*****************************
* THIS PROSPECTUS IS FILED *
* PURSUANT TO RULE 424(b)(3)*
* FILE NO.: 333-40621 *
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Southern Ventures, Inc.
(Logo)
1,000,000 Shares
PRICE: $5.00 Per Share
Southern Ventures, Inc. (the "Company") hereby offers for sale 1,000,000 shares
of common stock at a price of $5.00 per share, the "Offering." Prior to this
Offering, there has been no public market for the common stock of the Company,
the "Common Shares." There is no minimum number of shares a subscriber is
required to purchase in order to subscribe to the Offering hereby. The offering
price for the Common Shares has been determined arbitrarily by the Company. See
"Plan of Distribution."
There are no underwriters involved in this Offering. The Common Shares will be
sold by the Company by direct participation through one or more officers and
directors of the Company who will not receive compensation in connection with
any offers or sales of the Common Shares. The Company may also retain licensed
broker-dealers ("Agents") to sell the Common Shares on a "best efforts" basis.
See "Plan of Distribution." The Company may terminate this Offering at any time
prior to the sale of all 1,000,000 shares of Common Shares offered hereby.
INVESTMENT IN THE SECURITIES OFFERED BY THIS PROSPECTUS IS HIGHLY SPECULATIVE
DUE TO THE NATURE OF THE COMPANY'S BUSINESS AND ITS PRESENT STAGE OF
DEVELOPMENT. The Company has limited operating history and was recently
incorporated to participate in the business of project acquisition and
development. Subscribers must rely upon the ability, expertise, judgment,
discretion, integrity and good faith of the management of the Company and those
who are not prepared to do so should not invest. The Company anticipates that
it will incur operating losses in the near term. See "Risk Factors" on page 15.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES AND EXCHANGE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Underwriting
Price to the Discounts and Proceeds to the
Shares Public Commissions (1) Issuer (2)
Per Unit 1 $5.00 $0.50 $4.50
Total 1,000,000 $5,000,000 $500,000 $4,500,000
(1) The Common Stock offered hereby are being sold directly by the Company on a
direct participation basis. However if the Company retains Agents to sell
the Common Stock offered hereby the Company will pay such Agents a selling
commission of up to 10% of the gross offering proceeds attributable to
Common Shares sold by such Agents. Such potential payments to Agents are
reflected in this table and are otherwise reflected in this Prospectus.
See "Plan of Distribution."
(2) Before deducting expenses of this issue estimated at $350,000, which will
be paid from the proceeds of this Offering. See "Plan of Distribution.
After giving effect to this issue, the price of each common share offered
hereunder exceeds the net tangible book value per common share at December 1,
1997 by $4.48, representing a dilution of 89.6%. See "Dilution."
April 16, 1998
<PAGE>
This prospectus constitutes a public offering of these securities only in those
jurisdictions where they may be lawfully offered for sale, and therein only by
persons permitted to sell such securities. Subscriptions for the Common Shares
will be received subject to rejection or allotment in whole or in part, and the
Company reserves the right to close the subscription books at any time without
notice. It is expected that certificates for the Common Shares will be
available for delivery on the closing of this Offering.
An agreement to purchase the Common Shares offered hereby (the "Subscription
Agreement") accompanies this Prospectus. Subject to availability and the
Company's right to reject subscriptions, in whole or in part, for any reason,
shares of common stock may be subscribed for by completing, executing and
returning the Subscription Agreement, together with payment for all shares
subscribed for, to Southern Ventures, Inc. in the manner described under "Plan
of Distribution" herein. In the Subscription Agreement, each subscriber
represents and warrants to the Company that the subscriber (i) has received this
Prospectus and in making a subscription is only relying on the representations
set forth in this Prospectus and (ii) has indicated his or her true state of
legal residence. A subscriber does not waive any rights under the federal
securities laws by executing the Subscription Agreement. See "Plan of
Distribution" for additional information regarding the Offering and the
procedures for subscribing for shares of common stock offered hereby.
AVAILABLE INFORMATION
This registration statement on Form SB-2 (No. 333-40621), financial statements
and exhibits may be inspected without charge at the Public Reference Room of the
Securities and Exchange Commission, Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's New York Regional Office located
at Seven World Trade Center, Suite 1300, New York, New York 10048, and at its
Midwest Regional Office, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Copies of such material may be obtained upon payment of the appropriate
fee from the Public Reference Section of the Securities and Exchange Commission,
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's New York Regional Office located at Seven World Trade Center, Suite
1300, New York, New York 10048, and at its Midwest Regional Office, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Materials filed
electronically through EDGAR may also be accessed through the SEC's home page on
the World Wide Web at http://www.sec.gov. Upon consummation of this Offering,
the Company will become subject to the informational requirements of the
Securities and Exchange Commission.
TABLE OF CONTENTS Page
ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES -----------------3
PROSPECTS SUMMARY -----------------------------------------------------------3
BUSINESS OF THE COMPANY -----------------------------------------------------4
Elmore Sand & Gravel, Inc. and Tuskegee Sand & Gravel, Inc. ("Elmore") -6
Riverside Grain Products Inc. ("Riverside Grain") ----------------------8
Riverside Carbon Products, Inc. ("Riverside Carbon") ------------------11
Other Projects Under Development --------------------------------------13
RISK FACTORS ---------------------------------------------------------------15
USE OF PROCEEDS ------------------------------------------------------------19
DETERMINATION OF OFFERING PRICE --------------------------------------------20
DILUTION -------------------------------------------------------------------20
SELLING SECURITY HOLDERS ---------------------------------------------------21
PLAN OF DISTRIBUTION -------------------------------------------------------21
LEGAL PROCEEDINGS ----------------------------------------------------------22
MANAGEMENT -----------------------------------------------------------------23
PRINCIPAL SHAREHOLDERS -----------------------------------------------------25
DESCRIPTION OF SECURITIES --------------------------------------------------25
ORGANIZATION WITHIN LAST FIVE YEARS ----------------------------------------26
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION ------------------26
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS -----------------------------30
INTEREST OF MANAGEMENT IN MATERIAL CONTRACTS -------------------------------30
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS -------------------30
EXECUTIVE COMPENSATION -----------------------------------------------------31
FINANCIAL STATEMENTS -------------------------------------------------------32
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION --------------------------------50
RECENT SALES OF UNREGISTERED SECURITIES ------------------------------------50
INTEREST OF NAMED EXPERTS AND COUNCIL --------------------------------------50
DISCLOSURE OF COMMISSION POSITION OF INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES ----------------------------------------------------------------50
DESCRIPTION OF PROPERTY ----------------------------------------------------51
INDEMNIFICATION OF DIRECTORS AND OFFICERS------------------------------------52
UNDERTAKINGS ---------------------------------------------------------------53
2
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ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES
The head and principal office of the Company is located at 1322 Maron Spillway
Road, Elmore, Alabama 36025, phone number (888) 390-6363. The Company's mailing
address is P.O. Box 33452, Las Vegas, Nevada 89133. The Company's Web site is
www.southernventures.com and email address is [email protected].
PROSPECTUS SUMMARY
The following is a summary of the principal features of this Offering and is
qualified in its entirety by information appearing elsewhere in this Prospectus.
The financial statements and other data contained herein give effect to
corporate organization that occurred prior to the date of this Prospectus and
reflect an initial public offering price of $5.00 per share of common stock.
The Offering consists of 1,000,000 Common Shares offered at a price of $5.00 per
share. Subscriptions for the Common Shares will be received, subject to
rejection or allotment in whole or in part, and the Company reserves the right
to close the subscription books at any time without notice. It is expected that
certificates for the Common Shares will be available at closing. More detailed
information appears elsewhere in this Prospectus.
OFFERING: 1,000,000 Common Shares at $5.00 per Share. See "Plan of
Distribution."
COMPANY: The principal business of the Company is to develop and
implement projects that utilize waste or other low value
resources as raw materials in the production of value added
products related to the silica, wheat and carbon industries.
The overall strategy is to modernize these industries by
integrating new technology and control over raw material
supplies.
USE OF PROCEEDS: The Company will use the net proceeds to improve cash flow by
retiring the preferred shares issued to Mr. Bobby Harvey as a
result of the Company's acquisition of Elmore Sand & Gravel,
Inc. and Tuskegee Sand & Gravel, Inc. (collectively, "Elmore")
. See "Use of Proceeds" and "Business of the Company."
DIRECTORS AND MANAGEMENT:
The directors of the Company are Bobby H. Harvey (Chairman),
Chester I. Wright III, W. Benjamin Wood, David Tucker, Elaine
Knapp, David Parsons. Bobby H. Harvey serves as CEO and
President; and Elaine Knapp serves as Secretary. The Audit
committee will consist of Bobby H. Harvey, Chester I. Wright
III and W. Benjamin Wood. The officers of the Company are
Bobby Harvey (CEO/President), Chester I. Wright III
(Treasurer), Elaine Knapp (Secretary), David Parsons (Vice
President), Benjamin Wood (Vice President), Ross Tucker (Vice
President), and Dennis Saunders (Vice President).
RISK FACTORS: Investment in the Common Shares must be regarded as highly
speculative due to the nature of the Company's business and
its present stage of development. The Company was recently
incorporated, and has limited operational history. The
Company has significant capital requirements that will not be
satisfied by the proceeds of this Offering, including a
promissory note to ADM for $2,000,000 for the acquisition of a
starch and gluten plant. See "Risk Factors." This Offering
is suitable only for those investors who are willing to rely
on management of the Company and who can afford to lose their
entire investment. See "Management," "Business of the
Company" and "Risk Factors."
DILUTION: After giving effect to this issue, the price of each Common
Share offered hereunder exceeds the net tangible book value
per common share at December 1, 1997 by $4.48, representing a
dilution of 89.6% to new investors. See "Dilution."
3
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BUSINESS OF THE COMPANY
Business Development
Southern Ventures, Inc. (USA) ("the Company") started operation on January 1,
1997. On January 1, 1997 the Company acquired from Mr. Bobby Harvey and Mr.
Gordon Tucker certain assets in the amount of $439,860.37 with an unsecured at
an interest rate of 8%. These assets are comprised of equipment, royalty
contracts and rights to the continued development of the charcoal briquette and
starch and gluten projects.
The Company was incorporated in the state of Nevada on February 7, 1997.
On October 22, 1997 the Company acquired from Mr. Bobby Harvey 100% ownership of
Elmore Sand & Gravel, Inc. and Tuskegee Sand & Gravel, Inc. (collectively
"Elmore") in exchange for ten million (10,000,000) shares of the Company's
voting preferred stock. As a result of this transaction, Mr. Bobby Harvey was
elected Chairman of the Board of Directors and CEO of the Company.
Prior to the incorporation of the Company, Southern Ventures, Inc. (Canada) was
incorporated in Alberta, Canada on September 9, 1996 for the purpose of
negotiating with Archer Daniels Midland ("ADM") regarding the purchase of the
wheat starch and gluten plant in Thunder Bay, Ontario.
Executive Summary for the Company.
The Company's principal objective is to establish a highly profitable
manufacturing base in North America by modernizing specific business facilities
in declining industries and controlling raw material supplies. New technologies
will replace obsolete manufacturing techniques and substantially reduce
production costs. Control over raw material supplies will ensure the Company's
corporate stability, production efficiency and long term growth potential.
The Company is organized to focus on rebuilding the charcoal briquette industry
and improving operations in the grain processing and mineral mining industries.
Figure 1 shows the current organizational structure of the Company.
Southern Ventures, Inc. (USA)
"The Company"
V V
V V
Elmore Sand & Gravel, Inc. and V
Tuskegee Sand & Gravel, Inc. V
"Elmore" V
Southern Ventures, Inc. (Canada)
V V
V V
Riverside Grain Products, Inc. Riverside Carbon Products, Inc.
"Riverside Grain" "Riverside Carbon"
Figure 1
The Subsidiary Structure of the Company
Elmore is the foundation supporting the Company's ambitious plan to establish a
strong manufacturing presence in North America. Elmore operates a silica sand
and gravel mine in Elmore County, Alabama and is currently the only Company
subsidiary generating revenues. The Company recently expanded Elmore's
operations by installing a state-of-the-art silica processing plant. The new
plant uses Company designed improvements for material handling to generate 2.5
times more silica sand and gravel than the old plant without significantly
increasing labor or power costs. See "Business of the Company - Elmore Sand &
Gravel, Inc."
Southern Ventures, Inc. (Canada), a wholly owned subsidiary of the Company, is
the central holding company for all Canadian operations. As such, it is the
parent company of Riverside Grain Products, Inc. and Riverside Carbon Products,
Inc.
Riverside Grain Products, Inc. ("Riverside Grain") was established to directly
control the production of starch, a key raw material for the charcoal briquette
project. Riverside Grain recently purchased the wheat starch and gluten plant
in Thunder Bay, Ontario (the "Starch and Gluten Plant") from Archer Daniels
Midland Company. The Starch and Gluten Plant became available for purchase
4
<PAGE>
because ADM had decided to internally consolidate its operations and close the
plant in August 1996. Once reopened by the Company, the Starch and Gluten Plant
will provide substantial earnings by processing wheat flour into gluten for the
food industry, high-value starch for the paper industry, modified starch for the
gypsum wallboard industry and binder starch for the manufacture of charcoal
briquettes. See "Business of the Company - Riverside Grain Products, Inc." The
Company will install new equipment at the Starch and Gluten Plant before
reopening the plant. See "Business of the Company - Capital Requirements."
Riverside Grain is presently negotiating the purchase of a flourmill that may
provide wheat flour for the Starch and Gluten plant in addition to semolina for
the pasta industry. See "Business of the Company - Other Projects under
Development."
Riverside Carbon Products, Inc. ("Riverside Carbon") was established to directly
control the production of wood char, another key raw material for the charcoal
briquette project. Riverside Carbon will use technology designed and tested by
the Company that simplifies the construction and operation of furnaces which
produce char from wood waste at low cost and with improved flexibility of
product output. The new furnaces operate more efficiently and generate less
pollution than the outdated equipment currently used in the charring industry.
Residues from the wood processing industry will be used as raw material for
charcoal briquette manufacturing. The Company believes it can obtain long-term
commitments from major sawmills to receive this material at no cost and has
completed the acquisition of environmental permits required to construct and
operate charring plants in British Columbia, Canada. The Company intends to
install new plants sufficient to dominate the charcoal briquette market in North
America.
The Company will modernize the charcoal briquette industry and generate greatly
improved profits by installing new technology and controlling all raw materials
used in the manufacture of products. The planned vertical integration of the
charcoal briquette project is shown below in Figure 2. Developing the projects
indicated will give the Company control over wood char and starch, the raw
materials vital to manufacturing charcoal briquettes.
Timber Wheat
V V
V V
Lumber <---- Sawmill Operation Flourmill ---> Semolina
(Riverside Carbon Products) (Riverside Grain Products)
V V
V Wood Waste Flour V
V V
Power <---- Charring Plants Starch Gluten Plant--> Gluten
V V "A" Starch
V Char "B" Starch V
V ---------------><--------------- V
V
Briquette Plant
(Riverside Carbon Products)
V
V
Charcoal Briquettes
Figure 2
The Vertical Integration of Charcoal Briquette Manufacture
Company management has the skills and vision required to achieve the principal
objective of establishing a strong manufacturing base in North America. By
applying new technology and vertical integration, the Company will maximize
profitability in the starch and gluten and charcoal briquette industries.
Product market dominance will be attained through competitive pricing and
aggressive marketing.
Capital Requirements
In addition to the proceeds of this Offering, the Company plans to raise
$23,000,000 over the next two years through financing received from private
lending institutions. Riverside Carbon will require approximately $14,000,000
for the installation of a charring and briquetting plant and working capital.
Riverside Grain will require approximately $1,500,000 for the installation of
new equipment at the Starch and Gluten plant and approximately $7,500,000 to
move the Starch and Gluten plant to a new facility in 1999. See "Business of
the Company - Riverside Grain Products Inc."
5
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Elmore Sand & Gravel, Inc. and Tuskegee Sand & Gravel, Inc. ("Elmore")
Status: Elmore is a mining company that produces high-grade silica gravel
and sand from ancient alluvial deposits in Elmore County, Alabama.
In October 1997, Elmore completed construction of a new plant to
replace the old plant on site. The old plant has been retired and
the new plant is fully operational.
Production: Current production capacity is 600 tons of silica sand and gravel
per hour.
Acquisition: The silica mining operation was acquired by the issuance of 10
million preferred shares of the Company's stock with a call
provision at $0.50 per share. All 10 million shares were issued
to Mr. Bobby Harvey on October 22, 1997. These shares entitle Mr.
Harvey 80% of the new income earned by Elmore. By retiring the
preferred shares, Elmore will generate additional pretax profit to
the holders of Common Shares.
Tuskegee Sand & Gravel, Inc. was incorporated in the state of Alabama in 1974.
Prior to acquisition by the Company, Tuskegee Sand & Gravel, Inc. was solely
owned by Mr. Bobby Harvey. In 1992, Mr. Harvey acquired Elmore Sand & Gravel,
Inc. from Alabama bankruptcy court and incorporated it in the state of Alabama.
From 1992 to 1994, production at the Tuskegee Sand & Gravel, Inc. facility was
gradually phased out and replaced by the Elmore Sand & Gravel, Inc. facility.
By the beginning of 1994, Tuskegee Sand & Gravel, Inc. had ceased mining
operations and the Elmore site was running at full production capacity.
Elmore is located in a region that has consistently produced high purity silica
sand and gravel. Elmore actively leases more than two thousand acres of private
and state lands that can provide high quality materials for at least another
twenty years at maximum production levels. An independent engineering study
conducted in October 1997 estimates reserves under the Company's current lease
to be approximately 38.55 million tons with a current average value of $6.50 per
ton.
The primary markets for Elmore's gravel are the ferrosilicon, decorative
landscaping and construction markets.
Currently, Elmore sand is sold to the construction industry. Glass and ceramic
markets for high purity silica sand command better prices but involve higher
transportation costs. The Company is actively investigating these markets and
examining offers by potential purchasers.
To accommodate increased demand for silica gravel, Elmore completed construction
of a new plant designed to process 600 tons of gravel and sand per hour. The
Company has identified customers for all of the gravel output. To facilitate
the sale of additional sand production, the new plant features classification
methods that allow Elmore to sell sand into markets not currently served. New
screening systems produce sand sized in several categories according to customer
specifications.
By retiring the old plant, the Company realized some immediate advantages.
Overall production increased by decreasing maintenance downtime. In addition to
cost savings each year associated with maintenance, the new plant saves $150,000
per year in royalties paid to private landowners by being located on lands
leased from the State of Alabama.
Before the new plant was put into operation, Elmore produced over 110,000 tons
of silica for the ferrosilicon industry per year. Ferrosilicon is used in the
manufacture of steel. Elmore production represents about 20% of the total U.S.
market for ferrosilicon. As the production from the new plant is sold, Elmore's
market share will increase substantially. See "Sand and Gravel Prices" in this
section.
