FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL
BUSINESS ISSUERS
Under Section 12(b) of (g) of the Securities Exchange Act of 1934
DIAMOND LAKE MINERALS, INC.
____________________________________________
(Name of Small Business Issuer in its charter)
Utah 87-022171
________________________________ ___________________________________
(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or organization)
P.O. Box 190, R.R. 5, Warkworth, Ontario CANADA K0K 3K0
_______________________________________ __________
(Address of principal executive offices) (Zip Code)
Issuer's Telephone Number: (705) 924-2303
________________
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be registered Each class is to be registered
None None
______________________ ______________________________
Securities to be registered under Section 12(g) of the Act:
Common
________________
(Title of class)
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
BUSINESS DEVELOPMENT
Inception
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Diamond Lake Minerals, Inc. (the "Company" was incorporated under the laws
of the State of Utah on January 5, 1954 as Garden & Lawn Equipment Company for
the purpose of buying and selling lawn and garden equipment and accessories.
The Company amended its Article of Incorporation changing its name to G & L
Equipment Company in 1958. In 1961, it amended its Articles to exist in
perpetuity, to expand its business purpose to any "lawful activity" and to
increase it authorized capital to 22,000 shares of common stock. In 1971, it
amended its Articles of Incorporation twice: increasing its authorized capital
to 50,000,000 common shares at a par value per share of one-mill ($0.001),
changing its business purpose, and eliminating preemptive rights, among other
changes. In 1972, the Company completed a public offering of its common stock
under the exemption from registration requirements of Section 5 of the
Securities Act of 1933, as amended (the "Act") as promulgated under Section
3(b), Regulation A. The Company completed its offering with 8,000,000 shares
sold to the public at $0.05 per share for gross proceeds of $400,000 which
were used to expand its retail business. The Company's amended its Articles
again in August of 1982 changing its name to G & L Energy, Inc. The Company's
expanded retail efforts failed, however, and it became non-operational. In
1993, the Company began looking for a new business purpose or opportunity and
amended its articles in September of 1993 to effect a reverse split by
decreasing authorized capital to 15,000,000 shares of common stock.
Reorganization with Graphite Mountain, Inc. - Change in Business Purpose
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On November 30, 1993, the Company effected a change in control, which was
ratified by the Company's shareholders at a special meeting. The change in
control resulted in the following: (1)a name change to Diamond Lake Minerals,
Inc; (2) the election of a new Board of Directors; (3) the ratification of an
Agreement and Plan of Reorganization whereby the Company acquired Graphite
Mountain, Inc., an Ontario, Canada corporation ("Graphite") as its wholly
owned subsidiary by issuing to the shareholders of Graphite Mountain an
aggregate of 16,812,000 of its common shares in exchange for all of the issued
and outstanding shares of Graphite; and (4) an increase in authorized capital
by increasing the authorized common shares to 50,000,000 and the addition of a
class of 50,000,000 preferred shares whose rights and preferences may be
determined at the discretion of the Board of Directors. In connection with the
acquisition, the Company also changed its business purpose to that of the
acquisition, exploration and development of mining properties in Southern
Ontario, Canada with the intent to put the same into graphite production and
other minerals, if warranted. The Company also became the beneficial owner of
Graphite's 41 contiguous mining claims comprising 2,100 acres in Bedford
Township, Ontario, Canada (the "Bedford Claims"). In late 1994, the Company
acquired 39 additional mining claims located in South Burgess Township,
Southern Ontario, Canada (the "Timmins Claims") from P & G Development, an
Ontario, Canada company, through the issuance of an additional 4,000,000
shares of its common stock. The Company also staked claims in Keith Township,
Ontario, Canada, but abandoned them in late 1998 in order to focus its efforts
on maintaining the Timmins Claims in good standing and proving its Bedford
Claims. The Company holds a total of 80 mining claims. (See this PART I, ITEM
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1. BUSINESS OF THE COMPANY and ITEM 3. DESCRIPTION OF PROPERTY.)
Financial Highlights
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The following schedule sets forth certain information as of the December
31, 1998 and for the interim period ended September 30, 1999. See Part F/S
for the Company's financial statements for those periods, the auditor's
report, and related notes.
September 30 December 31
1999 1998
(Unaudited)
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Total Assets.................. $ 104,710 $ 30,145
Total Liabilities............. $ 85,353 $ 211,612
Stockholder's Equity ......... $ 19,357 $ (181,467)
Voluntary Filing of this Registration Statement
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The Company has elected to file this Form 10-SB registration statement on
a voluntary basis in order to become subject to the reporting requirements of
Section 13 of the Securities and Exchange Act of 1934, as amended (the "1934
Act"). The primary purpose for this is the Company's intention to reapply for
listing on the National Association of Securities Dealers ("NASD") Over-the
Counter Bulletin Board ("OTCBB"). Under current NASD rules, an issuer cannot
maintain a listing (or apply for a listing) unless it is current in its
reporting obligations under Sections 13 or 15(d) of the 1934 Act. Issuers
listed on the OTCBB prior to the rule change, such as the Company, were given
a phase-in date for completion of the necessary Securities and Exchange
Commission required filings. The phase-in date was based on its trading
symbol at January 4, 1999 which was "DLMI", and, as a result, its phase-in
date was November 1, 1999. This means that the Company had to file its
registration statement and clear S.E.C. comments, on or before that date, or
it would no longer be quoted on the OTCBB. The Company because of its
failure to become subject to the reporting requirements is not quoted on the
OTCBB but appears on the "pink sheets" where it currently trades under the
symbol of "DLMI". The filing of this registration statement will trigger
reporting obligations for the Company sixty (60) days from the filing date.
Once the Company has cleared comments on the within registration statement, it
intends to reapply to the OTCBB for listing.
Forward Looking Information
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This registration statement contains certain forward-looking statements
information relating to the Company that are based upon beliefs of the
Company's Management as well as assumptions made by and information currently
available to the Management. When used in this registration statement, the
words anticipate, believe, estimate, expect, and similar expressions, as they
related to the Company and the Company's Management, are intended to identify
forward-looking statements. Such statements reflect the current view of the
Company with respect to the future events and are subject to certain risks,
uncertainties, and assumptions. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those described herein as anticipated,
believed, estimated or expected. The Company does not intend to update these
forward looking statements.
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Risk Factors Which Could Affect Future Profitability
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THE COMPANY'S LACK OF REVENUES FROM OPERATIONS/ABILITY TO OPERATE AS A GOING
CONCERN - Although the Company has been in business since 1954, it failed in
its initial business purpose and became non-operational until late 1993.
Since 1993, the Company has had a limited operating history and is subject to
all risks inherent in a developing business enterprise. The likelihood of
success of the Company must be considered in light of the problems, expenses,
difficulties, complications, and delays frequently encountered in connection
with a new business in general and those specific to the natural resource
industry and the competitive and regulatory environment in which the Company
will operate. The Company has seen no revenues from operations and has only
limited assets, approximating $104,710 US. Because the Company has not been
able to determine the recoverability of mineral property investments and
deferred exploration costs, during 1998 it booked the entire amount as an
expense loss on impaired assets. The Company's assets have been reduced
accordingly by over $1,300,000 US in its year ended December 31, 1998 from its
fiscal year ended December 31, 1997. The Company had a Net Comprehensive Loss
of $2,747,533 US at from inception (November 1, 1990) to September 30, 1999.
The Company's inability to generate revenue has been acknowledged by the
Company's certified public accountants, Jones Jensen & Company, raising doubts
as to whether or not the Company can operate as an on-going concern. (See PART
I, ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.)
HIGH DEGREE OF RISK FOR THE COMPANY'S MINING /EXPLORATION BUSINESS -THE
COMPANY STILL CONSIDERED AN EXPLORATION STAGE MINING COMPANY. Mineral
exploration is highly speculative in nature, frequently is nonproductive, and
involves many risks, often greater than those involved in the actual mining of
mineralization. Such risks can be considerable and may add unexpected
expenditures or delays to the Company's plans. There can be no assurance that
the Company's mineral exploration activities, which it has been conducting
since late 1993, particularly its exploration for graphite, will be
successful or profitable. Once mineralization is discovered, it can take a
number of years from the initial phase of proving a property until production
is possible, during which time the economic feasibility of production may
change. The Company has spent the years since its reorganization with
Graphite attempting to prove the presence of economically recoverable graphite
on its Bedford Claims. A related factor is that exploration stage companies
use the evaluation work of professional geologists, geophysicists, and
engineers for estimates in determining whether to acquire an interest in
property or to commence exploration or development work. These estimates
generally rely on scientific estimates and economic assumptions, and in some
instances may not be correct, and could result in the expenditure of
substantial amounts of money on a property before it can be determined whether
or not the property contains economically recoverable mineralization. The
economic viability of a property cannot be determined until extensive
exploration and development has been conducted and a comprehensive feasibility
study performed. To date, the Company has spent approximately $685,400 on
exploration of its properties. As of this date, the Company has no
sufficiently proven reserves on any of its claims. Moreover, the market prices
of any minerals produced are subject to fluctuation, which may negatively
affect the economic viability of properties on which expenditures have been
made. (See this PART I, ITEM 1. DESCRIPTION OF BUSINESS AND ITEM 3.
DESCRIPTION OF PROPERTY.)
MARKETABILITY OF THE GRAPHITE -The availability of a ready market for
graphite, should the Company's exploration and development prove successful
and it begins mining, producing and marketing the same, as well as the
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availability of a market for secondary and micronutrient byproducts, and the
prices obtained therefor, will depend on numerous factors beyond the Company's
control. (See this PART I, ITEM 1. DESCRIPTION OF BUSINESS, "Principal
Products and Services and their Markets.")
AVAILABILITY OF EQUIPMENT Periodically, it its efforts to conduct assessment,
exploration, and diamond drilling, as well as future development and
production efforts, the Company is required to utilize certain equipment. The
Company does not own any equipment and retains the services of companies which
have the equipment, manpower and expertise to perform the needed services.
Although the Company has experienced no difficulty in obtaining necessary
equipment, a delay or inability to obtain equipment or man power would cause
delays in completion of the Company's business plan.(See this PART I, ITEM 1.
DESCRIPTION OF BUSINESS, "Sources and Availability of Raw Materials and Name
of Principal Suppliers".)
GOVERNMENTAL REGULATIONS The area of mining operations is regulated by the
Ministry of Northern Development and Mines in the Province of Ontario under
the provisions of the Ontario Mining Act. This statute has been considerably
revised within the last decade and the expressed purpose of the Act is to
encourage prospecting, staking and exploration for the development of mineral
resources and to minimize the impact of these activities on public health and
safety and the environment through the rehabilitation of mining lands in
Ontario. Before the Company's property(s) can be put into production, the
Company must file a closure plan which describes how the site is to be
continually rehabilitated and how the funds are to be provided therefor. The
holders of surface rights on the same property(s) are entitled to prevent the
holder of the mineral rights from carrying out the exploration. (See this PART
I, ITEM 1. DESCRIPTION OF BUSINESS, "Effect of Existing or Probable Government
Regulations".)
DEPENDENCE ON THE COMPANY'S OFFICERS/DIRECTORS/ADVISORY BOARD. The Company is
dependent on the services of its officers and directors, especially A.D.
Houston, its President and Chief Executive Officer. A.D. Houston has
dedicated the majority of his time since 1993 to the business of the Company
often taking stock in exchange for a large portion of his salary and working
for rates below what he could command if he worked elsewhere in the industry.
The loss of any one of the officers and directors services, especially A.D.
Houston's, or an inability to attract or retain qualified personnel, could
have a material adverse effect on the Company. A.D. Houston has been involved
with the Company's properties, as has Brian King, a director, since long
before his involvement with the Company and has had years of experience and
exploration on such property and in the mining business in Canada, in general.
He has also developed numerous relationships with related entities, and is
familiar with local, provincial and national regulations. The Company does
have an advisory board with experience in mining and mining related businesses
which it would be able to rely on if it lost the services of one or more of
its Board members. The Company has no plans to obtain key person life
insurance for its officers and directors. (See PART I, ITEM 5. DIRECTORS,
EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.)
ADDITIONAL FINANCING REQUIRED In order to complete its plan of operation to
explore, prove and ultimately put certain of its mining property into
production of graphite, the Company will need substantial additional funding
over and above the cash available to it at its third quarter end of
approximately $80,000. The Company is conducting a private placement of stock
and warrants which is raising sufficient funds to cover day to day operating
expenses and expenses related to the diamond drilling program which commenced
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in late November. However, such funds are inconsistent and may not be
sufficient to complete its 12 month plan of operation involving the "Meadow
Zone" and provide for the remainder of its cash requirements over the next 12
months. There is no assurance that additional funds will be available from
any source when needed by the Company. The Company will likely require
substantial additional funding to continue exploration and development. (See
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS, "Plan of
Operation.")
BUSINESS OF REGISTRANT
Principal Products or Services and Their Market
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*Introduction*
The Company is in the mining business whereby it holds 80 mining claims in
Southern Ontario, Canada, for the purpose of exploration, development and
subsequent mining production of graphite.
The Company is an exploration stage mining company and has yet to conduct
any mining operations on any of its properties. The Company general business
plan is to: (1) continue with exploration and assessment work on its 80 claims
(required to maintain them in good standing; (2)identify certain of its
claims, which, because of history, geology, and the Company's preliminary
exploration, warrant further exploration and testing in order to prove
reserves (currently portions of its Bedford Claims); (3) conduct and analyze
a diamond drilling program in an effort to indicate proven (measured) reserves
or probable (indicated) reserves thus identifying priority properties for
development (currently on the "Meadow Zone" of the Bedford Claims); (4)
complete survey and contour maps as well as complete and receive approval of
Mine Closure Plans for those properties it intends to mine; (5) commence
development and mining operations on such commercially mineable reserves; and
(6) refine ores mined from such properties at a processing plant owned and
operated by a wholly-subsidiary of the Company for sale of natural graphite
and certain byproducts into the market place.
The Company has identified the "Meadow Zone" area of the Bedford Claims as
an area that warrants development. It has conducted various exploration work
on that area over the past few years including trenching, percussion drilling
and its recently completed diamond drilling program. In addition, bulk samples
have been milled at a pilot plant on an ongoing basis over the past three
years and samples have been supplied to the industry. On December 4, 1999,
the Company completed a 3,000 foot diamond drilling program on the Bedford
Claims "Meadow Zone". Because the Company has identified the claims in the
"Meadow Zone" as likely to contain recoverable reserves, its current priority
is to complete logging of the core, ship the core samples to Lakefield
Research for analysis, and confirm the results by a mining engineer. It will
then proceed to the completion of mine closure plans and commencement of
mining operations. (See Item 1. BUSINESS OF THE REGISTRANT, "Current Status of
the Company's Business", for further discussion on the Company's diamond
drilling program and Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION, "Plan of Operation".)
