock (mineralization which occurs on top of the kaolin) is
shallow in many locales, often less than 25 feet in thickness. The veins of
mineralized kaolin (and associated minerals) under this cap rock are often quite
wide and of a consistent color and composition, especially after the calcination
process is employed. Further drilling and analyses and required to evaluate the
usable volume and grade as well as to develop the initial mining plan.
Kaolin
Kaolin is a mineral term for a hydrated aluminum silicate with the general
formula, AL2 SI2 O5 (OH)4. It occurs in a broad range of particle sizes from 200
microns down to about 0.2 microns. It also occurs in a variety of crystal
structures and shapes. The Utah kaolin is quite white in the ground. Dry
processing retains that whiteness.
Kaolin is commonly known as "China clay" and is used extensively as a
mineral filler in paint, plastics, paper, ceramics, pharmaceuticals and
cosmetics, because it does not react chemically. It also has a white color and
smoothness after grinding. Industrial users of kaolin combine it with other raw
materials, called formulations, and have developed over 600 different
applications. The largest single application is for coating paper to hide the
pulp strands and to give the paper a gloss finish. Another major use is in the
paint industry as an extender to reduce the amount of titanium dioxide needed to
reflect light. Kaolin is also used in refractory clays, plastics, ceramics,
rubber and fiberglass.
The United States is the largest single producer of kaolin in the world.
Currently, ninety percent of the U.S. production comes from deposits in Georgia
and South Carolina. It has been mined from this area for over 90 years. Most of
the standards for the world industry are based on the kaolin from this area.
Results of Tests on the Utah Clay Deposits
The kaolin taken from our White Mountain site in the test runs shows that
the mineral can be removed by a ripper on a caterpillar tractor and loaded on
trucks with a front end loader.
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The kaolin must be processed to bring it to industry standards. Utah Clay
has tested the stages of the processing that are needed for these industry
standards. These tests include:
o grinding to small particle sizes
o calcination - a process of heating the clay to about 1800 degrees
Fahrenheit for a time, which changes its molecular structure, and
o paint formulation tests.
These tests have outlined two classes of products that can fit into established
markets. These are an uncalcined kaolin clay and a calcined kaolin clay, each in
various small particle sizes.
We anticipate that any sale of these products by us, should we encounter
commercial quantities of kaolin and obtain the capital to develop them, would be
done through third-party distributors of industrial minerals.
Patents
Utah Clay has no patents.
Government Approval of Principal Products
There is no need to obtain government approval to sell kaolin and kaolin
products. The mining leases of the company, owned or under option to lease, are
mining claims or leases of lands owned by the U.S. Government or the State of
Utah. Annual rentals of $100 per claim for the federal mining claims must be
paid to the Bureau of Land Management. The annual lease payment to the State of
Utah totals $2,106 for the four state leases.
Government Regulations
The permitting of exploration work we have on U.S. Government leases in
Utah is subject to federal regulations that are co-administered by the Utah
State Division of Oil, Gas and Mining and the Bureau of Land Management. We have
obtained a small miner's permit for the White Mountain site from the Bureau of
Land Management and the State of Utah's Division of Oil, Gas and Mining. This
permit allows us to continue to remove tonnage of kaolin from the site for
commercial testing.
The White Mountain and Oro Blanco sites have been surveyed for sensitive
plant species. The survey was conducted by a certified environmental firm
retained by the company. No sensitive species were found on either site.
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Costs and Effects of Complying with Environmental Laws
There are costs involved in complying with environmental laws in the
exploration for kaolin. Disturbances to the land caused by our exploratory
drilling will have to be reclaimed to a state typical of the surrounding area.
Employees
We have two full time employees and two part time employees. The full time
employees are Dennis S. Engh, president, and Thomas F. Harrison, vice president
and chief financial officer. The part time employees are Carmen (Tony) Lotito,
marketing director, and Daniel H. Engh, vice president. We estimate that our
part-time employees work for us approximately fifteen hours a week.
Working Capital Requirements
We need approximately $500,000 to conduct a proper drilling and testing
exploration program on our White Mountain and Oro Blanco leases during the next
twelve months. We have not identified a source of this capital. However, we need
little working capital to survive day-to-day. Our full-time and part-time
employees and consultants will accept stock in lieu of cash for their personal
services, as they have mainly done in the past.
Product Research and Development During the Next Twelve Months
Subject to our obtaining the necessary funds, we propose to perform
approximately $50,000 in research and development during the next twelve months
in an effort to determine the best calcination parameters for processing kaolin
for use in cement. We have been and are working with an industry partner with
regard to the use of partially calcined kaolin in cement.
Additional Employees
We have no plans to hire additional employees until we should establish
that we have commercial reserves of kaolin and obtain the funds to develop them.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1998 the company issued 2,100,774 shares of its common stock at
$0.18 a share to the following officers and directors of the company, persons
owning more than five percent of any class of security of the company, or to
members of their immediate family:
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Relationship No. of Shares Value of
Person to the Company Issued Consideration
------ -------------- ------ -------------
Della Engh Mother of Dennis and 823,333 $ 148,200
Daniel Engh
Dennis S. Engh President and Director 581,900 104,742
Carmen J. (Tony) Lotito Director of Marketing 332,659 59,879
and Director
Thomas F. Harrison Vice President, Chief 135,872 24,467
Financial Officer and
Director
Daniel H. Engh Vice President and 227,010 40,862
--------- ---------
Director
2,100,774 $ 378,150
The consideration we received from Della Engh for the above shares was the
cancellation of loan indebtedness in the indicated amount owed by Utah Clay to
her. The consideration we received from the other persons named above was the
cancellation of debt in the indicated amounts arising from unpaid compensation
for their services as officers of Utah Clay.
On December 27, 1999 we issued 17,739,500 shares of our common stock as the
purchase price for an assignment of the Oro Blanco mining lease. The shares were
valued at $0.001 a share for a total purchase price of $17,739.50. At the time
of the purchase, our common stock had not traded in the over-the-counter market
for several weeks, and the stockholders' capital in Utah Clay was impaired. The
seller of the Oro Blanco lease was Utah Kaolin Corporation, an affiliate of Utah
Clay by reason of common directors of the two companies and by reason of common
control of the two companies through majority ownership of the voting stock of
each company by the directors of the two companies.
Utah Kaolin Corporation subsequently distributed the 17,739,500 shares to
its shareholders. One of those shareholders, Thomas J. Kenan, who is legal
counsel to Utah Clay and to Utah Kaolin, transferred 650,194 shares to a trust
under the control of his spouse, Marilyn C. Kenan, who also is the primary
beneficiary of the trust. He donated remaining 10,000 shares to his legal
assistant, Sherie S. Adams. The complete distribution of the 17,739,500 shares
of Utah Clay stock by Utah Kaolin was as follows:
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No. of
Shares
Person Relationship to the Company Issued
------ --------------------------- ------
Dennis S. Engh President and Director 3,979,297
Daniel H. Engh Vice President and Director 3,979,297
Thomas F. Harrison Vice President and Director 3,869,666
Carmen J. (Tony) Lotito Director of Marketing and Director 1,984,833
Marilyn C. Kenan, Spouse of Thomas J. Kenan, 650,194
Trustee of the Marilyn securities law counsel to the
C. Kenan Trust company
Dorcas Ardella Engh Mother of Dennis S. Engh and 850,000
Daniel H. Engh
Sherie S. Adams Legal Assistant to Thomas J. 10,000
Kenan, securities law counsel to
the company
Robert N. Nelson and Brother-in-law and sister of 1,300,000
Jeanette E. Nelson, TTEE Dennis S. Engh and Daniel H. Engh,
FBO Nelson Family and uncle and aunt to Darin Engh
Revocable Trust UAD 2-
28-91
Raymond and Olga Nelson Son and daughter-in-law of Robert 200,000
N. Nelson and Jeanette E. Nelson
Jack Nelson Son of Robert N. and Jeanette E. 100,000
Nelson
Kendrick O. Morrison None (non-affiliated shareholder) 816,213
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock was earlier quoted on the OTC Bulletin Board under the
stock symbol "UTCL". The high and low bid information for the stock during 1998,
1999 and the first quarter of 2000 is set forth below. The information was
obtained from the OTC Bulletin Board and reflects inter-dealer prices, without
retail mark-up, mark-down or commission and may not represent actual
transactions:
Calendar
Quarter High Low
------- ---- ---
1998:
1st Qtr 2.125 1.75
2nd Qtr 2.0625 1.625
3rd Qtr 1.875 1.3125
4th Qtr 1.53125 0.125
1999:
1st Qtr 0.3438 0.1600
2nd Qtr 0.8438 0.1875
3rd Qtr 0.6250 0.1300
4th Qtr 0.5000 0.1875
2000:
1st Qtr 1.125 0.25
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During the period from May 3, 2000 to the date of this prospectus our
common stock was removed from the Bulletin Board and was quoted only in the
"Pink Sheets". We anticipate that our common stock will once again be admitted
to quotation privileges on the Bulletin Board within a few days after the date
of this prospectus.
Holders. There are approximately 200 holders of record of our common stock.
There are three holders of record of our Series A Preferred Stock, for which
there is no trading market.
Dividends. No cash dividends have been declared during the last two years for
either the common stock or the Series A Preferred Stock. There are no
restrictions that limit the ability of the company to pay dividends on the
common stock or that are likely to do so in the future other than the
requirement that dividends be paid first to the holders of the company's
preferred stock.
PENNY STOCK REGULATIONS
Our common stock has always traded at a price less than $5 a share and is
subject to the rules governing "penny stocks."