Property under Lease
Elmore has long-term leases in place to generate products and provide itself a
financially secure future. The leased properties are located northwest of
Elmore on the west side of Highway 143 in the area surrounding and including
Speigner Lake in southern Alabama.
Twenty-five percent of the designated land is being leased from private
landowners. The Company will hold these leases until all silica sand and gravel
deposits have been removed and processed.
The remaining fifteen hundred acres are under lease from the State of Alabama.
This state lease is for a twenty year period starting in 1985 and has five year
options for extensions that can be taken as needed.
Elmore has always exercised an excellent reclamation policy of restoring the
land to its original state by returning overburden and filling holes after
mining. Owners of adjacent properties containing significant deposits are
favorably inclined to lease their lands should the Company require additional
reserves in the long term.
6
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Sand and Gravel Prices
The Company is researching the feasibility of significantly increasing overall
profits by selling sand into one of the markets listed in Table 1 instead of the
concrete industry at a rate of $2.50 per ton. Table 1 shows the quantity and
value of industrial sand and gravel sold or used by United States producers in
1995. The average value of all industrial sand sold in the South was $19.39 per
ton.
South US Total
Major Use Quantity1 Value2 Value per Quantity1 Value2 Value per
ton ton
Sand:
Glass 4,115 70,290 $17.08 10,690 174,200 $16.29
Foundry 1,050 13,000 $12.45 6,760 87,500 $12.94
Ground Silica 2,132 58,860 $27.61 4,212 115,200 $27.35
Filtration 162 2,840 $17.53 400 10,490 $26.23
Hydraulic Fracturing NA NA $30.84 1,580 53,000 $33.67
South US Total
Major Use Quantity1 Value2 Value per Quantity1 Value2 Value per
ton ton
Gravel:
Silicon, ferrosilicon NA NA $13.09 532 7,160 $13.45
Filtration NA NA $16.70 150 2,400 $16.01
Non metallurgical flux NA NA $18.77 590 8,450 $14.31
Other uses, specified 76 787 $10.36 607 3,910 $6.44
NA - Not available.
1 - Thousands of metric tons.
2 - Thousands of US dollars.
Source: US Geological Survey. Gordon P. Eaton, Director.
Table 1
Industrial Sand & Gravel Marketed in the United States in 1995, by Major End Use
Specifications
Silica sand that is mined and processed for industrial applications must conform
to the chemical and physical specifications set by customers. Table 2
summarizes the average minimum quantity of pure silica (SiO2) and maximum
allowable impurities (Al2O3, Fe2O3, TiO2) expressed in weight percent for each
silica market that Elmore may service.
Application SiO2 Al2O3 Fe2O3 TiO2 Sieve Size
Glass (Flat) 99.5% 0.30% 0.04% 0.10% 200 - 30 mesh
Glass (Container) 98.5% 0.50% 0.035% 0.03% 100 - 30 mesh
Foundry Sand 98.0% NA NA NA 100 - 30 mesh
Ground Silica 97.5% 0.38% 0.10% NA < 200 mesh
Filtration Sand 99.4% 0.19% 0.24% 0.12% 50 - 12 mesh
Ferrosilicon 98.0% 0.40% 0.20% NA 3/4" - 5"
Silicon Carbide 99.5% 0.30% 0.10% 0.01% 3/4" - 5"
Fluxes 90.0% 1.50% 1.50% NA 1/4" - 1"
Elmore Sand & Gravel 99.6% 0.06% 0.05% 0.01% 200 mesh - 5"
Table 2
Industrial Sand & Gravel Specifications, by Application
Sales Strategy
Elmore has a diverse customer base for its gravel products and has served these
markets for more than 10 years. Ferrosilicon markets have returned strong
profit margins and have been the backbone of Elmore's operations. Management
will continue providing excellent service and quality products to its customers.
Improvements will be made in choosing markets for Elmore's sand products.
Currently, these products are marketed to the concrete and mortar industries and
net an average sales price of about $2.50 per ton, well below the national
average price for industrial sand.
Transportation cost is an important factor that must be taken into consideration
due to relatively low unit prices of various silica markets, except for a few
end uses that require a high degree of processing. Before contacting potential
customers for industrial sand products, management will evaluate transportation
costs as to their impact upon the bottom-line profitability of that particular
market.
7
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Once favorable transportation situations are identified, potential customers
will be sent product samples for testing. Discounts on current market prices
will be offered to effectively penetrate selected target markets for industrial
sand.
In order to satisfy some industries, further processing of industrial sand may
be necessary. In these cases, management will factor the additional equipment
costs required for such processing to determine which markets are the most
lucrative.
Riverside Grain Products, Inc. ("Riverside Grain")
Status: Riverside Grain was formed by the Company to manage and operate the
wheat starch and gluten plant in Thunder Bay, Ontario (the "Starch
and Gluten plant"). The Company signed a Definitive Agreement with
the Archer Daniels Midland Company ("ADM") on October 16, 1997 to
purchase the Starch and Gluten plant for $5.0 million. The Starch
and Gluten Plant is not currently operational. Management expects
the plant to be fully operational by Fall of 1998.
Production: A target of 51,000 tons of wheat flour each year will be processed
to produce starch and gluten products. The Company plans to
install waste recovery systems to achieve high utilization of raw
materials.
Capital: Total capital required, including plant purchase, interim operation
capital and construction financing, is approximately $6.5 million.
ADM may accept an equity position of $2.0 million in the Company as
partial remuneration for the purchase of the Starch and Gluten
plant. ADM has agreed to finance the remaining $3.0 million owed
over a two year period. After the completion of the Offering, the
Company intends to obtain through lending institutions the $1.5
million required for the installation of new equipment at the
Starch and Gluten plant. See "Business of the Company - Capital
requirements."
Markets: The Company is primarily pursuing various markets for starch and
gluten products in North America. A sales agreement has been
signed with Heartland Wheat Growers, L.P. to purchase unmodified
starch for the manufacture of dextrinized and oxidized starch. A
distribution agreement has been offered to Raisio Chemicals to
market Riverside Grain's cationic starch output.
Archer Daniels Midland Co. (ADM) signed a Definitive Agreement on October 16,
1997 to sell a starch and gluten plant to the Company for $5.0 million.
Included is a 5-year contract for the right to purchase straight-run flour at
market price from ADM on payment terms of net 90 days. As a condition in the
Definitive Agreement, ADM was obligated to repair equipment and buildings and
restore the plant to operational capacity. All electrical and mechanical
systems have been thoroughly inspected and tested by ADM.
The Starch and Gluten plant has been closed since August 15, 1996. Before
shutting down, the Starch and Gluten plant had been operating for 84 years.
During the last ten years of operation, the plant experienced low profitability
manufacturing a large number of commodity products to satisfy a variety of
customer needs. The manpower and packaging costs dedicated to the production of
many low-priced products resulted in poor overall operating efficiency and high
operating costs per unit of raw material processed.
Management will significantly increase profitability of the Starch and Gluten
plant by focusing on fewer product lines and recovering the 19% of raw materials
previously wasted by discharge in the effluent stream. The Starch and Gluten
plant will produce the following primary product lines:
* Wheat gluten for the food industry
* Cationic starch for the paper industry
* Dextrinized starch for the mining and wallboard industries
* Large granule starch for the carbonless paper industry
* B-grade starch for the gypsum wallboard industry
Producing cationic starch will increase profit margins. Cationic starch offers
much higher revenues than the commodity starches previously manufactured. Prior
to August 1996, the Starch and Gluten plant averaged $413.50 and 4.0 man-hours
per ton of product sold. In 1998, the plant is expected to average $530.00 and
1.5 man-hours per ton upon implementing management's strategy of streamlining
operations and manufacturing products with higher market values.
Recovering plant effluents will increase efficiency. Approximately 19% of the
raw materials processed in the past were discarded as waste. This loss of raw
material adversely effected the previous owner's ability to maintain a profit.
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Riverside Grain will install ultrafiltration and reverse osmosis systems to
recover these materials which can then be added to the B-grade starch products.
These systems will not only recover additional product but also will greatly
reduce waste disposal and water utility fees.
Product quality is influenced by raw material quality. Current management has
negotiating contracts with ADM for delivery of high quality flour on a "by
request" basis with 90 day terms. Riverside Grain is not bound to one supplier
for its flour.
The method by which gluten is dried greatly affects its market value.
Management believes that by installing gluten spray dryers, Riverside Grain will
compete in global markets that would otherwise not be accessible. Management
has received several inquires from potential customers willing to pay premium
prices for spray dried gluten.
Once the installation of new equipment is complete, the Starch and Gluten plant
will process approximately 51,000 tons of Canadian wheat flour each year. The
plant will produce 6,100 tons of gluten, 16,100 tons of cationic starch, 7,400
tons of dextrinized starch, 4,600 tons of large granule starch, and 14,100 tons
of B-grade starch.
Management is negotiating contracts to purchase approximately 100 truckloads of
unmodified A-grade starch. This starch will be processed in addition to the
starch derived from wheat flour. Management anticipates converting the
unmodified starch to high-value starch will generate excellent profit margins.
Production will be marketed primarily in Canada and the United States. The
Starch and Gluten plant is situated at the head of Lake Superior, facilitating
shipment of products. It is also linked to Canada's rail network and connects
directly to many rail lines in the United States.
Management intends to operate the existing equipment at full capacity as soon as
possible, doubling previous output. This will be accomplished by moving
existing equipment and operations into a new modern facility to be built in
Thunder Bay. Management believes that sufficient cash will be available in 2000
to construct the new facility. The current plant will operate until such time
the new plant is complete.
Riverside Grain has negotiated with ADM to purchase straight-run flour under
contract for 5 years. The flour will contain a minimum of 11.5% protein. Price
will fluctuate proportionately with the wheat market. Provisions in the
contract will allow Riverside Grain 90 days after flour delivery to complete
payment.
The Starch and Gluten plant will employ approximately 40 people in Thunder Bay.
Wheat Gluten Competition
Archer Daniels Midland Company ("ADM") is one of the world's leading gluten
producers. ADM has been in the gluten industry for many years, including
previous ownership of Ogilvie Mills and General Mills. During this time they
established a loyal customer base and integrated internal markets by acquiring
companies such as bakeries that use gluten as raw material.
Midwest Grain Company ("Midwest Grain") is a major manufacturer of gluten in the
United States. Midwest Grain has retained a loyal customer base for many years
selling most of its output through distributors.
Manildra Milling ("Manildra"), an Australian owned company, has been in the
North American market for many years. Manildra is one of the leading suppliers
in the United States, and is the largest Australian importer of gluten to the
United States.
The remainder of the gluten consumed in North America is imported from Europe
and Australia. Approximately 22,000 tons comes from Europe and 25,000 tons from
Australia.
Sales Strategy for Wheat Gluten
Riverside Grain plans to produce approximately 6,100 tons of gluten per year.
Riverside Grain will price gluten slightly below current market levels to
effectively penetrate selected target markets. These markets include the bread,
pet food, cereal, pasta and other food industries.
Riverside Grain will use a direct sales approach to aggressively capture market
share in these industries. Three experienced salespeople will work strategic
North American locations, mainly in the eastern and mid western United States,
to focus efforts on leading purchasers of gluten.
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Potential customers include Weston, Corporate Foods, McGavin and Kellogg in
Canada and Interstate, Earthgrains, Flowers and Heinz in the United States.
These companies purchase gluten in large quantities as commodity raw materials.
Since their decisions to buy are based on quality and price, management believes
Riverside Grain will quickly sell all initial production of gluten by offering a
high quality product at a 2% discount on current market prices.
Sales efforts will be concentrated in Canada and the United States to minimize
freight costs and maximize advantages created by restrictions these countries
have placed on gluten imports. Canadian restrictions keep overseas gluten
prices between 7 and 10% higher than domestic gluten.
Management believes gluten prices in the United States will steadily climb
throughout 1998 as gluten supplies tighten. This will present many
opportunities for export since, under NAFTA, Riverside Grain will enjoy full
access to United States markets without restriction.
All gluten output not sold through direct sales will be marketed through
commodity brokers and distributors. These brokers and distributors may find
channels leading to smaller niche markets than those targeted by Riverside
Grain's sales force. Niche markets usually offer higher prices for gluten than
large commodity markets.
The baking industry consumes approximately 70% of the gluten in North America.
Riverside Grain will announce its re-entry into the marketplace by advertising
in periodicals that reach a majority of baking companies, including Milling and
Baking News. Riverside Grain also intends to establish memberships with the
Institute of Food Technology, the Association of Bakery Engineers and the
International Wheat Gluten Association. Such memberships provide access to
current industry trends and statistical product information, as well as promote
a high profile and stable presence in the gluten industry.
While quantities of gluten purchased by large consumers remain fairly consistent
throughout a given year, prices for gluten fluctuate frequently. Consumers
generally elect signing 3 to 12 month contracts that fix both quantity and
price. Most would prefer gluten prices to change in relation to wheat prices
within a given contractual period. This would assure customers that gluten
prices are based on fair market value.
Management believes that by establishing a floating price structure based on the
price of wheat, Riverside Grain will successfully procure long term contracts
that require little renegotiation and inspire strong customer loyalty.
Furthermore, a floating price structure will allow Riverside Grain to maintain
steady profit margins and accurately prepare for future expansions that may be
initiated.
Future Outlook for Wheat Gluten Products
Pacific Rim markets for gluten continue to grow at a rapid pace. These markets
place greater emphasis on high quality and pay premium prices for gluten with
particular specifications. Gluten made from Canadian spring wheat imparts
higher protein content and better functionality than gluten made in other parts
of the world and is preferred by Japanese markets. Riverside Grain intends to
approach Sumitomo and Yuasa as well as other distributors to market its spray-
dried gluten in Japan and nearby countries.
Mexico, Central America and South America also present excellent opportunities
for future growth. Improvements in bread-making technologies have resulted in
stronger demand for gluten in these countries. For example, Bimbo Foods in
Mexico uses approximately 3,000 tons of gluten per year in the manufacture of
its bakery products. Riverside Grain will continue researching such markets to
monitor profitable opportunities as they arise.
Riverside Grain will employ an experienced technical staff to enhance customer
service and explore niche markets for modified gluten. The pasta, aquaculture,
dairy products and meat analogue industries will be evaluated to determine
whether such value-added products may be manufactured to obtain even higher
returns than are currently projected.
Wheat Starch Competition
The primary competitors in the wheat starch industry are ADM, Manildra and
Midwest Grain. Several cornstarch manufacturers including Casco, National,
Staley and Minnesota Corn are potential competitors for starch supply to paper
mills. Riverside Grain will pursue competitive advantages over these companies
by providing expert technical and customer service.
Sales Strategy for Wheat Starch
Riverside Grain will produce approximately 28,100 tons of wheat starch per year.
Cationic starch will comprise 57% of starch production. Raisio Chemicals Inc.
has agreed to market all output of cationic starch to the coated paper industry.
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Riverside Grain will sell dextrinized starch to the mining industry and to the
wallboard industry for special applications. Large granule starch will be sold
to the carbonless paper industry. The primary target market for B-grade starch
will be the gypsum wallboard industry.
Riverside Grain will use a direct sales approach to aggressively capture market
share in targeted industries. Three experienced salespeople will work strategic
North American locations, mainly in the eastern and mid western United States,
to focus efforts on leading purchasers of wheat starch.
Potential customers for industrial applications include Avenor Paper, Provincial
Paper, Domtar Corrugating and Sunoco Paper. Potential customers for food
applications include Weston, Kellogg, General Mills and Pillsbury. These
companies purchase starch in large quantities as commodity raw materials. Since
their decisions to buy are based on quality and price, management believes
Riverside Grain will quickly sell all initial production of starch by offering
high quality products at 2% discounts on current market prices.
Sales efforts will be concentrated in Canada and the United States to keep
freight costs as low as possible. Canadian markets are preferred due to higher
market pricing than the United States.
Advertising for starch products will be minimal. Riverside Grain will become a
member of the Technical Association of the Pulp and Paper Industries, the
Institute of Food Technology and the Association of Bakery Engineers to promote
a high profile and stable presence in the starch industry.
Riverside Grain will offer top-notch customer service. A technical department
will be devoted to assisting customers and coordinating sales activities with
production. Research and development will be ongoing to establish Riverside
Grain as the leading company of high quality wheat starch.
Future Outlook for Wheat Starch Products
Markets for modified starch represent the best opportunities for Riverside
Grain to maximize long-term profits. Specialty starches for the food industry
offer premium prices and will be the first modified starch markets explored.
Japanese markets for value-added starch will be evaluated with the assistance of
Yuasa Trading, a commodity broker and distribution company. Value-added starch
prices are sufficiently high in Japan to cover freight costs and earn enhanced
profits.
Starch markets in Latin and South America are expanding rapidly due to
technological improvements developed in the paper and corrugating industries.
Numerous exporting opportunities are anticipated to be available by the end of
1998.
Riverside Carbon Products, Inc. ("Riverside Carbon")
Status: Riverside Carbon intends to construct the first charring plant in
Houston, British Columbia and the first briquetting plant in
Thunder Bay, Ontario. Wood waste from nearby sawmills will be
charred at the Houston plant and railed to a briquetting plant in
Thunder Bay. Environmental permits allowing the first charring
plant to be built have been obtained and management is confident
that long-term supplies of raw materials can be obtained from area
sawmills. Management anticipates that additional contracts for
wood waste will be available over the next three years, providing
enough raw material to build at least four more charring plants.
Production: A target of 55,000 tons of char to be produced each year from
220,000 bone-dry tons of wood waste residues. The Company plans
to produce 80,000 tons of charcoal briquettes from this char.
Capital: The total capital required, including interim operation capital
and construction financing, is approximately $14.0 million for the
first charring and briquetting plants.
Markets: The Company is primarily pursuing various markets for char and
charcoal briquettes in the United States and Canada; at this time
no sales or distribution contracts have been signed.
Riverside Carbon was formed by the Company to utilize wood fiber residuals
("hogfuel") generated at Canadian sawmill operations and by-product starch from
Riverside Grain Products, Inc. in the manufacture of charcoal briquettes.
For many sawmills, disposal of hogfuel poses severe environmental concerns. Air
pollution from wood burning in "beehive" burners and leachate contamination from
wood storage in landfills has been under heavy scrutiny in Canada over the last
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decade. Stringent government regulations have been enacted, resulting in the
demand to cease such practices and find alternate uses for waste wood.
Riverside Carbon has obtained the environmental permits necessary to construct
and operate a charring plant in Houston, British Columbia and Carnaby, British
Columbia. Each will be capable of processing up to 220,000 bone-dry tons of
hogfuel per year. Fiber supply agreements can be arranged with two sawmills to
support the first charcoal plant. Agreements with sawmills to support the second
plant are being investigated and negotiations for an additional 500,000 bone-dry
tons per year are also being pursued.
The initial charring and briquetting plants require a total investment of $14.0
million. The briquetting plant will package 80,000 tons of charcoal briquettes
per year for sale in the United States and Canada. These figures are only
estimates of potential operations and are not based on any actual sales.