*The Characteristics of Graphite*
Graphite is one of three known mineral forms of carbon (the other two
being diamonds and coal) occurring naturally in the earths crust in
metamorphic rocks such as crystalline limestone, schist and gneiss. Natural
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graphite is a soft mineral having a hardness of one to two on the Mohs scale,
and, depending on the purity, a specific gravity of 2.20 - 2.30. It is
optically opaque even on its thinnest edge. It has a perfect basil cleavage,
and this, coupled with its extreme softness, gives it an unctuous slippery
feel. It is flexible but not elastic, has high thermal and electrical
conductivity, is highly refractory, and chemically inert.
Natural graphite is formed in either igneous or metamorphic rock
formations. (See ITEM 3. DESCRIPTION OF PROPERTY for a discussion of the
geological composition of the Company's claims.) Most commercial deposits of
natural graphite are of metamorphic origin. In the graphite industry, natural
graphite is classified into three types: flake, high-crystalline and
amorphous. These are then sub-divided into numerous grades for commercial
purposes on the basis of such factors as graphite content, particle size, and
impurity types. It is found in many localities worldwide such a Canada,
Madagascar, Mozambique, Zimbabwe, China and Mexico.
Graphite is mined from open pit and underground mine operations. Open pit
operations are more economical and preferred where overburden is thin enough
to remove. The Company's properties contain flake graphite and will be mined
through an open pit operation.
*Market for Graphite/Consumption*
Graphite is used in a wide variety of industrial applications. It is
unique in that it has the properties of a both a metal and a non-metal.
Metallic properties include thermal and electrical conductivity; non-metallic
properties include inertness, extremely high temperature resistence, and
anisotropy. Graphite is also an excellent lubricant. Lubricity, when
combined with its thermal conductivity, makes it very desirable in high
temperature applications because it results in a material which provides a
thin film lubrication at a friction interface while furnishing a thermally
conductive matrix to remove heat from that same interface. Graphite,
therefore, is a substitute for asbestos in brake lining manufacture. Graphite
also has a unique combination of lubrication and electrical conductivity
making it one of the primary components in the manufacture of brushes for
electric motors.
The refractory industry is one of the major consumers of crystalline
graphite. Applications in that industry include castable ramming, gunning
mixtures and shaped carbon-bonded brick. Carbon-manganese bricks containing
flake graphite have applications in high-temperature corrosive environments
such as steel furnaces, ladles and blast furnaces. Carbon-alumina linings
are principally used in continuous steel casting operations. One of the
Company's potential markets for its graphite, the United States, utilized 27%
of its imported graphite for refractories in 1995, 25% in 1996 and 1997 and
22% in 1998.
While refractories industries and manufacture of brake linings are the
major consumers of graphite, other significant uses of the mineral include
manufacture of low current, long life batteries, steelmaking, manufacture of
rubber, and powder metallurgy, although its use in the low-current, long-life
batteries is decreasing in favor of carbon black. Some of its other
applications include: electrically conducive composites, pencils, foundry
facings, additives for iron and steel, solid carbon shapes, static and dynamic
seals, valve and stem packing, fire retardant, plastics, chemically resistant
coatings, paints, greases and oils, and flexible gaskets.
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*Price of Graphite in the Marketplace*
Information derived from United States government sources indicate that
graphite prices have remained constant during the last five years and
demonstrated a near to supply/demand balance. Crystalline flake graphite
concentrates ranged from $480 - $550 per ton and command higher prices than
the amphorous type which priced at approximately $220 - $235 per ton. Carbon
content, flake and crystal size, size distribution, and ash content affect the
price of graphite. Natural graphite prices are subject to negotiations between
buyer and seller leading to a wide price range throughout a year.
*World Resources/Production/Competition*
The world's inferred reserve based exceeds 800 million tons of recoverable
graphite. In 1998 world production of graphite was estimated at 578,000 tons,
with China being the world's leading graphite producer at 200,000 tons, India
in second place at 125,000 tons, followed by Brazil, Mexico and North Korea.
These five countries accounted for 3/4 of the world's production. Sri Lanka
has accounted for nearly all the high-crystalline graphite produced. During
the 1990's a combination of a decrease in world demand as well as competition
from cheap Chinese material forced many non-Chinese producers to reduce
production or leave the market altogether. China accounted for 1/3 of world
production. Economic recovery has encouraged the opening of new operations
that produce high crystalline flake in Canada, Mozambique, and Tanzania. This
economic recovery gives the Company an opportunity, should it prove successful
in its mining operations, to capitalize on both manufacturers' demands in
Canada as well as in the United States, which imports almost 100% of its
graphite. During 1998, the United States imported 13,400 tons of crystalline
flake graphite from Canada, and in 1997 it imported 15,500 tons of graphite
from Canada. This accounted for 27% and 21% of its imports for consumption of
natural graphite in 1997 and 1998, respectively, with an overall percentage
average from 1994 through 1997 of 27%. Natural graphite in the U.S. was
consumed by approximately 200 manufacturing firms primarily in the
Northeastern and Great Lakes regions thus positioning the Company for
marketing to the United States. Although the Company's first market could well
be localized Canadian manufacturing firms, it may also target the US market
for its refined graphite.
*New Uses/Current Research and Technology/Trends*
Most new graphite products, are being developed through advances in
graphite thermal technology. It is likely that the ability to refine and
modify graphite and carbon products will be the key to future growth and new
markets in the graphite industry. Innovative refining techniques have enabled
the use of improved graphite in friction materials, electronics, and foil and
lubrication applications. Although graphite electrode consumption in
steelmaking has been down due to increased efficiency of iron and steel
producers and the substitution of competing products such as manufactured
graphite powder, scrap from discarded machined shapes, and calcined petroleum
coke, it is anticipated that graphite consumption in the near future will be
high temperature applications in the iron and steel industry as the industry
modernizes production facilities. Brake linings and other friction materials
will steadily consume graphite as new auto production increases and more
replacement parts are required on existing vehicles. Lubrication applications
have been down, however, due to changes in requirements for lubricant
compositions and in processing technologies. Foundry operations will remain a
steady user of graphite despite potential competition from finely ground coke
with olivine. Flexible graphite product lines such as grafoil (a thin
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graphite cloth) will probably be one of the fastest growing markets although
comparatively speaking it will only consume small amounts of natural graphite
compared with major end-users.
Chinese production will continues to influence the market. In the event of
any prices increases, China may increase its production to take advantage of
potentially high profits which could lead to a price decline in certain grades
and possibly to production stoppage in certain countries. If, however, Chinese
iron and steel industry expands its own consumption of natural graphite, then
their exports may actually decline encouraging new producers to enter the
market. Industry trends that appear to be common to advances in graphite
technology and markets include higher purity of graphite, using thermal
processing and acid leaching techniques for such applications as advanced
carbon-graphite composites continues to be a trend. The Company's responses
to the market and trends will be dictated by the market when and if the
Company is able to enter it.
*Fertilizer By-Product*
The Company's processing plan for the recovery of graphite separates
micronutrient and secondary plant nutrients along with the recovery of
graphite. Analysis of ore samples sent to Lakefield Research Limited
demonstrates the presence of secondary plant nutrients utilized in fertilizers
such as calcium and magnesium, as well as micronutrients. Both secondary
plant nutrients, which are required by plants in smaller amounts than primary
nutrients, and micronutrients, which are required in only minute amounts, are
essential to plant life. Increased crop yields, sandy soils, and leaching due
to high rainfall or irrigation are factors influencing the use of secondary
nutrients in fertilizers such as magnesium and sulphurs. The use of calcium
is dictated by special crop needs and unusual soil conditions. Common
fertilizers containing these secondary nutrients are potassium sulphate,
sulfate of potash magnesia, gypsum, normal superphosphate, magnesium sulfate,
elemental sulphur, and calcium nitrate. Analysis of samples sent to Lakefield
Research in February of 1999, indicate the presence of 550 lbs of calcium per
ton, and 59 lbs. of magnesium per ton. Although these are only estimates,
prior assays of samples sent to Lakefield have also confirmed the presence of
these and other secondary nutrients in the tailings.
Increased crop production, high yield goals, and diminished soil reserves
have combined to increase the consumption of micronutrient fertilizers in
recent years. Micronutrients, which must be added to certain soils as
fertilizers, include boron, copper, iron, manganese, molybdenum and zinc. Use
of manganese and zinc is much higher than the use of other micronutrients
because these are mainly applied to corn, wheat, soybeans, cotton, and rice
which are grown over the largest acreage in the United States. Because of
dramatic increases in the uses of these two micronutrients between 1967 (when
the USDA first began obtaining information on U.S. micronutrient consumption)
and 1980, has resulted in a change in reporting procedures to include
industrial byproducts containing manganese or zinc for fertilizers. The
February 1999 Lakefield analysis indicates both the presence of zinc and
manganese in the samples sent by the Company.
Because demands for higher crop yields can no longer be met by putting new
lands into cultivation, agriculture has shifted to increasing crop yields
through fertilization and improved crop varieties and cultural practices. As a
result, the growth of the fertilizer industry has been phenomenal especially
in the 1960's and 1970's when the growing world population stimulated crop
production in the United States. Despite the fall of farm commodity prices in
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subsequent years in the face of over production, crop yields have continued to
set records as farmers increased the efficiency of fertilizer use. World
population forecasts of 6 billion people have now become a reality. Up until
now, world capita food production has kept pace with population growth much of
it due to proper use of fertilizers. As nutrient removal becomes a critical
factor in future crop production, the use of fertilizers and other
agricultural inputs will remain a keystone to successful world agriculture.
The Company sees this demand as a way to increase the profitability of its
mining operations by reducing the amount of overburden which must be disposed
of and increasing the potential profitability of its refining operations
through its ability to market both natural graphite and the separated
secondary and micronutrients which it will market to the agriculture industry.
Distribution Methods of the Products or Service
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The Company, once it reaches production stage, will market its graphite to
the following types of industries:
* Manufacturers of graphite pucks used in the manufacture of steel
* Refractory manufacturers
* Brake lining manufacturers
* Specialty manufacturers
It also intends to market micronutrients and secondary nutrients, which it
will produce as a byproduct of graphite production, to the fertilizer/
agriculture industry.
The Company's ultimate marketing plan will be dictated by many of the
factors discussed under "World Resources/Production/Competition", including
the world market at the time it begins mining and refining natural graphite,
as well as the type and quality of its product. It will also be dictated by
some of the various trends discussed under "New Uses/Current Research and
Technology/Trends." Before the Company can begin making specific marketing
plans, it must establish the size and type of its reserves. The Company will
likely refine its graphitic ore in accordance to specifications of its various
end-users and will be required to meet certain performance guarantees. Its
ability to meet any established performance guarantees and production
capacities will also influence its marketing plans.
The Company has had preliminary discussions with various entities such as
Krystar International, a company which is supplying formulations and materials
throughout the world to the brake lining industry. The Company preliminary
marketing plans are to market a large percentage of its graphite to the brake
lining industry either directly to local Canadian manufacturing companies,
through distributors, or through selling agents. The Company's officers and
directors have been involved in the mining industry for many years and have
many contacts in the industry. The Company does not believe that it will have
any difficulty in marketing its graphite, if it reaches production stage
unless: (1)world demand for graphite changes dramatically, (2)it is unable to
meet production specifications and capacities, or (3) it is unable to refine
its ore in a profitable manner.
Competitive Business Conditions/Competitive Position in the Industry/Methods
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of Competition
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The demand for graphite in the world market is high, and, to the best
knowledge of the Company, there is only one producing graphite mine in North
America. The Company, therefore, believes that it will have little difficulty
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marketing its graphite when it reaches production stage. The Company may be
required to compete, however, with other producers of graphite which market
graphite internationally and have larger name recognition, more experience in
commercial mining operations, and better capability to withstand price
fluctuations in the market place. Such international marketers/producers of
graphite are from countries such as Sri Lanka (which produces both lump and
chip graphite), China, Madagascar and Brazil. It will also be dependent on
the prices established in the market by product demand and will need to
establish relationships with graphite end-users and product manufacturers
which are already dealing with known mining companies/graphite distributors in
the industry as well as keep production costs as low as possible. The United
States produces no graphite and the Company will be in a position to supply
not only manufacturers which require natural graphite in Canada, but also
manufacturing firms in the Northeastern United States and the Great Lake
region. The Company intends to compete by: (1) its belief that its graphite
reserve will prove to be rich; (2) preliminary indications that tailings will
be useful in the fertilizer industry thus giving the Company an extra source
of revenue and reducing costs of tailings removal; (3) existing demands in
Canada and the United States (which does not produce graphite) and its
proximity to high demand areas in the United States; and (4) long years of
contacts in the industry developed by officers, directors, and advisors of the
Company. The Company's major target market will be the puck manufacture of
graphite pucks for the steel industry. The demand for graphite in this market
is greater than all other combined users.
The Company will also suffer competition from other industries which
produce and market secondary and micronutrients to the agriculture industry.
The Company continues to have samples analyzed for content of the foregoing to
better decide on both production and marketing strategies for micro and
secondary nutrients. The Company also is establishing relationships with
persons/entities which can help position the Company to compete successfully
in the fertilizer market when and if it goes into actual mining and
production.
Sources and Availability of Raw Materials/Names of Principal Suppliers
- -----------------------------------------------------------------------
In its efforts to conduct assessment, exploration, and diamond drilling,
as well as future development and production efforts, the Company is required
to utilize certain equipment. The Company does not own any equipment and
retains the services of companies which have the equipment, manpower and
expertise to perform the needed services. Such equipment includes, but is not
limited to, rock drills, excavators, float movers and vehicles. The Bedford
Claims are located in an area of Ontario that has sufficient equipment
available to the Company as well as contractors available to provide those
services needed by the Company as they are needed. Both Brian King and A.D.
Houston have numerous local contacts in the industry. To date, the Company
has experienced little or no difficulty in locating and hiring various
equipment as needed, and has suffered no material delays for lack of available
equipment or contractors. Gordan Barr Ltd. of Kingston, Ontario and Roncor
Drilling of Sudbury, Ontario, are two of the entities which have provided
services to the Company. Upon approval of the regulatory bodies governing
mining operation, the Company will contract the open pit mining and crushing
to approved contractors.
Dependence on a Few Major Customers
- ----------------------------------
The Company has no customers to date and does not expect to depend on a
few major customers when and if it begins the actual commencement of mining
operations.