A "penny stock" is any stock that:
o sells for less than $5 a share,
o is not listed on an exchange or authorized for quotation on The Nasdaq
Stock Market, and
o is not a stock of a "substantial issuer." Utah Clay Technology is not
now a "substantial issuer" and cannot become one until it has net
tangible assets of at least $5 million, which it does not now have.
There are statutes and regulations of the Securities and Exchange
Commission that impose a strict regimen on brokers that recommend penny stocks.
The Penny Stock Suitability Rule
Before a broker-dealer can recommend and sell a penny stock to a new
customer who is not an institutional accredited investor, the broker-dealer must
obtain from the customer information concerning the person's financial
situation, investment experience and investment objectives. Then, the
broker-dealer must "reasonably determine" (1) that transactions in penny stocks
are suitable for the person and (2) that the person, or his advisor, is capable
of evaluating the risks in penny stocks.
After making this determination, the broker-dealer must furnish the
customer with a written statement setting forth the basis for this suitability
determination. The customer must sign and date a copy of the written statement
and return it to the broker-dealer.
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Finally the broker-dealer must also obtain from the customer a written
agreement to purchase the penny stock, identifying the stock and the number of
shares to be purchased.
The above exercise delays a proposed transaction. It causes many
broker-dealer firms to adopt a policy of not allowing their representatives to
recommend penny stocks to their customers.
The Penny Stock Suitability Rule, described above, and the Penny Stock
Disclosure Rule, described below, do not apply to the following:
o transactions not recommended by the broker-dealer,
o sales to institutional accredited investors,
o sales to "established customers" of the broker-dealer - persons who
either have had an account with the broker- dealer for at least a year
or who have effected three purchases of penny stocks with the
broker-dealer on three different days involving three different
issuers, and
o transactions in penny stocks by broker-dealers whose income from penny
stock activities does not exceed five percent of their total income
during certain defined periods.
The Penny Stock Disclosure Rule
Another Commission rule - the Penny Stock Disclosure Rule - requires a
broker-dealer, who recommends the sale of a penny stock to a customer in a
transaction not exempt from the suitability rule described above, to furnish the
customer with a "risk disclosure document." This document includes a description
of the penny stock market and how it functions, its inadequacies and
shortcomings, and the risks associated with investments in the penny stock
market. The broker-dealer must also disclose the stock's bid and ask price
information and the dealer's and salesperson's compensation related to the
proposed transaction. Finally, the customer must be furnished with a monthly
statement including prescribed information relating to market and price
information concerning the penny stocks held in the customer's account.
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Effects of the Rule
The above penny stock regulatory scheme is a response by the Congress and
the Commission to known abuses in the telemarketing of low-priced securities by
"boiler shop" operators. The scheme imposes market impediments on the sale and
trading of penny stocks. It has a limiting effect on a stockholder's ability to
resell a penny stock.
Our common stock likely will continue to trade below $5 a share and be, for
some time at least, a "penny stock" subject to the trading market impediments
described above.
Potential De-Listing of Common Stock
NASD Eligibility Rule 6530 issued on January 4, 1999, states that issuers
that do not make current filings pursuant to Sections 13 and 15(d) of the
Securities Exchange Act of 1934 are ineligible for listing on the OTC Bulletin
Board. Issuers who are not current with such filings are subject, first, to
having an "E" appended to their trading symbol and, then, to de-listing if they
fail to become current within a short period of time. Our common stock was
delisted on May 3, 2000, because we were not a reporting company. We will become
a reporting company the day the Commission makes effective our registration
statement of which this prospectus is a part. We anticipate our Bulletin Board
trading privileges, under our previous stock trading symbol of "UTCL", will be
restored within a few days after the date on the cover of this prospectus. Even
so, we will remain subject to delisting at any time that we are not current in
filing reports in the future.
Reports to Security Holders
We will file reports with the Securities and Exchange Commission. These
reports are annual 10-KSB, quarterly 10-QSB and periodic 8-K reports. This
prospectus is part of a registration statement that, when effective at the
Securities and Exchange Commission, subjects us to these reporting requirements.
We will furnish stockholders with annual reports containing financial statements
audited by independent public or certified accountants and such other periodic
reports as we may deem appropriate or as required by law. The public may read
and copy any materials we file with the SEC at the Public Reference Room of the
SEC at 450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain
information on the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330. Utah Clay is an electronic filer, and the SEC maintains an
Internet Web site that contains reports, proxy and information statements and
other information regarding issuers that file electronically with the SEC. The
address of such site is http://www.sec.gov.
29
<PAGE>
EXECUTIVE COMPENSATION
No executive officer of the company has received total compensation in any
of the last three years that exceeds $100,000. The table below sets forth all
compensation awarded to, earned by, or paid to Dennis S. Engh, the president of
the company during 1999:
<TABLE>
<CAPTION>
Long Term Compensation
---------------------------
Awards
-------------------------
Annual Compensation Securities Payouts
------------------------------------ Underlying ----------------------
Other Annual Restricted Options/ LTIP All Other
Year Salary Bonus Compensation Stock Awards SARS Payouts Compensation
<S> <C> <C> <C> <C> <C> <C> <C>
1999 $72,000 0 0 0 0 0 0
</TABLE>
Stock Options. We have adopted a 2000 Stock Option Plan, the major provisions of
which Plan are as follows:
Options granted under the plan may be "employee incentive stock options" as
defined under Section 422 of the Internal Revenue Code or non-qualified stock
options, as determined by the option committee of the board of directors at the
time of grant of an option. The plan enables the option committee of the board
of directors to grant up to 500,000 stock options to employees and consultants
from time to time. The option committee has granted no options.
Directors. There are no arrangements pursuant to which directors of the company
are compensated for their services as a director.
Employment Contracts. The company has no employment contracts with any person or
any compensatory plan or arrangement with any person that would result from the
resignation, retirement or any other termination of a person's employment with
the company or its subsidiaries or from a change in control of the company or a
change in a person's responsibilities following a change in control of the
company.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
The principal independent accountant of the company or any significant
subsidiary has not resigned, declined to stand for re-election, or been
dismissed by the company during the periods for which financial statements are
included herein.
30
<PAGE>
ADDITIONAL INFORMATION
The company will furnish its shareholders with annual reports containing
audited financial information, reported upon by independent public accountants.
The company shall also furnish quarterly reports for the first three quarters of
each year containing unaudited financial information.
FINANCIAL STATEMENTS
The following financial statements are included as part of this prospectus:
Page
----
Independent Auditors' Report ......................................... F-1
Balance Sheets December 31, 1999 and 1998 ............................ F-2
Statements of Operations
Year ended December 31, 1999 and 1998, and
cumulative from inception (March 1, 1994)
to December 31, 1999 ........................................ F-4
Statements of Changes in Stockholders' Deficit
From inception (March 1, 1994) to
December 31, 1999 ........................................... F-5
Statements of Cash Flows
Year ended December 31, 1999; year ended
December 31, 1998; and cumulative from
inception (March 1, 1994) to
December 31, 1999 ........................................... F-7
Notes to Financial Statements ........................................ F-9
Balance Sheets March 31, 2000 (Unaudited) and
December 31, 1999 ........................................... F-18
Statements of Operations (Unaudited)
Quarter ended March 31, 2000 and 1999, and
cumulative from inception (March 1, 1994)
to March 31, 2000 ........................................... F-20
Statements of Cash Flows (Unaudited)
Quarter ended March 31, 2000 and 1999, and
cumulative from inception (March 1, 1994)
to March 31, 2000 ........................................... F-21
Notes to Financial Statements (Unaudited) ............................ F-23
31
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Stockholders and Board of Directors
Utah Clay Technology, Inc.
We have audited the accompanying balance sheets of Utah Clay Technology,
Inc. (An Exploration stage company) as of December 31, 1999 and 1998 and the
related statements of operations, stockholders' deficit and cash flows for the
years ended December 31, 1999 and 1998, and for the period from inception (March
1, 1994) to December 31, 1999. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our 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 Utah Clay Technology, Inc.
(An Exploration Stage company) as of December 31, 1999 and 1998 and the results
of its operations and its cash flows for the years then ended, and for the
period from inception (March 1, 1994) to December 31, 1999, in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
company will continue as a going concern. As discussed in Note 11 to the
financial statements, the company has suffered losses from operations and
remains in the Exploration stage. These conditions raise substantial doubt about
its ability to continue as a going concern. Management's plans in regard to
these matters are also described in Note 11. The financial statements do not
include any adjustments that might result from the outcome of this uncertainly.
/s/ Kabani & Company, Inc.
--------------------------
Kabani & Company, Inc.
Fountain Valley, California
March 17, 2000
F-1
<PAGE>
Utah Clay Technology, Inc.
(An Exploration Stage Company)
BALANCE SHEETS
December 31, 1999 & 1998
ASSETS
------
1999 1998
----------- -----------
Current Assets
Cash $ 640 $ 208
Receivables 350 100
Inventory 21,568 21,568
----------- -----------
Total Current Assets 22,558 21,876
Properties & Equipment
Laboratory equipment 2,484 2,484
Machine design & configuration 128,000 --
Mining leases 45,073 27,333
Mining properties and deferred expenditures 1,091,022 1,026,739
(Less valuation allowance) (1,091,022) (1,026,739)
----------- -----------
Total Properties & Equipment 175,557 29,817
----------- -----------
$ 198,115 $ 51,693
=========== ===========
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
<TABLE>
<CAPTION>
Utah Clay Technology, Inc.