Potential partnerships with major producers of briquettes are being discussed as
a way to facilitate construction and financing of the new plants.
Raw Materials
Negotiations continue with forest products companies regarding long-term
commitments to provide wood residue to Riverside Carbon for the purpose of
making charcoal. Current plans include construction of charring plants at
Houston and Carnaby in northwestern British Columbia. Each plant will produce
approximately 55,000 tons of charcoal per year from 220,000 bone-dry tons of
hogfuel. Environmental permits were issued in January 1997 allowing
construction of this plant and a second plant of similar size in Carnaby,
British Columbia. These figures are estimates and do not reflect any actual
production.
Charcoal Briquette Market Information
The barbecue industry is the only significant market for charcoal briquettes.
According to the Barbecue Industry Association, Americans consumed approximately
869 thousand tons of briquettes during barbecue events in 1996, representing
more than $525 million in sales. This yielded an average retail sales price of
approximately $605 per ton.
The total tonnage of charcoal briquettes sold over the last 5 years has
increased by about 3 percent per year. Charcoal briquette production quantities
in the United States are graphically represented in Figure 3 below.
(Figure 3 shows the annual production of charcoal briquettes in the United
States from 1967 to 1996. The production varies from 350,000 tons per year in
1967 to 870,000 tons per year in 1997. A curve is drawn though the data
points to illustrate the market trends over the period shown.)
Figure 3
Production of Charcoal Briquettes in the United States from 1967 to 1996.
Current Manufacturers of Charcoal Briquettes
Three companies manufacture approximately 90% of all charcoal briquettes
consumed in the United States. Kingsford Products Company is the dominant
producer, controlling 50% of the total United States market.
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Many companies sell charcoal briquettes under private labels. Royal Oak
produces the briquettes distributed by approximately 90% of the private label
companies.
(This pie chart shows the major U.S. briquette producers as of 1993. The chart
shows the various companies' percentages of the market: Kingsford = 50%,
Safeway = 20%, Imperial = 20% and Royal Oak = 10%)
Figure 4
Major Charcoal Briquette Manufacturers in the United States.
Sales Strategy for Charcoal Briquettes
All Riverside Carbon charcoal briquette products will be sold to independent
marketing companies under long-term contracts. The Company is pursuing various
markets for both char and charcoal briquettes, at this time no sales or
distribution contracts have been signed.
Future Developments
Company engineers are researching a binder that will give charcoal briquettes a
plastic-like coating. The briquettes will be easy to light, easy to handle and
very clean.
Property in British Columbia
Every effort is being made to locate the charcoal plants as close to the source
of wood residue as possible, to minimize the cost of transporting heavy, wet
wood residue.
Roughly seven acres of land are required at each site to provide adequate space
for project buildings, road and rail transport, fiber storage facilities and
effluent disposal fields.
Other Projects Under Development
The following projects are being developed by management as potential projects
only and can not be determined as probable.
Flourmill
The Company is negotiating the purchase of a flourmill in the northern United
States. Present negotiations involve the seller acquiring an equity position in
the Company. The purchase price for the mill is approximately $8.0 million.
The seller has indicated willingness to discuss terms which involve half of the
final purchase price being payable in common shares of the Company. Management
does not expect the negotiations to be finalized until after the Offering is
completed. Finalizing the purchase of the flourmill would be contingent upon
the Company securing proper financing from lending institutions. The flourmill
is currently operating and earning strong profits.
Grain Terminal
The Company is evaluating the acquisition of an industrial grain terminal. An
independent subsidiary operating under the direction of Southern Ventures, Inc.
(Canada) would be established to run the terminal. Grain cleaning and drying
equipment would allow the Company to procure contract grown wheat, thereby
providing a secure raw material supply for the flourmill and controlled
profitability through vertical integration of operations.
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Recreational Park
Southern Ventures Inc. (Canada) has submitted a bid to the Ontario Ministry of
Citizenship, Culture and Recreation for the acquisition of the Big Thunder
Sports Park in Thunder Bay, Ontario. The bid was submitted in October 1997. An
equity position was not proposed. Finalizing the purchase of the sports park
would be contingent upon the Company securing proper financing from lending
institutions. Owning Big Thunder Sports Park would provide the Company with
excellent marketing and advertising opportunities. International skiing
competitions draw global attention. Big Thunder Sports Park hosted the Nordic
World Ski Championships in 1995. Events were televised around the world and
thousands of spectators and tourists visited the park. Management would develop
the existing facilities to establish Big Thunder Sports Park as a high
performance center and a four seasons resort. Each phase of development would
be financed with cash flows generated from the park.
Required Governmental Approvals, Environmental Regulations and Costs of
Compliance
The Company is subject to various laws and regulations relating to the operation
of its production facilities, the production, packaging, labeling and marketing
of its products and pollution control, including air emissions, which are
administered by federal, state, and other governmental agencies. The Company's
production facilities are subject to inspection by the Occupational Safety and
Health Administration and the Ontario Ministry of Environment. Various health
and safety regulations, employment standards, good manufacturing practices for
the food industry, and environmental regulations will apply to Riverside Grain's
operations.
Waste management costs to dispose of certain wastes such as oils, solvents, and
spent lab chemicals will be incurred to maintain compliance with environmental
regulations in Ontario. There will also be some operating costs attached to
normal waste disposal and landfill costs.
Certificates of Approval ("COA's") are required for certain emissions from the
Starch and Gluten plant in Ontario. COA's from previous operations are in the
process of being assigned to Riverside Grain. There is no cost attached to this
assignment. New COA's may be required for the new dryers and dry modification
processes the Company plans to install at the Starch and Gluten plant.
Similarly, COA's may be required for emissions from the package boiler, if a gas
fired model is chosen. Application for COA's follows the completion of the
engineering process. Costs vary, but are generally 2% of the cost of the actual
abatement devices. Land and engineering costs, as well as costs related to
previous approvals, are excluded from the approval fees.
The charcoal briquette project involves the installation of manufacturing
equipment that requires construction permits, water discharge permits and air
discharge permits to be obtained from the Ministry of Environment in British
Columbia. Management estimates the cost of obtaining the construction permits
to be $10,000. The water discharge permits and air discharge permits are
estimated to cost in total about $500 per year per manufacturing facility.
No additional permits are needed for the Elmore silica mining operation. Total
suspended solids must be monitored for any water discharge. Elmore's current
costs associated with obtaining permits and maintaining compliance with other
environmental regulations are approximately $11,000 per year.
Principal and Registered Offices of the Company and Subsidiaries
Principal Office of Southern Ventures, Inc. is located at:
2036 Maron Spillway Rd., Elmore, Alabama 36025
The Registered Office is located at:
1188 West Bonanza Drive, Carson City, Nevada 89706
List of Subsidiary Companies
Registered Office of Southern Ventures, Inc. (Canada) is located at:
3700, 400 Third Avenue S.W., Calgary, Alberta, T2P 4H2
Principal Office of Riverside Carbon Products, Inc. is located at:
2727 Phillips Rd. Sooke, British Columbia V0S 1N0
The Registered Office is located at:
2727 Phillips Rd. Sooke, British Columbia V0S 1N0
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Principal Office of Elmore Sand & Gravel, Inc. is located at:
2036 Maron Spillway Rd. P.O. Box 189 Elmore, Alabama 36025
The Registered Office is located at:
2036 Maron Spillway Rd. P.O. Box 189 Elmore, Alabama 36025
Principal Office of Tuskegee Sand & Gravel, Inc. is located at:
2036 Maron Spillway Rd. P.O. Box 189 Elmore, Alabama 36025
The Registered Office is located at:
2036 Maron Spillway Rd. P.O. Box 189 Elmore, Alabama 36025
Principal Office of Riverside Grain Products, Inc. is located at:
675 New Vickers St; Thunder Bay, Ontario P7E 6T3
The Registered Office of Riverside Grain Products, Inc. is located at:
Suite 4220, Bay Wellington Tower, 181 Bay Street, Toronto, Ontario M5J 2T3
RISK FACTORS
In evaluating the Company and its business, the following risk factors should be
carefully considered before investing in the Common Shares of the Company. The
Company's actual results could differ materially from those discussed in the
Prospectus. Factors that could cause or contribute to such differences include
those discussed below, as well as those discussed elsewhere herein.
Limited Operating History
The Company started operation on January 1, 1997 and was incorporated in the
State of Nevada on February 7, 1997. Consequently, the Company's only operating
history prior to that time was the start up activities of the promoters in
negotiating agreements with Archer Daniels Midland Company and sawmills in
British Columbia, and related activities with Elmore, Southern Ventures, Inc.
(Canada), Riverside Carbon Products, Inc. and Riverside Grain Products, Inc. At
this point, the Company has fiber supply agreements in place with some sawmills
in British Columbia, and has signed a purchase agreement with ADM to acquire a
starch and gluten manufacturing plant in Thunder Bay, Ontario.
Sufficiency of Proceeds of the Offering and Future Capital Requirements
There is no assurance that sufficient operating funds to complete the Company's
business plan will be obtained as a result of this Offering or from any other
source. The Company has incurred substantial indebtedness to finance its
development activities. As a result, the Company is subject to the risk
generally associated with debt financing, including the risk that its cash
available for debt service will be insufficient to meet required payments of
principal and interest, the risk of increased payments or negative amortization
as a result of increases in interest rates in the case of indebtedness which
bears interest at a variable rate and the risk that indebtedness requiring
balloon principal payments may not be able to be repaid or refinanced when due.
Furthermore, in the case of indebtedness secured by the Company's real property,
upon default by the Company in its payment obligations, the property could be
foreclosed with a consequent loss of income and asset value to the Company.
Accordingly, in the event of default by the Company under its indebtedness, the
lender may proceed against all Company assets to satisfy its debt and is not
limited to the specific real property pledged as security therefor.
On a pro forma basis after giving effect to the anticipated use of net proceeds
of the Offering, total indebtedness of the Company would have been approximately
$7.4 million. Before giving effect to the proceeds from this Offering, on a pro
forma basis, the total indebtedness of the Company would have been approximately
$7.4 million. Of this amount, $900,000 has been incurred to finance the
Company's development activities. The terms on the indebtedness are as follows:
$450,000 company development debt at 8%, payable on demand; $450,000 company
development debt at 8%, payable at December 31, 1998; $3,000,000 to ADM for the
purchase of the starch and gluten plant with no interest in the first year,
payable in installments over three years and $3,500,000 Elmore debt at various
rates and terms, generally secured by the equipment purchased with the proceeds.
An additional $2,000,000 debt will be incurred by the Company if ADM does not
accept shares for the promissory note used in the purchase of the starch and
gluten plant. See "Risk Factors- Note Payable to ADM." There can be no
assurance that the Company will be able to repay or refinance its indebtedness
(on acceptable terms or at all) as it becomes due.
Future growth of the Company will depend on the Company's borrowing capacity and
its ability to raise capital. There can be no assurance that the Company will
continue to have access to funds sufficient to finance future growth or, if
available, that funds will be available on terms acceptable to the Company.
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Note Payable to ADM
On October 16, 1997, the Company purchased from Archer Daniels Midland Company
land, improvements and equipment in Thunder Bay, Ontario for the production of
starch and gluten. The Company paid a total consideration of $5,000,000 by
issuing a $3 million dollar installment note and a $2,000,000 demand note fully
secured by the assets acquired. The $2,000,000 demand note may be satisfied
through the issuance of 9% of the total Common Shares on a fully diluted basis
or 1,960,000 shares upon completion of the Offering. According to the contract
entered into with ADM, if the Company did not achieve listing status on an
exchange by January 16, 1998, ADM would have the option of making the note due
and payable. Since the Company did not achieve listing status by January 16,
1998, the shares reserved for ADM may be canceled and the $2,000,000 demand note
may now be made due and payable. ADM has not chosen this option and it is
management's opinion based on communications with ADM that ADM will accept
shares to satisfy the demand note. However, management cannot guarantee that ADM
will not make the demand note due and payable before the Company can satisfy the
note through the issuance of Common Shares. The Company has no means to satisfy
this note. If the Offering is not successful, and if the Company's shares are
not accepted, the Company will need to revise its corporate objectives and seek
alternative financing sources not currently considered. Further, if payment is
demanded on the note before financing can be achieved, the Company's ability to
continue as an ongoing concern could be greatly affected.
Direct Participation Offerings
The Shares offered hereby will be sold through the direct participation of the
officers and directors of the Company without the benefit of a broker or agent,
unless one is engaged at some future date. A broker or agent would have greater
access to investors and more experience with public offerings than the officers
or directors of the Company. Without reliance on such individuals skilled in
the promotion of public offerings, it may require additional time to conclude
the Offering, and the Company will not have access to market analysis usually
provided by such firms. Additionally, investors are not afforded the benefit of
third party due diligence and verification of corporate business plans.
Offerings With No Minimum Level
The Offering does not have a minimum level. Funds received by the Company will
be used as received to repurchase preferred shares from Mr. Bobby Harvey. See
"Use of Proceeds." Where no minimum offering is required, there can be no
assurance that any minimum financial condition is met before funds are released
to the Company. Investment in the Offering becomes immediately at risk.
Offering Price and Lack of Established Market
Prior to this Offering there has been no established trading market for the
Company's common stock. The initial public offering price of the Common Shares
offered hereby has been arbitrarily determined by the Company. There is no
representation that the common stock can be resold at the offering price. Prior
to this Offering there has been no market for the common stock and no market is
expected to develop. There is no assurance that the Company will be able to
achieve listing status on the OTC Bulletin Board. Failure to achieve a listing
status and the subsequent lack of a public trading market will severely restrict
the ability of investors to sell their securities. The market price of the
Common Shares could be subject to significant fluctuations in response to
factors such as variations in the Company's anticipated or actual results of
operations, limited trading volume in the Common Shares, general market
conditions or the silica and charcoal briquette industries in general. See
"Determination of Offering Price."
Control by Existing Management
Upon completion of this Offering and the retiring of the preferred shares and,
assuming all 1,000,000 shares offered hereunder are sold, the officers and
directors of the Company as a group will control 61.3% of the outstanding voting
stock, see "Principal Shareholders." The Chairman and CEO of the Company Mr.
Bobby Harvey and members of his immediate family will control an aggregate of
approximately 44.9%. It should be noted that Mr. Gordon Tucker is currently the
shareholder, director and sole signing officer of National Synfuels, Inc.
("NSI") which owns 21.7% of the shares of the common stock of the Company. Upon
completion of the Offering, Mr. Tucker and members of his immediate family will
control an aggregate of approximately 27.2% of the outstanding shares of the
common stock of the Company, including the stock owned by NSI. Such control,
which may have the effect of delaying, deferring or preventing a change of
control of the Company, is likely to continue for the foreseeable future and
significantly diminishes control and influence which future stockholders may
have in the Company. See "Principal Shareholders." The purchasers of common
stock pursuant to this Offering will individually and collectively be minority
shareholders. It should be noted that the Company has failed to achieve listing
status on an exchange by January 16, 1998, and accordingly the shares reserved
for Archer Daniels Midland ("ADM") may be canceled and the $2,000,000 payment
made due and payable at ADM's option. This would change both the percentages
listed above and the total debt of the Company. See "Dilution." At this time,
ADM has indicated that they fully intend to accept the shares reserved for them
in satisfaction of the $2,000,000 note. However, the Company has yet to receive
an extension in writing from ADM, and management cannot provide any assurances
that the $2,000,000 will not be made due and payable.
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The Company has not made provision in its Articles of Incorporation to be
excluded from the Nevada Combinations with Interested Stockholders Act and the
Nevada Acquisition of Controlling Interest Act. Such acts will have the effect
of delaying or making it more difficult to effect a change in control of the
Company.
The Company's Bylaws permit stockholders to take action by written consent in
lieu of a meeting so long as holders of not less than a majority of the
outstanding shares, or such greater percentage as may be required for the action
proposed to be taken, participate in such consent.
Contractual Arrangements and Sources of Financing
With respect to certain projects under negotiation and those to be pursued in
the future, there can be no assurance that the Company will be able to obtain
all necessary project development agreements, construction contracts, power
sales contracts, product sales contracts, licenses and permits or satisfactory
financing commitments.
Litigation
The Company is unaware of any pending (or basis for) litigation against it, its
100% owned subsidiaries, Elmore Sand & Gravel, Inc., Tuskegee Sand & Gravel,
Inc., Southern Ventures, Inc. (Canada), Riverside Carbon Products, Inc. and
Riverside Grain Products, Inc. Further, the Company is unaware of any pending
(or basis for) litigation against any company with which it is affiliated not
already made available through other means of public disclosure. However, there
can be no assurance that material litigation will not be instituted against the
Company or its subsidiaries in the future.
Changes in Tax Law
The Company, and where applicable, investors participating with it will develop
and own particular projects primarily because of the positive revenue returns to
be expected. The Company will conduct its business in a form so as to take
advantage of all available tax shelters but, to the extent that any tax
advantages to investors and the Company are affected by future changes in tax
law, including 'accelerated cost recovery' legislation, individual financing in
the future may be structured differently. Any such law and regulation change
may have a significant impact on the Company.
Conflicts
Gordon Tucker is currently the Registered Agent, shareholder, Director and sole
signing officer of National Synfuels, Inc. The Company currently licenses
technology from National Synfuels, Inc. for use in its projects, and pays a
royalty for each ton of raw material processed in accordance with the license.
For information on the ability to control or patent the design technology, see
"Competition." No royalties are owed or have been paid to date.
Dividends
The Company has paid no cash dividends on common stock since its inception. The
Company currently intends to retain all earnings for use in the expansion of its
business and other corporate purposes and therefore does not anticipate paying
any cash dividends on common stock in the foreseeable future. The payment of
future dividends will be at the discretion of the Board of Directors of the
Company and will depend, among other things, upon the Company's earnings,
capital requirements and financial condition. The Company has incurred
considerable debt and will require additional debt financing to complete the
development of its business. The acquisition of such debt may require the
Company to enter into covenants that may require onerous restrictions on the
Company in payment of dividends. See "Dividend Policy."
Dependence on Key Personnel
The Company is substantially dependent upon the efforts and skills of its
executive officers and management, particularly Bobby Harvey, the Company's CEO,
who has considerable experience in the silica mining industry. Some of the
other officers of the Company have had experience in the development of 'waste
to chemicals' projects. The officers also have management experience in other
areas critical to the business of the Company. The Company does not currently
carry key man life insurance on any member of the executive staff. The death,
disability or other loss of services of executive officers in the short term
could have a materially adverse impact on the profitability and success of the
Company. See "Management."
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Additionally, the Company has not yet entered into any employment agreements
with any of the executive staff.
Competition
The processing of selected wastes into salable products has been common for many
years. Although some companies are in the process of developing technology to
process waste materials, no identifiable company known to management has yet
entered the field of total waste utilization by controlling the largest sources
of a selected waste product such as waste wood for a specific application. Many
companies with greater financial resources than the Company have the personnel
and facilities to rapidly develop in this field. The Company does not believe
that patents are available to protect all of its processes from use by
competitors. The Company has no plans to seek patent protection for process
design or technologies.