11
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Patents, Trademarks, Licenses, Franchises, Concessions, Royalties Agreements,
- ----------------------------------------------------------------------------
Labor Contracts
- ---------------
There are no patents, trademarks, licenses, franchises, concessions, or
labor contracts in effect. The Company does have agreements in effect which
guarantee various production royalties. Certain individuals will receive
royalties of 1% of net proceeds of sales of any and all products extracted
from the Bedford Claims up to $566,800 US pursuant to an option agreement
effectuating the transfer of title of the 41 Bedford Claims to A. D. Houston
in 1988. An additional 3% net smelter return on the subject claims will be
paid to A.D. Houston and various grubstakers as part of the transfer of
interest of the Bedford Claims to Graphite in 1993. Also, the Company's
acquisition of the Timmins Claims through an agreement with P&G Development
provided for the reservation by P&G of a 3% net smelter return in favor of P&G
of any and all minerals mined and drilled from and of the Timmins Claims. (See
ITEM 3. DESCRIPTION OF PROPERTY, "Brief Description of Title and Claim to
Properties" for a discussion on the foregoing transfers of ownership and
royalties.)
Need for Government Approval/Effect of Existing or Probable Government
- ----------------------------------------------------------------------
Regulations/Costs and Effects of Compliance
- -------------------------------------------
The area of mining operations is regulated by the Ministry of Northern
Development and Mines in the Province of Ontario under the provisions of the
Ontario Mining Act (the "Mining Act"). This statute has been considerably
revised within the last decade and the expressed purpose of the Mining Act is
to encourage prospecting, staking and exploration for the development of
mineral resources and to minimize the impact of these activities on public
health and safety and the environment through the rehabilitation of mining
lands in Ontario. Only if the mineral mined is deemed to be a strategic
mineral, or if mining operations affect federal territory such as navigable
waters, does the government of Canada have jurisdiction. The Mining Act
provides that all lands on which mineral rights are reserved to the province
are open for staking by the holder of a prospector's license. The licensed
holder of a properly staked mining claim has the right, subject to the other
provisions of the Mining Act, to work such claim, bring the same to lease and
transfer his or her interest to another person but, where surface rights on
the land have been granted to another person, the holder may be required to
compensate such person for any damage done by such work.
The holder of the mining claim must perform and record assessment work
over a five year period. If the holder fails to do so, the claims are
forfeited to the province and will be again open for staking.
The question of compensation for surface rights and all questions and
disputes relating to mining claims are determined by the Mining and Lands
Commission appointed under the Mining Act. When the necessary assessment work
has been completed in accordance with the provisions of the Mining Act, and a
survey prepared of the mining claim, if it is unsurveyed territory, and
payment of the first year's rent made, the holder of the mining claim is
entitled to lease of the claim from the province. The original term of the
mining lease is for 21 years, and the same can be renewed for a further 21
year term but only if the claim is being worked for mining purposes.
Before the advanced exploration is carried out on any mining claim,
however, or it is brought into production, notice must be given to the
director under the Mining Act and to the public and a proposed closure plan
submitted which provide for the method and the funding of the environmental
12
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rehabilitation of the lands in question.
The Company has applied to take ten claims to lease and has come to an
agreement with the surface rights holder regarding a yearly compensation of
$20,000 CDN. (See "Current Status of the Company's Business, Lease
Applications", below.) It intends to complete its mine closure plans during
the next 12 months.
Current Status of the Company's Business
-Exploration and Diamond Drilling Program on the "Meadow Zone" -
Since 1993, and the acquisition of its Bedford Claims, the majority of the
Company's efforts have been in performing exploration on its claims,
maintaining the same in good standing through assessment work, and identifying
those properties which warrant further exploration in order to prove reserves.
Prior exploration and the results of its own exploration and assessment work
has shown strong evidence that some of the properties have sufficient
mineralization to warrant the commencement of mining operations. The Company
has specifically identified a portion of the Bedford Claims in an area known
as the "Meadow Zone" which is located on four of the Bedford Claims being part
of a block of 12 claims or 600 acres, for development. In 1997 the Company
conducted an 16 hole air-drilling program on the Meadow Zone with favorable
results. During this year, the Company has conducted additional air drilling
on that area with 22 more holes. The Company does not yet have the results
from the 600 samples acquired. On November 22, 1999 the Company conducted a
3,000 foot diamond drilling on the Meadow Zone to prove ore reserves. The
drilling was contracted to Roncore Drilling of Sudbury, Ontario and was
completed on December 4, 1999. On the completion of the logging of the cores
of the diamond drill holes, the mineralized section of the core will be split:
half for assaying and half kept for reference. The half core for assaying
will be shipped to an analytical assayer, Lakefield Research at Lakefield,
Ontario Canada in order to establish the total carbon content as well as the
graphitic carbon. Upon receipt of the assays from Lakefield research, a
geological report will be prepared showing the assay results of the total
sections of each hole. This information will be compiled to establish the
proven ore in each of two areas of the Meadow Zone. The final geological
report will be confirmed by a an approved mining engineer acceptable to the
regulatory bodies. (For detailed information on exploration and development
work on the Bedford Claims, see this PART I, ITEM 3. DESCRIPTION OF PROPERTY,
"History of Claims/Operations/Exploration".)
- Lease Applications -
The Company is required to take any mining claims which it intends to
operate to lease before a license will be granted to operate the claims. The
Company has submitted its application to Ministry of Northern Development and
Mines to take the 10 claims to lease which will be the subject of its initial
mining operations. The Company has applied to take the following 10 claims to
lease: SO1037728, SO1037727, SO1037726, SO1037725, SO1037717, SO1037718,
SO1037719, SO1037720, SO1037692, and SO1191264. As required under the Mining
Act, compensation has been determined and paid to the holder of the surface
rights to the foregoing claims, entitling the Company to continue with
operations. The Company has agreed upon compensation of $20,000 CDN per year
to the surface rights owner. (For a full discussion on the Company's mining
claims, see PART I, ITEM 3. DESCRIPTION OF PROPERTY, and the various
subcategories thereunder which include: Brief Description of Title and Claim
to Properties; Property Location and Access; History of Claims/Operations/
Exploration; Geology and Mineralization; and Reserve Estimates.)
13
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- -The Company's Wholly Owned Subsidiaries -
GRAPHITE MOUNTAIN INC. Graphite was incorporated on November 1, 1990
under the Business Corporations Act of the Province of Ontario as a private
company and was acquired by the Company in November of 1993 through issuance
of 16.8 Million of its common shares. Of the 16.8 Million shares issued, 16.3
were issued to the existing shareholders of Graphite on a pro rata basis of 3
shares of the Company for each 1 outstanding share of Graphite, with
Graphite's total outstanding shares at the time of the reorganization being
5,433,333 shares. The balance of the 500,000 shares were issued to certain
individuals for services rendered in connection with the reverse acquisition
transaction. As a result, Graphite became a wholly owned subsidiary of the
Company. Of the 80 claims currently owned by the Company, all are recorded in
the named of Graphite. (For information on Graphite's title to the claims, see
this PART I, ITEM 3. DESCRIPTION OF PROPERTY, "Brief Description of Property
and Title to Claims.
ENVIRONMENTAL CARBONATES, INC. Environmental Carbonates, Inc. ("ECI")
was incorporated in August of 1996, under the Business Corporations Act of the
Province of Ontario as a private company and a subsidiary of the Company. It
was founded as an operating entity of the Company for the purpose of owning
and running a production facility. ECI purchased real property in Perth
Ontario, for $19,196 US during 1997. Certain equipment on the premises was not
included in the purchase price and was to be removed by the bank which owned
the equipment. The bank gave the Company full title to the equipment which
the Company intends to sell. The production facility will be made operational
upon commencement of bulk sampling.
- -The Company's Production Facility-
An industrial building for the production of graphite was purchased on May
28, 1997 by the Company's subsidiary, Environmental Carbonates, Inc for
$19,196 US. The plant is 5,000 feet square and sufficient for two lines of
production equipment capable of processing 500 plus tons of ore per 24 hour
day. The facility is not operational. The Company will need to purchase and
install the necessary production equipment which would basically be a
mechanical-pneumatic system comprised of such components as a hopper/feeder, a
blower assembly, a rear accelerator, a screw auger, a discharge system, and a
production flow line. The Company intends to eventually install two lines of
equipment. The Company estimates it will require approximately $4 Million CDN
to purchase equipment and begin graphite production and will not make the
facility operational unless it proves economically recoverable reserves on its
properties. (See "The Company's Wholly Owned Subsidiaries", above.)
Research and Development Activities in the Past Two Years
- ---------------------------------------------------------
The majority of the Company's development activities in the past two years
is discussed under ITEM 3. DESCRIPTION OF PROPERTIES which details exploration
activities on its claims.
Total Number of Employees
- --------------------------
The Company has two full-time employees including A.D. Houston (See ITEM
6. EXECUTIVE COMPENSATION, for further information on A.D. Houston.) The
second employee is actually employed by Graphite, the Company's wholly owned
subsidiary.
14
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Results of Operations
- ---------------------
For purposes of this registration statement, the Company is considered an
exploration stage company within the meaning of Guide 7 (for mining companies)
of the United States Securities Act Industry Guides; however, for purposes of
its financial statements, it is considered a development stage company and
complies with FASB Statement No.7.
In the course of acquiring mining claims and conducting exploration and
assessment work, the Company issued 16,812,000 shares of its common stock in a
reverse acquisition transaction which resulted Graphite becoming its wholly
owed subsidiary and its ownership of the Bedford Claims. The consideration for
the property acquisition was valued at the predecessor cost of the cash paid
in the option payments made on the claims of $200,000 CDN ($120,978 US). The
Company also issued 4,000,000 common shares in the acquisition of its Timmins
Claims at $.25 per share or $720,523. Mineral property acquisition has
therefore been funded mainly through issuance of common stock.
The Company's mineral properties are valued at the acquisition cost or
$851,501, and, up until 1997, the Company booked its deferred exploration as
part of additional valuation to its mineral properties at $659,595. The
recovery of amounts shown as the cost of acquisition and related exploration
costs is dependent on discovery of economically recoverable reserves,
confirmation of the Company's interest in the underlying claims, and the
ability of the Company to obtain necessary financing to complete development
of the properties as well as future profitable production. Because Management
is not able to determine what the recoverability of the such costs, a reserve
impairment was recorded during the 1998 fiscal year for the full amount of the
capitalized costs.
The Company has consistently shown operating losses since 1990 and no
revenues, and since inception, the Company has incurred a net comprehensive
loss of $2,747,533 US (at September 30, 1999). During the first 3 quarters of
1999, the Company had a net operating loss of $178,982 US; at its year ended
December 31, 1998 it showed a net operating loss of $ 1,582,939 US; and, at
December 31, 1997 it showed a net operating loss of $ 174,105 US. The large
increase in its net loss in 1998 was due to the Company showing mineral
acquisition and deferred exploration costs previously booked on the Company's
Balance Sheet as expensed to impaired assets during that fiscal year.
Expenses incurred each year are those associated with general and
administrative costs including legal and accounting related to offerings of
its common stock and reporting requirements, as well as exploration and
maintaining the currency of its mining claims through assessment work, and
compensation to the Company's Chief Executive Officer. Since the Company's
acquisition transaction with Graphite in 1993, the Company has been dependent
on sales of its common stock and cash advances by the Company's officers and
directors and certain shareholders, especially those shareholders on the
Company's advisory board (all "accredited investors") who have consistently
purchased shares of the Company's common stock to fund its exploration and day
to day operations. To date, those individuals who have advanced funds to the
Company, mostly A.D. Houston or a company controlled by A.D. Houston, have
been willing to take stock in repayment of the advances/loans. At September
30, 1999, these related parties are currently due $37,266 US and the
advances/loans are interest free and have no set terms of repayment. In
addition, the Company has relied on the willingness of A.D. Houston to take a
large portion of his salary, which is usually deferred, in shares of common
stock.
15
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Plan of Operation
- -----------------
On December 4, 1999, the Company completed a 3,000 foot diamond drilling
program on the Meadow Zone to prove ore reserves. During the next 12 months,
the Company will complete logging of the cores of the diamond drilling holes;
send half of the mineralized section of the core to Lakefield Research to
establish total carbon content and graphitic carbon; prepare a geological
report showing assay results of the total sections of each hole; confirm the
geological report by an approved mining engineer; complete geological mapping
(MDX GeoServices); and begin working on Mine Closure Plans.
The Company has paid in full for the diamond drilling itself and has
advanced $25,000 CDN to MDX for geological mapping. In addition, the Company
expects to expend the following on its plan of operation in the next year, all
of which are estimated.
Core analysis estimate $ 15,000 CDN
Preparation of samples 15,000 CDN
Engineers report 12,000 CDN
Miscellaneous 8,000 CDN
Payment to surface rights owner 20,000 CDN
---------
Total $ 70,000 CDN (approximately $47,000US)
The Company, therefore, expects to expend approximately $47,000 US in order
to reach the stage where it can begin working on Mine Closure Plans. The
Company has also will require approximately $150,000 US for general
administrative expenses which include office rent, assessment work,
secretarial services and automobile lease payments on two Company vehicles as
well as A.D. Houston's salary of $120,000 US per year. The Company will incur
higher than normal legal and accounting expenses related to the filing of this
registration statement and periodic filing requirements over the next year
which it estimates at $ 40,000 US over the next 12 months. The Company's
estimate of cash requirements over the next 12 months are a total of
approximately $ 237,000 US.
The Company does not have sufficient cash to satisfy these requirements
and will need to raised additional funds. The Company expects that A.D.
Houston will, as usual, advance the funds for office rent, car leases, and
secretarial and that he will defer his compensation, a large portion of which
will be compensated in stock at a later date. Therefore, the Company can
expect to fund a portion of its expenses through stock issuance. Another
portion of the balance of the expected cash requirements will be funded
through its current private placement of stock and warrants which will close
on or before 60 days from the filing of this registration statement. The
Company can expect to raise additional funds in the offering in two ways: the
Company may sell additional Units; or, once the geological report establishing
tonnage of proven ore on the two areas of the Meadow Zone has been completed,
the Company will notify warrant holders and send them a copy of the report
enabling them to exercise their warrants in accordance with the terms of their
purchase of the Units. Because this private placement is being made in
reliance on Regulation D, Rule 504, and the Company is integrating the
offering with a prior 504 offering conducted earlier this year, the Company is
limited in how much it can raise in the offering to an additional approximate
$400,000 US. In addition, the Company will be required to complete the
offering within sixty days of this registration statement or rely on an
alternative exemption from registration under United States securities laws to
complete the offering. The Company believes the maximum proceeds of $400,000
it can raise under the current offering will be sufficient to complete its
16
<PAGE>
plan of operation over the next 12 months with any additional funds it raises
over and above its estimated cash flow requirements of $237,000 US to be
dedicated to working on mine closure plans.
The Company does not anticipate hiring any additional employees or
purchasing any property or equipment in the next 12 months unless it completes
its plan of operation sooner than scheduled and is able to move on to its next
phase: the actual commencement of mining operations.
The Company's 12 month plan of operation will be subject to certain risk
factors, many which will be beyond the Company's control. These include, but
are not limited to, those risk factors set forth under "RISK FACTORS",
"Business Development" section of PART I, ITEM 1. DESCRIPTION OF BUSINESS.