(An Exploration Stage Company)
BALANCE SHEETS
December 31, 1999 & 1998
LIABILITIES AND STOCKHOLDERS' DEFICIT 1999 1998
------------------------------------- ------------ ------------
<S> <C> <C>
Current Liabilities
Accounts payable $ 358,839 $ 194,541
Advances payable- officers and directors 328,712 226,394
Notes payable 149,469 25,611
------------ ------------
Total Current Liabilities 837,020 446,546
Stockholders' Deficit
Preferred stock, par value $0.001;
10,000,000 shares authorized;
84, 817 shares issued and outstanding 85 85
Common stock, par value $0.001;
30,000,000 shares authoriz 23,331,874
shares in 1999 and 5,592,374 shares in 1998
issued and Outstanding 23,332 5,592
Additional paid-in capital 1,451,691 1,451,691
Deficit accumulated during the development stage (2,114,013) (1,852,221)
------------ ------------
Total Stockholders' Deficit (638,905) (394,853)
------------ ------------
$ 198,115 $ 51,693
============ ============
The accompanying notes are an integral part of these financial statements.
F-3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Utah Clay Technology, Inc
(An Exploration Stage Company)
STATEMENTS OF OPERATIONS
Cumulative
Year ended December 31, From inception
-------------------------- March 1, 1994) to
1999 1998 December 31, 1999
----------- ----------- -----------------
<S> <C> <C> <C>
Revenues $ -- $ -- $ --
Expenses:
Mineral lease rentals 64,531 48,608 378,832
Inventory value adjustment -- 37,034 37,034
General and administrative 132,878 242,091 606,433
Valuation allowance - Mining
properties and deferred expenditures 64,283 213,950 1,091,022
----------- ----------- -----------
Loss before income taxes (261,692) (541,683) (2,113,321)
----------- ----------- -----------
Income taxes 100 100 692
----------- ----------- -----------
NET LOSS $ (261,792) $ (541,783) $(2,114,013)
=========== =========== ===========
Basic and diluted Loss per
common share $ (0.04) $ (0.17)
=========== ===========
Basic and diluted weighted average
number of common shares
outstanding 5,835,381 3,127,762
=========== ===========
The accompanying notes are an integral part of these financial statements.
F-4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Utah Clay Technology, Inc.
(An Exploration Stage Company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
From Inception (March 1, 1994) to December 31, 1999
Deficit
Accumulated
Additional During
Preferred Stock Common Stock Paid-In Development
Shares Amount Shares Amount Capital Stage Total
------ ------ ------ ------ ------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Shares issued for
cash March 1, 1994 -- $ -- 5,600,000 $ 56,000 $ $ $ 56,000
Shares issued for
services March 1,
1994 -- -- 14,400,000 144,000 -- -- 144,000
Net loss for period
March 1, 1994 to
December 31, 1994 -- -- -- -- -- (105,573) (105,573)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance December
31, 1994 -- -- 20,000,000 200,000 -- (105,573) 94,427
Net loss for the year
ended December 31
1995 -- -- -- -- -- (672,267) (672,267)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance December
31, 1995 -- -- 20,000,000 200,000 -- (777,840) (577,840)
1 for 10 reverse split
September 30, 1996 (18,000,000) (180,000) 180,000
Change of par value
to $0.001 -- -- -- (18,000) 18,000 -- --
Preferred stock
issued to related
parties for
cancellation of debt
September 30, 1996 84,817 85 -- -- 424,000 -- 424,085
Shares issued for
services in 1996 265,000 265 48,200 -- 48,465
Net loss for the year
ended December 31
-- -- -- -- -- (153,669) (153,669)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance December
31, 1996 84,817 $ 85 2,265,000 $ 2,265 $ 670,200 $ (931,509) $ (258,959)
The accompanying notes are an integral part of these financial statements
F-5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Utah Clay Technology, Inc.
(An Exploration Stage Company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT (CONTINUE)
From Inception (March 1, 1994) to December 31, 1999
Deficit
Accumulated
Additional During
Preferred Stock Common Stock Paid-In Development
Shares Amount Shares Amount Capital Stage Total
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance December
31, 1996 84,817 $ 85 2,265,000 $ 2,265 $ 670,200 $ (931,509) $ (258,959)
Shares issued for
cash in 1997 -- -- 100,000 100 199,900 -- 200,000
Shares issued for
debt cancellation
in 1997 -- -- 165,000 165 (165) -- --
Net loss for the year
ended December
31, 1997 -- -- -- -- -- (378,929) (378,929)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance December
31, 1997 84,817 85 2,530,000 2,530 869,935 (1,310,438) (437,888)
Shares issued for
outstanding
Warrants -- -- 389,600 389 103,634 -- 104,023
Shares issued for
debt cancellation
In 1998 -- -- 2,100,774 2,101 376,049 -- 378,150
Shares issued for
services in 1998 -- -- 572,000 572 102,073 -- 102,645
Net loss for the year
ended December31, 1998 -- -- -- -- -- (541,783) (541,783)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance December
31, 1998 84,817 85 5,592,374 5,592 1,451,691 (1,852,221) (394,853)
Shares issued for
mining lease -- -- 17,739,500 17,740 -- -- 17,740
Net loss for the year
ended December
31, 1999 -- -- -- -- -- (261,792) (261,792)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance December
31, 1999 84,817 $ 85 23,331,874 $ 23,332 $ 1,451,691 $(2,114,013) $ (638,905)
=========== =========== =========== =========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
F-6
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Utah Clay Technology, Inc.
(An Exploration Stage Company)
STATEMENTS OF CASH FLOWS
Cumulative
from inception
Year ended Year ended (March 1, 1994)
December 31, December 31, to December 31,
1999 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (261,792) $ (541,783) $(2,114,013)
Adjustments to reconcile net loss to net cash
used in operating activities:
Issuance of common stock for services -- 102,645 295,110
Inventory valuation adjustment -- 37,034 37,034
Valuation allowance-mining properties
and deferred expenditures 64,283 213,950 1,091,022
(Increase) in receivables (250) (100) (350)
(Increase) in inventory -- (48,627) (58,602)
Increase in Accounts payable 164,298 67,600 507,039
----------- ----------- -----------
Net cash used in operating activities (33,461) (169,281) (242,760)
Cash flows from investing activities:
Mining properties and deferred expenditures (64,283) (213,950) (1,091,022)
Mining leases -- -- (27,333)
Machine design & configuration (128,000) -- (130,484)
----------- ----------- -----------
Net cash used in investing activities (192,283) (213,950) (1,248,839)
Cash flows from financing activities:
Net proceeds from advances by
Officers/directors 102,318 246,856 982,747
Proceeds from notes payable 123,858 25,611 149,469
Issuance of shares -- 104,023 360,023
----------- ----------- -----------
Net cash provided by financing activities: 226,176 376,490 1,492,239
Net increase (decrease) in cash & cash equivalent
432 (6,741) 640
Cash & cash equivalent - beginning of period 208 6,949 --
----------- ----------- -----------
Cash at end of period $ 640 208 $ 640
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
F-7
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Utah Clay Technology, Inc.
(An Exploration Stage Company)
STATEMENTS OF CASH FLOWS (CONTINUE)
Cumulative
from inception
Year ended Year ended (March 1, 1994)
December 31, December 31, to December
1999 1998 1999
----------- ---------- ----------
<S> <C> <C> <C>
Supplemental disclosures:
Cash paid during the period for:
Interest $ 4,802 $ 2,149 $ 6,951
============== ========== ========
Income tax $ 300 $ 250 $ 850
============== ========== ========
Non-cash investing and financing activities:
Issuance of common stock for services $ -- $ 102,645 $295,110
============== ========== ========
Issuance of preferred stock for debt $ -- $ -- $424,085
============== ========== ========
Issuance of common stock for acquisition
of Mining rights $ 17,740 $ -- $ 17,740
============== ========== ========
Issuance of common stock against
cancellation of debt - Advances and
accrued expenses $ -- $ 378,150 $802,235
============== ========== ========
The accompanying notes are an integral part of these financial statements.
F-8
</TABLE>
<PAGE>
Utah Clay Technology, Inc.
(An Exploration Stage Company)
Notes to Financial Statements
December 31, 1999 and 1998
Note 1- Summary of significant accounting policies
Organization and nature of operations
Utah Clay Technology, Inc. (the "Company"), a Utah corporation, was
incorporated on March 1, 1994. The planned operations of the Company are to
engage in mining, processing and marketing of minerals. For the period from
inception (March 1, 1994) to December 31, 1999 the Company had no revenues. The
Company is classified as An Exploration stage company because its principal
activities involve obtaining the capital necessary to execute its strategic
business plan.
Cash and cash equivalents
The Company considers all liquid investments with a maturity of three
months or less from the date of purchase that are readily convertible into cash
to be cash equivalents.
Issuance of share for services
Valuation of shares for services is based on the fair market value of
services.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Inventory
The inventory consists of mining, grinding and hauling costs of processed
Kaolin, an industrial mineral. Inventory is valued utilizing the lower of cost
or market value determined on First-in First-out (FIFO) valuation method. On
December 31, 1998, an adjustment of $37,034 was made to reduce the value of
inventory to bring it at the market value of the inventory.
Equipment and mining properties
Equipment is recorded at cost. The Company has adopted the straight-line method
in computing depreciation for financial reporting purposes and generally uses
accelerated methods for income tax purposes. The annual provision for
F-9
<PAGE>
Utah Clay Technology, Inc.
(An Exploration Stage Company)
Notes to Financial Statements
December 31, 1999 and 1998
depreciation will be computed principally in accordance with the following
ranges of asset lives: laboratory equipment- 3 to 5 years; processing equipment-
3 to 10 years. Equipment was acquired and set up in late, 1997. No depreciation
expense has been recorded in the financial statements as the company is yet to
use any of its equipment and mining properties. (See Note 4).