Legislative Changes
Unforeseen changes in government legislation or regulations could negatively
impact the Company's mining operations. Currently the Company is fully licensed
to conduct its mining operations in Alabama. The Company is unaware of any
pending legislation that would prevent the Company from conducting its mining
business.
Contractual Obligations
Once the charring plants are built, the Company will assume the risk of
accepting wood waste whether or not the market for char remains strong. After
the Company starts accepting wood residue, it will face the economic liability
of wood waste disposal if this raw material is not converted to char.
Regulatory Approvals
Although some environmental and construction permits have been obtained, there
is no guarantee that the Company will successfully secure future regulatory
approvals that may be required in a timely manner, or at all. Delays in
receiving or inability to obtain regulatory approvals or required permits could
adversely affect the attainment of Company goals. Indication of the type of
regulatory approval required for each of the Company's subsidiaries is shown
below.
Riverside Carbon Products - Charcoal Briquette Project:
The charcoal briquette project involves the implementation of proprietary
thermal processing equipment that requires construction permits, water discharge
permits and air discharge permits to be obtained from the Ministry of
Environment in British Columbia. Management estimates the cost of obtaining the
construction permits to be $10,000. The water discharge permits and air
discharge permits are estimated to cost in total about $500 per year per
manufacturing facility.
Riverside Grain Products - Starch and Gluten Plant:
Restarting the starch and gluten plant will require effluent discharge permits
from the Ministry of Environment in Ontario. The required Certificates of
Approval will be obtained at no cost to the Company.
Elmore Sand & Gravel:
No additional permits are needed for the silica mining operation. Total
suspended solids must be monitored for any water discharge. Elmore's current
costs associated with obtaining permits and maintaining compliance with other
environmental regulations are approximately $11,000 per year.
Unforeseen Required Regulatory Approvals:
Since the Company is currently in the process of developing several projects
(see "Business of the Company"), it is not possible for management to anticipate
all regulatory approvals required for complete project implementation.
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Technology
The technology to successfully convert wood waste to chars has been proven by
the Company during tests run on a pilot scale plant. However, this technology
has not been proven on a commercial scale. There are no guarantees that product
yields obtained during pilot testing will be achieved or that marketable char
will be produced on a commercial scale.
Dilution
Purchasers of the Common Shares offered hereby will incur an immediate and
substantial dilution in the net tangible book value of the Common Shares from
the initial public offering price. After giving effect to this issue, the price
of each common share offered hereunder exceeds the net tangible book value per
common share at December 1, 1997 by $4.48, representing a dilution of 89.6%.
See "Dilution."
Shares Eligible for Future Sales
Upon consummation of this Offering, the Company will have outstanding 21,897,400
shares of common stock. The 1,000,000 shares of common stock offered hereby
will be freely transferable without restriction or further registration under
the Securities Act of 1933, as amended (the "Securities Act").
Sales of substantial amounts of Common Shares in the public market after the
Offering, or the perception that such sales could occur, could adversely affect
the market price for the Common Shares. The Common Shares held by the existing
stockholders will be eligible for sale in the public market in the quantities
and manner permitted by Rule 144 promulgated under the Securities Act of 1933,
as amended (the "Securities Act"), which allows holders of restricted securities
to sell their securities by means of ordinary brokerage transactions in the open
market after a one year holding period under certain conditions. See
"Management." There are also provisions of Rule 144 which would conditionally
permit the sale of securities, without any limitation, by a person who is not an
affiliate of the Company and who has satisfied a two year holding period. Any
sale of such securities may have an adverse effect on the market price of the
Company's securities.
Authorization of Preferred Stock
The proceeds from this Offering will be used to make a payment of $5,000,000 to
Mr. Bobby Harvey to retire the 10,000,000 preferred shares currently held by
him, giving the Board of Directors the authority to issue up to 10,000,000
shares of preferred stock and to fix the rights, preferences, privileges and
restrictions, including voting rights, of those shares without any further vote
or action by the stockholders. The rights of the holders of the Common Shares
will be subject to, and may be adversely affected by, the rights of the holders
of any preferred stock that may be issued in the future. The issuance of
preferred stock, while providing flexibility in connection with possible
acquisitions and other corporate purposes, could, among other things, adversely
affect the rights of holders of Common Shares and under certain circumstances
make it more difficult for a third party to gain control of the Company. No
shares of preferred stock will be outstanding upon completion of the Offering,
and the Company has no current plans to issue any shares of preferred stock.
See "Description of Securities."
The preferred shares currently issued and outstanding have a call provision at
$0.50 per share with each share having claim to a proportional amount of the
dividends paid. The shares will be retired as the Company exercises the call
and takes possession of the preferred shares.
USE OF PROCEEDS
The net proceeds will be used by the Company to make payment to Mr. Bobby Harvey
to retire the preferred shares issued to Mr. Bobby Harvey as a result of the
Company's acquisition of Elmore Sand & Gravel, Inc. and Tuskegee Sand & Gravel,
Inc. See "Business of the Company."
The Common Shares offered hereby are being sold on a direct participation basis
and there can be no assurance that the Company will receive the estimated $5.0
million in net proceeds anticipated from this Offering. If all of the Common
Shares offered hereby are not sold, then the Company will be unable to fund all
the intended uses described herein for the net proceeds anticipated from this
Offering without obtaining funds from alternative sources or using working
capital generated by the Company. Such alternative sources or working capital
may be unavailable to the Company. To the extent that the Company receives less
than the maximum $5.0 million in estimated net proceeds (after the payment of
all expenses related to the Offering hereby), the Company will use any net
proceeds to retire the preferred shares.
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The following table indicates the uses to which the Company proposes to put
these funds:
Offering
----------
Proceeds from the Offering $5,000,000
----------
1. Retiring of 10,000,000 preferred shares 5,000,000(1)
----------
Notes:
(1) The additional $850,000 required for the expenses of the Offering ($350,000
for the expenses of the Offering and $500,000 commission expense) will be
raised though cash flow from operations or loans from shareholders. The
$500,000 commission expense will only be realized if the Company hires an
Agent.
DETERMINATION OF OFFERING PRICE
Prior to the Offering hereby, there has been no public market for the Company's
common stock. The price to the public has been arbitrarily determined by the
Company and may not be indicative of the market price for the Common Shares
after this Offering. The Company makes no representations as to any objectively
determinable value of the Common Shares. Factors considered in determining the
offering price were primarily based on the potential cash flows of the projects
currently under development and the stage of development of those projects.
DILUTION
The pro forma net tangible book value of the Company at December 1, 1997, after
giving effect to the retiring of the preferred shares, was $6,286,901, or $0.30
per share. Pro forma net tangible book value per share represents the Company's
pro forma net tangible assets less total liabilities, divided by the number of
common shares outstanding. In accordance to APB 16 "Accounting for Business
Combinations", this transaction qualifies as a reverse acquisition. The
Registrant's historical financial statements will be those of Tuskegee Sand &
Gravel, Inc. and Elmore Sand & Gravel, Inc. and the accounts of Southern
Ventures, Inc. will be reflected in the consolidated financial statements from
the 10/22/97 date of the acquisition. The Pro forma dilution takes this into
effect. After giving effect to the sale by the Company of the Common Shares
offered hereby at an assumed initial public offering price of $5.00 per share
and the application of the net proceeds therefrom, the pro forma net tangible
book value of the Common Shares at December 1, 1997 would have been
approximately $11.3 million, or $0.52 per share. This represents an immediate
increase in pro forma net tangible book value of the Common Shares of $0.22 per
share to existing stockholders and an immediate dilution of $4.48 per share to
purchasers of Common Shares in the Offering. The following table illustrates
the dilution per share to the purchasers of the Common Shares in the Offering:
Assumed initial public offering price per share........... $5.00
Pro forma net tangible book value per share as
of December 1, 1997.............................. $0.30
Increase per share attributable to the Offering........ $0.22
Pro forma as adjusted net tangible book value per
share after the Offering......................... $0.52
Dilution per share to new investors....................... $4.48
The following table sets forth, on a pro forma basis after giving effect to the
retiring of the preferred shares previously issued, the number of shares of
capital stock issued by the Company, the total consideration paid and the
average price per share paid by the existing stockholders and the new investors
purchasing the Common Shares in the Offering, assuming an initial public
offering price of $5.00 per share, before deducting underwriting discounts and
estimated offering expenses.
Shares Purchased Total Consideration Average Price
per Share
Amount Percent Amount Percent
Previous Shareholders 18,937,400 86.5 $4,286,901 38.0% $0.23
New Shareholders 1,000,000 4.6 $5,000,000 44.3% $5.00
Archer Daniels Midland 1,960,000 9.0 $2,000,000 17.7% $1.02
Company
Total 21,897,400 100.0 $11,286,901 100.0% $0.52
It should be noted that the Company has failed to achieve listing status by
January 16, 1998 as required by the purchase agreement entered into with ADM,
and the shares reserved to satisfy the $2,000,000 note may be canceled and the
note made due and payable at ADM's option. This would decrease the dilution per
share to $4.43. See "Risk Factors - Note Payable to ADM."
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SELLING SECURITY HOLDERS
All securities offered hereby are being sold by the Company. No other
shareholders are selling securities as a part of this Offering.
PLAN OF DISTRIBUTION
General
The Company is offering to sell up to 1,000,000 shares of its common shares.
The Common Shares will be sold by the Company on a direct participation basis
through one or more officers and directors of the Company who will not receive
compensation in connection with any offers or sales of the Common Shares, and
who is not deemed to be a Broker under Rule 3a4-1 of the Securities Exchange Act
of 1934. The Company may also retain licensed broker-dealers ("Agents") to sell
the Common Shares on a "best efforts" basis. There are no underwriters involved
in this Offering. If the Company retains Agents to sell the Common Shares
offered hereby, the Company will pay such Agents a selling commission of up to
10% of the gross offering proceeds attributable to Common Shares sold by such
Agents. The Company and the Agents, if any, will, in all likelihood, agree to
indemnify each other against certain liabilities, including liabilities under
the Securities Act of 1933.
The Common Shares will be sold at the price of $5.00 per share. There is no
minimum number of shares a subscriber is required to purchase in order to
subscribe to the Offering hereby. The Company reserves the right to withdraw,
cancel or modify the Offering hereby and to reject subscriptions, in whole or in
part, for any reason.
Subscription Procedures
An agreement to purchase the Common Shares offered hereby (the "Subscription
Agreement') accompanies this Prospectus. Subject to availability and the
Company's right to reject subscriptions, in whole or in part, for any reason,
Common Shares may be subscribed for by completing, executing and returning the
Subscription Agreement, together with payment for all shares subscribed for, to
Southern Ventures, Inc., P.O. Box 33452, Las Vegas, Nevada 89133. The Company's
acceptance of a subscription shall be evidenced solely by the delivery to the
subscriber of a written confirmation of sale. Receipt by the Company of a
Subscription Agreement and/or deposit by the Company of payment for the
subscribed shares as described below shall constitute acceptance of a
subscription. The Company will deposit the subscription payments into the
Company's account at Nevada State Bank.
The Company will promptly refund any monies collected and attributed to a
subscription, or portion thereof, rejected by the Company and pay to each
rejected subscriber all interest earned by the Company, if any, on such
subscriber's rejected escrowed subscription payment, or portion thereof.
However, unless the Company cancels this Offering or rejects a subscription, in
whole or in part, subscribers will have no right to a return of their
subscription payment.
Stock certificates will not be issued to subscribers until such time as the
funds related to the purchase of Common Shares by such subscribers are deposited
by the Company. Until such time as stock certificates are issued to the
subscribers, the subscribers will not be considered shareholders of the Company.
Warranties by Subscribers
In the Subscription Agreement, each subscriber represents and warrants to the
Company that the subscriber (i) has received this Prospectus and in making a
subscription is only relying on the representations set forth in this Prospectus
and (ii) has indicated his or her true state of legal residence.
Each potential investor should carefully read this Prospectus in its entirety
prior to purchasing the Common Shares offered hereby. The warranty given to the
Company by each subscriber indicating that the subscriber has received this
Prospectus and is only relying on the representations set forth herein provides
the Company with some comfort that each subscriber has read this Prospectus. To
the extent permitted by federal and state securities laws, the Company might
assert its rights under this warranty to rebut a subscriber's claim that he or
she relied on any oral representations or written representations other than
those set forth in this Prospectus.
In some states, for various reasons, the Company will not obtain permission to
sell the Common Shares offered hereby. The Company will reject subscription
agreements received, if any, from residents of such states. The warranty given
by each subscriber indicating the subscriber's true state of legal residence
will assist the Company in complying with state securities laws. The Company
might assert its rights under this warranty if a misrepresentation by a
subscriber resulted in the Company selling shares of common stock in a state in
which the Company was not permitted to sell such shares in violation of such
state's securities laws. A subscriber does not waive any rights under the
federal securities laws by executing the Subscription Agreement.
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The Company will not be registering its securities in the following states:
Kentucky, Louisiana, New Hampshire, Ohio, Tennessee, Washington D. C., Guam.
Termination of Offering
The Company may terminate this Offering at any time prior to the sale of all
1,000,000 Common Shares offered hereby. The Offering will be terminated 12
months from the effective date.
LEGAL PROCEEDINGS
To the best knowledge of the directors and officers of the Company, there is no
pending or threatened action, suit or proceeding before any court or
governmental agency, authority or body or any arbitrator involving the Company
or any of its subsidiaries, of a character required to be disclosed in the
Prospectus, and there is no franchise, contract or other document of a character
required to be described in the Prospectus, or to be filed as an exhibit, which
is not already described or filed; and the statements included or incorporated
in the Prospectus describing any legal proceedings or material contracts or
agreements relating to the Company fairly summarize such matters as of the date
thereof.
Neither the issue and sale of the Securities, nor the consummation of any other
of the transactions herein contemplated, nor the fulfillment of the terms
hereof, nor the delivery of shares of Southern Ventures, Inc. and Subsidiary(s)
Common Shares upon the exchange of the Securities will conflict with, result in
a breach of, or constitute a default under the charter or by-laws of the Company
or the terms of any indenture or other agreement or instrument known to such
counsel and to which the Company or any of its subsidiaries is a party or bound,
or any order or regulation known to such counsel to be applicable to the Company
or any of its subsidiaries of any court, regulatory body, administrative agency,
governmental body or arbitrator having jurisdiction over the Company or any of
its subsidiaries.
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MANAGEMENT
The names of the executive officers and directors of the Company, their
respective ages and positions with the Company are as follows:
Name Age Position with the Company
Bobby H. Harvey 60 Chairman of the Board & CEO
Chester I. Wright III 37 Treasurer and Director
E. Elaine Knapp 28 Secretary and Director
W. Benjamin Wood 31 Vice President and Director
David Parsons 50 Vice President and Director
Ross G. Tucker 35 Vice President and Director
David Tucker 37 Director
Dennis Saunders 50 Vice President
All directors hold office until the next annual shareholders meeting of the
Company or until their successors have been elected and qualified. Executive
officers serve at the discretion of the board of directors. No director
receives any compensation other than his or her salary as an employee of the
Company.
Mr. Bobby Harvey Chairman, CEO and President
Mr. Harvey currently serves as Chairman, CEO and President of Southern Ventures,
Inc. Mr. Harvey also serves as the CEO and President of Elmore Sand & Gravel,
Inc. and has served in this capacity from 1992 to date. Mr. Harvey has over 25
years of experience in the silica mining and trucking industries. Prior to
acquiring Elmore Sand & Gravel, Inc., Mr. Harvey owned and operated Tuskegee
Sand & Gravel, Inc. and was a major partner in Walt's Sand & Gravel, Inc. From
1972 to 1984, Mr. Harvey owned and operated Harvey Trucking, Inc. Mr. Harvey
continues to provides consulting to other mining operations and is highly
regarded in the silica mining industry for his expertise. Mr. Harvey also
serves as the CEO/President and Director of Elmore Sand & Gravel, Inc. and
Tuskegee Sand & Gravel, Inc.
Mr. Chester I. Wright III Treasurer and Director
Before joining the Company in 1997, Mr. Wright took on the responsibility of
overseeing all operational and financial management of a real-estate office as a
comptroller for ERA American Brokers, Inc. In this position he supervised over
40 people from 1989 to 1996. Mr. Wright's implementation of innovative programs
and financial management after accepting the position of comptroller of the ERA
office resulted in an increase in annual revenues from $35 million to over $50
million in just two years. Prior to his employment at ERA, Mr. Wright was a
partner in Wright Services, Inc. where he implemented a program that tripled
profits over a four year period. Mr. Wright has been an invited speaker at
regional ERA conventions and has been published in the fields of real-estate
transactions and tax accounting.
Ms. Elaine Knapp Secretary and Director
Ms. Knapp has considerable experience in operational management of
entrepreneurial enterprises. As the president of The Underwater Connection,
Inc. from 1995 to 1996, Ms. Knapp was responsible for supervising all operations
and management of the company, and for insuring progress in attaining company
goals. Ms. Knapp had previously been responsible for accounting and purchasing
at Synchem International, Inc. from 1994 to 1995, and has been involved with the
preparation and evaluation of corporate finances. Before joining Synchem, Ms.
Knapp worked for JVC Disc America from 1992 to 1994 where she was responsible
for developing and implementing a new system for quality control, which required
an intimate and comprehensive understanding of every aspect of production. Ms.
Knapp is also able to communicate effectively in French, and is familiar with
Norwegian, Serbo-Croatian and American Sign Language.
Mr. W. Benjamin Wood Vice President of Public Relations and Director
Mr. Wood joined the Company from International Media Promotions, Inc. in 1996
where he was employed since 1994. Mr. Wood's previous experience at Home Box
Office, Inc. and Manning, Selvage and Lee Public Relations required the
organization of national marketing campaigns with multi-million dollar budgets.
He successfully administered the proper execution and distribution of marketing
funds, and was responsible for analyzing the campaign results to determine the
effectiveness of both the funds spent and the tactics used in the various
markets. Mr. Wood has already developed a corporate public relations and
communications plan to introduce the Company to financial markets. Mr. Wood's
education is in advertising and public relations with a B.A. in Public Relations
granted by the University of Alabama. Mr. Wood also serves as CEO and Director
of Southern Ventures, Inc. (Canada).
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Mr. David Parsons Vice President of Project Development and Director
As Manager of the Environmental Assessment Branch of the B.C. Ministry of
Environment, Lands and Parks from 1981 to 1996, Mr. Parsons was responsible for
supervising several senior staff members in the environmental assessment of
major industrial, mining and energy projects. Mr. Parsons has 18 years of
experience working for the Ministry of Environment and has participated in
writing environmental legislation such as the Environmental Assessment Act.