Long Term Plan of Operation
- ---------------------------
Once the Company has established proven reserves, it plans to begin the
development phase of its operations during the latter 2000 or early 2001. The
Company estimated cost to the Company is a minimum of $4 Million CDN
(approximately $2.65 Million US). This estimate includes the Company's
anticipated expenses in making its production facility operational including
the purchase of equipment for at least one production line.
Year 2000 Compliance
- ---------------------
Because of the nature of the Company's operations, it is believed that the
Year 2000 issues will not affect the Company. The Company and those entities
it associates with in the conduct of exploration and development of its claims
do not utilize computer systems which would be affected by Year 2000 issues.
The Company itself has updated its own computer systems, both software and
hardware, to be Y2K compliant.
Item 3. DESCRIPTION OF PROPERTY
Brief Description of Title and Claim to Properties
- --------------------------------------------------
* Bedford Claims *
The 41 claims known as the Bedford Claims are located in Bedford Township,
Frontenac Township, Southern Ontario Mining District, and were originally
acquired through an option agreement, dated December 1, 1988 between two
individuals (referred to as the "Optionors") and the Company's now President,
A. D. Houston as the optionee, whereby, Mr. Houston agreed to pay Optionors an
aggregate of $200,000CDN ($120,978US) for the claims. In addition, Optionors
would receive royalties of 1% of net proceeds of sales of any and all products
extracted from the claims up to $566,800US. A.D. Houston paid the agreed upon
cash consideration and between 1989 and 1992, he sold approximately 49% of his
acquired interest to approximately 27 Canadian individuals (the
"Grubstakers"). In November of 1993, Graphite was assigned all of the
interest in the claims for consideration of the allotment to A.D. Houston and
the Grubstaker group of 2,000,000 shares of Graphite at a deemed price of $.25
per share on a pro-rata basis. The group is also to receive, on a pro rata
basis, a 3% net smelter return on the subject claims. The issuance of the
2,000,000 shares of Graphite for the Bedford Claims resulted in 5,433,333
Graphite shares subscribed for and allotted. The 41 Bedford Claims were
officially transferred and recorded in the name of Graphite on November 10,
1993. On November 30, 1993, the Company acquired Graphite Mountain as a wholly
owned subsidiary by issuing an aggregate of 16,800,000 shares of its
unregistered common shares on a pro rata basis to the shareholders of
17
<PAGE>
Graphite, in exchange for all of the issued and outstanding shares of
Graphite (5,433,333 shares). The Company, as the owner of all of the issued
and outstanding shares of Graphite, is the beneficial owner of the 41 Bedford
Claims. (For a full list of the 41 Bedford Claims, see Exhibit 99.)
Various individuals hold the surface rights to the various mining claims
but such rights will not interfere with the mining operations, when and if
conducted, if appropriate compensation is made in accordance with the
provisions of the Mining Act. The following is a list of the Bedford Claims,
located in central Bedford Township, Frontenac County. They can be located on
NTS map 31 C/9 and 31 C/10: EO1037688 through EO1037712 and EO1037717 through
EO1037732 (see Exhibit 99.)
*Timmins Claims*
On December 17, 1994, the Company entered into an agreement with P&G
Development, Inc., a Canadian corporation formed under the Prospecting and
Grubstakers Act ("P&G"), whereby P&G conveyed all of its right, title and
interest in 39 mining claims located in North Burgess Township, County of
Lanark, Southern Ontario, Canada, to the Company (recorded in the name of
Graphite), in exchange for the issuance of 4,000,000 unregistered common
shares of the Company, and the sum of $90,000 US. The foregoing constituted
full payment for the 39 Timmins Claims except for the reservation by P&G of a
3% net smelter return in favor of P&G of any and all minerals mined and
drilled from and of the Timmins Claims. For a full list of 39 Timmins Claims,
see Exhibit 99. List of the Company's Mining Claims. The Timmins property is
located near the Bedford Claims and consists of a similar geology. Various
individuals hold the surface rights to the various mining claims but such
rights will not interfere with the mining operations, when and if conducted,
if appropriate compensation is made in accordance with the provisions of the
Mining Act. The following are a list of the Timmins Claims: EO 84066 - EO
840574; SI 748510 - SO 748519; and SO 748709 - SO 748728. (See Exhibit 99)
Property Location and Access
- ----------------------------
The Bedford Claims are located approximately 45km north of the City of
Kingston in central Bedford Township, Frontenac County, Ontario, Canada. They
are accessed by County Road #8 & 12 leading to Highway 38 which connects to
the Trans Canada Highway linking Toronto to Ottawa. In addition, the Bedford
Claims are located about 30 minutes north of Highway 401 and one hour from the
Canada/United States border crossing near Gananoque, Ontario. On a National
Topographic Maps System map, the Bedford Claims can be located on maps NTS 31
C/9 and 31 C/10 and on the Ontario Department of Mines Map 1947-5, map 2054
and Ontario Mineral Potential Map P-1505.
The Timmins Claims are located on 1,950 acres approximately 25 miles
northeast of Bedford Claims near the village of Westport, vicinity of Lot 25,
Concession V, North Burgess Township, Lanark County, Southern Ontario, Canada.
The Timmins Claims can be accessed by taking Highway #401 to Kingston, Ontario
and exiting at exit #617 north onto highway #10 to Westport, Ontario.
History of Claims/Operations/Exploration
- -----------------------------------------
There have been no operations conducted on any of the Company's claims by
the Company and/or Graphite, other than the required assessment work
preliminary exploration including certain trenching and drilling programs. As
of the date hereof, all of the assessment work has been completed and the each
of the claims is considered in compliance. The Company intends to have
engineering reports completed on certain of the following properties. If the
18
<PAGE>
reports indicate probable or proven reserves, the Company intends to develop
and subsequently exploit the same. The following discussion on each of
Company's properties takes into account each group of claims history,
operations and exploration.
*Bedford Claims *
HISTORY - The Company's acquisition of the Bedford Claims was based upon
exploration by the Company's President who began prospecting the Bedford
Claims in 1988, prior to his involvement in the Company, private reports by
Mr. Brian King, a geologist, prior to his becoming affiliated with the
Company, and such historical information as was available. The Bedford Claims
have little recorded history of mineral exploration. There are numerous pits,
trenches and shafts throughout the district, these having been put down on
galena prospects prior to l915. Galena occurrences are found in late stage
fault related calcite fissure veins that are situated throughout the Kingston-
Madoc-Bancroft region. Several galena deposits were mined extensively during
the early part of the 20th century with production reaching several million
pounds of lead. There is a graphite occurrence recorded in Lot 18, Conc.
VIII but there is little documented other than the existence of several small
pits. Only minor graphite exploration has been carried out in the area since
operations ceased on the Black Donald Mine in 1954. South of the Bedford
Claims, a graphite deposit consisting of several hundred thousand tons has
been partially developed as an underground mine in the south part of Bedford
Township (known as the Kirkham Graphite Deposit, fka Stewart Lake Resources) .
CURRENT EXPLORATION/WORK PERFORMED - Throughout 1997, a 2-phased
exploration program consisting of surface stripping, trenching and sampling
followed by a limited drilling program was completed within the "Meadow Zone",
located in Lot 16 of Concession V. The "Meadow Zone" was selected for this
program based on the results of several years of prospecting about the claim
group, although four other zones were identified which the Company believes
merit further exploration:
1. The Houston Zone (Lot 13, Concession IV),
2. The Sangster Zone (paralleling the Westport Highway from Lot 14
northeast to Lot 15, Concession V)
3. The Robinson Zone (centered on Lots 18 and 19, Concession VII
including the abandoned Robinson Barite/Galena Mine
4. The Central Zone (on Lot 17, Concession VI near the abandoned
Murphy/Hickey Barite-Galena Mine
Through conventional prospecting methods, the "Meadow Zone" was
determined to have a high exploration priority. A total of 11 major trenches
were excavated. The trenching exposed a graphitic schist in numerous
locations along the 350+ meter strike length which commonly exceed 10m of
continuous mineralization with bands of marble, generally containing
disseminate flake graphite above and below the graphitic schist. During the
trenching program selected mineralized zones were sampled. A total of 16
samples were submitted to Lakefield Research for graphitic carbon assay. The
assay values were in the range of 6-10%. Apatite (which can be sold as a
natural micronutrient fertilizer) recovery was estimated at 70 - 80%. The
trench results appear to demonstrate the apparent continuity of mineralized
zones and also suggest that the grade of mineralization is relatively
consistent.
Once stripping and trenching was completed, a limited percussion borehole
program drilling program was undertaken in September of 1997 to confirm
overall continuity of the mineralized zone. The operator of the "air
19
<PAGE>
track" drill was Gordon Barr Limited of Kingston Ontario and the drilling, log
maintenance, and sample handling and data analysis was supervised by Brian
King, a director of the Company and the owner of MDX GeoServices. A total of
16 vertical boreholes were advanced, most of which intersected the near
surface part of the main graphitic zone. Several of the bore holes ended in
significant mineralization at the limit of the drilling equipment's reach
(approximately 30m). The results of the percussion drilling program indicated
3,263,150 tons of material at 3.72%G(c) (graphitic carbon) 87,909 tons of
graphite contained. This preliminary estimate covers only a comparatively
small part of the Company's claim group (approximately 6 hectares) and relates
only to one of several mineralized zones throughout the property. Although not
yet explored, likely extensions of the Meadow Zone have been identified and
prospected south and northeast of the tested area. A significant potential
for discovery of further graphite resources is indicated in these areas. (See
this ITEM 3. DESCRIPTION OF PROPERTY, "Reserve Estimates", below.)
In 1998, the Company performed additional stripping and trenching of the
"Meadow Zone" and uncovered surface deposits of graphite along a strike length
of 500 meters.
In October 1999, the Company conducted additional percussion drilling with
22 additional vertical bore holes. The Company has not yet received the
results of the approximately 600 samples available for assay.
In November of 1999, the Company began a 3,000 foot diamond drilling
program on the Meadow Zone which was completed on December 4, 1999. The
purpose of this program is to confirm the results of the previously completed
percussion drilling in 1997 and 1999, and to establish an initial estimate of
it. (See "Current Status of the Company's Business" under Item 1. BUSINESS OF
THE REGISTRANT for a detailed discussion on the recently completed diamond
drilling program.)
*The Timmins Claims *
The Company's acquisition of the Timmins Claims was based on an
independent geologist report by John R. Goodwin of Goodwin Minerals
Exploration completed in 1989 and additional reports conducted by MDX
GeoServices, an affiliate of the Company. Both reports indicate probable
graphite reserves and similar geology to the Bedford Claims. The Company also
received a reserve report from J.E Tilsley & Associates Ltd. in March of 1998.
HISTORY - Historical record of the property indicates that a graphite
deposit was discovered in 1917 by Mr. Frank Hines in lots 24 and 25,
Concession V in North Burgess Township. The property was initially explored
from 1918 to 1923 by Noah Timmins who completed 6 shallow diamond holes and
numerous exploratory pits. In 1951, was the property was further explored by
Frobisher Ltd through drilling an additional 5 diamond drill holes which
outlined a part of the ore body containing approximately 55,000 tons with an
average grade if 7.5% carbon over a length of 100m. In another zone, 15
additional diamond drill holes were completed indicated the presence of a 140m
long ore body with an average grade of 8.4% Carbon. A test milling of ore
obtained from surface pits was also conducted at the Black Donald Mine a
graphite mine which was operating in the region at the time. In 1981, Orrwell
Energy Corporation completed a comprehensive compilation of the known drilling
and trenching results in lots 23 to 26 , Concession V. Orrwells' consulting
engineer located many of the recorded trenches and assembled data with the
drill plans from previous work. Samples from on-site stock piles were
collected and submitted to F. Baril & Associates for test purposes to
determine whether the economic graphite concentrates could be produced from
20
<PAGE>
the Timmins properties ores. In 1989, Lodi Metals-Black Hawk Mining Inc.
completed an exploration program concentrated on the general area as previous
workers, although the area explored was substantially larger, consisting of 39
claims (the current Timmins Claims) or roughly 2,000 acres. The work included
13,365.5 feet of diamond drilling, excavating of 69 trenches about the claim
group and geophysical surveys and geological mapping. At completion, Lodi-
Black Hawk's consultant recommended further expenditure of $500,000 for
additional, more detailed follow-up exploration.
WORK PERFORMED AND CURRENT EXPLORATION - Other than assessment work to
maintain the Timmins Claims in good standing, the Company has not conducted
any other current exploration on the claims. The Company intends to put the
Timmins Claims into production if it can prove recoverable reserves are
located on the claims. The Company, as of the date hereof, has not scheduled
drilling and sampling sufficient for reserve analysis because it is
concentrating its efforts on the meadow zone located on the Bedford Claims.
Geology and Mineralization
- --------------------------
* Bedford Claims *
For the most part the Bedford Claims are typical of Southern Ontario's
Precambrian Shield terrain with small area being cultivated (primarily on
carbonate bearing bedrock) and the remaining forest covered. In general the
claim area has poor soil development with portions supporting minor
agriculture, mostly pasture and containing numerous rocky ridges. Overall
average relief is less than 5 metres and locally reaches about 15 meters.
Overburden is mostly glacial debris and outwash and not particularly thick,
between 1 - 5 meters in depth. Small wetlands commonly occupy areas between
the ridges in the forested area.
The Bedford Claims generally contain three types of rock: Grenville
marbles, intercalated rusty and siliceous Paragneisses, and granitic sills
and other small intrusives. The metasedimentary units appear to overlie and
have been intruded by granites and granitic gneisses. Minor mafic and
intermediate dikes are found locally within the region although these make up
a very small portion of the bedrock exposures. The claim group contains very
coarsely crystalline Grenville marbles which have been intruded with gneiss
and remobilized granitic basement rocks. The marble units are considered to
be thin sequences which were at one time carbonate shelf sediments. More than
50% of the Bedford Township region is underlain by granitic gneisses which
have undergone considerable upwelling. These rocks and the overlying marbles
represent the lower portions of the stratigraphic column in this area and have
endured very deep burial. This has resulted in upper amphibolite grade (and
perhaps higher) metamorphic effects. The rusty paragneisses apparently occur
in comparatively narrow zones within the marbles and are thought to represent
more siliceous sediments. These generally do have a carbonate component and
were likely formed in an environment of higher energy. These may have a minor
volcanic component or may simply be muddy near shore deposits. Often, the
rusty paragenisses contain significant graphite content, commonly exceeding
5% (by weight) graphitic carbon.
*Timmins Claims*
Graphite at the Timmins Property seems to occur in much the same way as
seen a the Bedford Claims, namely as disseminated flakes within the Granville
marble and silicated marble. Pyroxenes, micas and minor sulphide minerals are
common. Interbanded with the marbles are a series of pegmatites, granite
sills and/or paragneiss. Differentiating between the various granitic units
21
<PAGE>
is difficult and many variations are noted in the field. The marble units are
typically lenticular and highly contorted due to the intense folding and other
structures present in these high grade metamorphic terrains. The strong
deformation has produced highly enriched graphitic zones especially at the
apexes of folded units. Since the folding pattern is complex, the enriched
zones are likely to be somewhat irregular in dimension, and repeated
throughout the property.