Reclassifications
Certain items in the prior year financial statements have been reclassified
for comparative purposes to conform with the presentation in the current years'
presentation. These reclassifications have no effect on the previously reported
income (loss).
Income taxes
Deferred income tax assets and liabilities are computed annually for
differences between the financial statements and tax basis of assets and
liabilities that will result in taxable or deductible amounts in the future
based on enacted laws and rates applicable to the periods in which the
differences are expected to affect taxable income (loss). Valuation allowance is
established when necessary to reduce deferred tax assets to the amount expected
to be realized.
Basic and diluted net loss per share
Net loss per share is calculated in accordance with the Statement of
financial accounting standards No. 128 (SFAS No. 128), "Earnings per share".
SFAS No. 128 superseded Accounting Principles Board Opinion No.15 (APB 15). Net
loss per share for all periods presented has been restated to reflect the
adoption of SFAS No. 128. Basic net loss per share is based upon the weighted
average number of common shares outstanding. Diluted net loss per share is based
on the assumption that all dilutive convertible shares and stock options were
converted or exercised. Dilution is computed by applying the treasury stock
method. Under this method, options and warrants are assumed to be exercised at
the beginning of the period (or at the time of issuance, if later), and as if
funds obtained thereby were used to purchase common stock at the average market
price during the period.
Stock-based compensation
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation". SFAS No. 123 prescribes accounting and reporting standards for
all stock-based compensation plans, including employee stock options, restricted
stock, employee stock purchase plans and stock appreciation rights. SFAS No. 123
requires compensation expense to be recorded (i) using the new fair value method
or (ii) using the existing accounting rules prescribed by Accounting Principles
Board Opinion No. 25, "Accounting for stock issued to employees" (APB 25) and
related interpretations with proforma disclosure of what net income and earnings
F-10
<PAGE>
Utah Clay Technology, Inc.
(An Exploration Stage Company)
Notes to Financial Statements
December 31, 1999 and 1998
per share would have been had the company adopted the new fair value method. The
company adopted this standard in 1998 and the implementation of this standard
did not have any impact on its financial statements.
Fair value of financial instruments
Statement of financial accounting standard No. 107, Disclosures about fair
value of financial instruments, requires that the company disclose estimated
fair values of financial instruments. The carrying amounts reported in the
statements of financial position for current assets and current liabilities
qualifying as financial instruments are a reasonable estimate of fair value.
Comprehensive income
Statement of financial accounting standards No. 130, Reporting
comprehensive income (SFAS No. 130), establishes standards for reporting and
display of comprehensive income, its components and accumulated balances.
Comprehensive income is defined to include all changes in equity, except those
resulting from investments by owners and distributions to owners. Among other
disclosures, SFAS No. 130 requires that all items that are required to be
recognized under current accounting standards as components of comprehensive
income be reported in a financial statements that is displayed with the same
prominence as other financial statements. The company adopted this standard in
1998 and the implementation of this standard did not have a material impact on
its financial statements.
Reporting segments
Statement of financial accounting standards No. 131, Disclosures about
segments of am enterprise and related information (SFAS No. 131), which
superceded statement of financial accounting standards No. 14, Financial
reporting for segments of a business enterprise, establishes standards for the
way that public enterprises report information about operating segments in
annual financial statements and requires reporting of selected information about
operating segments in interim financial statements regarding products and
services, geographic areas and major customers. SFAS No. 131 defines operating
segments as components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performances. The company adopted this standard in 1998 and the implementation
of this standard did not have a material impact on its financial statements.
F-11
<PAGE>
Utah Clay Technology, Inc.
(An Exploration Stage Company)
Notes to Financial Statements
December 31, 1999 and 1998
Pension and other benefits
In February 1998, the Financing Accounting Standards Board issued statement
of financial accounting standards No. 132, Employers' disclosures about pension
and other post-retirement benefits (SFAS No. 132), which standardizes the
disclosures requirements for pension and other post -retirement benefits. The
company adopted this standard in 1998 and the implementation of this standard
did not have any impact on its financial statements.
Accounting for the costs of computer software developed or obtained for internal
use
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants (ASEC of AICPA) issued Statement of
position (SOP) No. 98-1, "Accounting for the costs of computer software
developed or obtained for internal use", effective for fiscal years beginning
after December 15, 1998. SOP N0. 98-1 requires that certain costs of computer
software developed or obtained for internal use be continued capitalized and
amortized over the useful life of the related software. The company adopted this
standard in fiscal 1999 and the implementation of this standard did not have a
material impact on its financial statements.
Costs of start-up activities
In April 1998, the ASEC of AICPA issued SOP No. 98-5, "Reporting on the
costs of start-up activities", effective for fiscal years beginning after
December 15, 1998. SOP 98-5 requires the costs of start-up activities and
organization costs to be expensed as incurred. The company adopted this standard
in fiscal 1999 and the implementation of this standard did not have a material
impact on its financial statements.
Accounting developments
In June 1998, the FASB issued SFAS No. 133, "Accounting for derivative
instruments and hedging activities", effective for fiscal years beginning after
June 15, 1999, which has deferred to June 30, 2000 by publishing of SFAS No.
137. SFAS No. 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives), and for hedging activities.
This statement requires that an entity recognize all derivative as either assets
or liabilities in the statement of financial condition and measure those
instruments at fair value. The accounting for changes in the fair value of a
derivative instrument depends on its intended use and the resulting designation.
The company does not expect that the adoption of this standard will have a
material impact on its financial statements.
F-12
<PAGE>
Utah Clay Technology, Inc.
(An Exploration Stage Company)
Notes to Financial Statements
December 31, 1999 and 1998
Note 2- Income taxes
Since the Company has not generated taxable income since inception, no
provision for income taxes has been provided (other than minimum franchise taxes
paid to the State of Utah). Differences between income tax benefits computed at
the federal statutory rate and reported income taxes for 1999 and 1998 are
primarily attributable to the valuation allowance for net operating losses (NOL)
and other permanent differences. The net deferred tax (benefit) due to NOL
carried forward, as of December 31, 1999 and 1998, consisted of the following:
1999 1998
---- ----
Deferred tax asset $ 418,389 $ 313,672
Deferred tax asset valuation allowance (418,389) (313,672)
---------- ----------
Balance as of December 31 $ -- $ --
========== ==========
A summary of Net operating losses carried forward and their expiration date
is as follows:
Year of Expiration Net Operating Losses
------------------ --------------------
2009 $ 105,573
2010 79,963
2011 112,380
2012 199,733
2013 286,532
2014 261,792
------------ ------------
Total $ 1,045,973
============ ============
Note 3- An exploration stage company
An exploration stage company is one for which principal operations of
mining have not commenced or principal operations have generated an
insignificant amount of revenue. Management of an exploration stage company
devotes most of its activities in conducting exploratory mining operations.
Operating losses have been incurred through December 31, 1999, and the Company
continues to use, rather than provide, working capital in this operation.
Although management believes that it is pursuing a course of action that will
provide successful future operations, the outcome of these matters is uncertain.
Note 4- Mining Properties and deferred expenditures and related valuation
allowance
Management and other shareholders formed the Company to obtain the
necessary financing to mine, explore, develop, operate and sell kaolin. The
Company owns two mining lease (including acquisition of a mining lease in
F-13
<PAGE>
Utah Clay Technology, Inc.
(An Exploration Stage Company)
Notes to Financial Statements
December 31, 1999 and 1998
December 1999) and has options to acquire three other mining leases held by
founders (these parties are also directors and officers of the Company) of the
Company.
The Company defers all acquisition, exploration and development costs that
relate to specific mineral properties until such time as the mineral properties
are brought into production or are sold or abandoned. Costs pertaining to
properties developed to the point of production will be amortized over the
estimated productive life of the properties. Cost pertaining to properties sold
or abandoned will be written off.
The realization of the costs of mining properties and deferred expenses is
dependent upon sales of kaolin on a commercial basis from the reserves of ore
bodies. For the period from inception ( March 1, 1994 ) to December 31, 1999 the
Company had no revenues. To commence operations, the Company's management
believes significant additional equity and debt financing will be required.
Therefore, due to uncertainty as to recoverability, a valuation allowance is
deducted from the related asset.
Note 5- Accounts payable and accrued expenses
Accounts payable and accrued expenses as of December 31, 1999 and 1998,
consist of the following:
1999 1998
---- ----
Lease rentals payable $ 82,571 $ 52,906
Litigation settlement -- 40,000
Legal fees 66,249 36,508
Machine design & configuration 128,000 --
Health Insurance 12,343 --
Miscellaneous 69,676 62,127
--------- ---------
$ 358,839 $ 191,541
========= =========
Note 6- Advances payable - Officers & Directors
Advances payable represents amount payable to officers or directors of the
company in lieu of their services or for advances made to the company. In 1998,
the company issued common stock against a portion of advances outstanding. The
advances payable to officers and directors are unsecured, interest free and due
on demand.
F-14
<PAGE>
<TABLE>
<CAPTION>
Utah Clay Technology, Inc.