Throughout his career, Mr. Parsons has been responsible for coordinating
hundreds of environmental impact assessments. Mr. Parsons received a M.Sc. in
Soil Science and Land Use Planning from the University of British Columbia as
well as a Diploma in Elementary Education and a B.Sc. in Agriculture. Mr.
Parsons also serves as President and Director of Riverside Carbon Products, Inc.
Mr. Ross Tucker Vice President and Director
Mr. Tucker's previous experience as President of Chesapeake Capital Corp. from
1993 to 1996 has given him a great deal of experience in providing management
for corporate operations. As Production Manager and Supervisor for companies
such as Exact, Inc. and Bill Rivers Corp., Mr. Tucker was responsible for the
supervision of 30 shop and design personnel, and developed and implemented a
production line for the manufacturer of freezer storage units for Winn Dixie
Food Products Co. Over the last 16 years, Mr. Tucker has been involved in
almost every aspect of the fabrication industry from heavy I-beam construction
and high pressure thermal processing equipment fabrication to precision sheet
metal work and the fabrication of special alloy parts for the stealth fighter.
Mr. Tucker has received over 10 certifications including governmental welding
certifications, Statistical Processes Control and Instrumentation (SPCI), and
project management.
Dr. David Tucker Director
In addition to the administrative and management skills gained as President of
International Refractory Services from 1992 to 1993 and President of Zorah Media
Corporation from 1994 to 1995, Dr. Tucker has 15 years of experience in
engineering, design and construction of projects involving chemical synthesis.
As a chemical design engineer and consultant for Midwest Pacific, Inc., Dr.
Tucker was responsible for the start-up and modification of prototype industrial
capacity plants designed to convert wood waste into oils through ablative fast
pyrolysis. Dr. Tucker has a Ph.D. in Physical Chemistry and has performed
extensive research in coal chemistry and the synthesis of chemicals from
biomass. His undergraduate degrees are in Synthetic Fuels Science and in
Aviation. He has been published frequently in technical journals and is a
member of several scientific research societies.
Mr. Dennis Saunders Vice President of Sales
Mr. Saunders previous position as general manager for Heartland Wheat Growers
(Farmland Industries) from 1994 to 1996 required the supervision of all
operational management of the company including sales, financial, operations,
warehousing, and distribution. Mr. Saunders was also responsible for managing
the construction of a $30 million wheat starch and gluten plant, and managed the
supervision of 55 employees. As a national sales manager for ADM from 1992 to
1994, Mr. Saunders was responsible for wheat and cornstarch product sales
throughout North America. Overall, Mr. Saunders has 30 years of experience in
the food products industry. Mr. Saunders is a member of several professional
associations and has been published in the TAPPI Journal.
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PRINCIPAL SHAREHOLDERS
The table below identifies the control positions of the directors and officers
of the Company and individuals (or organizations) that are known to hold more
than 5% of the Common Shares as of February 1, 1998, after giving effect to sale
of Common Shares offered hereby. All shares are owned directly. The officers
and directors as a group own 22,946,000 shares. Upon completion of the
Offering, the officers and directors as a group will beneficially own 12,946,000
shares, representing a total of 59.1% of the total outstanding shares of the
Company.
Name and Address of Beneficial Amount of Class of percent of percent of
Owner(1) Shares Shares Class prior Class after
Controlled to Offering Offering
Bobby Harvey(2) 10,000,000 Preferred 100.0 0.0
Bobby Harvey 9,841,000 Common 47.1 44.9
Chester I. Wright III 475,000 Common 2.3 2.2
David Tucker 725,000 Common 3.5 3.3
David Herr 475,000 Common 2.3 2.2
Elaine Knapp 475,000 Common 2.3 2.2
Ross Tucker 475,000 Common 2.3 2.2
Benjamin W. Wood 475,000 Common 2.3 2.2
David Parsons 380,000 Common 1.8 1.7
Dennis Saunders 100,000 Common 0.5 0.5
National Synfuels, Inc.(3) 4,750,000 Common 22.7 21.7
Archer Daniels Midland(4) 1,960,000 Common 9.4 9.0
Other Shareholders 766,400 Common 3.7 3.5
Previous Shareholders 20,897,400 Common 100.0 95.4
New Investors 1,000,000 Common 4.6
Total Voting Shares 21,897,400 100.0
(1) Address of beneficial owners is 15000 Highway 11 North, Cottondale, AL
35453.
(2) All of the preferred shares will be retired upon consummation of the
Offering.
(3) National Synfuels, Inc. is currently controlled by Mr. Gordon Tucker. See
"Interest of Management in Material Contracts."
(4) It should be noted that the Company has failed to achieve listing status by
January 16, 1998 as required by the purchase agreement entered into with
ADM, and the shares reserved to satisfy the $2,000,000 note by be canceled
and the note made due and payable at ABM's option. This would change both
the dilution listed above and the total debt of the Company.
DESCRIPTION OF SECURTIES
The Company is authorized to issue 40,000,000 Common Shares with a par value of
$0.001, of which, as at the date hereof, 21,897,400 are issued and outstanding
as fully-paid and non-assessable. See "Recent Sales of Unregistered
Securities."
The holders of Common Shares are entitled to dividends if, as and when declared
by the directors, to one (1) vote per common share at meetings of the holders of
the Common Shares and, upon liquidation, to receive such assets of the Company
as are distributable to the holders of the Common Shares. All of the Common
Shares to be outstanding upon completion of this Offering will be fully-paid and
non-assessable.
The shares of Common Shares held by the existing stockholders will be eligible
for sale in the public market in the quantities and manner permitted by Rule 144
promulgated under the Securities Act of 1933, as amended (the "Securities Act"),
which allows holders of restricted securities to sell their securities by means
of ordinary brokerage transactions in the open market after a one year holding
period under certain conditions. See "Management." There are also provisions
of Rule 144 which would conditionally permit the sale of securities, without any
limitation, by a person who is not an affiliate of the Company and who has
satisfied a two year holding period. Any sale of such securities may have an
adverse effect on the market price of the Company's securities.
The Amended Certificate of Incorporation of the Company authorizes the issuance
of 10,000,000 shares of undesignated preferred stock, par value $0.001 per share
(the "Preferred Shares"). As at the date hereof, 10,000,000 Preferred Shares
have been issued in the acquisition of Elmore Sand & Gravel, Inc. and Tuskegee
Sand & Gravel, Inc. (collectively, "Elmore"). These shares have full voting
rights and dividends equal to 80% of the net earnings from Elmore. Upon
completion of this Offering, all of the Preferred Shares currently issued will
be retired, at which time the Board of Directors has the authority, without
further vote or action by the stockholders to issue the undesignated Preferred
Shares in one or more series and (subject to the limitations prescribed by law)
25
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to fix all rights, qualifications, preferences, privileges, limitations and
restrictions of each such series, including dividend rights, voting rights,
terms of redemption, redemption prices, liquidation preferences and the number
of shares constituting any series or the designation of such series. Although it
currently has no plans to do so, the Board of Directors, without stockholder
approval, can issue preferred shares with voting and conversion rights which
could adversely affect the voting power of the holders of Common Shares. The
issuance of Preferred Shares may have the effect of delaying, deferring or
preventing a change in control of the Company. The Preferred Shares are
entitled to a priority over the Common Shares with respect to payment of
dividends and distribution of assets upon liquidation of the Company. See "Risk
Factors." The Company has no present intent to issue shares of Preferred
Shares.
CAPITALIZATION
Amount Amount
Amount Outstanding before Outstanding after
Authorized the Offering the Offering
Common Shares 40,000,000 20,897,400 21,897,400
Preferred Shares 10,000,000 10,000,000 nil
ORGANIZATION WITHIN LAST FIVE YEARS
On January 1, 1997 the Company acquired from Mr. Gordon Tucker and Mr. Bobby
Harvey certain assets in the amount of $439,860.37; an unsecured note was made
payable jointly to Mr. Tucker and Mr. Harvey at a rate of interest of 8%. Those
assets included: automobiles, computers, office equipment and supplies, shop
equipment and supplies, leasehold improvements, real property purchase options
and interest in projects that were in the process of being developed. The
Company has obtained cash and has issued various notes payable to Mr. Harvey
with outstanding balances through September 1997 of $249,733.
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On February 4, 1997 the shareholders of the Company entered into an agreement
with Mr. Bobby Harvey to participate in an IRS Code Section 368(a)(1)(B)
reorganization, in which Southern Ventures, Inc. obtained 100% ownership of the
Elmore in exchange for ten million (10,000,000) shares of voting preferred stock
of Southern Ventures, Inc. As a result of this transaction, Mr. Harvey has been
elected Chairman of the Board of Directors and CEO of Southern Ventures, Inc.
(USA). On October 22, 1997 the transaction was consummated between Mr. Harvey
and Southern Ventures, Inc.
On February 7, 1997 the Company entered into a royalty agreement with National
Synfuels, Inc. whereby the Company has the sole and exclusive right to use
technology which is patented under U.S. Patent # 4,385,905 (System and Method
for Gasification of Solid Carbonaceous Fuels) issued by the U.S. Patent Office
on May 31, 1983, in exchange for a royalty of two ($2.00) dollars per dry ton of
wood processed into charcoal or fuels. This agreement includes the right of the
Company to sublicense this technology.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion should be read in conjunction with the historical
financial statements included elsewhere in this Prospectus.
Company Background
On September 1, 1996, Southern Ventures, Inc. (Canada) was incorporated in
Alberta. The Company was incorporated in the State of Nevada on February 7, 1997
and became the parent of Southern Ventures, Inc. (Canada) (see "Description of
Business"). The Company's formation incurred expenses in connection with the
initial offering and development of various projects. On January 1, 1997 the
Company acquired from Mr. Gordon Tucker and Mr. Bobby Harvey certain assets in
the amount of $439,860; an unsecured note was made payable jointly to Mr. Tucker
and Mr. Harvey at a rate of interest of 8% per annum, on demand no sooner than
December 31, 1998. The Company has agreed to make payment on this outstanding
note by satisfying certain recurring debts estimated to be $30,000 per year to
the benefit of Mr. Tucker and Mr. Harvey. Although there is no legal agreement
to pay any recurring debt to the benefit of Messrs. Tucker and Harvey, the
Company has in the past and plans to in the future to make such payments to
satisfy the outstanding note payable to Messrs. Tucker and Harvey. The annual
payments to the outstanding note of Messrs. Tucker and Harvey have been
reflected in the financials as a current liability. As of September 30, 1997
this note has a total outstanding balance of $422,518.
On February 4, 1997 the shareholders of the Company entered into an agreement
with Mr. Bobby Harvey to participate in an IRS Code Section 368(a)(1)(B)
reorganization, in which Southern Ventures, Inc. obtained 100% ownership of the
Elmore in exchange for ten million (10,000,000) preferred shares of the Company.
As a result of this transaction, Mr. Harvey has been elected Chairman of the
Board of Directors and CEO of the Company. On October 22, 1997 Southern
Ventures, Inc acquired the outstanding shares of Elmore Sand & Gravel and
Tuskegee Sand & Gravel common stock from Mr. Harvey in exchange for ten million
(10,000,000) preferred shares of the Company. The Preferred Shares have full
voting rights as the Common and are paid equal to 80% of the net earnings from
the mining operations owned the Company or 9% whichever is greater. All
dividends will be cumulative and non-participating. The Company may call all of
the Preferred Shares for the sum of $5,000,000 or $0.50 per share. The Company
intents to use the proceeds of its Initial Public Offering (see "Use of
Proceeds") to call the Preferred Shares. The purchase price of $5,000,000 was
determined based upon the estimated fair market value of the assets purchased
and the liabilities assumed at the date of acquisition.
In accordance to APB 16 "Accounting for Business Combinations", this transaction
qualifies as a reverse acquisition. The Registrant's historical financial
statements will be those of Tuskegee Sand & Gravel, Inc. and Elmore Sand &
Gravel, Inc. and the accounts of Southern Ventures, Inc. will be reflected in
the consolidated financial statements form the 10/22/97 date of the acquisition.
See "Discussion and Analysis or Plan of Operation" of the Company's mining
subsidiaries Elmore Sand & Gravel and Inc. Tuskegee Sand & Gravel Inc.
On October 16, 1997, the Company purchased from Archer Daniels Midland Co.
("ADM") land, improvements and equipment in Thunder Bay, Ontario for the
production of starch and gluten. The Company paid a total consideration of $5.0
million by issuing a $3.0 million dollar installment note and a $2.0 million
demand note fully secured by the assets acquired. The $2.0 million demand note
may be satisfied through the issuance of 9% of the total Common Shares on a
fully diluted basis or 1,960,000 shares upon completion of the Offering. Since
the Company did not achieve listing status by January 16, 1998, the shares
reserved for ADM may be canceled and the $2.0 million demand note may be made
due and payable. ADM has not chosen this option and it is management's opinion
based on communications with ADM that once the listing conditions are met, ADM
will accept shares to satisfy the demand note. However, management cannot
guarantee that ADM will not make the demand note due and payable before the
Company can satisfy the note through the issuance of Common Shares. The Company
has no means to satisfy this note prior to completing its Initial Public
Offering. If the Offering is not successful, the Company will need to revise
its corporate objectives and seek alternative financing sources not currently
considered. Further, if payment is demanded on the note before completing its
Initial Public Offering, the Company's ability to continue as an ongoing concern
could be greatly affected.
The Company is investigating listing on the NASDAQ OTC Bulletin Board and will
pursue with listing documents and NASD sponsorship when the Offering becomes
effective.
As a condition of the purchase, ADM was obligated to make repairs to any
equipment that was not operational. All electrical and mechanical systems have
been thoroughly inspected and tested by ADM. However, the Company plans to make
improvements to the building, heating and processing systems before the plant is
placed into production.
Prior to closing on August 15, 1996, the plant had been in operation for 84
years manufacturing wheat starch and gluten.
The Company entered into a royalty agreement with National Synfuels, Inc.
whereby the Company has the sole and exclusive right to technology that allows
wood waste to be used as raw material in the manufacture of valuable products.
The royalty is two dollars ($2.00) per dry ton of wood processed into charcoal
or fuels. The Company issued a sublicense to Carbon Products Industries, Inc.
allowing the use of certain technology to convert wood waste into activated
carbon. Carbon Products Industries, Inc. will pay the Company a royalty of four
dollars ($4.00) per dry ton (of which the Company will pay National Synfuels
$2.00 per dry ton) of material processed using the Company's technology.
Various loans totaling $200,314 as of September 30, 1991 have been made to
Carbon Products Industries, Inc. The notes are payable on demand at an interest
rate of 8% per annum. The notes are fully secured by a thermal process unit
located on Company property.
Riverside Carbon Products, Inc., a wholly owned subsidiary, was formed by the
Company to utilize wood fiber residuals ("hogfuel") generated at Canadian
sawmill operations and by-product starch in the manufacture of charcoal
briquettes. The Company has obtained the environmental permits necessary to
construct and operate two charring plants in northwestern British Columbia, each
capable of processing up to 220,000 bone-dry tons of hogfuel per year. Fiber
supply agreements can be arranged with two sawmills to support the first
charcoal plant. The Company is actively pursuing financing for the construction
and start-up for its first charring plant.
Results of Operations
The Company's primary sources of financing have been from the sale of common
stock and shareholder borrowings. The Company has various operating capital
loans payable to Mr. Harvey at an interest rate of 8% per annum, due on demand.
On July 31, 1997, Mr. Harvey converted $239,500 to common stock at a rate of $1
per share. As of September 30, 1997 these operating capital loans had an
outstanding balance of $249,733.
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The pro forma revenue of the Company consists exclusively of amounts earned by
Elmore Sand & Gravel, Inc. and Tuskegee Sand & Gravel, Inc. Pro forma income
taxes assume that the Company had operated as a tax paying entity, subject to an
effective combined statutory tax rate for federal and state income taxes of 40%.
The Company believes that future cash flow from operations and the portion of
net proceeds from this Offering used for general corporate purposes will be
adequate to fund its operations for at least the next twelve months.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist of sales and marketing
personnel, travel expenses, general insurance, amortization, customer support
expenses, advertising costs, legal and accounting fees, and compensation costs
for administration, finance, project development and general management
personnel. Additional funds will be required through equity and/or debt
instruments to pursue certain projects. See "Business of the Company."
Discussion and Analysis of Recently Acquired Mining Subsidiaries
Years Ended December 31, 1994, 1995, 1996 and Nine Months Ended September 30,
1997
Mr. Harvey acquired Elmore Sand & Gravel Inc. in 1992. During the period of
1992-1994, production at the Tuskegee Sand & Gravel, Inc. facility was gradually
phased out and the Elmore facility was brought to full production capacity. By
the beginning of 1994, the Tuskegee Sand & Gravel, Inc. had ceased mining
operations and the Elmore site was running at full production capacity as it
remains today.
Tuskegee Sand & Gravel's present business is to lease equipment operations to
Elmore Sand & Gravel. Production at the Elmore site has steadily increased by
expanding the number of work shifts and by decreasing plant downtime. Elmore
generated an average net income of $138,726 per month before taxes based on
current 1997 earnings. Management expects the new processing plant to increase
net income. Excellent margins assure sufficient earnings to sustain the
ambitious growth program planned by the Company.
Results of Operations - Mining Subsidiaries
The following table sets forth, for the periods indicated, certain financial
data as a percentage of net sales:
Nine Months Ended
September, 30 Year Ended December 31
1997 1996 1996 1995 1994
Revenues................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of Sales.............. 44.9% 56.6% 50.4% 59.3% 57.4%
Gross Profit............ 55.1% 43.4% 49.6% 40.7% 42.6%
Selling, General and
Administrative Expenses... 9.5% 15.7% 16.0% 15.1% 15.6%
Interest Expense.......... 5.7% 3.1% 3.3% 3.8% 2.4%
Net Income................. 39.9% 24.6% 30.2% 21.8% 24.5%
In the opinion of management, the unaudited information is presented on the same
basis as the audited Financial Statements appearing elsewhere in this Prospectus
and includes all adjustments, consisting only of normal recurring adjustments
and accruals necessary for a fair presentation of the results of operations for
those periods. The nine months information should be read in conjunction with
the audited Financial Statements, unaudited Financial Statements and the Notes
thereto.
The mining subsidiaries have experienced in the past and will experience in the
future quarterly variations in net sales and net income. Thus, operating
results for any particular quarter are not necessarily indicative of results for
any future period. Factors that have affected quarterly operating results
include customer relationships and labor costs, product mix, the level of
operating expenses, the condition of the mining industry, the economy in general
and competitive considerations.
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Most of the revenue in each quarter results from orders received in that
quarter. In addition, the timing of individual orders and shipments, customer
buying patterns, including potential seasonal considerations affect quarterly
results. Although the sales are generally not seasonal, extreme weather
conditions can affect the mining, shipment and demands for products. Because
the expenses are relatively fixed in the short term, variations in the timing of
sales could cause significant fluctuations in operating results from quarter to
quarter and may result in lower earnings or cash flows for a given quarter than
expected.
Revenues - Mining Subsidiaries
Revenues consist of gross sales of products less discounts, refunds and returns.