Reserve Estimates on Probable Reserves
- --------------------------------------
The Company has no reserve estimates on either proven or probable
reserves on any of its claims by independent mining engineers. The only
reserve estimates the Company has are contained in various reports giving
assay data from the Company's exploration of the claims. These estimates were
made by the Company itself based on information derived from analysis of
assessment and drilling work performed on its claims. The majority of the
reports on assessment work were performed by MDX GeoServices which is
affiliated with the Company through Brian King who is a principal in both MDX
and the Company. Although the Company has hired outside consultants to
provide analysis of potential reserves on its properties, the main purpose of
these reports was to provide the Company with independent opinions on whether
there was sufficient indication of mineralization on specific properties to
warrant further and more in depth exploration due to a potential commercially
recoverable mineralization.
The Company's 16 percussion borehole program conducted in 1997 was
intended to confirm continuity of mineralization; however, sufficient data was
obtained for it to prepare a preliminary estimate of graphite resources
present in the "Meadow Zone". The following are the estimated geological
resource tonnages for the "Meadow Zone", as estimated in September of 1997:
Section B 981,750 tons @ 3.92% C(g)
Section C 760,650 tons @ 3.18% C(g)
Section D 1,034,000 tons @ 3.93% C(g)
Section E(east) 297,000 tons @ 3.79% C(g)
Section E(west) 189,750 tons @ 3.66% C(g)
--------------- -----------------------------
Total All 3,263,150 tons @ 3.72% C(g)
Sections approx. 87,909 tons graphite contained
The above preliminary resource estimates cover only a comparatively small
part of the claim group (approximately 6 hectares) and relates to only one of
several mineralized zones.
MDX has recently completed a Preliminary Geological Report on the diamond
drilling completed in December of 1999 on the Meadow Zone. The preliminary
report will be subject to assay results from Lakefield Research and subsequent
confirmation by an approved mining engineer.
Office Space
- ------------
The Company and its subsidiaries currently rent office and storage space
from Dartford Corporation, a company controlled by A.D. Houston. The Company
pays A.D. Houston $850 CDN per month, on a month to month basis. There is no
written contract and such payments are accrued to Dartford Corporation and
paid in cash or restricted shares of the Company. The office space is
comprised of 800 square feet and the storage space is approximately 1,200
square feet. The Company also has the use of an outside storage building
comprised of 1,000 square feet for the preparation of samples and the storage
23
<PAGE>
of diamond drill cores.
Item 4. SECURITY OWNERSHIP OF BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following tables set forth: Table 1 - the amount and nature of
beneficial ownership of each person known to a beneficial owner of more than
five percent of the issued and outstanding shares of the Company and Table 2 -
the amount and nature of beneficial ownership of each of the executive
officers and directors of the Company. The following information is based on
37,129,870 shares issued and outstanding as of September 30, 1999.
Table 1: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS (5%)
_____________________________________________________________________________
Name and Amount and
Address of Nature of
Title of Beneficial Beneficial Percent of
Class Owner Owner Class
- --------- ------------- -------------- ----------
A. David Houston President 13,381,764(1) 36.04%(1)
P.O. Box 190, R.R. 5 Chairman of
Warkworth Ontario the Board
Canada K0K 3K 5% shareholder
Chief Executive
Officer
_____________________________________________________________________________
(1) Includes 160,000 shares held in the name of Mary Houston, the wife of
A.D. Houston; and 400,000 shares held in the name of Dartford Corporation a
corporation controlled by A. David Houston. A. David Houston typically
receives shares for a large portion of his salary of $120,000 US per year as
well as for advances made on behalf of the Company. Such shares are
restricted and issued at the price being paid by investors in any offering
being conducted at the time of the conversion of the debt (generally, the
average price in the market). As of September 30, 1999, the Company owed A.D.
Houston $13,900 US in deferred compensation, A.D. Houston or a related party,
$37,266 US for accrued advances/loans. Because the Company is conducting an
offering at $.10 US per share, if he converted his deferred compensation and
advances owing within the next 60 days, he would own an additional 511,740
shares. A.D. Houston also has a warrant to purchase 600,000 shares at $.10 US.
The provisions of the warrant agreement specify that it may not be exercised
until the Company's gives notice of its diamond drilling results. If A.D.
Houston is able to exercise his warrants and converts monies currently owed
him in the next 60 days, his beneficial ownership position would increase to
14,493,504 or 37.9% of the then issued and outstanding shares. Because it is
unlikely that he will covert the same within the next 60 days, this amount is
not included in the above table but footnoted here. The $13,900 US due and
owing Houston at the end of the third quarter will increase by $30,000 US by
the end of the Company's fiscal year.
The following table sets forth ownership position of the Company's
executive officers and directors, as well as all of them as a group; it is
based on 37,129,870 shares issued and outstanding as September 30, 1999.
29
<PAGE>
Table 2: SECURITY OWNERSHIP OF MANAGEMENT(1)
_____________________________________________________________________________
Name and Amount and
Address of Nature of
Title of Beneficial Beneficial Percent of
Class Owner Owner(1) Class
- -------- ------------------- ---------------- ------------
A. David Houston(2) President 13,381,764(2) 36.04%
P.O. Box 190, R.R. 5 Chairman of
Warkworth Ontario the Board
Canada K0K 3K0 5 % shareholder
Chief Executive
Officer
William Houston Director 919,000 2.47%
Box 689 Treasurer
Madoc Ontario
Canada
Brian King(3) Director 756,775(3) 2.04%
528 Bonaccord St.
Peterborough, Ontario
Canada K9H 3A6
Michael Armstrong Secretary 133,333(4) .36%
209 Glendora Ave.
Toronto, Ontario
Canada M2N 2W6
______________________________________________
Officers and
Directors as a group (4 Persons) 15,190,872 40.91%
(1) None of the Company's officer or directors have any rights to acquire
additional shares of the Company's common stock, beneficially or otherwise,
excepting AD Houston. Mr. Houston may have the right to acquire within the
next 60 days sufficient shares to increase his position to 37.9% provided he
elected to convert monies owing him into commons hares of the Company and
further provided he is able to exercise certain warrants, which cannot, as of
this date be exercised. (See Footnote (1) to Table 1: SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS (5%), above for a full discussion.)
(2) Includes 160,000 shares held in the name of Mary Houston, the wife of A.D.
Houston; and 400,000 shares held in the name of Dartford Corporation, a
company controlled by A. D. Houston.
(3) Includes 116,775 shares held in the name of Oakridge Environmental Ltd., a
partnership controlled by Brian King.
(4) Includes 33,000 shares held in his record name and 100,000 shares
beneficially owned by Michael Armstrong.
Change in Control Arrangements
None.
Item 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
24
<PAGE>
Officers and Directors
The names and ages of all directors and executive officers of the
Company, along with their respective positions, term of office and period such
position(s) was held, is as follows:
Name Age Positions Held Director Since
____________________ ____ _____________________________ ______________
A. David Houston 79 Chairman of the Board of Since 11/1993
P.0. 190, R.R. 5 Directors, Chief Executive
Warkworth, Ontario Officer, Chief Financial
CANADA K0K 3K0 Officer, President.
Also President of Graphite
Mountain Inc. and
Environmental Carbonates, Inc.
William Houston 76 Director, Treasurer Since 11/1993
Box 689
Madoc, Ontario
CANADA
Brian King 42 Director Since 11/1993
528 Bonaccord St.
Peterborough, Ontario
CANADA K9H 3A6
Michael Armstrong Q.C. 67 Secretary Since 12/97
209 Glendora Avenue
Toronto, Ontario,
Canada M2N 2W6
(1) Each of the above individuals will serve in their respective capacities
until the next annual meeting of the shareholders or until a successor is duly
qualified and elected.
- ------------------------
Biographical Information for Officers and Directors
- ---------------------------------------------------
A. DAVID HOUSTON, President, Chairman of the Board of Directors, Chief
Executive Officer, Chief Financial Officer. For the past 34 years, A.D.
Houston has been actively engaged in executive and management capacity in the
raising of capital for exploration and development of mining properties as
well as the field supervision of exploration crews and mine development. He
was the founder of the Bedford Claims grubstaker group, and of Graphite
Mountain, Inc. in 1990, of which he was and still is President. Graphite is a
wholly owned subsidiary of the Company. He is also the founder and President
of Environmental Carbonates, Inc., another subsidiary of the Company. A.D.
Houston formerly was the founder and president of Native Mines Ltd. and Native
Exploration Ltd. Both of the foregoing companies were exploration and mining
joint ventures which prospected and developed mining properties in British
Columbia. He is a member of the Society of Mining and Metallurgy and
Exploration and a member of the Society of the American Institute of Mining
and Metallurgical and Petroleum Engineers.
WILLIAM HOUSTON, Director and Treasurer. Although Mr. William Houston is now
retired, he worked from 1950 through 1964 in various capacities for the
following: Valdor Lamaque Gold Mines, Valdor, Quebec; Ogama Rockland Gold
Mines, Central Manitoba; Nesbit Labine Uranium Mine, Lake Athabaska,
25
<PAGE>
Saskatchewan ; Britannia Beach Mine, British Columbia; Gunner Mines (as chief
engineer), Lake Athabaska, Saskatchewan; Arcadia Nickel Mines, Sudbury,
Ontario; and Temagami Copper Mine Ltd. as chief engineer and mine manager.
William Houston is a graduate of the University of Toronto where he received a
Mining Engineering Degree in 1950. He is also a majority stockholder in
Stockloser Marble of Madoc Ontario, from 1964 through 1996.
BRIAN KING, Mr. Brian King is a director of the Company and currently is the
owner/manager of MDX GeoServices, an applied earth science company founded in
1985 and a division of Oakridge Environmental LTD. He is also the Company's
geologist. From 1991 - 1994, he acted was an Environmental Geologist,
Hydrologist and Project Manager for Terraspec (a division of The Greer
Galloway Group, Inc.) From 1989 through 1991, Brian King worked for Walter H.
Gibson & Associates Ltd., as an Associate-Hydrologist, Environmental Geologist
and Project Manager. From 1985 through 1989 he worked as an independent
consulting geologist, and from 1983 though 1985, he worked for Sherritt Gordon
Mines Ltd. as Chief Geologist at the Fox Lake Copper-Zinc Mine at Lynn Lake,
Manitoba. In addition to his project experience, Mr. King has successfully
completed approximately 60 hydrogeological investigations for Landfill Site
Studies and numerous privately serviced developments throughout Ontario,
Canada. His professional development includes studies at the Waterloo Centre
for Groundwater Research: Dense Immiscible Phase Liquid Contaminants in Porous
and Fractured Media, November 1990; Waterloo Centre for Groundwater Research:
Behavior of Dissolved Organic Contaminants in Groundwater, February 1991; and
Ontario Ministry of Environment and Energy: Hydrogeological Technical
Information Requirements For Land Development Applications, June 1995. Mr.
King has a Geological Sciences degree from Brock University of St. Catherine,
Ontario where he also completed graduate studies in hydrothermal ore deposits
and geochemical systems. He is also a member of the International
Association of Hydrogeologists, a Fellow of the Geological Association of
Canada, and a Member of the Association of Geoscientists of Ontario, Canada.
MICHAEL ARMSTRONG, is currently serving as the Company's secretary, a position
he has held since December of 1997. Mr. Armstrong is currently associate with
Lafleur Brown, Barristers and Solicitors, Toronto, Ontario, which he joined in
1999. Prior to that he was with Armstrong, Dunn, Barristers and Solicitors
also in Toronto, Canada where he was employed for more than five years.
Advisory Board
- --------------
In 1998, the Company established an advisory board consisting of three
individuals with extensive experience in the mining industry. Each of the
these advisory members is also a stockholder of the Company although none owns
5% or more of the Company's common stock beneficially or otherwise. The
purpose of the Board is to advise the Company in areas of mining operations
and development, marketing and promotion and financing. The Board receives no
compensation for their services in an advisory capacity although member will
be compensated for services rendered to the Company in other capacities.
HERB HARMER, is the President and a director of Bechtel Canada Ltd., and
Bechtel Quebec Ltd. He is also a former head of the worldwide operations of
the Mining and Metals group of Bechtel Corporation, San Francisco, one of the
world's foremost consulting and engineering firms. He is a graduate of the
University of Western Ontario and Queen's University and a member of the
Energy Council of Canada, the Canadian Institute of Mining and Metallurgy, the
Professional Engineers of Ontario, and l'Orere des Ingenieurs du Quebec, among
other national and provincial associations. He is Chairman of the Canadian
Environmental Energy Corporation, and its subsidiaries: Cochrane Power
Corporation, Kirkland Power Corp., Whitehouse Power Corp., and Chapais
26
<PAGE>
Electrique Limitee. Mr. Harmer serves as a director of Conner Clark Private
Trust Company and Enserve Power Corporation.
ROBERT PAUL is the President of Edmond Enterprises Ltd. and a director of I-
Fax International Limited and its associated companies. He served formerly as
President and a director of Bechtel Canada Ltd, Bechtel Quebec Limitee and as
Chairman of Acres Canadian Bechtel of Churchill Falls. He also served as a
director of the principal operating companies of the Bechtel Group of San
Francisco. He is an active member of several Canadian engineering
associations including the Canadian Institute of Mining and Metallurgy.
E. BOYD MARSH acted as senior partner of Price Waterhouse Quebec from 1965
through 1980.While there he was senior audit partner of some of Canada's
largest corporations, and was responsible for numerous and diverse consulting
assignments. He retired in 1980 as a senior regional partner. He now acts as
an independent consultant in areas of mergers and acquisitions, financing
projects, pension funds, real estate development, investment strategies, and
executive compensation and corporate restructuring. He is a chartered
accountant and a member of the Institute of Chartered Accountants of Ontario
and Quebec. He is also president of Saville Financial Services, Inc. a
private consulting firm and a director of MTC Mortgage Investment Corporation,
Saville Financial Services, Inc., Sovereign Alliance Investment Corporation,
Sovereign Securities Corporation, and SynRoc Capital Corporation.
Family Relationships
- --------------------
There are no familial relationships between the Company's officers and
directors.
Significant Employees
- ---------------------
There are no significant employees other than A.D. Houston, previously
discussed above.
Involvement in Other Public Companies
- -------------------------------------
None of the Company's directors are involved in any other company which is
a United States "reporting company". Michael Armstrong is a director of
Environmental Reclamation Incorporated, a Canadian reporting issuer which is
listed on the Toronto Stock Exchange.