(An Exploration Stage Company)
Notes to Financial Statements
December 31, 1999 and 1998
Following is a summary of Advances payable to officers and directors of the
company, as of December 31, 1999 and 1998:
<S> <C>
Balance as on December 31, 1997 $ 209,488
Advances from officers and directors during 1998 287,454
Less: Issuance of 1,277,495 common stock @$0.18 per share (229,950)
Repayment of advances in 1998 (40,598)
---------
Balance as on December 31, 1998 226,394
Advances from officers and directors during 1999 127,000
Less: Repayment of advances in 1999 (24,682)
---------
Balance as on December 31, 1999 $ 328,712
=========
Note 7-Notes payable
Notes payable as on December 31, 1999 and 1998 comprised of following:
1999 1998
---- ----
<S> <C> <C>
Note payable-Bank, bearing an interest rate of 4 percent over
the prime rate (7.75% on 12/31/99 and 8.50% on 12/31/98)
and due on demand. $ 24,005 $ 25,611
Note payable to an affiliated company, unsecured, interest
free and due on demand. 30,464 --
Notes payable to individuals related to officers of the
company, bearing an interest rate of 10% per annum,
unsecured and due on demand 50,000 --
Notes payable to others, bearing an interest rate of 10% per
annum, unsecured and due on demand 20,000 --
Notes payable to others, interest free, unsecured and due on
demand 25,000 --
--------- ---------
Total $ 149,469 $ 25,611
========= =========
Note 8- Preferred Stock
Effective September 30, 1996, the Company authorized the following
transactions:
( a ) Authorization of 10,000,000 shares of preferred Stock at par value of
$ 0.001.
( b ) The Company issued to the following officers, directors and
shareholders in exchange for the cancellation of the debt represented by
$424,085 in advances, 84,817 shares of Series A Preferred Stock at $ 5.00 a
share, which stock is entitled to annual dividends of $0.50 a share from the
F-15
</TABLE>
<PAGE>
Utah Clay Technology, Inc.
(An Exploration Stage Company)
Notes to Financial Statements
December 31, 1999 and 1998
Company and cumulative if missed, is non-voting and is preferred over the
company's common Stock in the event of the liquidation and dissolution of the
Company. The Series A Preferred Stock is neither convertible into common Stock
nor redeemable at the option of the holder but is redeemable at the option of
the company.
Amount of Number of
Debt Price / Preferred
Name Converted Share Shares
---- ----------- ----------- -----------
Thomas F. Harrison $ 255,185 $ 5.00 51,037
Dennis S. Engh 168,900 $ 5.00 33,780
----------- -----------
Total $ 424,085 84,817
=========== ===========
Note 9- Litigation
Utah Clay was a defendant in a lawsuit brought for the recovery of $50,000,
interest and attorney fees by Six Way, Inc. and Daniel W. Jacksons Trustee of
the MJB Trust. The Company acknowledged the loan made to it by the plaintiffs,
which was the basis for the civil action. The claim was settled for $60,000,
including interest and litigation costs of $10,000, to be payable by 1999. By
December 31, 1999, the whole amount was paid off. The outstanding liability of
$40,000 as of December 31, 1998 is included in Accounts payable and accrued
expenses.
Note 10- Acquisition of mining lease
The company acquired a mining lease of Kaolin mineral from an affiliated
company for $17,740 on December 27, 1999. The Company issued 17,739,500 shares
of common stock @ $0.001 per share in lieu of consideration of mining lease.
Note 11-Going Concern uncertainty
The company's financial statements have been presented on the basis that it
is a going concern, which contemplates the realization of assets and
satisfaction of liabilities in the normal course of business. The company
incurred a net loss of $2,114,013 for the period from inception (March 1, 1994)
to December 31, 1999. The company's current liabilities exceeded its current
assets by $814,462 and $424,670 as of December 31, 1999 and 1998, respectively.
The company's total liabilities exceeded its total assets by $638,905 and
$394,853 as of December 31, 1999 and 1998, respectively. These factors, as well
as the uncertain conditions that the company faces in its day-to-day operations,
create an uncertainty as to the company's ability to continue as a going
concern. The financial statements do not include any adjustments that might be
necessary should the company be unable to continue as a going concern.
F-16
<PAGE>
Utah Clay Technology, Inc.
(An Exploration Stage Company)
Notes to Financial Statements
December 31, 1999 and 1998
The company plans to finance the continued operations for the next year
through private funding and funding from officers of the company. In this
regard, the company raised $90,000 by issuing 260,000 shares through private
placement in the first quarter of 2000. The company has also issued an
additional 200,000 shares in March against which there is a subscription
receivable of $130,000. The company expects to collect the subscription
receivable in the third quarter of 2000. The company has also initiated
discussions with a third party processor of its kaolin to utilize the reserves
when they are defined.
12- Subsequent events & Commitments
Lease commitments
Subsequent to year ended December 31, 1999, the company entered in to five
separate lease addendum agreements for mining leases on two properties and
option for mining lease on three properties, at $10,000 per year, per property,
for next five years through March, 2005. The company also is required to pay to
the Bureau of land management, US Department of interior, an amount of $21,000
per year pursuant to their mining lease and option agreement.
Issuance of shares
Subsequent to year ended December 31, 1999 the company entered in to
various agreements with several parties, whereby, the company issued 1,540,000
shares for $573,000 in consideration for cash, services and cancellation of
debt, during the quarter ended March 31, 2000.
Stock Option
Subsequent to year ended December 31, 1999 the company has adopted a stock
option plan, under which options granted may be "employee incentive stock
options" as defined under Section 422 of the Internal revenue code or
non-qualified stock options, as determined by the option committee of the board
of directors at the time of grant of an option. The plan enables the option
committee of the board of directors to grant up to 500,000 stock options to
employees and consultants from time to time. The option committee has granted no
options. The date of grant of an Option shall, for all purposes, be the date on
which the Option Committee makes the determination granting such Option, or such
other date as is determined by the Option Committee.
F-17
<PAGE>
Utah Clay Technology, Inc.
(An Exploration Stage Company)
BALANCE SHEETS
March 31, 2000 & December 31, 1999
ASSETS
------
March 31, December 31,
2000 1999,
---------- ----------
Unaudited)
Current Assets
Cash $ 139 $ 640
Receivables 350 350
Prepaid expenses 122,769 --
Inventory 21,568 21,568
----------- -----------
Total Current Assets 144,826 22,558
Properties & Equipment
Laboratory equipment 2,484 2,484
Machine design & configuration 128,000 128,000
Mining leases 30,073 45,073
Mining properties and deferred expenditures 1,091,022 1,091,022
(Less valuation allowance) (1,091,022) (1,091,022)
----------- -----------
Total Properties & Equipment 160,557 175,557
----------- -----------
$ 305,383 $ 198,115
=========== ===========
The accompanying notes are an integral part of these financial statements.
F-18
<PAGE>
<TABLE>
<CAPTION>
Utah Clay Technology, Inc.
(An Exploration Stage Company)
BALANCE SHEETS
March 31, 2000 & December 31, 1999
LIABILITIES AND STOCKHOLDERS' DEFICIT March 31, December 31,
------------------------------------- 2000 1999
----------- -----------
(Unaudited)
<S> <C> <C>
Current Liabilities $ 191,859 $ 358,839
Accounts payable
Advances payable- officers and directors 328,712 328,712
Notes payable 122,883 149,469
----------- -----------
Total Current Liabilities 643,454 837,020
Stockholders' Equity Deficit
Preferred stock, par value $0.001;
10,000,000 shares authorized;
84, 817 shares issued and outstanding 85 85
Common stock, par value $0.001;
30,000,000 shares authorized; 23,331,874
shares in1999 and 5,592,374 shares in 1998
issued and Outstanding 24,872 23,332
Additional paid-in capital 1,994,446 1,451,691
Stock subscription receivable (130,000) --
Deficit accumulated during the development stage (2,227,474) (2,114,013)
----------- -----------
Total Stockholders' Deficit (338,071) (638,905)
----------- -----------
$ 305,383 $ 198,115
=========== ===========
The accompanying notes are an integral part of these financial statements.
F-19
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Utah Clay Technology, Inc
(An Exploration Stage Company)
STATEMENTS OF OPERATIONS
(Unaudited)
Cumulative
From inception
Quarter ended March 31, (March 1, 1994) to
2000 1999 March 31, 2000
---------------------------- --------------
<S> <C> <C> <C>
Revenues $ -- $ -- $ --
Expenses:
Mineral lease rentals 15,000 10,000 393,832
Inventory value adjustment -- -- 37,034
General and administrative 98,436 48,331 704,869
Valuation allowance - Mining
properties and deferred expenditures -- -- 1,091,022
------------ ------------ ------------
Loss before income taxes (113,436) (58,331) (2,226,757)
Income taxes 25 25 717
------------ ------------ ------------
NET LOSS $ (113,461) $ (58,356) $ (2,227,474)
============ ============ ============
Basic and diluted Loss per
common share $ (0.005) $ (0.019)
============ ============
Basic and diluted weighted average
number of common shares
outstanding 23,534,951 3,127,762
============ ============
The accompanying notes are an integral part of these financial statements.
F-20
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Utah Clay Technology, Inc.
(An Exploration Stage Company)
STATEMENTS OF CASH FLOWS
(Unaudited)
Cumulative
from inception
Quarter Quarter (March 1, 1994)
ended March ended March to March 31,
31,2000 31, 1999 2000
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (113,461) $ (58,356) $(2,227,474)
Adjustments to reconcile net loss to net cash
used in operating activities:
Issuance of common stock for services 10,600 -- 305,710
Inventory valuation adjustment -- -- 37,034
Valuation allowance-mining properties -- -- --
and deferred expenditures -- -- 1,091,022
(Increase) in receivables -- -- (350)
Decrease in prepaid expenses 37,926 37,926
(Increase) in inventory -- -- (58,602)
Increase (Decrease) in Accounts payable (38,980) (41,787) 468,059
----------- ----------- -----------
Net cash used in operating activities (103,915) (100,143) (346,675)
Cash flows from investing activities:
Mining properties and deferred expenditures -- -- (1,091,022)
Mining leases 15,000 -- (12,333)
Machine design & configuration -- -- (130,484)
----------- ----------- -----------
Net cash provided by (used in) investing
activities 15,000 -- (1,233,839)
Cash flows from financing activities:
Net proceeds from advances by
Officers/directors -- 38,625 982,747
Proceeds from (payments of) notes payable (1,586) 61,355 147,883
Issuance of shares 90,000 -- 450,023
----------- ----------- -----------
Net cash provided by financing activities: 88,414 99,980 1,580,653
Net increase (decrease) in cash & cash equivalent
(501) (163) 139
Cash & cash equivalent - beginning of period 640 208 --
----------- ----------- -----------
Cash at end of period $ 139 $ 45 $ 139
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
F-21
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Utah Clay Technology, Inc.