Revenues increased 21% to $3.1 million during the first nine months in 1997 from
$2.6 million when compared to the same period in 1996. The on-going process of
replacing aging equipment and the increase in product market price led to
improved revenues. The 1997 purchase of four new tandem trucks further
increased production and reduced maintenance expenses. Revenues increased 50.2%
to $3.4 million in fiscal 1996 from $2.3 million in fiscal 1995. This increase
was attributable to the continued effort to reach a broader customer base.
Additionally, increased production and decreased equipment maintenance favorably
impacted revenues. The total amount of rock and sand sold was 450,651 tons,
417,249 tons, and 646,219 tons in 1994, 1995 and 1996 respectively. In 1996 the
total tons sold represented a 64% increase in production from 1995. Revenues
decreased to $2.3 million in fiscal 1995 from $2.7 million in fiscal 1994. The
decrease was attributable to the sale of higher priced inventory during fiscal
1994.
Gross Profit Margin - Mining Subsidiaries
Cost of sales consists of mining labor cost plus equipment operation costs and
overhead related to the mining operations. The gross profit margin (gross
profit as a percentage of net sales) increased to 55.1% during the first nine
months in 1997 from 43.4% when compared to the same period in 1996. The higher
cost of maintenance during the third quarter of 1996 greatly contributed to the
lower gross profit margin during the first nine months of 1996 as compared to
the 1996 year-end percentage of 49.6%. The percentage difference between the
gross profit margin of the first nine months in 1997 and year-end 1996 was due
to an increase in product price and a decrease in maintenance costs. In fiscal
1996 gross profit margin increased to 49.6% from 40.7% in fiscal 1995. This
increase was due to the reduced maintenance costs and earlier investments in
equipment that improved overall efficiency.
The gross profit margin decreased to 40.7% in fiscal 1995 from 42.6% in fiscal
1994, primarily as a result of reduction (sale) of higher priced inventory
during fiscal 1994.
Selling, General and Administrative Expenses - Mining Subsidiaries
Increases in production during the first nine months of 1997 contributed to
reducing selling, general and administrative expenses as a percentage of net
sales to 9.5% from 15.7% compared to the same period in 1996. Also contributing
to this was the discontinued use of a commission sales company reducing sales
cost by $85,000 and the reduction of administrative staff. Selling, general and
administrative expenses as a percentage of net sales were 16% in fiscal 1996 and
15.1% in fiscal 1995. The lower percentage was primarily the result of the
increase in customer-related services, management fees, and professional fees.
Selling, general and administrative expenses as a percentage of net sales
decreased to 15.1% in fiscal 1995 from 15.6% in fiscal 1994 due primarily to the
decrease in sales commissions.
Interest Expense - Mining Subsidiaries
During the first nine months of 1997 interest expense increased to 5.7% as a
percentage of net sales from 3.1% when compared to the same period in 1996. The
Company increased its indebtedness to complete the construction of the new plant
in 1997 and purchase additional related equipment resulting in an increased
interest expense. Interest expense as a percentage of net sales decreased to
3.3% in fiscal 1996 from 3.8% in fiscal 1995. This lower percentage was
primarily the result of net sales for fiscal 1996 increasing 50% from fiscal
1995. The interest expense decrease was partially offset by the increase in
future investment in plant and equipment, including the continuing construction
of a new plant, which began in the third quarter of 1996. The increase in
interest expense as a percentage of net sales, from 2.4% in fiscal 1994 to 3.8%
in fiscal 1995, was due to increase in outstanding indebtedness through
investment in equipment.
Liquidity and Capital Resources - Mining Subsidiaries
The mining subsidiaries have financed cash requirements through cash flows from
operations along with both short and long-term borrowings. The mining
subsidiaries have outstanding loans at interest rates at various spreads above
the bank's cost of funds for financing equipment. These credit facilities are
secured by various pieces of machinery. In September 1996, the mining
subsidiaries obtained a $1,800,000 secured line of credit with a local bank at
an interest rate of 9.75%. This line of credit was obtained to enable the
mining subsidiaries to construct the new processing plant. In September 1997 the
outstanding credit line was converted to an installment note at 8.5% interest
payable in equal payments of $33,707 over a 60-month term. As of September 30,
1997 this note has an outstanding balance of $1,600,050.
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The primary sources of financing have been cash from operations and bank
borrowings. The capital needs have been to (i) fund working capital
requirements, (ii) repay indebtedness, (iii) purchase property and equipment for
expansion and (iv) fund distributions to its existing shareholder primarily to
satisfy his tax liabilities resulting from S Corporation status and investment
in the Company.
Cash flows from operations were approximately $1,595,416, $553,222, $886,340,
and $1,488,529 in fiscal 1996, 1995, 1994 and first nine months of 1997,
respectively. Cash flows in fiscal 1996 were primarily provided by operating
income, increases in accounts payable and an increase in prepaid interest. For
fiscal 1995, cash flows from operations were primarily provided by operating
income and decreases in accounts receivable. For the first nine months of 1997,
cash flows from operations were primarily provided by operating income, decrease
in prepaid interest and accrued payroll.
Net cash was primarily used in investing activities for expenditures related to
facilities and equipment and was $1,781,166, $551,919, $424,696, and $1,265,564
in fiscal 1996, 1995, 1994 and first nine months of 1997, respectively. Through
the third quarter of 1997, $1,040,230 was related to the recent plant expansion.
In fiscal 1998 the Company expects to make additional investments in plant
expansion. Net cash provided (used) in financing activities was $323,796,
($229,415), ($327,988), and $65,735 in fiscal 1996, 1995, 1994 and first nine
months of 1997, respectively. The net cash used in financing activities in
fiscal 1996 consisted of payments to outstanding debts and distributions to
shareholders. Cash provided by financing activities in fiscal 1996 and the
first nine months of 1997 was additional long-term debt for plant expansion.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There is no family relationship between any of the directors or between any
director and any executive officer of the Company except that David Tucker and
Ross Tucker are brothers.
INTEREST OF MANAGEMENT IN MATERIAL CONTRACTS
On January 1, 1997 the Company acquired from Mr. Gordon Tucker and Mr. Bobby
Harvey certain assets in the amount of $439,860.37; an unsecured note was made
payable jointly to Mr. Tucker and Mr. Harvey at a rate of interest of 8%. Those
assets included: automobiles, computers, office equipment and supplies, shop
equipment and supplies, leasehold improvements, real property purchase option
and, interest in projects that were in the process of being developed.
The Company obtained cash and issued various notes payable to Mr. Harvey with
outstanding balances through September 1997 of $249,733. These notes are due
on demand and carry an 8% interest.
On February 4, 1997 the shareholders of the Company entered into an agreement
with Mr. Bobby Harvey to participate in an IRS Code Section 368(a)(1)(B)
reorganization, in which Southern Ventures, Inc. obtained 100% ownership of the
Elmore in exchange for ten million (10,000,000) shares of voting preferred stock
of Southern Ventures, Inc. As a result of this transaction, Mr. Harvey has been
elected Chairman of the Board of Directors and CEO of the Company. On October
22, 1997 the transaction was consummated between Mr. Harvey and Southern
Ventures, Inc. The Preferred Shares earn a dividend of 80% of the net cash flow
of Elmore and have full voting rights with the Common Shares. See "Description
of Securities." There is a call provision on the shares for $0.50 per share.
However, there is no put provision on the Preferred Shares, and the Company has
no obligation to repurchase these shares.
On February 7, 1997 the Company entered into a royalty agreement with National
Synfuels, Inc. whereby the Company has the sole and exclusive right to use
technology which is patented under U.S. Patent # 4,385,905 (System and Method
for Gasification of Solid Carbonaceous Fuels) issued by the U.S. Patent Office
on May 31, 1983, in exchange for a royalty of two ($2.00) dollars per dry ton of
wood processed into charcoal or fuels. This agreement includes the right of the
Company to sublicense this technology. No royalties are owed or have been paid
to date.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Prior to this Offering there has been no established trading market for the
Common Shares. The initial public offering price of the Common Shares offered
hereby has been arbitrarily determined by the Company. There is no
representation that the Common Shares can be resold at the offering price, and
there can be no assurance that the price at which the Common Shares will trade
in the public market after the Offering will not be lower than the initial
public offering price. Prior to this Offering there has been no market for the
Common Shares and no market is expected to develop. Before the consummation of
this Offering there are 67 shareholders of record.
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<PAGE>
Upon consummation of this Offering, the Company will have outstanding 21,897,400
shares of Common Shares. The 1,000,000 Common Shares offered hereby will be
freely transferable without restriction or further registration under the
Securities Act of 1933, as amended (the "Securities Act"). Additionally,
20,897,400 shares are owned by insiders of the Company and could be registered
pursuant to Rule 144 under the Securities Act.
EXECUTIVE COMPENSATION
The following table sets forth a summary of all compensation to be paid by the
Company for fiscal 1997 to the Company's executive officers whose total annual
salary and bonus for such year exceeds $100,000 (together, the "Named Executive
Officers").
Summary Compensation Table
Name Position with the Company Compensation(1)
Salary Bonus
Bobby H. Harvey Chairman of the Board & CEO 260,000 --
(1) The Company does not currently have any other benefits or bonus plans. It
is anticipated that the Named Executive Officers will not receive any
compensation beyond their salaries before the completion of the Offering.
No options were granted to nor exercised by any Named Executive Officer at the
time of this Offering.
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FINANCIAL STATEMENTS
Southern Ventures, Inc. Unaudited Pro Forma Financial Statements
Basis of Presentation
The following unaudited pro forma financial statements (i) give effect to the
items acquired when the Company secured all equity interests of Elmore Sand &
Gravel, Inc. and Tuskegee Sand & Gravel, Inc. in exchange for 10,000,000 shares
of the Company's Preferred Stock, (ii) reflect the effects of the provisions of
the Preferred Stock, and (iii) give effect to the assets purchased land,
improvements and equipment (the "Starch and Gluten Plant") in Thunder Bay,
Ontario, Canada.
In accordance to APB 16 "Accounting for Business Combinations", the Elmore Sand
& Gravel, Inc. and Tuskegee Sand & Gravel, Inc. transaction qualifies as a
reverse acquisition. The Registrant's historical financial statements will be
those of Tuskegee Sand & Gravel, Inc. and Elmore Sand & Gravel, Inc. and the
accounts of Southern Ventures, Inc. will be reflected in the consolidated
financial statements from the 10/22/97 date of the acquisition.
The unaudited pro forma financial statements have been prepared by the Company
based upon the historical financial statements of Southern Ventures, Inc.,
information regarding the acquisition of the Starch and Gluten Plant, and
combined statements of Elmore Sand & Gravel, Inc. and Tuskegee Sand & Gravel,
Inc., included elsewhere in this Prospectus and certain preliminary estimates
and assumptions deemed appropriate by management of the Company. The pro forma
balance sheet as of September 30, 1997 gives effect to the acquisitions as if
such transactions had occurred on September 30, 1997. The pro forma statements
of operations for the nine months ended September 30, 1996 assumes the
acquisition of Elmore Sand & Gravel, Inc. and Tuskegee Sand & Gravel, Inc. was
completed on January 1, 1997 and a preferred stock dividend had been accrued
from that date. These pro forma financial statements may not be indicative of
actual results as if the transaction had occurred on the dates indicated or
which may be realized in the future.
Neither expected benefits nor cost efficiencies anticipated by the Company
following consummation of the acquisition have been reflected in such pro forma
financial statements.
The pro forma financial statements should be read in conjunction with the
historical financial statements of Southern Ventures, Inc. and combined
statements of Elmore Sand & Gravel, Inc. and Tuskegee Sand & Gravel, Inc.,
including the related notes thereto, and "Management's Plan of Operation" that
appear elsewhere in this Prospectus.
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Southern Ventures and Subsidiaries
Unaudited Pro Forma Consolidated Statement of Financial Position
For Nine Months September 30, 1997
Southern Elmore and Starch Pro Forma
Ventures Tuskegee Plant Adjustments # Pro Forma
Assets
Current assets:
Cash and cash
equivalents..... $ 64,275 $ 455,958 - $ 520,234
Accounts receivable. - 594,999 - 594,999
Inventory........... - 408,400 - 408,400
Other current
assets.......... 32,638 - - 32,638
-------- --------- --------- --------- ----------
Total current
assets........... 96,914 1,459,357 - 1,556,271
Intangible assets.... 104,500 - - 104,500
Notes receivable..... 153,844 - 153,844
Other assets......... - 30,695 - 30,695
Property, plant
and equipment..... 297,059 4,399,886 5,000,000 9,696,945
-------- --------- --------- --------- ----------
Total assets.... $ 652,316 $5,889,938 $5,000,000 2,280,824 $11,542,254
========= ========= ========= ========= ==========
Liabilities and Shareholders Equity
Current liabilities:
Accounts payable.. $ 199 206,690 - 206,888
Accrued compensation
and payroll taxes. 396,051 18,928 - 414,979
Current portion of
shareholder debt.. 30,000 603,751 - 633,751
Other Current debt.. - - 2,000,000 2,000,000
--------- --------- --------- --------- ---------
Total current
liabilities....... 426,250 829,369 2,000,000 3,255,619
Long-term liabilities,
excluding
current portion....... 162,000 2,341,393 3,000,000 - 5,503,393
Shareholder payable... 642,252 - - 642,252
--------- --------- --------- --------- ----------
Total liabilities.1,230,501 3,170,762 5,000,000 9,401,263
Shareholder's equity:
Common stock....... 18,937 51,000 - (51,000) 2 18,937
Preferred stock.... - - - 10,000 1 10,000
Additional
paid-in capital.. 499,500 - - 2,309,176 2 3,208,676
Retained earnings.. (996,622) 2,668,176 - (2,668,176) 2 (996,622)
Shareholder
receivable....... (100,000) (100,000)
--------- --------- --------- --------- ----------
Total shareholder's
equity........... (578,185) 2,719,176 - 2,140,991
--------- --------- --------- --------- ----------
Total liabilities
and shareholder's
equity.......... $ 652,316 $5,889,938 $5,000,000 $11,542,254
========= ========= ========= ========= ==========
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Southern Ventures and Subsidiaries
Unaudited Pro Forma Consolidated Statement of Operations
For Nine Months September 30, 1997
Southern Elmore and Pro Forma
Ventures Tuskegee Adjustments # Pro Forma
Revenues................ $ - $3,125,297 $3,125,297
Cost of sales........... - 1,403,324 1,403,324
---------- ---------- --------- ---------
Gross profit......... - 1,721,973 1,721,973
Selling, general and
administrative expenses... 874,589 296,719 1,171,307
Interest expense, net.... 21,867 176,722 198,588
Note receivable loss..... 100,167 100,167
---------- --------- -------- --------
Net income
before taxes......... (996,622) 1,248,532 352,077
Provision for
income taxes........ - - 100,764 1 100,764
---------- --------- -------- --------
Net income........ $ (996,622) $1,248,532 $ 151,145
========== ========= ======== ========
Preferred stock
dividends......... - - 599,295 2 599,295
Income available to
common shareholders.. (996,622) 1,248,532 (448,150)
Pro forma net loss per share... 3 (0.03)
========
Shares used to compute
net income per share........... 13,062,188
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Southern Ventures, Inc.
Notes to Unaudited Pro Forma
Financial Statements
The accompanying unaudited pro forma financial statements present the pro forma
financial position of the Company as of September 30, 1997 and the pro forma
results of its operations for nine months ended September 30, 1997.
The unaudited pro forma financial statements also include the historical
financial position at September 30, 1997 and results of operations for the nine
months ended September 30, 1997, of Elmore Sand & Gravel, Inc. and Tuskegee Sand
& Gravel, Inc.
Unaudited Pro Forma Balance Sheet Adjustments:
1. Represents the distribution of preferred stock.
2. Represents the elimination of historical owners' equity of Elmore Sand &
Gravel, Inc. and Tuskegee Sand & Gravel, Inc.
Pro Forma Net [Loss]
Pro forma net [loss] gives effect to income tax considerations assuming that
each of the subsidiary entities had been a "C" Corp. for the period January 1,
1997 to September 30, 1997. No income is reflected on a pro forma basis for the
Starch and Gluten Plant since the acquired plant has been closed since 8/15/96
and that management plans to operate the assets n a materially different manner
than the prior owner.
Unaudited Pro Forma Statement of Operations Adjustments:
1. To reflect federal and state income taxes assuming a 40% statutory income tax
rate.
2. To reflect an 80% preferred stock dividend. This number reflects 80% of the
total of Elmore's and Tuskegee's net income before taxes subtracting a 40%
statutory income tax rate.
3. Loss per share is computed based on the weighted average number of shares of
common stock outstanding.
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Southern Ventures Inc. Audited Financial Statements
Auditor's Report
Report of Arthur J. Odle, CPA PC, Independent Auditors
To The Board of Directors
Southern Ventures, Inc.
Cottondale, Alabama
We have audited the accompanying consolidated balance sheets of Southern
Ventures, Inc. as of September 30, 1997, and the related consolidated statements
of income, stockholders' equity, and cash flows for the nine-month period then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with 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 or material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Southern Ventures, Inc. as of
September 30, 1997 and the results of its operations and its cash flows for the
nine months then ended in conformity with generally accepted accounting
principles.
"Arthur J. Odle"
Arthur J. Odle, CPA PC
Montgomery, Alabama
January 30, 1998
36
<PAGE>
Southern Ventures and Subsidiaries
Consolidated Statement of Financial Position
September 30, 1997
Assets
Current assets:
Cash and cash equivalents........... $ 64,275
Other current assets................ 32,638
----------
Total current Assets.............. 96,914
Intangible assets...................... 104,500
Notes receivable, less allowance for
doubtful accounts of $100,167....... 153,844
Property, plant and equipment.......... 297,059
----------
Total assets...................... $ 652,316
==========
Liabilities and Shareholders Equity
Current liabilities:
Accounts payable.................... $ 199
Accrued compensation and payroll taxes 396,051
Current portion of shareholder debt. 30,000
----------
Total current liabilities......... 426,250
Long-term liabilities,
excluding
current portion..................... 162,000
Shareholder payable.................... 642,252
----------
Total liabilities................. 1,230,501
Shareholder's equity:
Common stock........................ 18,937
Additional paid-in capital.......... 499,500
Retained earnings................... (996,622)
Shareholder receivable.............. (100,000)
----------
Total shareholder's equity........ (578,185)
----------
Total liabilities and
shareholder's equity........... $ 652,316
==========
The accompanying notes to consolidated financial statement are an integral part
of this statement.
37
<PAGE>
Southern Ventures and Subsidiaries
Consolidated Statement of Operations
September 30, 1997
Revenues............................... $ --
Cost of sales.......................... --
----------
Gross profit........................ --
Operating Expenses
Depreciation and amortization....... 14,389
General and administrative expenses. 256,818
Payroll expenses.................... 603,381
----------
Operating Loss (874,589)
Interest income........................ 13,418
Interest expense....................... (35,284)
Note receivable loss................... (100,167)
----------
Net income.......................... $ (996,622)
==========
Net loss per Common Share.............. $ (0.08)
==========
The accompanying notes to consolidated financial statement are an integral part
of this statement.