Involvement in Certain Legal Proceedings
- ----------------------------------------
Except as indicated below and/or hereinbefore, to the knowledge of
Management, during the past five years, no present or former director,
executive officer, or person nominated to become a director or executive
officer of the Company:
(1) Filed a petition under federal bankruptcy laws or any state
insolvency law, nor had a receiver, fiscal agent or similar officer appointed
by a court for the business or property of such person, or any partnership in
which he was a general partner at or within two years before the time of such
filing, or any corporation or business association of which he was an
executive officer at or within two years before the time of such filing;
(2) Was convicted in a criminal proceeding or named subject of a
pending criminal proceeding (excluding traffic violations and other minor
offences);
27
<PAGE>
(3) Was the subject of any order, judgment or decree, not
subsequently reversed, suspended or vacated, of any court of competent
jurisdiction, permanently or temporarily enjoining him or her from or
otherwise limiting his/her involvement in any type of business, securities or
banking activities;
(4) Was found by a court of competent jurisdiction in a civil
action, by the Securities and Exchange Commission or the Commodity Futures
Trading Commission, to have violated any federal or state securities law, and
the judgment in such civil action or finding by the Securities and Exchange
Commission has not been subsequently reversed, suspended, or vacated.
Item 6. EXECUTIVE COMPENSATION
Any compensation received by officers and directors of the Company is
determined from time to time by the Board of Directors. Officers and
Directors are reimbursed for out-of-pocket expenses incurred on behalf of the
Company. There are no written employment contracts in effect with any of the
officers and directors who act as consultants when performing services on an
as needed basis except A.D. Houston whom the Company has agreed to compensate
at $120,000 US which is nearly always accrued as unpaid services and a portion
of which is frequently paid in unregistered common shares of the Company. (See
below.) Mr King provides services to the Company through MDX GeoServices
and/or Oakridge Environmental, Ltd. In 1998 MDX GeoServices was paid in common
shares received approximately $15,000 CDN for such services and to date in
the firm has received $25,000 CDN.
The following table sets forth certain information as to compensation
received by the Company's Chief Executive Officer who is also a director of
the Company and its President and Secretary, as of December 31, 1996, 1997 and
1998. Of the Company's executive officers, only A.D. Houston receives more
than $100,000 US per year.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
---------------------------------
Long Term Compensation
----------------------------------------------------------------------
Annual Compensation Awards Payouts
- ------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other All
Name Annual Restricted Other
and Compensa- Stock Underlying LTIP Compensa-
Principal sation Award Options/ Payouts tion
Position Year Salary($) Bonus($) ($)(1) ($) SAR's(#) ($) ($)(2)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
A. David Houston 1996 $ 0 $ 0 $ 90,000US $ 0 $ 0 $ 0 $ 0
Chairman of the Board, 1997 $ 0 $ 0 $ 90,000US $ 0 $ 0 $ 0 $ 0
President and Chief 1998 $ 0 $ 0 $120,000US $ 0 $ 0 $ 0 $ 0
Executive Officer
- ------------------------------------------------------------------------------------------------
(1) Up until 1998, the Company compensated A.D. Houston $ 90,000 US per year for management and
consulting services. In 1998, his compensation was increased by the Board of Directors to
$120,000 US. Because A.D. Houston often defers his compensation and takes much of such deferred
compensation in stock (about 70%), his salary has been listed under the all other annual
compensation category. In each year, the full amount of the agreed upon salary is disclosed even
if the payment thereof in unregistered shares/or cash was deferred to the following year. The
above table does not include A.D. Houston's salary of $120,000 US for the FYE 1999 of which
approximately $13,900 US remained due and owing at September 30, 1999. Shares issued to A.D.
Houston are not discounted. In each instance that A.D. Houston is issued shares, they are issued
at a price per share which is the same as what is being paid by other investors during the year
in which issued, which is at or about the average price of the Company's stock in the over-the-
counter market and is therefore deemed to be issued at the fair market value. Normally such stock
28
<PAGE>
is restricted. However, during 1999 Mr. Houston was compensated $ 60,000 US of his deferred
salary for 1998 in common stock which was a part of the shares sold in the Company's recent
offering conducted pursuant to the exemption provided for under Rule 504. Such stock, when
issued, did not require a holding period under previous provisions of Rule 504 of the Act
although it is subject to restrictions on transfer applicable to affiliate transactions. Amounts
indicated do not include reimbursed cash advances, lease payments on a Company vehicle which A.D.
Houston drives, nor payments made to him for the use of office and storage space by the Company
in his home. A.D. Houston, at his election, averages approximately 30% of his deferred
compensation taken in cash and 70% taken in shares of the Company's stock.
(2) A.D. Houston does not receive perquisites other than the use of the Company leased vehicles
which he uses for Company business.
</TABLE>
Options/SAR Grants
- -------------------
None.
Aggregated Option/SAR Exercises and Fiscal Year End Option/SAR Value Table
- --------------------------------------------------------------------------
None
Long Term Incentive Plans
- -------------------------
There are no long term incentive plans in effect and therefore no awards
have been given to any executive officer in the past year.
Compensation of Directors
- -------------------------
The Company pays no fees to members of the Company's Board of Directors
for the performance of their duties as directors. The Company has not
established committees of the Board of Directors.
Employment Contracts and Termination of Employment and Change in Control
- ------------------------------------------------------------------------
Arrangements
- ------------
None
Item 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the past two years, there have been no material transactions or
series of transactions or currently proposed transactions, to which the
Company, or any its subsidiaries was or is to be a party, in which the amount
exceeds $60,000 and in which any executive officer or director or any 5%
security holder or any member of the immediate family of any of the foregoing
persons had a material interest.
One of these directors, A.D. Houston performs substantial management and
promotion contract services for which he is compensated at $120,000 US per
year and is further discussed under PART I, ITEM 6. EXECUTIVE COMPENSATION.
Occasionally, Mr. A.D. Houston advances funds to the Company on a non-interest
basis with no fixed terms of repayment, when the Company requires operating
capital. In addition, each year on a regular basis the following are accrued
as payable to A.D. Houston having been paid by him on behalf of the Company:
approximately $7,500 US for assessment work which are accrued to Houston
(and/or Dartford, a Company in which A.D. Houston is a principal); $12,157 US
for lease payments on two vehicles; $7,434 US ($619 US per month) for office
rent (which is a portion of A.D. Houston's home); and approximately $15,000 US
per year for secretarial services. Consistently, in the past, these advances
as well as his yearly compensation are partially repaid in common stock of the
Company. During the last three years A.D. Houston received the following: in
29
<PAGE>
November of 1997, 1,954,580 shares were issued at $.0668 per share to satisfy
$130,651 US in accrued advances and compensation); in February 1998, he
received 400,000 unregistered common shares to satisfy approximately $39,804
US in advances; and in March of 1999, 1,000,000 unregistered common shares at
$.10 per share to satisfy $98,000 US in accrued advances and compensation; and
in October of 1999, he received 400,000 commons shares at $.10 per share to
satisfy an additional $39,204 US in partial satisfaction of accrued advances
and compensation owing him at September 30, 1999. Mr. Houston repayment in
stock is calculated at a rate that is equal to what investors in
contemporaneous offerings are paying at that time which is approximately the
average price of the Company's shares in the over-the-counter market. Mr.
Houston averages 30% of his compensation in cash and 70% in shares of the
Company although the amount of cash vs. shares that A.D. Houston receives for
deferred compensation and accrued advances is at his discretion and may vary.
As of the end of the Company's third quarter, the Company owed A.D. Houston
approximately $13,900 US for deferred compensation. It also owed A.D. Houston
and/or a related party $37,266 in accrued advances.
Brian King, an officer and director of the Company, is the founder and
manager of MDX GeoServices, Inc.("MDX"), a subsidiary of Oakridge Environment
Limited, which performs various geological services for the Company on a
consistent basis. Both Oakridge and MDX charge fees to the Company for its
services which it considers to be fair and usual in the industry although MDX
has also provided services to the Company at no charge in the past. Services
provided by MDX GeoServices have the disadvantage of not being performed by an
independent third party due to Mr. King's relationship with both companies.
The Company pays approximately $15,000 CDN per year or less to MDX GeoServices
and/or Oakridge Investments for its services.
Transactions with Promoters
- ---------------------------
None.
Item 8. DESCRIPTION OF SECURITIES
Authorized Capital
- ------------------
The authorized capital stock of the Company consists of 100,000,000 shares
of stock: 50,000,000 shares of common stock and 50,000,000 shares of preferred
stock, all at a par value of $0.001
Common Stock
- -------------
The authorized common stock of the Company consists of 50,000,000 shares
of Common Stock, $0.001 par value per share. The holders of Common Stock (i)
have equal ratable rights to dividends from funds legally available therefore,
when, as and if declared by the Board of Directors of the Company; (ii) are
entitled to share ratably in all of the assets of the Company available for
distribution or winding up of the affairs of the Company; (iii) do not have
preemptive subscription or conversion rights and there are no redemption or
sinking fund applicable thereto; and (iv) are entitled to one non-cumulative
vote per share, on all matters which shareholders may vote on at all meetings
of shareholders.
The Company, however, does not anticipate paying dividends on its Common
Stock in the foreseeable future but plans to retain earnings, if any, for the
operation and expansion of its business.
30
<PAGE>
Preferred Stock
- ----------------
The Company also has 50,000,000 Preferred Shares authorized, par value
$0.001. The preferred shares may be issued in series and from time to time,
with designations, preferences, and relative participating, optional, or other
rights, qualifications, limitations, or restrictions thereof as shall be
stated and expressed in the resolutions or resolutions providing for the issue
of such class, classes or series adopted by the Board of Directors, pursuant
to the authority granted to it and as provided for under Utah statute. Each
class or series may be made subject to redemption at such time and at such
price as such resolution providing for the issue of the stock shall state.
The holders of the preferred stock or any class or series shall be entitled to
receive dividends at such rates and on such conditions and at such times , and
shall be entitled to such rights upon dissolution of, or upon distribution of,
the assets of the corporation, and the preferred stock of any class or series
may be convertible or exchangeable for shares of any other class, classes, or
series of the capital stock of the Company, at such price or prices, or at
such rates of exchange, and with such adjustments, as shall be stated and
expressed in the resolution providing for the issuance thereof. In order for
the Company effect the issuance of a class or series of preferred shares, once
the rights and preferences have been established by resolution of the Board of
Directors for a series of preferred shares, a statement containing the
designation of the class or series must be filed with the Utah Secretary of
State. There are no preferred shares outstanding. As of the date hereof, the
Company has not designated a class or series of preferred shares.
Non-Cumulative Voting
- ---------------------
The holders of shares of Common Stock of the Company do not have
cumulative voting rights which means that the holders of more than fifty
percent (50%) of such outstanding shares, voting for the election of
directors, can elect all of the directors to be elected, if they so choose,
and, in such event, the holders of the remaining shares will not be able to
elect any of the Company's directors. The Board of Directors holds
approximately 40.65% of the issued and outstanding shares of the Company,
insufficient to control the election of directors unless they are able to
solicit the vote of other shareholders.
Provisions Regarding Changes in Control
- ---------------------------------------
None.
PART II
Item 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
Market Information
- ------------------
Up until November 1, 1999, shares of the Company's common stock were
traded on the NASD OTC Bulletin Board ("OTCBB") under the symbol of "DLMI".
The following contains information on the high and low bid for the Company's
common stock as traded in each of the four quarters for the last two years and
any interim period covered by the financial statements contained in this
registration statement. Quotations reflect inter-dealer prices without retail
mark-up, mark-down, commission and may not represent actual transactions.
31
<PAGE>
Year High(in US Dollars) Low (in US Dollars)
- ----- ------------------- -------------------
1999
- ----
March 31 0.1 0.04
June 30 0.06 0.03
September 30 0.16 0.025
1998
- ----
March 31 0.18 0.05
June 30 0.21 0.06
September 30 0.18 0.03125
December 31 0.08 0.04
1997
- ----
March 31 0.05 0.03
June 30 0.12 0.025
September 30 0.07 0.025
December 31 0.08 0.05
Under current NASD rules, an issuer cannot maintain a listing (or apply
for a listing) unless it is current in its reporting obligations under
Sections 13 or 15(d) of the 1934 Act. The Company's phase-in date for
completion of the necessary Securities and Exchange Commission required
filings was November 1, 1999. This means that the Company had to file its
registration statement and clear S.E.C. comments on or before that date, or it
would be delisted from the OTCBB. The Company did not become subject to the
reporting requirements by the phase in date and temporarily trades on the
"pink sheets" where it currently still trades under the symbol of "DLMI".
The filing of this registration statement will trigger reporting obligations
for the Company sixty (60) days from the filing date. Once the Company has
cleared comments on the within registration statement, it intends to reapply
to the OTCBB to resume trading on the electronic bulletin board.
Holders
- -------
At September 30, 19999, the Company has approximately 387 shareholders.
Dividends
- ---------
The payment by the Company of dividends, if any, in the future, rests
within the discretion of its Board of Directors and will depend among other
things, upon the Company's earnings, its capital requirements and its
financial condition, as well as other relevant factors. The Company has not
paid or declared any dividends to date due to its present financial status.
The Company does not anticipate paying dividends on its Common Stock in the
foreseeable future but plans to retain earnings, if any, for the operation and
expansion of its business.
Item 2. LEGAL PROCEEDINGS
The Company is not a party to any pending legal proceedings and, to the
best of its knowledge, no such action by or against the Company has been
threatened. None of the Company's officers, directors, or beneficial owners
of 5% or more of the Company's outstanding securities is a party to a
proceeding adverse to the Company nor do any of the foregoing individuals have
a material interest in a proceeding adverse to the Company.
Item 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
32
<PAGE>
None
Item 4. RECENT SALES OF UNREGISTERED SECURITIES
The Company has issued the following unregistered common shares in the
ast three years.
Year - 1997
- ------------
During 1997 the Company issued an aggregate of 4,121,245 unregistered
common shares as follows:
1. 1,733,332 shares were issued to 7 investors through September of
1997, for gross proceeds of $104,000 US in completion of an offering the
Company made in reliance upon the exemption provided for under Section 3(b)
Rule 504 of the Act; one of the investors in the offering was a director of
the Company, William Houston.
2. An additional 1,954,580 common shares were issued to the Company's
President, A.D. Houston for $130,051 in accrued advances and deferred
compensation and were issued in reliance on Section 4(2) of the Act as "a
transaction not involving a public offering".
3. The balance of the unregistered common shares issued in 1997, 433,333
shares, were issued to 4 individuals (three of whom also purchased in the 504
offering) for additional proceeds of $26,000 US. The Company issued the
foregoing shares in reliance upon the exemption provided for under Regulation
S and the same were issued with a restrictive legend. The Regulation S
offering continued into 1998.