(An Exploration Stage Company)
STATEMENTS OF CASH FLOWS (CONTINUE)
(Unaudited)
Cumulative
from inception
Quarter Quarter (March 1, 1994)
ended March ended March to March 31,
31, 2000 31, 1999 2000
----------- ----------- ----------
<S> <C> <C> <C>
Supplemental disclosures:
Cash paid during the period for:
Interest $ -- $ -- $ 6,951
=========== =========== ==========
Income tax $ -- $ -- $ 850
=========== =========== ==========
Non-cash investing and financing activities:
Issuance of common stock for services $ 10,600 $ -- $ 305,710
=========== =========== ==========
Issuance of preferred stock for debt $ -- $ -- $ 424,085
=========== =========== ==========
Issuance of common stock for acquisition
of Mining rights $ -- $ -- $ 17,740
=========== =========== ==========
Issuance of common stock against
cancellation of debt - Prepaid, Advances
and accrued expenses $ 313,695 $ 378,150 $1,115,930
=========== =========== ==========
Subscription receivable $ 130,000 $ -- $ 130,000
=========== =========== ==========
The accompanying notes are an integral part of these financial statements.
F-22
</TABLE>
<PAGE>
Utah Clay Technology, Inc.
(An Exploration Stage Company)
Notes to Unaudited Financial Statements
March 31, 2000 and 1999
Note 1- Summary of significant accounting policies
Organization and nature of operations
Utah Clay Technology, Inc. (the "Company"), a Utah corporation, was
incorporated on March 1, 1994. The planned operations of the Company are to
engage in mining, processing and marketing of minerals. For the period from
inception (March 1, 1994) to March 31, 2000 the Company had no revenues. The
Company is classified as An Exploration stage company because its principal
activities involve obtaining the capital necessary to execute its strategic
business plan.
Cash and cash equivalents
The Company considers all liquid investments with a maturity of three
months or less from the date of purchase that are readily convertible into cash
to be cash equivalents.
Issuance of share for services
Valuation of shares for services is based on the fair market value of
services.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Inventory
The inventory consists of mining, grinding and hauling costs of processed
Kaolin, an industrial mineral. Inventory is valued utilizing the lower of cost
or market value determined on First-in First-out (FIFO) valuation method. On
December 31, 1998, an adjustment of $37,034 was made to reduce the value of
inventory to bring it at the market value of the inventory.
Equipment and mining properties
Equipment is recorded at cost. The Company has adopted the straight-line
method in computing depreciation for financial reporting purposes and generally
uses accelerated methods for income tax purposes. The annual provision for
depreciation will be computed principally in accordance with the following
F-23
<PAGE>
Utah Clay Technology, Inc.
(An Exploration Stage Company)
Notes to Unaudited Financial Statements
March 31, 2000 and 1999
ranges of asset lives: laboratory equipment- 3 to 5 years; processing equipment-
3 to 10 years. Equipment was acquired and set up in late, 1997. No depreciation
expense has been recorded in the financial statements as the company is yet to
use any of its equipment and mining properties.
Reclassifications
Certain items in the prior year financial statements have been reclassified
for comparative purposes to conform with the presentation in the current
period's presentation. These reclassifications have no effect on the previously
reported income (loss).
Income taxes
Deferred income tax assets and liabilities are computed annually for
differences between the financial statements and tax basis of assets and
liabilities that will result in taxable or deductible amounts in the future
based on enacted laws and rates applicable to the periods in which the
differences are expected to affect taxable income (loss). Valuation allowance is
established when necessary to reduce deferred tax assets to the amount expected
to be realized.
Basic and diluted net loss per share
Net loss per share is calculated in accordance with the Statement of
financial accounting standards No. 128 (SFAS No. 128), "Earnings per share".
SFAS No. 128 superseded Accounting Principles Board Opinion No.15 (APB 15). Net
loss per share for all periods presented has been restated to reflect the
adoption of SFAS No. 128. Basic net loss per share is based upon the weighted
average number of common shares outstanding. Diluted net loss per share is based
on the assumption that all dilutive convertible shares and stock options were
converted or exercised. Dilution is computed by applying the treasury stock
method. Under this method, options and warrants are assumed to be exercised at
the beginning of the period (or at the time of issuance, if later), and as if
funds obtained thereby were used to purchase common stock at the average market
price during the period.
Stock-based compensation
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation". SFAS No. 123 prescribes accounting and reporting standards for
all stock-based compensation plans, including employee stock options, restricted
stock, employee stock purchase plans and stock appreciation rights. SFAS No. 123
requires compensation expense to be recorded (i) using the new fair value method
or (ii) using the existing accounting rules prescribed by Accounting Principles
Board Opinion No. 25, "Accounting for stock issued to employees" (APB 25) and
related interpretations with proforma disclosure of what net income and earnings
F-24
<PAGE>
Utah Clay Technology, Inc.
(An Exploration Stage Company)
Notes to Unaudited Financial Statements
March 31, 2000 and 1999
per share would have been had the company adopted the new fair value method. The
company adopted this standard in 1998 and the implementation of this standard
did not have any impact on its financial statements.
Fair value of financial instruments
Statement of financial accounting standard No. 107, Disclosures about fair
value of financial instruments, requires that the company disclose estimated
fair values of financial instruments. The carrying amounts reported in the
statements of financial position for current assets and current liabilities
qualifying as financial instruments are a reasonable estimate of fair value.
Comprehensive income
Statement of financial accounting standards No. 130, Reporting
comprehensive income (SFAS No. 130), establishes standards for reporting and
display of comprehensive income, its components and accumulated balances.
Comprehensive income is defined to include all changes in equity, except those
resulting resulting from investments by owners and distributions to owners.
Among other disclosures, SFAS No. 130 requires that all items that are required
to be recognized under current accounting standards as components of
comprehensive income be reported in a financial statements that is displayed
with the same prominence as other financial statements. The company adopted this
standard in 1998 and the implementation of this standard did not have a material
impact on its financial statements.
Reporting segments
Statement of financial accounting standards No. 131, Disclosures about
segments of am enterprise and related information (SFAS No. 131), which
superceded statement of financial accounting standards No. 14, Financial
reporting for segments of a business enterprise, establishes standards for the
way that public enterprises report information about operating segments in
annual financial statements and requires reporting of selected information about
operating segments in interim financial statements regarding products and
services, geographic areas and major customers. SFAS No. 131 defines operating
segments as components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performances. The company adopted this standard in 1998 and the implementation
of this standard did not have a material impact on its financial statements.
F-25
<PAGE>
Utah Clay Technology, Inc.
(An Exploration Stage Company)
Notes to Unaudited Financial Statements
March 31, 2000 and 1999
Pension and other benefits
In February 1998, the Financing accounting standards board issued statement
of financial accounting standards No. 132, Employers' disclosures about pension
and other post- retirement benefits (SFAS No. 132), which standardizes the
disclosures requirements for pension and other post -retirement benefits. The
company adopted this standard in 1998 and the implementation of this standard
did not have any impact on its financial statements.
Accounting for the costs of computer software developed or obtained for internal
use
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants (ASEC of AICPA) issued Statement of
position (SOP) No. 98-1, "Accounting for the costs of computer software
developed or obtained for internal use", effective for fiscal years beginning
after December 15, 1998. SOP N0. 98-1 requires that certain costs of computer
software developed or obtained for internal use be continued capitalized and
amortized over the useful life of the related software. The company adopted this
standard in fiscal 1999 and the implementation of this standard did not have a
material impact on its financial statements.
Costs of start-up activities
In April 1998, the ASEC of AICPA issued SOP No. 98-5, "Reporting on the
costs of start-up activities", effective for fiscal years beginning after
December 15, 1998. SOP 98-5 requires the costs of start-up activities and
organization costs to be expensed as incurred. The company adopted this standard
in fiscal 1999 and the implementation of this standard did not have a material
impact on its financial statements.
Accounting developments
In June 1998, the FASB issued SFAS No. 133, "Accounting for derivative
instruments and hedging activities", effective for fiscal years beginning after
June 15, 1999, which has deferred to June 30, 2000 by publishing of SFAS No.
137. SFAS No. 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives), and for hedging activities.
This statement requires that an entity recognize all derivative as either assets
or liabilities in the statement of financial condition and measure those
instruments at fair value. The accounting for changes in the fair value of a
derivative instrument depends on its intended use and the resulting designation.
The company does not expect that the adoption of this standard will have a
material impact on its financial statements.
F-26
<PAGE>
Utah Clay Technology, Inc.
(An Exploration Stage Company)
Notes to Unaudited Financial Statements
March 31, 2000 and 1999
Note 2- Income taxes
Since the Company has not generated taxable income since inception, no
provision for income taxes has been provided (other than minimum franchise taxes
paid to the State of Utah).
Note 3- An exploration stage company
An exploration stage company is one for which principal operations of
mining have not commenced or principal operations have generated an
insignificant amount of revenue. Management of an exploration stage company
devotes most of its activities in conducting exploratory mining operations.