Southern Ventures and Subsidiaries
Consolidated Statement of Stockowners' Deficit
Common Stock Total
Number of Amount Additional Retained Stockholders'
Shares (at par) Paid-in Capital Deficit Deficit
Issuance of common
stock- 2/7/97 9,500,000 $ 9,500 $ 9,500
Issuance of common
stock- 6/17/97 8,937,400 8,937 8,937
Issuance of common
stock- 7/31/97 500,000 500 $499,500 500,000
Net Loss $(996,622) (996,622)
Balance at --------
9/31/97 18,937,400 $18,937 $499,500 $(996,622) $(478,185)
========
The accompanying notes to consolidated financial statement are an integral part
of this statement.
38
<PAGE>
Southern Ventures and Subsidiaries
Consolidated Statement of Cash Flows
September 30, 1997
Cash provided (used) by operations:
Net income....................................$ (996,622)
Income charges (credit) not affecting cash:
Depreciation & Depletion..................... 8,889
Amortization................................. 5,500
Notes receivable loss........................ 100,167
Changes in certain working capital components:
Decrease (increase) in other
current assets............................. (32,638)
Increase (decrease) in accounts
payable and accrued liability.............. 369,250
---------
Cash provided by operations....................... (518,455)
Cash provided (used) by investing activities:
Additions to intangible assets................. (110,000)
Additions to property,
plant and equipment.......................... (305,948)
Issuance of notes receivable................... (354,011)
Collections on notes receivable................ -
--------
Cash used by investing activities................ (769,959)
Cash provided by financing activities:
Proceeds from issuance
of notes payable............................. 1,108,974
Principal payments on
stockholder loans............................ (256,722)
Principal payments on
other notes payable.......................... (18,000)
Proceeds from issuance
of stock..................................... 518,437
---------
Cash provided by financing activities............. 1,352,689
Net increase (decrease) in cash................... 64,275
Cash at the beginning of the year................. -
---------
Cash at the end of the quarter.................... $ 64,275
=========
The accompanying notes to consolidated financial statement are an integral part
of this statement.
39
<PAGE>
Notes to Consolidated Financial Statements
Note 1. Summary of significant accounting policies
Organization and Description of Business
On September 1, 1996, Southern Ventures, Inc. (Canada) was incorporated in
Alberta. The Company was incorporated in the State of Nevada on February 7, 1997
and became the parent of Southern Ventures, Inc. (Canada). These financial
statements reflect the financial position and results of operations of the
Parent Company and its subsidiaries on a consolidated basis, which reflects the
Company's current organizational structure.
Entity Nature of Business
Parent Company:
Southern Ventures, Inc. Provides direct management, marketing, and
research and development for its
subsidiaries.
Wholly Owned Subsidiaries:
Southern Ventures, Inc. (Canada) Central holding company for Canadian
operations. Parent to Riverside Carbon
Products, Inc. and Riverside Grain Products,
Inc.
Riverside Carbon Products, Inc. Developing a Canadian charcoal briquette
project.
Riverside Grain Products, Inc. Developing a Canadian starch and gluten
manufacturing project. Recently acquired a
plant in Thunder Bay, Canada. See
subsequent events.
Elmore Sand & Gravel, Inc. (see note 8) Open pit mining of high-grade
silica rock and sand.
Tuskegee Sand & Gravel, Inc. (see note 8) Provides equipment and labor
for Elmore Sand & Gravel
Fiscal year:
The Company's fiscal year is a calendar year.
Basis of Consolidation:
The Company's financial statements have been presented on a going concern basis,
which contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business. The consolidated statements include Southern
Ventures, Inc. and its wholly owned subsidiaries. Inter-company transactions
have been removed for consolidation purposes.
Going Concern and Management's Plans:
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate continuation of the
Company as a going concern. However, the Company has sustained substantial
operating losses since its inception. The Company believes it has made the
necessary acquisition (see Note 8. Subsequent Events) to continue as a going
concern, although no assurance to that effect can be given. The Archer Daniels
Midland Company has a two million-dollar note payable, the Company currently has
no means in which to satisfy this debt prior to completing its Initial Public
Offering (see Note 8. Subsequent Events). If payment is demanded on the note
before completing its Initial Public Offering, the Company's ability to continue
as an ongoing concern could be greatly affected.
Property, Plant and Equipment:
Property, plant and equipment are recorded at cost. Depreciation for financial
reporting purposes is determined on a straight-line basis, based upon an
estimated useful life ranging from three to fifteen years.
Intangible Assets:
Intangible assets consist of various projects purchased by the Company. These
project development assets were purchased at historical cost from Mr. Harvey and
Mr. Tucker. The amounts represent actual project costs incurred by a third
party. These projects were acquired by Mr. Tucker and Mr. Harvey and sold to
the Company at cost. Amortization for financial reporting purposes is
determined on a straight-line basis, based upon an estimated useful life of
fifteen years.
40
<PAGE>
Income Taxes:
Income taxes are recorded in accordance with SFAS No. 109, ACCOUNTING FOR INCOME
TAXES. This statement requires the recognition of deferred tax assets and
liabilities to reflect future tax consequences of events that have been
recognized in the Company's financial statements or tax returns. Measurement of
the deferred items is based on enacted tax laws. In the event future
consequences of differences between financial reporting basis and tax basis of
the Company's assets and liabilities result in a deferred tax asset, SFAS No.
109 requires an evaluation of the probability of being able to realize the
future benefits indicated by such asset. A valuation allowance related to a
deferred tax asset is recorded when it is more likely than not that some portion
or the entire deferred tax asset will not be realized due to the uncertainty of
the Company's ability to realize the benefit of the deferred tax assets, a full
valuation allowance has been applied against the deferred tax assets at December
31, 1996.
Net Loss per Common Share:
Net loss per common share has been computed by dividing the net loss by the
weighted average number of common shares outstanding during the period.
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, the disclosed 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.
Research and Development Costs:
Research and developments costs are charged to expenses as incurred.
Note 2. Intangible assets
Intangible assets includes the following:
Canadian Charcoal Briquette Project $ 90,000
Firebrick Project 5,000
Canadian Starch and Gluten Project 15,000
Accumulated Depreciation and Depletion (5,500)
--------
Total Intangible Assets $ 104,500
========
Note 3. Property, plant and equipment
Property, plant and equipment includes the following:
Leasehold $ 70,747
Office & Computer Equipment 30,939
Shop Equipment 10,262
Vehicles 14,000
Land 180,000
Accumulated Depreciation (8,889)
--------
Total $ 297,059
========
Note 4. Related party transactions
Notes Payable - Shareholders
On January 1, 1997 the Company acquired from Mr. Gordon Tucker and Mr. Bobby
Harvey certain assets in the amount of $ 439,860.37; an unsecured note was made
payable jointly to Mr. Tucker and Mr. Harvey at a rate of interest of 8% per
annum, due on demand no sooner than December 31, 1998. The Company has agreed
to pay recurring debts estimated to be $ 30,000 per year to the benefit of Mr.
Tucker and Mr. Harvey. As of September 30, 1997 this note has an outstanding
balance of $422,518.
41
<PAGE>
The Company has various operating capital loans payable to Mr. Harvey at an
interest rate of 8% per annum, due on demand. On July 31, 1997, Mr. Harvey
converted $239,500 to common stock at a rate of $1 per share. As of September
30,1997 these operating capital loans had an outstanding balance of $ 249,733.
Notes Receivable - Shareholders
A note receivable from Mr. David Herr, president of Carbon Products Industries,
Inc., was acquired on January 1, 1997 from Mr. Tucker and Mr. Harvey. This note
was for the payment of licensing agreement given to Carbon Products Industries,
Inc. (see Note 6. Commitments and Contingencies) and carries an interest rate
of 8% per annum. The entire principal plus any accrued interest shall be repaid
on or before September 1, 2002.
The Company received a $100,000 promissory note with an interest rate of 6.8%
per annum from Vice President of Sales, Dennis Saunders, for 100,000 shares of
Company stock. The entire principal plus any accrued interest shall be repaid
on or before September 1, 2002.
Note 5. Notes payable - other
The Company made a 25% down payment toward the purchase of land owned by
Northwood Pulp and Timber Limited with a remaining balance of $162,000 payable
on closing. In management's opinion this is a binding agreement on both parties
and new long-term financing will be obtained to secure this property. The
original closing date has lapsed and a new closing date has been set for on or
before February 13, 1998.
Note 6. Commitments and Contingencies
The Company entered into a royalty agreement with National Synfuels, Inc.
whereby the Company has the sole and exclusive right to use technology patented
under U.S. Patent # 4,385,905 (System and Method for Gasification of Solid
Carbonaceous Fuels) and issued by the U.S. Patent Office on May 31, 1983. The
royalty is two dollars ($2.00) per dry ton of wood processed into charcoal or
fuels. This agreement includes the right of the Company to sublicense this
technology. As part of this agreement the Company obtained from Mr. Tucker and
Mr. Harvey a contract licensing this technology to Carbon Products Industries,
Inc. This contract was reissued as a sublicense allowing Carbon Products
Industries, Inc. to use certain technology to convert wood waste into activated
carbon. Carbon Products Industries, Inc. will pay the Company a royalty of four
dollars ($4.00) per dry ton (of which the Company will pay National Synfuels
$2.00 per dry ton) of material processed using the Company's technology.
Various loans totaling $200,314, as of September 30, 1997 have been made to
Carbon Products Industries, Inc. The notes are payable on demand at an interest
rate of 8% per annum. The notes are fully secured by a thermal process unit
which is in the possession of the Company at it Alabama location.
Note 7. Income Taxes
Since the Company has incurred only losses since inception and due to the degree
of uncertainty related to the use of the loss, the Company has fully reserved
this benefit. At September 30, 1997 the Company had a tax net operating loss of
approximately $ 896,455 available to offset federal and state taxable income. In
accordance with Section 382 of the Internal Revenue Code, the use of the above
loss may be subject to annual limitations based upon ownership changes of the
Company's stock which have occurred.
Note 8. Subsequent events
Purchase of Elmore Sand & Gravel, Inc. and Tuskegee Sand & Gravel, Inc.
On October 22, 1997 the Company acquired all of the outstanding shares of common
stock of Elmore Sand & Gravel, Inc. and Tuskegee Sand & Gravel, Inc. in exchange
for 10,000,000 shares of the Company's preferred stock. In accordance to APB 16
"Accounting for Business Combinations", this transaction qualifies as a reverse
acquisition. The Registrant's historical financial statements will be those of
Tuskegee Sand & Gravel, Inc. and Elmore Sand & Gravel, Inc. and the accounts of
Southern Ventures, Inc. will be reflected in the consolidated financial
statements form the 10/22/97 date of the acquisition. The purchase price of
$5,000,000 was determined based upon the estimated fair market values at the
date of acquisition of the assets purchased and the liabilities assumed.
42
<PAGE>
The preferred stock has the following preferences:
- - -The shares have full voting rights with the Common Shares of Southern
Ventures, Inc.
- - -The dividends to be paid will be equal to 80% of the net earnings from the
mining operations owned by Southern Ventures, Inc. or 9% whichever is greater.
- - -All dividends will be cumulative and non-participating.
- - -The shares may be redeemed by Southern Ventures, Inc. for the sum of
$5,000,000.
In accordance to APB 16 "Accounting for Business Combinations", this transaction
qualifies as a reverse acquisition.
Purchase of Starch and Gluten Plant.
The Company purchased a starch and gluten plant in Thunder Bay, Ontario from
Archer Daniels Midland on October 16, 1997 for a total consideration of
$5,000,000. Of this amount, $2,000,000 is in the form a note payable on demand
after January 16, 1998. At ADM's option, the Company may satisfied this debt
through the issuance of common shares of the Company equaling 9% of the total
Common Shares on a fully diluted basis or 1,960,000 shares upon completion of
the Initial Public Offering.
43
<PAGE>
Elmore Sand & Gravel Inc. and Tuskegee Sand & Gravel Inc. Audited Financial
Statements
Auditor's Report
Report of Arthur J. Odle, CPA PC, Independent Auditors
To The Board of Directors
Southern Ventures, Inc.
Cottondale, Alabama
We have audited the accompanying consolidated balance sheets of Elmore Sand &
Gravel Inc. and Tuskegee Sand & Gravel Inc. as of December 31,1996, 1995, and
1994, and the related consolidated statements of income, stockholders' equity,
and cash flows for each of the three years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with 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 or material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Elmore Sand & Gravel Inc. and
Tuskegee Sand & Gravel Inc. as of December 31, 1996, 1995, and1994 and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
"Arthur J. Odle"
Arthur J. Odle, CPA PC
Montgomery, Alabama
May 15, 1997
44
<PAGE>
Elmore Sand & Gravel, Inc. and Tuskegee Sand & Gravel, Inc.
Consolidated Statement of Financial Position
September 30, December 31
1997 1996 1995 1994
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 455,958 $ 167,258 $ 29,212 $ 257,324
Accounts receivable...... 594,999 553,062 580,252 421,463
Inventory................ 408,400 405,837 416,087 426,337
--------- --------- --------- ---------
Total current Assets... 1,459,357 1,126,158 1,025,551 1,105,124
Intangible assets............ - 18,563 50,738 77,963
Other assets................. 30,695 227,246 92,007 38,153
Property, plant and equipment 4,399,886 3,428,491 1,951,139 1,670,574
--------- --------- --------- ---------
Total assets........... $5,889,938 $4,800,457 $3,119,435 $2,891,814
========= ========= ========= =========
Liabilities and Shareholders Equity
Current liabilities:
Accounts payable.......... 206,690 410,677 93,309 68,227
Accrued compensation and
payroll taxes............. 18,928 42,289 19,378 14,354
Current portion of
long-term debt............ 603,751 737,001 478,211 188,074
Notes payable............. - - 25,598 99,647
--------- --------- --------- ---------
Total current liabilities. 829,369 1,189,967 616,496 370,301
Long-term liabilities,
excluding current portion.... 2,341,393 1,502,387 670,035 925,431
--------- --------- --------- ---------
Total liabilities....... 3,170,762 2,692,354 1,286,531 1,295,732
Shareholder's equity:
Common stock.............. 51,000 51,000 51,000 51,000
Retained earnings......... 2,668,176 2,057,103 1,781,904 1,545,082
--------- --------- --------- ---------
Total shareholder's
equity.................. 2,719,176 2,108,103 1,832,904 1,596,082
--------- --------- --------- ---------
Total liabilities and
shareholder's equity.. $5,889,938 $4,800,457 $3,119,435 $2,891,814
========= ========= ========= =========
The accompanying notes to consolidated financial statement are an integral part
of this statement.
45
<PAGE>
Elmore Sand & Gravel, Inc. and Tuskegee Sand & Gravel, Inc.
Consolidated Statement of Operations
Nine Months ended 9/30 Year ended 12/31
1997 1996 1996 1995 1994
(Unaudited)
Revenues............ $3,125,297 $2,593,018 $3,453,797 $2,299,586 $2,709,160
Cost of sales....... 1,403,324 1,468,195 1,742,042 1,363,990 1,555,668
--------- --------- --------- --------- ---------
Gross profit..... 1,721,973 1,124,822 1,711,755 935,596 1,153,493
Selling, general and
admin. expenses..... 296,719 406,397 554,001 347,560 423,513
Interest expense.... 176,722 80,134 115,209 87,057 65,443
--------- --------- --------- --------- ---------
Net income....... $1,248,532 $ 638,292 $1,042,545 $ 500,978 $ 664,536
========= ========= ========= ========= =========
Net Income per
Common Share........ $ 2,448 $ 1,252 $ 2,044 $ 982 $ 1,303
========= ========= ========= ========= =========
The accompanying notes to consolidated financial statement are an integral part
of this statement.
46
<PAGE>
Elmore Sand & Gravel, Inc. and Tuskegee Sand & Gravel, Inc.
Consolidated Statement of Cash Flows
Nine Months ended 9/30 Year ended 12/31
1997 1996 1996 1995 1994
(Unaudited)
Cash provided (used) by operations:
Net income........ $1,248,532 $ 638,292 $1,042,545 $ 500,978 $ 664,536
Income charges
(credit) not
affecting cash:
Depreciation &
Depletion........ 294,168 201,790 303,815 271,354 261,980
Amortization..... 18,563 22,275 32,175 27,225 22,275
Changes in
certain working
capital components:
Decrease (increase)
in inventory..... - - 10,250 10,250 -
Decrease (increase)
in accounts
receivable....... (41,937) (88,870) 27,190 (158,789) 112,665
Decrease (increase)
in prepaid
interest......... 216,513 19,340 (130,546) (50,977) -
Decrease (increase)
in other
current assets... (19,961) (40,194) (4,694) (2,877) -
Increase (decrease)
in accounts payable,
notes payable
and accrued
liabilities...... (227,349) 12,956 314,681 43,942 (175,116)
--------- -------- -------- -------- --------
Cash provided by
operations............ 1,488,529 765,589 1,595,416 553,222 886,340
Cash provided (used) by
investing activities:
Additions to property,
plant and equipment (1,273,878) (671,827)(1,818,666) (601,540) (488,491)
Disposals of property,
plant and equipment. 8,314 37,500 37,500 49,621 63,795
--------- -------- -------- -------- --------
Cash used by
investing activities.. (1,265,564) (634,327)(1,781,166) (551,919) (424,696)
Cash provided by
financing activities:
Additions in
long-term debt..... 1,637,852 608,486 1,599,805 479,384 859,324
Reductions in
long-term debt..... (932,095) (477,233) (503,663) (444,643) (200,859)
Distributions
to shareholders.... (640,022) (132,841) (767,346) (264,156) (986,453)
--------- -------- -------- -------- --------
Cash provided by
financing activities.. 65,735 (1,589) 323,796 (229,415) (327,988)
Net increase
(decrease) in cash.... 288,700 129,673 138,046 (228,111) 133,656
Cash at the beginning
of the period....... 167,258 29,212 29,212 257,324 123,668
--------- -------- -------- -------- --------
Cash at the end
of the period....... $ 455,958 $ 158,885 $ 167,258 $ 29,212 $257,324
========= ======== ======== ======== =======
The accompanying notes to consolidated financial statement are an integral part
of this statement.
47
<PAGE>
Elmore Sand & Gravel, Inc. and Tuskegee Sand & Gravel, Inc.
Consolidated Statement of Shareholder's Equity
Retained
Shares Amount Earnings Total
Balance at December 31, 1993....... 510 51,000 $ 1,866,998 $ 1,917,998
=========
Net Income...................... 664,536
Distributions to shareholders... (986,453)
---------
Balance at December 31, 1994....... 510 51,000 $ 1,545,082 $ 1,596,082
=========
Net Income...................... 500,978
Distributions to shareholders... (264,156)
---------
Balance at December 31, 1995....... 510 51,000 $ 1,781,904 $ 1,832,904
=========
Net Income...................... 1,042,545
Distributions to shareholders... (767,346)
---------
Balance at December 31, 1996....... 510 51,000 $ 2,057,103 $ 2,108,103
=========
The accompanying notes to consolidated financial statement are an integral part
of this statement.