All shares offered and sold during 1997 were sold at approximately $.06
per share. The Company's President paid the same amount for his shares as did
the investors in the other two offerings. In that year, of the twelve
investors, all were existing shareholders except one, all were residents of
Canada, and all were considered "sophisticated" and/or "accredited". The
majority had a prior relationship with the Company. The Company believes it
met the provisions of the relied upon exemptions: in the case of the
Regulation S offers and sales all were made to non-US residents and the
acquired securities were restricted for resale into the United States; in the
case of the completion of the 504 offering, the Company believes it was
entitled to rely upon the exemption because it was not a "reporting company",
not an investment company, and it was raising funds for a specific purpose.
In addition, it did not raise more than the maximum allowed proceeds of
$1,000,000 in the offering when aggregated with all other proceeds from other
offerings conducted in reliance upon Section 3(b) of the Act. Proceeds from
the Regulation S offering were not aggregated with those of the 504 offering
as this is specifically exempted from aggregation principles under the rules.
Year - 1998
- -----------
1. During 1998, the Company completed its offering under Regulation S,
(which commenced during the prior year) with the sale of an additional 800,000
shares to 6 investors for proceeds of $80,000 US. All shares issued in
reliance on this exemption were issued with the appropriate restriction. Of
the six investors, only one was not a prior investor in the Company.
2. The Company also issued 400,000 shares to A.D. Houston to satisfy
$39,804 in accrued advances. The 400,000 shares were issued in reliance upon
Section 4(2) and at a deemed value of approximately $.10 US per share.
33
<PAGE>
3. In the latter part of 1998, the Company commenced a new offering in
reliance upon the exemption provided for under Section 3(b), Regulation D,
Rule 504. It offered up to $1,000,000 of its common equity at $.15 CDN ($.10
US) per shares. During 1998, 900,000 shares were subscribed for, with proceeds
to the Company of $90,000 US although the shares were not issued until 1999.
The offering continued into 1999.
The Company continued to rely upon Regulation S for the sale of the
additional 800,000 shares in 1999. All of the investors were non-US
residents. The Company also believes it was entitled to rely upon Rule 504
for its offering commenced in late 1998. It was still a non-reporting company
and had a specific purpose for its proceeds. Eleven months had elapsed since
the close of its last 504 offering so it had a clear safe harbor so the two
offerings would not be integrated.
Year - 1999
- -----------
1. During 1999, the Company sold 2,783,441 unregistered common shares in
its 504 offering, which closed in early June 1999, for gross proceeds during
1999 of $278,344 US and total gross proceeds in the offering of $368,344 US
with an aggregate of 3,683,441 shares sold. Shares subscribed for after
April 6, 1999, the date new provisions of Rule 504 went into effect, were
issued as "restricted" shares. There were a total of 13 investors in the
offering, the majority of which have frequently provided funding for the
Company in the past. Two of the investors in the offering were directors of
the Company: A.D. Houston and Brian King who received shares in exchange for
monies owing.
2. The Company commenced another offering under Rule 504 structured to
comply with the new rules, in the latter part of June 1999. Because the
proceeds were for the same business purpose and the same type of security was
offered (common shares), for the purpose of the Company's compliance with the
provisions of the Section 3(b), Regulation D, Rule 504 exemption, the private
placement was considered "integrated" with the Company's 504 offering of 1998-
1999. The Company commenced the new offering in response to rule changes
which required that shares offered in a 504 offering be "restricted" or
registered in a state that requires registration to be issued as unrestricted.
The Company elected to issue "restricted" securities in the new offering, and,
as an inducement to invest, it structured the offering in units. Each unit is
comprised of 400,000 common shares at $15 CDN ($.10 US) per share and a
warrant to purchase 600,000 commons shares at the same price. The warrants
cannot be exercised until the Company announces the results of its diamond
drilling program and then the exercise period is for 60 days thereafter. The
Company, to date has sold 5 units (only 4 units as of September 30, 1999) for
proceeds to date of $200,000 US. One additional unit was sold to A.D. Houston
for approximately $40,000 US of deferred compensation and accrued advances.
Although the Company is relying on Section 4(2) for such issuance as a
"transaction not involving a public offering," it will aggregate proceeds
with those in the offering. The Company intends to close the offering on or
before 60 days from the filing of this registration statement.
In each of the transactions discussed under this item, the Company did
not publicly solicit investors which were largely individuals or entities
which had previously invested in the Company. Many of the investors have
invested on numerous occasions, including the members of the Company's Board
of Directors and its advisory board. In each instance, the Company believes
that the investors: (1) had access to or were provided with information
regarding the Company; (2) was aware that the securities were not registered
under US securities laws; (3) acquired the securities for his/her own account
34
<PAGE>
for investment purposes only; (4) understood that the securities would need to
be held indefinitely unless registered or unless an exemption from
registration applied to a proposed disposition; and (5) were aware that the
certificates (excepting those issued under Rule 504 prior to April 4, 1999)
would bear a restrictive legend. The Company also believes that each of the
investors was a legitimate non-US resident and that each was "accredited"
and/or "sophisticated" having sufficient knowledge of Company and sufficient
investment experience to make investment decisions.
The Company has paid no commissions on any of its sales of securities
discussed herein.
Although the Company's believes its offer and sale of certain of its
securities were exempt under Section 3(b) Regulation D, Rule 504, and that it
met all of the terms and conditions of such exemption, when relied on,
including the $1,000,000 in proceeds limitation imposed under Rule 504, the
possibility arises that certain of the Company's sales it the past three years
would be considered "integrated" with the sales of the shares offered and sold
pursuant to the 504 exemption, specifically those issued in reliance on
Section 4(2). Although the rules seem clear that shares sold pursuant to
Regulation S need not be integrated when determining what is "part of an
offering", the shares sold by the Company in reliance on Section 4(2) of the
1933 Act as "not involving a public offering" could be construed as
"integrated" with a Regulation D, Rule 504 concurrently being conducted.
Generally, when conducting an offering under any exemption under Section 3(b)
of the 1933 Act, all securities offered and sold by the issuer during the
offering and within the prior and subsequent 6 month periods of the offering,
which involve the same type of security, and which are sold for similar
purpose [excluding shares sold under Regulation S] may be aggregated with the
shares sold in the offering for purposes of determining the amount. The
Company has made only 3 issuances in the last three years where is claims
reliance on Section 4(2) and each time it was to the Company's President as
discussed above.
Item 5. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 16-10a-902(1) of the Utah Revised Business Corporation Act
authorizes a Utah corporation to indemnify any director against liability
incurred in any proceeding if he or she acted in good faith and in a manner he
or she reasonably believed to be in or not opposed to the best interests of
the corporation, and, with respect to any criminal action or proceeding, had
no reasonable cause to believe his or her conduct was unlawful.
Section 16-10a-902(4) prohibits a Utah corporation from indemnifying a
director in a proceeding by or in the right of the corporation in which the
director was adjudged liable to the corporation or in a proceeding in which
the director was adjudged liable on the basis that he or she improperly
received a personal benefit. Otherwise, Section 16-10a-902(5) allows
indemnification for reasonable expenses incurred in connection with a
proceeding by or in the right of the corporation.
Unless limited by the Articles of Incorporation, Section 16-10a-905
authorizes a director to apply for indemnification to the court conducting the
proceeding or another court of competent jurisdiction. Section 16-10a-907(1)
extends this right to officers of a corporation as well.
Unless limited by the Articles of Incorporation, Section 16-10a-903
requires that a corporation indemnify a director who was successful, on the
merits or otherwise, in defending any proceeding to which he or she was a
35
<PAGE>
party against reasonable expense incurred in connection therewith. Section
16-10a-907(1) extends this protection to officers of a corporation as well.
Pursuant to Section 16-10a-904(1), the corporation may advance a
director's expenses incurred in defending any proceeding upon receipt of an
undertaking and a written affirmation of his or her good faith belief that he
or she has met the standard of conduct specified in Section 16-10a-902.
Unless limited by the Articles of Incorporation, Section 16-10a-907(2) extends
this protection to officers, employees, fiduciaries and agents of a
corporation as well.
Regardless of whether a director, officer, employee, fiduciary or agent
has the right to indemnify under the Utah Revised Business Corporation Act,
Section 16-10a-908 allows the corporation to purchase and maintain insurance
on his or her behalf against liability resulting from his or her corporate
role.
Neither the Articles of Incorporation of the Company, as amended, nor the
By-laws of the Company, provide for any specific indemnification of officer,
directors or employees of the Company nor do they provide for any limitations
on indemnification.
PART F/S
The following financial statements are included herewith: the Company's
audited financial statements for the year ended December 31, 1998 and 1997
and the audited financial statements for the interim period ended September
30, 1999.
<PAGE>
DIAMOND LAKE MINERALS, INC.
AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Financial Statements
September 30, 1999 and December 31, 1998
<PAGE>
C O N T E N T S
Independent Auditors' Report.....................................3
Consolidated Balance Sheets.............................. .......4
Consolidated Statements of Operations........................... 6
Consolidated Statements of Stockholders' Equity (Deficit)....... 7
Consolidated Statements of Cash Flows...........................12
Notes to Consolidated Financial Statements..................... 13
<PAGE>
JONES, JENSEN & COMPANY, LLC
Certified Public Accountants and Consultants
50 South Main Street, Suite 1450
Salt Lake City, Utah 84144
Telephone (801) 328-4408
Facsimile (801) 328-4461
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Diamond Lake Minerals, Inc. and Subsidiaries
(A Development Stage Company)
Warkworth, Ontario Canada
We have audited the accompanying consolidated balance sheet of Diamond Lake
Minerals, Inc. and Subsidiaries (a development stage company) as of December
31, 1998 and the related consolidated statements of operations, stockholders'
equity (deficit), and cash flows for the years ended December 31, 1998 and
1997. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated 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 audits to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Diamond Lake Minerals, Inc. and Subsidiaries (a development stage company)
as of December 31, 1998 and the consolidated results of their operations and
their cash flows for the years ended December 31, 1998 and 1997 in conformity
with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 7 to
the consolidated financial statements, the Company has no established sources
of revenues and has no agreements, commitments or other sources of financing.
These conditions raise substantial doubt about its ability to continue as a
going concern. Management's plans in regard to these matters are also
described in Note 7. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ Jones Jensen & Company
Jones, Jensen & Company
Salt Lake City, Utah
March 23, 1999
<PAGE>
DIAMOND LAKE MINERALS, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Balance Sheets
ASSETS
------
September 30, December 31,
1999 1998
--------------- ---------------
(Unaudited)
CURRENT ASSETS
Cash $ 79,112 $ 1,380
--------------- ---------------
Total Current Assets 79,112 1,380
--------------- ---------------
PROPERTY AND EQUIPMENT, Net (Notes 1 and 2) 25,598 28,765
--------------- ---------------
OTHER ASSETS
Mineral properties (Notes 3 and 4) - -
Deferred exploration costs (Note 3) - -
--------------- ---------------
Total Other Assets - -
--------------- ---------------
TOTAL ASSETS $ 104,710 $ 30,145
=============== ===============
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
<PAGE>
DIAMOND LAKE MINERALS, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
September 30, December 31,
1999 1998
--------------- ---------------
(Unaudited)
CURRENT LIABILITIES
Accounts payable $ 34,179 $ 69,933
Accrued expenses 13,908 64,993
Loans from related parties (Note 5) 37,266 76,686
--------------- ---------------
Total Current Liabilities 85,353 211,612
--------------- ---------------
Total Liabilities 85,353 211,612
--------------- ---------------
COMMITMENTS AND CONTINGENCIES (Note 6)
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, par value $0.001 per share;
50,000,000 shares authorized, 37,129,870
and 33,246,429 shares issued and
outstanding, respectively 37,130 33,246
Additional paid-in capital 2,729,760 2,353,028
Deficit accumulated during the
development stage (2,746,723) (2,567,741)
Other comprehensive income (810) -
--------------- ---------------
Total Stockholders' Equity (Deficit) 19,357 (181,467)
--------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ 104,710 $ 30,145
=============== ===============
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
<PAGE>
DIAMOND LAKE MINERALS, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Operations
<TABLE>
<CAPTION>
From
For the Inception on
Nine Months For the Years Ended November 1,
Ended December 31, 1990 Through
September 30, ---------------------- September 30,
1999 1998 1997 1999
------------- -------------- ------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUE $ - $ - $ - $ -
EXPENSES
General and administrative 175,815 243,025 169,294 1,389,741
Depreciation 3,167 4,223 4,811 21,291
------------- -------------- ------------- -------------
Total Expenses 178,982 247,248 174,105 1,411,032
------------- -------------- ------------- -------------
OPERATING LOSS (178,982) (247,248) (174,105) (1,411,032)
OTHER INCOME (EXPENSE)
Loss on impaired assets - (1,335,691) - (1,335,691)
------------- -------------- ------------- -------------
Total Other Income (Expense) - (1,335,691) - (1,335,691)
------------- -------------- ------------- -------------
NET LOSS (178,982) (1,582,939) (174,105) (2,746,723)
OTHER COMPREHENSIVE INCOME (LOSS) (810) 191,206 (176,331) (810)
------------- -------------- ------------- -------------
NET COMPREHENSIVE (LOSS) $ (179,792) $ (1,391,733) $ (350,436) $ (2,747,533)
============= ============== ============= =============
BASIC NET LOSS PER COMMON SHARE $ (0.01) $ (0.05) $ (0.01)
============= ============== =============
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 34,288,505 33,298,400 28,013,810
============= ============== =============
The accompanying notes are an integral part of these
consolidated financials statements.
F-6
</TABLE>
<PAGE>
DIAMOND LAKE MINERALS, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit)
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During the Other
Common Stock Paid-in Development Comprehensive
Shares Amount Capital Stage Income
------------- ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance, November 1, 1990 - $ - $ - $ - $ -
Net (loss) for the year ended
December 31, 1990 - - - - -
------------- ------------- ------------ ------------ -------------
Balance, December 31, 1990 - - - - -
Common stock issued for cash
at approximately $0.07 per share 247,362 247 17,061 - -
Common stock issued for mineral
claims at approximately $0.07
per share 6,184,049 6,184 426,516 - -
Common stock issued for services
at approximately $0.07 per share 123,681 124 8,530 - -
Net (loss) for the year ended
December 31, 1991 - - - (17,817) -
------------- ------------- ------------ ------------ -------------
Balance, December 31, 1991 6,555,092 6,555 452,107 (17,817) -
Common stock issued for cash at
approximately $0.06 per share 587,485 587 36,919 - -
Common stock issued for services at
approximately $0.06 per share
rendered 123,681 124 7,772 - -
Net (loss) for the year ended
December 31, 1992 - - - (18,706) -
------------- ------------- ------------ ------------ -------------
Balance, December 31, 1992 7,266,258 $ 7,266 $ 496,798 $ (36,523) $ -
------------- ------------- ------------ ------------ -------------
The accompanying notes are an integral part of these
consolidated financials statements.