Operating losses have been incurred through March 31, 2000, and the Company
continues to use, rather than provide, working capital in this operation.
Although management believes that it is pursuing a course of action that will
provide successful future operations, the outcome of these matters is uncertain.
Note 4- Going Concern uncertainty
The company's financial statements have been presented on the basis that it
is a going concern, which contemplates the realization of assets and
satisfaction of liabilities in the normal course of business. The company
incurred a net loss of $2,227,474 for the period from inception (March 1, 1994)
to March 31, 2000. The company's current liabilities exceeded its current assets
by $498,628 and $814,462 as of March 31, 2000 and December 31, 1999,
respectively. These factors, as well as the uncertain conditions that the
company faces in its day-to-day operations, create an uncertainty as to the
company's ability to continue as a going concern. The financial statements do
not include any adjustments that might be necessary should the company be unable
to continue as a going concern.
The company plans to finance the continued operations for the next year
through private funding and funding from officers of the company. In this
regard, the company raised $90,000 by issuing 260,000 shares through private
placement in the first quarter of 2000. The company has also issued an
additional 200,000 shares in March against which there is a subscription
receivable of $130,000. The company expects to collect the subscription
receivable in the third quarter of 2000. The company has also initiated
discussions with a third party processor of its kaolin to utilize the reserves
when they are defined.
Note 5- Basis of preparation
The accompanying unaudited condensed interim financial statements have been
prepared in accordance with the rules and regulations of the Securities and
Exchange Commission for the presentation of interim financial information, but
do not include all the information and footnotes required by generally accepted
F-27
<PAGE>
Utah Clay Technology, Inc.
(An Exploration Stage Company)
Notes to Unaudited Financial Statements
March 31, 2000 and 1999
accounting principles for complete financial statements. The audited financial
statements for the two years ended December 31, 1999 was filed on April 7, 2000
with the Securities and Exchange Commission and is hereby referenced. In the
opinion of management, all adjustments considered necessary for a fair
presentation have been included. Operating results for the three month period
ended March 31, 2000 are not necessarily indicative of the results that may be
expected for the year ended December 31, 2000.
F-28
<PAGE>
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
The general corporation law of Utah and the bylaws of the Registrant
provide certain indemnification rights for directors, officers and agents of the
Registrant. These indemnification provisions are set forth in the Prospectus
under "Indemnification."
Item 25. Other Expenses of Issuance and Distribution
The estimated expenses of this offering, other than brokers'
commissions, are as follows:
Estimated
Item Amount
---- ------
Registration fees $ 250
Transfer agent's fees 1,500
Printing 2,000
Legal 20,000
Accounting 35,000
EDGAR provider fees 3,000
-------
$61,750
The Registrant will pay all the above expenses. The selling security holder
will pay none of them.
Item 26. Recent Sales of Unregistered Securities
The following information is provided for all securities sold by the
Registrant within the past three years without registering the securities under
the Securities Act of 1933. All securities were shares of common stock. There
were no underwriters involved in the sales.
<TABLE>
<CAPTION>
Dollar Value of
No. of Cash Other Type of
Date Shares Sold Purchasers Consideration Consideration
-------- ------------- ----------------------- ------------- -------------
<S> <C> <C> <C> <C>
1-1-97 to 265,000(1) 47 persons $200,000 $ 165
12-31-97
1998: 389,600(1) 9 persons(2) $104,040 --
823,333(1) Dorcas Engh -- $148,200(3)
581,900(1) Dennis S. Engh -- 104,742(3)
332,659(1) Carmen J. (Tony) Lotito -- 59,879(3)
135,872(1) Thomas F. Harrison -- 24,467(3)
227,010(1) Daniel H. Engh -- 40,862(3)
200,000(1) Nobel House Financial -- 36,000(4)
Services
300,000(1) Del Mar Financial -- 54,000(4)
Services
37,000(1) Investors Advisors -- 6,600(4)
25,000(1) S.B. Stocks, U.S.A., Inc. -- 250(4)
10,000(1) Strathmore Equities, Inc. -- 100(4)
12-99 17,739,500(5) Utah Kaolin Corporation -- 17,740
32
<PAGE>
1-1-00 to
3-31-00 80,000(6) McKay, Burton & -- 48,305
Thurman
10,000(7) James Groscost -- 2,600
10,000(8) Roger Huber -- 4,000
10,000(9) J. W. Patterson -- 5,000
500,000(10) E. G. Marchi -- 125,000
60,000(11) Robert J. Conley -- 65,000
400,000(12) Precision Systems -- 128,000
Engineering, Inc.
</TABLE>
------------------------
(1) These shares were sold pursuant to the exemption from registration provided
by Regulation D, Rule 504 in a public offering. At the time of the sales,
the Registrant was not a reporting company, an investment company or a
blank check company. Assuming integration of all Rule 504 sales made in
1997 and 1998, a total of $779,140 was received in cash, cancellation of
debt, or services rendered to the Registrant in exchange for all shares
sold pursuant to this exemption from registration.
(2) These persons exercised warrants that had been issued to them in 1997 as
part of the Regulation D, Rule 504 offering described in footnote (1)
above. These sales were also sold pursuant to the Rule 504 exemption from
registration.
(3) These amounts represent the cancellation of debt owed to the Registrant.
The debts to Della Engh and Thomas Harrison represented cash loans made to
the Registrant by them. The other canceled debts represent amounts owed to
officers of the Registrant for unpaid compensation for performance of their
duties to the Registrant and for reimbursement of outlays of cash they made
on behalf of the Registrant. The issuances of stock were made in reliance
on the exemption from registration provided by Regulation D, Rule 504. See
footnote (1) above.
(4) These amounts represent the value of services rendered to the Registrant by
the named entities. The nature of the services was that of financial public
relations - increasing the visibility of the Registrant in the financial
markets. See footnote (1) above.
(5) These shares were issued to purchase the Oro Blanco mining lease. See
"Certain Relationships and Related Transactions" in the Prospectus. The
shares were issued pursuant to the exemption from registration provided by
Regulation D, Rule 506. No public solicitation or public advertising was
employed. The purchaser of the shares, Utah Kaolin Corporation, is an
affiliate of the Registrant. Utah Kaolin's management is also the
management of Utah Clay Technology. Utah Kaolin is owned by members of the
Engh family - who are the majority shareholders of Utah Clay; Carmen J.
(Tony) Lotito, an officer and director of Utah Clay; Dr. Kenneth Morrison,
an accredited investor; and Thomas J. Kenan, as accredited investor.
(6) These shares were issued in exchange for legal services provided to Utah
Clay during the period of March 1994 to September 1999 and were issued
pursuant to the exemption from registration provided by Regulation D, Rule
506. No public solicitation or public advertising was employed. The
beneficial owner of these shares is William H. Thurman, one of the partners
of the law firm and an accredited investor. He was provided a copy of an
offering circular that had been prepared for an unsuccessful Rule 506
offering conducted in December 1999 as well as financial statements for
1999 and 1998. He was given an opportunity to ask questions of management
concerning Utah Clay's affairs.
33
<PAGE>
(7) These shares were issued in exchange for the cancellation of indebtedness
of Utah Clay that arose with regard to ore hauling services provided by a
company owned by Mr. Groscost, an accredited investor. The shares were
issued pursuant to the exemption from registration provided by Regulation
D, Rule 506. No public solicitation or public advertising was employed. He
was provided a copy of an offering circular that had been prepared for an
unsuccessful Rule 506 offering conducted in December 1999 as well as
financial statements for 1999 and 1998. He was given an opportunity to ask
questions of management concerning Utah Clay's affairs.
(8) These shares were issued to cancel indebtedness owed to this person for
services rendered with regard to Utah Clay's mining properties. The shares
were issued pursuant to the exemption from registration provided by
Regulation D, Rule 506. No public solicitation or public advertising was
employed. He was provided a copy of an offering circular that had been
prepared for an unsuccessful Rule 506 offering conducted in December 1999
as well as financial statements for 1999 and 1998. He was given an
opportunity to ask questions of management concerning Utah Clay's affairs.
(9) These shares were issued to cancel indebtedness owed to this person for his
marketing services. The shares were issued pursuant to the exemption from
registration provided by Regulation D, Rule 506. No public solicitation or
public advertising was employed. He was provided a copy of an offering
circular that had been prepared for an unsuccessful Rule 506 offering
conducted in December 1999 as well as financial statements for 1999 and
1998. He was given an opportunity to ask questions of management concerning
Utah Clay's affairs.
(10) These shares were issued to cancel indebtedness owed to this person for
business planning consulting services rendered for one year. The shares
were issued pursuant to the exemption from registration provided by
Regulation D, Rule 506. No public solicitation or public advertising was
employed. He was provided a copy of an offering circular that had been
prepared for an unsuccessful Rule 506 offering conducted in December 1999
as well as financial statements for 1999 and 1998. He was given an
opportunity to ask questions of management concerning Utah Clay's affairs.
(11) These shares were issued to cancel indebtedness owed to this person for
technical services with regard to product development. The shares were
issued pursuant to the exemption from registration provided by Regulation
D, Rule 506. No public solicitation or public advertising was employed. He
was provided a copy of an offering circular that had been prepared for an
unsuccessful Rule 506 offering conducted in December 1999 as well as
financial statements for 1999 and 1998. He was given an opportunity to ask
questions of management concerning Utah Clay's affairs.