Notes to Consolidated Financial Statements
Note 1 - Summary of Significant accounting policies
Description of Business:
Opening pit mining of high grade silica rock and sand.
Fiscal Year:
The Company's fiscal year is a calendar year.
Basis of consolidation:
The consolidated statements include Elmore Sand & Gravel, Inc. and Tuskegee Sand
& Gravel, Inc. Inter-company transactions were eliminated for consolidation
purposes. Both corporations are solely owned by one shareholder.
Recognition of revenue:
Revenue recognized FOB Plant.
Lease and Royalty Commitments:
The leases obligate the Company to pay royalties, maintenance and reclamation
costs. There are approximately two thousand acres currently under long-term
leases.
Inventory:
Inventories are stated at the lower of cost or market, determined by using the
last-in, first-out (LIFO) method. If the first-in, first-out (FIFO) method were
used inventory amounts would be $426,337, $314,917, and $318,076 for the years
ending 1994, 1995, and 1996 respectively.
Property, plant and equipment:
Property, plant and equipment are recorded at cost. Depreciation for financial
reporting purposes is determined on a straight-line basis use half-year
convention based upon a estimated useful lives ranging form three to fifteen
years.
48
<PAGE>
Goodwill:
Goodwill of $148,500 represents amounts relating to assets acquired in excess of
value when Elmore Sand & Gravel Inc. was acquired in 1992.
Income taxes:
Both corporations have elected Chapter S of the Internal Revenue Code for income
tax reporting. Accordingly, no provisions are made for Federal and State income
taxes.
Note 2 - Property, Plant and equipment:
Property, plant and equipment includes the following:
Nine Months Ended
December 31 09/30/97 1996 1995 1994
Leasehold.............. $ 8,975 $ 8,975 $ 5,725 $ 1,825
Mining Equipment....... 646,642 646,642 603,340 535,336
New Plant.............. 1,973,637 933,406 110,066 --
Office Equipment....... 27,030 23,787 20,543 19,608
Railroad............... 143,500 143,500 143,500 143,500
Rolling Stock.......... 2,805,975 2,584,905 1,694,883 1,624,592
Service Vehicle........ 159,201 167,521 112,013 113,722
Shop Equipment......... 27,570 27,570 27,570 15,295
Trailer................ 64,810 55,476 55,476 61,564
Land................... 256,390 256,390 293,890 256,390
--------- --------- --------- ---------
6,113,736 4,848,173 3,067,007 2,771,832
Accumulated Depreciation
and Depletion 1,713,850 1,419,682 1,115,867 1,101,258
--------- --------- --------- ---------
$4,399,886 $3,428,491 $1,951,139 $1,670,574
========= ========= ========= =========
Rolling stock is machinery and equipment that can move its self to from
different locations as required. Rolling stock includes backhoes, bulldozers,
dump trucks and tandem trucks
Note 3 - Long Term Debt
The Company has outstanding loans at interest rates at various spreads above the
banks' cost of funds for financing equipment. These credit facilities are
secured by various pieces of the Company's machinery. In September 1996, the
Company obtained a $1,800,000 secured line of credit with a local bank at a rate
of interest of 9.75%. Through December 1996, the committed line of credit
consists of a total outstanding balance of $722,452.90.
Note 4 - Common Shares
The outstanding stock for Elmore Sand & Gravel, Inc. is 1,000 shares at $1.00
par. value and Tuskegee Sand & Gravel, Inc. outstanding stock is 500 shares at
$100.00 par value. For calculating the earnings per share on the Consolidated
Statement of Financial Position an aggregated number of 510 shares is used.
Note 5 - Subsequent Activities
On February 4, 1997 the shareholders of the Company entered into an agreement
with Southern Ventures, Inc. to participate in an IRS Code Section 368(a)(1)(B)
reorganization, in which Southern Ventures, Inc. will obtain 100% ownership in
the Company's outstanding stock in exchange for voting stock in Southern
Ventures, Inc.
(Unaudited)
On October 22, 1997 Southern Ventures, Inc acquired all of the outstanding
shares of Company's common stock from Mr. Harvey. In accordance to APB 16
"Accounting for Business Combinations", this transaction qualifies as a reverse
acquisition. The Registrant's historical financial statements will be those of
Tuskegee Sand & Gravel, Inc. and Elmore Sand & Gravel, Inc. and the accounts of
Southern Ventures, Inc. will be reflected in the consolidated financial
statements form the 10/22/97 date of the acquisition.
49
<PAGE>
Other Expenses of Issuance and Distribution
The following are estimated expenses involved with the issuance and distribution
of the Prospectus.
Audit $ 13,000
Equipment Appraisal 5,000
Filing Fee 3,000
Engineering Report (Reserves) 5,000
Printing 75,000
Postage 38,000
State Filing Fees 40,000
Advertising 46,000
Web Site Development 5,000
Legal Fees 120,000
-------
Total $350,000
=======
RECENT SALES OF UNREGISTERED SECURITIES
Table 4 lists the names and shares purchased within the last three years.
Number of Offering
Shares Sold Class of Shares Date Sold Class of Purchaser Price
9,500,000 Common Shares February 7, 1997 Sophisticated(1) $0.001
8,937,400 Common Shares June 17, 1997 Sophisticated(1,2) $0.001
500,000 Common Shares July 31, 1997 Sophisticated(1) $1.000
10,000,000 Preferred Shares October 22, 1997 Sophisticated(3) $0.500
1,960,000 Common Shares Reserved Sophisticated(4) $1.020
Table 4
Recent Sales of Unregistered Securities
(1) All shares sold in the indicated offering were sold to directors, officers
and insiders of the Company or their families and close personal friends
who, through their relationship with a director, officer or insider of the
Company, have intimate knowledge of the business of the Company and therefor
meet the definition of "sophisticated investor." All of these shareholders
have been afforded nearly unlimited access to corporate information and are
sophisticated investors. These shares were sold at par value and relied on
the Private Offering Exemption from registration under Section 4(2) of the
Securities Act.
(2) The shares were reserved and approved on April 15, 1997 but the certificates
were not issued until June, 17, 1997
(3) The Company has negotiated the acquisition of Elmore Sand & Gravel, Inc. and
Tuskegee Sand & Gravel, Inc. from its Chairman and CEO, Mr. Bobby H. Harvey
through the issuance of 10,000,000 Preferred Shares under an IRS Code
Section 368(a)(1)(B) reorganization. See "Management's Discussion and
Analysis or Plan of Operation." Mr. Harvey is currently the CEO and
President of the Company, and has unlimited access to corporate information
and is a sophisticated investor. The shares were issued pursuant to the
Private Offering Exemption from registration under Section 4(2) of the
Securities Act.
INTEREST OF NAMED EXPERTS AND COUNCIL
No expert or council engaged by the Company has an interest in the Company's
securities exceeding $50,000.
Disclosure of Commission Position of Indemnification for Securities Act
Liabilities
The Company's Articles of Incorporation provide that, pursuant to Nevada law,
each director shall not be liable for monetary damages for breach of the
directors' fiduciary duty as a director to the Company and its stockholders. In
addition, the Company's Bylaws provide that the Company will indemnify its
directors and officers and may indemnify its employees and other agents to the
fullest extent permitted by law. The Company also contemplates entering into
indemnification agreements with its officers and directors.
The Company's Articles of Incorporation provide that no officer or director will
be personally liable to the Company or any stockholder for damages for breach of
fiduciary duty as a director or officer, except for (i) acts or omissions that
involve intentional misconduct, fraud or a knowing violation of law or (ii) the
payment of dividends in violation of the Corporation Law. If the Corporation
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Law is amended or interpreted to eliminate or limit further the personal
liability of directors or officers, then the liability of all directors and
officers automatically will be eliminated or limited to the full extent then so
permitted. These provisions in the Articles of Incorporation do not eliminate
the fiduciary duties of the directors and officers and, in appropriate
circumstances, equitable remedies such as injunctive relief or other forms of
non-monetary relief will remain available under Nevada law. In addition, these
provisions do not affect responsibilities imposed under any other law, such as
the federal securities laws or state or federal environmental laws.
The Company's Bylaws provide that the Company will indemnify its directors and
officers and may indemnify its employees and other agents to the fullest extent
permitted under the Corporation Law. The Company believes that indemnification
under its Bylaws covers at least negligence and gross negligence by indemnified
parties and permits the Company to advance litigation expenses in the case of
stockholder derivative actions or other actions, against an undertaking by the
indemnified party to repay such advances if it is ultimately determined that the
indemnified party is not entitled to indemnification. The Company intends to
seek liability insurance for its officers and directors.
Prior to the consummation of the Offering, the Company anticipates that it will
enter into separate indemnification agreements with each of its directors and
officers. These agreements will require the Company, among other things, to
indemnify such persons against certain liabilities that may arise by reason of
their status or service as directors or officers (other than liabilities arising
from actions involving intentional misconduct, fraud or a knowing violation of
law), to advance their expenses incurred as a result of any proceeding against
them as to which they could be indemnified and to cover such persons under any
directors' and officers' liability insurance policy maintained by the Company.
These indemnification agreements will be separate and independent of the
indemnification rights under the Bylaws and are irrevocable.
The Company believes that these provisions of the Articles of Incorporation and
Bylaws and the indemnification agreements are necessary to attract and retain
qualified persons as directors and officers. Insofar as indemnification
pursuant to the foregoing provisions against liabilities arising under the
Securities Act of 1933, as amended (the "Securities Act"), may be permitted to
directors, officers or persons controlling the Company, the Company has been
informed that, in the opinion of the Securities and Exchange Commission (the
"Commission"), such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the small business issuer of expenses incurred or paid by a
director, officer or controlling person of the small business issuer 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 small business issuer will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the securities Act and will be governed by
the final adjudication of such issue.
Description of Property
Gluten / Starch Mill -- Thunder Bay, Ontario Canada
Industry Segment: Food Processing
Location: 675 Vickers Street, Thunder Bay, Ontario
Terms: This property is owned by Riverside Grain Products. There
are no limitations of ownership, however the property is used as collateral for
debts outstanding to ADM.
The property, located on the banks of the Kaministiquia River, consists of
approximately 8 acres and includes the following buildings:
2-story main office building
Grain elevator structures formerly operated by Saskatchewan Wheat Pool and by
ADM.
Feed mill
Boiler house
5 story smutts and plant proper with attached offices and dryers.
4 story warehouse
Anamet waste treatment facility
4 silos for bulk flour receipt
Associated trackage
Dock which runs along the warehouse, plant and feed mill
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The property consist of the original gluten/starch plant as well as the former
Saskatchewan Wheat pool (SWP)-8 site. The main processing building was built in
1912. Buildings of this vintage are usually quite sturdy.
Plant History
The processing building and warehouse are situated on the edge of the
Kaministiquia River which is dredged to a depth of 27 feet. A new steel dock
with tiebacks was installed in the late 1960's. The dock should be in good
condition since this type of dock has an average 70 to 80 year life span. The
dock is part of the former SWP-8 holdings.
There are rail lines on the property that are served by the major U.S. and
Canadian rail companies. Products manufactured at the facility were A-starch,
B-Starch and wheat gluten. The plant's flour throughput on average was
approximately 145 tonnes per day.
The mill was closed by ADM in 1996 due to continuous operating losses. The
plant at this time remains out of operation.
Southern Ventures, Inc. -- Cottondale, Alabama.
Industry Segment: None (Used as main administrative office for the Company.)
Location: 15000 Hwy. 11 North Cottondale, Alabama USA
Terms: This property is rented on a month to month basis at a rate
of $1600 per month.
The property located at 15000 Highway 11 North, Cottondale, Alabama is
approximately 4.2 acres and has three buildings erected on the site. The
initial living room of the main building has been expanded to 3000 square feet
of office space. The main shop space connected to the office building measures
3000 square feet and is used as a product demonstration facility.
Elmore Sand & Gravel, Inc. Elmore, Alabama
Industry Segment: Surface Mining
Location: 2036 Maron Spillway Elmore, Alabama USA
Terms: Mining properties are under lease at various terms and
rates.
In the opinion of management of the Company, all properties are adequately
covered by insurance. For terms of ownership or leasing arrangements for each
property, see "Management Discussion and Analysis."
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Articles of Incorporation provide that, pursuant to Nevada law,
each director shall not be liable for monetary damages for breach of the
directors' fiduciary duty as a director to the Company and its stockholders.
In addition, the Company's Bylaws provide that the Company will indemnify its
directors and officers and may indemnify its employees and other agents to the
fullest extent permitted by law. The Company also contemplates entering into
indemnification agreements with its officers and directors.
The Company's Articles of Incorporation provide that no officer or director will
be personally liable to the Company or any stockholder for damages for breach of
fiduciary duty as a director or officer, except for (i) acts or omissions that
involve intentional misconduct, fraud or a knowing violation of law or (ii) the
payment of dividends in violation of the Corporation Law. If the Corporation
Law is amended or interpreted to eliminate or limit further the personal
liability of directors or officers, then the liability of all directors and
officers automatically will be eliminated or limited to the full extent then so
permitted. These provisions in the Articles of Incorporation do not eliminate
the fiduciary duties of the directors and officers and, in appropriate
circumstances, equitable remedies such as injunctive relief or other forms of
non-monetary relief will remain available under Nevada law. In addition, these
provisions do not affect responsibilities imposed under any other law, such as
the federal securities laws or state or federal environmental laws.
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The Company's Bylaws provide that the Company will indemnify its directors and
officers and may indemnify its employees and other agents to the fullest extent
permitted under the Corporation Law. The Company believes that indemnification
under its Bylaws covers at least negligence and gross negligence by indemnified
parties and permits the Company to advance litigation expenses in the case of
stockholder derivative actions or other actions, against an undertaking by the
indemnified party to repay such advances if it is ultimately determined that the
indemnified party is not entitled to indemnification. The Company intends to
seek liability insurance for its officers and directors.
Prior to the consummation of the Offering, the Company anticipates that it will
enter into separate indemnification agreements with each of its directors and
officers. These agreements will require the Company, among other things, to
indemnify such persons against certain liabilities that may arise by reason of
their status or service as directors or officers (other than liabilities arising
from actions involving intentional misconduct, fraud or a knowing violation of
law), to advance their expenses incurred as a result of any proceeding against
them as to which they could be indemnified and to cover such persons under any
directors' and officers' liability insurance policy maintained by the Company.
These indemnification agreements will be separate and independent of the
indemnification rights under the Bylaws and are irrevocable.
UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in the form
Of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For purposes of determining any liability under the Securities Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering of those securities.
(3) With respect to its offering under Rule 415 of the Securities Act it will:
(a) 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
(iii) Include any additional or changed material information on the plan
of distribution.
(b) For determining liability under the Securities Act, treat each post-
effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the
initial bona fide offering
(c) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
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This prospectus constitutes a public offering of these securities only in those
jurisdictions where they may be lawfully offered for sale, and therein only by
persons permitted to sell such securities. Subscriptions for the Common Shares
will be received subject to rejection or allotment in whole or in part, and the
Company reserves the right to close the subscription books at any time without
notice. It is expected that certificates for the Common Shares will be
available for delivery on the closing of this Offering.
An agreement to purchase the Common Shares offered hereby (the "Subscription
Agreement") accompanies this Prospectus. Subject to availability and the
Company's right to reject subscriptions, in whole or in part, for any reason,
shares of common stock may be subscribed for by completing, executing and
returning the Subscription Agreement, together with payment for all shares
subscribed for, to Southern Ventures, Inc. in the manner described under "Plan
of Distribution" herein. In the Subscription Agreement, each subscriber
represents and warrants to the Company that the subscriber (i) has received this
Prospectus and in making a subscription is only relying on the representations
set forth in this Prospectus and (ii) has indicated his or her true state of
legal residence. A subscriber does not waive any rights under the federal
securities laws by executing the Subscription Agreement. See "Plan of
Distribution" for additional information regarding the Offering and the
procedures for subscribing for shares of common stock offered hereby.
AVAILABLE INFORMATION
This registration statement on Form SB-2 (No. 333-40621), financial statements
and exhibits may be inspected without charge at the Public Reference Room of the
Securities and Exchange Commission, Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's New York Regional Office located
at Seven World Trade Center, Suite 1300, New York, New York 10048, and at its
Midwest Regional Office, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Copies of such material may be obtained upon payment of the appropriate
fee from the Public Reference Section of the Securities and Exchange Commission,
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's New York Regional Office located at Seven World Trade Center, Suite
1300, New York, New York 10048, and at its Midwest Regional Office, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Materials filed
electronically through EDGAR may also be accessed through the SEC's home page on
the World Wide Web at http://www.sec.gov. Upon consummation of this Offering,
the Company will become subject to the informational requirements of the
Securities and Exchange Commission.
TABLE OF CONTENTS Page
ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES -----------------3
PROSPECTS SUMMARY -----------------------------------------------------------3
BUSINESS OF THE COMPANY -----------------------------------------------------4
Elmore Sand & Gravel, Inc. and Tuskegee Sand & Gravel, Inc. ("Elmore") -6
Riverside Grain Products Inc. ("Riverside Grain") ----------------------8
Riverside Carbon Products, Inc. ("Riverside Carbon") ------------------11
Other Projects Under Development --------------------------------------13
RISK FACTORS ---------------------------------------------------------------15
USE OF PROCEEDS ------------------------------------------------------------19
DETERMINATION OF OFFERING PRICE --------------------------------------------20
DILUTION -------------------------------------------------------------------20
SELLING SECURITY HOLDERS ---------------------------------------------------21
PLAN OF DISTRIBUTION -------------------------------------------------------21
LEGAL PROCEEDINGS ----------------------------------------------------------22
MANAGEMENT -----------------------------------------------------------------23
PRINCIPAL SHAREHOLDERS -----------------------------------------------------25
DESCRIPTION OF SECURITIES --------------------------------------------------25
ORGANIZATION WITHIN LAST FIVE YEARS ----------------------------------------26
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION ------------------26
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS -----------------------------30
INTEREST OF MANAGEMENT IN MATERIAL CONTRACTS -------------------------------30
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS -------------------30
EXECUTIVE COMPENSATION -----------------------------------------------------31
FINANCIAL STATEMENTS -------------------------------------------------------32
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION --------------------------------50
RECENT SALES OF UNREGISTERED SECURITIES ------------------------------------50
INTEREST OF NAMED EXPERTS AND COUNCIL --------------------------------------50
DISCLOSURE OF COMMISSION POSITION OF INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES ----------------------------------------------------------------50
DESCRIPTION OF PROPERTY ----------------------------------------------------51
INDEMNIFICATION OF DIRECTORS AND OFFICERS------------------------------------52
UNDERTAKINGS ---------------------------------------------------------------53
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