(12) These shares were issued to cancel indebtedness owed to this person for
technical engineering services with regard to planning for processing
plants. The shares were issued pursuant to the exemption from registration
provided by Regulation D, Rule 506. No public solicitation or public
advertising was employed. He was provided a copy of an offering circular
that had been prepared for an unsuccessful Rule 506 offering conducted in
December 1999 as well as financial statements for 1999 and 1998. He was
given an opportunity to ask questions of management concerning Utah Clay's
affairs.
34
<PAGE>
Exhibits
The following exhibits are filed as part of this Registration Statement:
Exhibit
Number Description of Exhibit
------ ----------------------
3(i) - Articles of Incorporation of Utah Clay Technology,
Inc. and amendments thereto.*
3(ii) - Bylaws of Utah Clay Technology, Inc.*
5 - Opinion of Thomas J. Kenan on the legality of the
securities being registered. [Superseded by
Exhibit No. 5.1.]
5.1 - Opinion of Thomas J. Kenan on the legality of the
securities being registered.
9 - 2000 Stock Option Plan.*
10 - White Mountain mining lease, consisting of
Amendment Agreement of November 9, 1992; Mining
Lease dated March 1, 1994; Addendum to Mining
Lease dated March 15, 2000; and Addendum to Mining
Lease dated March 27, 2000.*
10.1 - Oro Blanco mining lease, consisting of Mining
Lease dated December 31, 1999.*
10.2 - Kimberly claims: Mining Lease Agreement (Fullmer-
Engh), dated June 19, 1993; Addendum to Fullmer-
Engh Mining Lease, dated March 15, 2000; Option
(Engh-Kaolin of the West)to Enter Into Mining
Lease, dated September 30, 1996; Option (Kaolin of
the West-Utah Clay) to Enter Into Mining Lease,
dated September 30, 1996, to which is attached an
unexecuted Mining Lease; Addendum to Engh-Kaolin
of the West Option to Enter Into Mining Lease,
dated March 27, 2000; and Addendum to Kaolin of
the West-Utah Clay Option to Enter Into Mining
Lease dated March 27, 2000.*
10.3 - Koosharem claims: Mining Lease Agreement (Fullmer-
Engh), dated June 19, 1993; Addendum to Fullmer-
Engh Mining Lease, dated March 15, 2000; Option
(Engh-Kaolin of the West)to Enter Into Mining
Lease, dated September 30, 1996; Option (Kaolin of
the West-Utah Clay) to Enter Into Mining Lease,
dated September 30, 1996, to which is attached an
unexecuted Mining Lease; Addendum to Engh-Kaolin
of the West Option to Enter Into Mining Lease,
dated March 27, 2000; and Addendum to Kaolin of
the West-Utah Clay Option to Enter Into Mining
Lease dated March 27, 2000.*
10.4 - Topaz claims: Mining Lease Agreement (Fullmer-
Engh), dated June 19, 1993; Addendum to Fullmer-
Engh Mining Lease, dated March 15, 2000; Option
(Engh-Kaolin of the West)to Enter Into Mining
Lease, dated September 30, 1996; Option (Kaolin of
the West-Utah Clay) to Enter Into Mining Lease,
dated September 30, 1996, to which is attached an
unexecuted Mining Lease; Addendum to Engh-Kaolin
of the West Option to Enter Into Mining Lease,
dated March 27, 2000; and Addendum to Kaolin of
the West-Utah Clay Option to Enter Into Mining
Lease dated March 27, 2000.*
35
<PAGE>
10.5 - Agreement between Utah Clay Technology, Inc. and
ISG Resources, Inc. dated November 30, 1999 and
extensions dated February 10, 2000 and June 15,
2000.
10.6 - Agreements between Utah Clay Technology, Inc. and
Precision System Engineering dated June 14, 1999
and November 16, 1999.
10.7 - Small Miner's Permit for White Mountain lease
issued by Bureau of Land Management and Utah State
Division of Oil, Gas and Mining.
23 - Consent of Thomas J. Kenan, to the reference to
him as an attorney who has passed upon certain
information contained in the Registration
Statement.*
23.1 - Consent of Kabani & Company, Certified Public
Accountants, independent auditors of the
Registrant. [Superseded by Exhibit No. 23.2.]
23.2 - Consent of Kabani & Company, Certified Public
Accountants, independent auditors of the Registrant.
27 - Financial Data Schedule.*
*Previously filed with Amendment No. 1 to Form SB-2 Commission file number
333-34308; incorporated herein.
Item 28. Undertakings
The Registrant will -
(1) 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; and 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
36
<PAGE>
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in the volume and
price represent no more than a twenty percent change in the maximum
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement; and
(iii) Include any additional or changed material information on the
plan of distribution.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the company pursuant to the foregoing provisions, or otherwise, the
company has been advised that in the opinion of the Securities and Exchange
Commission 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 company of expenses incurred or paid by a
director, officer or controlling person of the company 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
company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
37
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, 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, thereunto duly
authorized, in Salt Lake City, Utah.
Date: June 29, 2000 UTAH CLAY TECHNOLOGY, INC.
By /s/ Dennis S. Engh
---------------------
Dennis S. Engh, President, and
individually as a Director
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates indicated.
Date: June 29, 2000 /s/ Darin D. Engh
------------------
Darin D. Engh, Treasurer, Secretary
and Director
Date: June 29, 2000 /s/ Thomas F. Harrison
----------------------
Thomas F. Harrison, Vice President,
Chief Financial Officer, Principal
Accounting Officer and Director
Date: June 29, 2000 /s/ Daniel H. Engh
------------------
Daniel H. Engh, Vice President and
Director
Date: June 29, 2000 /s/ Carmen J. (Tony) Lotito
---------------------------
Carmen J. (Tony) Lotito, Director
of Marketing and Director
38
<PAGE>
PROSPECTUS DELIVERY OBLIGATION. All dealers or brokers that effect transactions
in these securities for the selling security holders are required to deliver a
Prospectus.
39
<PAGE>
Utah Clay Technology, Inc.
Exhibits to Amendment No. 2 to
Form SB-2 Registration Statement
Exhibit
Number Description of Exhibit
------ ----------------------
3(i) - Articles of Incorporation of Utah Clay Technology, Inc. and
amendments thereto.*
3(ii) - Bylaws of Utah Clay Technology, Inc.*
5 - Opinion of Thomas J. Kenan on the legality of the securities
being registered. [Superseded by Exhibit No. 5.1.]
5.1 - Opinion of Thomas J. Kenan on the legality of the securities
being registered.
9 - 2000 Stock Option Plan*
10 - White Mountain mining lease, consisting of Amendment Agreement of
November 9, 1992; Mining Lease dated March 1, 1994; Addendum to
Mining Lease dated March 15, 2000; and Addendum to Mining Lease
dated March 27, 2000.*
10.1 - Oro Blanco mining lease, consisting of Mining Lease dated
December 31, 1999.*
10.2 - Kimberly claims: Mining Lease Agreement (Fullmer-Engh), dated
June 19, 1993; Addendum to Fullmer-Engh Mining Lease, dated March
15, 2000; Option (Engh-Kaolin of the West)to Enter Into Mining
Lease, dated September 30, 1996; Option (Kaolin of the West-Utah
Clay) to Enter Into Mining Lease, dated September 30, 1996, to
which is attached an unexecuted Mining Lease; Addendum to
Engh-Kaolin of the West Option to Enter Into Mining Lease, dated
March 27, 2000; and Addendum to Kaolin of the West-Utah Clay
Option to Enter Into Mining Lease dated March 27, 2000.*
10.3 - Koosharem claims: Mining Lease Agreement (Fullmer- Engh), dated
June 19, 1993; Addendum to Fullmer- Engh Mining Lease, dated
March 15, 2000; Option (Engh-Kaolin of the West)to Enter Into
Mining Lease, dated September 30, 1996; Option (Kaolin of the
<PAGE>
West-Utah Clay) to Enter Into Mining Lease, dated September 30,
1996, to which is attached an unexecuted Mining Lease; Addendum
to Engh-Kaolin of the West Option to Enter Into Mining Lease,
dated March 27, 2000; and Addendum to Kaolin of the West-Utah
Clay Option to Enter Into Mining Lease dated March 27, 2000.*
10.4 - Topaz claims: Mining Lease Agreement (Fullmer-Engh), dated June
19, 1993; Addendum to Fullmer-Engh Mining Lease, dated March 15,
2000; Option (Engh-Kaolin of the West)to Enter Into Mining Lease,
dated September 30, 1996; Option (Kaolin of the West-Utah Clay)
to Enter Into Mining Lease, dated September 30, 1996, to which is
attached an unexecuted Mining Lease; Addendum to Engh-Kaolin of
the West Option to Enter Into Mining Lease, dated March 27, 2000;
and Addendum to Kaolin of the West-Utah Clay Option to Enter Into
Mining Lease dated March 27, 2000.*
10.5 - Agreement between Utah Clay Technology, Inc. and ISG Resources,
Inc. dated November 30, 1999 and extensions dated February 10,
2000 and June 15, 2000.
10.6 - Agreements between Utah Clay Technology, Inc. and Precision
System Engineering dated June 14, 1999 and November 16, 1999.
10.7 - Small Miner's Permit for White Mountain lease issued by Bureau of
Land Management and Utah State Division of Oil, Gas and Mining.
23 - Consent of Thomas J. Kenan, to the reference to him as an
attorney who has passed upon certain information contained in the
Registration Statement.*
23.1 - Consent of Kabani & Company, Certified Public Accountants,
independent auditors of the Registrant. [Superseded by Exhibit
No. 23.2.]
23.2 - Consent of Kabani & Company, Certified Public Accountants,
independent auditors of the Registrant.
27 - Financial Data Schedule.*
*Previously filed with Amendment No. 1 to Form SB-2 Commission file number
333-34308; incorporated herein.