</TABLE> F-7
<PAGE>
<TABLE>
<CAPTION>
DIAMOND LAKE MINERALS, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit) (Continued)
Deficit
Accumulated
Additional During the Other
Common Stock Paid-in Development Comprehensive
Shares Amount Capital Stage Income
------------- ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1992 7,266,258 $ 7,266 $ 496,798 $ (36,523) $ -
Common stock issued for cash at
approximately $0.06 per share 4,724,613 4,725 282,806 - -
Common stock issued for services at
approximately $0.06 per share 4,809,129 4,809 287,866 - -
Recapitalization of Graphite
Mountain, Inc. (Note 1) 1,011,000 1,011 (457,785) 3,550 -
Net (loss) for the year ended
December 31, 1993 - - - (181,382) -
------------- ------------- ------------ ------------ -------------
Balance, December 31, 1993 17,811,000 17,811 609,685 (214,355) -
Common stock issued for services at
approximately $0.15 per share 520,320 520 77,404 - -
Common stock issued for mineral
property at approximately $0.18
per share 4,000,000 4,000 716,523 - -
Foreign currency translation for the
year ended December 31, 1994 - - - - 22,153
Net (loss) for the year ended
December 31, 1994 - - - (197,782) -
------------- ------------- ------------ ------------ -------------
Balance, December 31, 1994 22,331,320 $ 22,331 $ 1,403,612 $ (412,137) $ 22,153
------------- ------------- ------------ ------------ -------------
The accompanying notes are an integral part of these
consolidated financial statements.
F-8
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DIAMOND LAKE MINERALS, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit) (Continued)
Deficit
Accumulated
Additional During the Other
Common Stock Paid-in Development Comprehensive
Shares Amount Capital Stage Income
------------- ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994 22,331,320 $ 22,331 $ 1,403,612 $ (412,137) $ 22,153
Common stock issued for services
rendered at approximately $0.10
per share 1,952,500 1,953 191,871 - -
Common stock issued for cash at
approximately $0.10 per share 1,172,364 1,172 117,867 - -
Foreign currency translation for
the year ended December 31, 1995 - - - - 11,918
Net (loss) for the year ended
December 31, 1995 - - - (321,060) -
------------- ------------- ------------ ------------ -------------
Balance, December 31, 1995 25,456,184 25,456 1,713,350 (733,197) 34,071
Common stock issued for cash at
approximately $0.11 per share 1,433,000 1,433 156,247 - -
Common stock issued for services
rendered at $0.12 per share 136,000 136 15,724 - -
Foreign currency translation for the
year ended December 31, 1996 - - - - (19,196)
Net (loss) for the year ended
December 31, 1996 - - - (77,500) -
------------- ------------- ------------ ------------ -------------
Balance, December 31, 1996 27,025,184 $ 27,025 $ 1,885,321 $ (810,697) $ 14,875
------------- ------------- ------------ ------------ -------------
The accompanying notes are an integral part of these
consolidated financial statements
F-9
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DIAMOND LAKE MINERALS, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit) (Continued)
Deficit
Accumulated
Additional During the Other
Common Stock Paid-in Development Comprehensive
Shares Amount Capital Stage Income
------------- ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 27,025,184 $ 27,025 $ 1,885,321 $ (810,697) $ 14,875
Common stock issued for cash at
approximately $0.06 per share 1,300,000 1,300 80,630 - -
Common stock issued for cash at
approximately $0.06 per share 866,665 866 51,510 - -
Common stock issued in lieu of debt
at $0.06 per share 1,954,580 1,955 128,696 - -
Foreign currency translation for the
year ended December 31, 1997 - - - - 176,331
Net (loss) for the year ended
December 31, 1997 - - - (174,105) -
------------- ------------- ------------ ------------ -------------
Balance, December 31, 1997 31,146,429 31,146 2,146,157 (984,802) 191,206
Common stock issued for cash
at approximately $0.10 per share 1,700,000 1,700 167,467 - -
Common stock issued for services
at approximately $0.10 per share 400,000 400 39,404 - -
Foreign currency translation for the
year ended December 31, 1998 - - - - (191,206)
Net (loss) for the year ended
December 31, 1998 - - - (1,582,939) -
------------- ------------- ------------ ------------ -------------
Balance, December 31, 1998 33,246,429 $ 33,246 $ 2,353,028 $(2,567,741) $ -
------------- ------------- ------------ ------------ -------------
The accompanying notes are an integral part of these
consolidated financial statements.
F-10
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DIAMOND LAKE MINERALS, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit) (Continued)
Deficit
Accumulated
Additional During the Other
Common Stock Paid-in Development Comprehensive
Shares Amount Capital Stage Income
------------- ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1998 33,246,429 $ 33,246 $ 2,353,028 $(2,567,741) $ -
Common stock issued for cash
at $0.10 per share (unaudited) 200,000 200 19,402 - -
Common stock issued in lieu of
outstanding debt at $0.10 per
share (unaudited) 1,116,775 1,117 108,338 - -
Common stock issued for cash
at $0.10 per share (unaudited) 466,666 467 45,271 - -
Common stock issued for cash
at $0.10 per share (unaudited) 1,700,000 1,700 164,917 - -
Common stock issued in lieu of
outstanding debt at $0.10 per
share (unaudited) 400,000 400 38,804 - -
Foreign currency translation for
the nine months ended
September 30, 1999 (unaudited) - - - - (810)
Net (loss) for the nine months
ended September 30, 1999
(unaudited) - - - (178,982) -
------------- ------------- ------------ ------------ -------------
Balance, September 30, 1999
(unaudited) 37,129,870 $ 37,130 $ 2,729,760 $(2,746,723) $ (810)
============= ============= ============ ============ =============
The accompanying notes are an integral part of these
consolidated financial statements.
F-11
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DIAMOND LAKE MINERALS, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Cash Flows
From
For the Inception on
Nine Months For the Years Ended November 1,
Ended December 31, 1990 Through
September 30, --------------------------- September 30,
1999 1998 1997 1999
------------- -------------- ------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (178,982) $ (1,582,939) $ (174,105) $ (2,746,723)
Adjustments to reconcile net loss to net
cash provided (used) by operating
activities:
Depreciation 3,167 4,223 4,811 21,291
Loss on impaired assets - 1,335,691 - 1,335,691
Other comprehensive income (810) - 206,313 207,045
Common stock issued for services - 39,804 - 323,091
Changes in operating assets and liabilities:
(Increase) decrease in prepaid expenses - - 365 -
Increase (decrease) in accrued expenses 46,709 36,202 28,791 110,082
Increase (decrease) in accounts payable (24,309) 19,585 28,952 63,322
------------- -------------- ------------- -------------
Net Cash Provided (Used) by
Operating Activities (154,225) (147,434) 95,127 (686,201)
------------- -------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for property and equipment - - (22,070) (44,802)
Cash paid for deferred exploration costs
and mineral properties - (25,831) (135,843) (788,139)
------------- -------------- ------------- -------------
Net Cash (Used) in
Investing Activities - (25,831) (157,913) (832,941)
------------- -------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Common stock issued for cash 231,957 169,167 134,306 1,537,628
Cash advances from shareholders - 731 (70,582) 60,626
------------- -------------- ------------- -------------
Net Cash Provided by
Financing Activities 231,957 169,898 63,724 1,598,254
------------- -------------- ------------- -------------
INCREASE (DECREASE) IN CASH 77,732 (3,367) 938 79,112
CASH BALANCE, BEGINNING OF PERIOD 1,380 4,747 3,809 -
------------- -------------- ------------- -------------
CASH BALANCE, END OF PERIOD $ 79,112 $ 1,380 $ 4,747 $ 79,112
============= ============== ============= =============
CASH PAID FOR:
Interest $ - $ - $ - $ -
Income taxes $ - $ - $ - $ -
NON-CASH FINANCING ACTIVITIES
Acquisition of mineral properties for
common stock recorded at predecessor
cost $ - $ - $ - $ 720,523
Common stock issued for services $ - $ 39,804 $ - $ 40,134
Common stock issued in lieu of debt $ 148,659 $ - 120,957 $ 269,616
The accompanying notes are an integral part of these
consolidated financial statements.
F-12
</TABLE>
<PAGE>
DIAMOND LAKE MINERALS, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 1999 and December 31, 1998
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Organization
Diamond Lake Minerals, Inc. (the Company) was incorporated in the State of
Utah on January 5, 1954 under the name of G & L Equipment Co., Inc. It later
changed its name to G & L Energy, Inc. on August 10, 1982. The Company
operated as a Yamaha motorcycle dealership and ceased doing business in 1983.
All assets and liabilities were liquidated by 1985 and the Company became
inactive.
On November 30, 1993, the Company acquired all of the issued and
outstanding stock of Graphite Mountain, Inc. (the Subsidiary) (an Ontario,
Canada corporation) by issuing 16,812,000 shares of common stock. It was
formed on November 1, 1990 and changed its name to Diamond Lake Minerals, Inc.
The acquisition of Graphite Mountain, Inc. was recorded as a recapitalization
of Graphite Mountain, Inc., whereby the acquired company is treated as the
surviving entity for accounting purposes. The Subsidiary owns 41 mineral
claims in Bedford Township, Southern Ontario Mining District, Canada. The
Subsidiary is engaged in exploring and developing its graphite resource
properties, and is considered a development stage company per Statement on
Financial Accounting Standards #7.
In 1996, the Company started a new company named Environmental Carbonents
Incorporated (ECI). ECI has purchased real property in the amount of $19,196.
ECI is considered a developmental stage company per Statement on Financial
Accounting Standards #7.
b. Accounting Method
The Company's consolidated financial statements are prepared using the
accrual method of accounting. The Company has adopted a calendar year end.
c. Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
d. Principles of Consolidation
The consolidated financial statements include the accounts of Diamond Lake
Minerals, Inc. and its wholly-owned Canadian subsidiaries, Graphite Mountain,
Inc. and Environmental Carbonents Incorporated. All intercompany transactions
and balances have been eliminated.
e. Basic Loss Per Share Calculations
Computations of basic loss per share of common stock are based on the
weighted average number of shares outstanding during the period of the
consolidated financial statements.
F-13
<PAGE>
DIAMOND LAKE MINERALS, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 1999 and December 31, 1998
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
f. Foreign Currency Translations
The Company's functional currency is the U.S. dollar, however, the
subsidiary's functional currency is the Canadian dollar. Remeasurement of the
Canadian assets, liabilities and operations into U.S. dollars results in the
foreign currency translation adjustment reported in the consolidated
statements of operations and stockholders' equity.
The Canadian subsidiary has some transactions involving the receipt and
disbursement of U.S. funds. Remeasurement of U.S. assets into Canadian
dollars by the subsidiary results in foreign currency gains or losses which
are reflected in the consolidated statements of operations.
g. Property and Equipment
Property and equipment is recorded at cost. The Company provides for
depreciation on the declining balance method over 5 years.
In the year of acquisition of a capital asset, depreciation is recorded at
one-half of the normal annual rate.
h. Mineral Properties and Deferred Exploration Costs
Mineral properties owned by the Company are recorded at the lower of cost
or net realizable value.
i. Provision for Taxes
At December 31, 1998, the Company and its subsidiaries had net operating
loss carryforwards of approximately $2,500,000 that may be offset against
future taxable income through 2013. No tax benefit has been reported in the
consolidated financial statements, because the Company believes there is a 50%
or greater chance the loss carryforwards will expire unused. Accordingly, the
potential tax benefits of the net operating loss carryforwards are offset by a
valuation allowance of the same amount.
j. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
period. Actual results could differ from those estimates.
F-14
<PAGE>
DIAMOND LAKE MINERALS, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 1999 and December 31, 1998
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
k. Change in Accounting Principle
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive
Income." SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains, and
losses) in a full set of general purpose financial statements. This statement
requires that an enterprise (a) classify items of other comprehensive income
by their nature in a financial statement and (b) display the accumulated
balance of other comprehensive income separately from retained earnings and
additional paid-in capital in the equity section of a statement of financial
position. SFAS No. 130 is effective for fiscal years beginning after December
15, 1997. The Company has retroactively applied the provisions of this new
standard by showing the other comprehensive income (loss) for all years
presented.
l. Unaudited Financial Statements
The accompanying unaudited financial statements include all of the
adjustments which, in the opinion of management, are necessary for a fair
presentation. Such adjustments are of a normal, recurring nature.
NOTE 2 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following at September 30, 1999 and
December 31, 1998:
September 30, December 31,
1999 1998
(Unaudited)
Office furniture $ 1,191 $ 1,191
Office equipment 13,036 13,036
Mining equipment 5,303 5,303
Motor equipment 5,289 5,289
Real property 19,196 19,196
Leasehold improvements 2,879 2,879
Accumulated depreciation (21,296) (18,129)
----------- -----------
Net book value $ 25,598 $ 28,765
=========== ===========
Depreciation expense for the nine months ended September 30 1999 and for
the years ended December 31, 1998 and 1997 was $3,167, $4,223 and $4,811,
respectively.
F-15
<PAGE>
DIAMOND LAKE MINERALS, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 1999 and December 31, 1998
NOTE 3 - DEFERRED EXPLORATION COSTS
Deferred exploration costs consist of the following at September 30, 1999
and December 31, 1998:
September 30, December 31,
1999 1998
------------- -------------
(Unaudited)
Capitalized exploration costs $ 685,396 $ 685,396
Less: impairment reserve (685,396) (685,396)
------------- -------------
Net deferred exploration costs $ - $ -
============= =============
The Company is in the process of exploring and developing its graphite
resource properties and is determining whether or not the properties contain
ore reserves that are economically recoverable. The recoverability of amounts
shown in the consolidated financial statements as the cost of acquisition of
mineral properties and related deferred exploration costs, is dependent upon
the discovery of economically recoverable reserves and confirmation of the
Company's interest in the underlying mineral claims, the ability of the
Company to obtain necessary financing to satisfy the expenditure requirements
to complete the development of properties, and upon future profitable
production or proceeds from the disposition thereof. Since management is
unable to determine what the recoverability of the deferred costs will be, a
reserve for impairment has been recorded during the year ended December 31,
1998 for the full amount of the capitalized costs.
NOTE 4 - MINERAL PROPERTIES
Mineral properties consist of the following at September 30, 1999 and
December 31, 1998:
September 30, December 31,
1999 1998
------------- -------------
(Unaudited)
Property costs - 41 claims in Bedford Township
Southern Ontario Mining District
Consideration for acquisition:
- 2,000,000 shares allotted to prospector and
grubstakers recorded at predecessor cost - $ -
- Cash option payments $ 120,978 120,978
Property costs - 39 claims in North Burgess
Township, Southern Ontario Mining District
Consideration for acquisition:
- 4,000,000 shares issued at a deemed price
of $025 CDN per share 720,523 720,523
------------- -------------
841,501 841,501
Less: impairment reserve (841,501) (841,501)
------------- -------------
Net mineral properties $ - $ -
============== ==============
F-16
<PAGE>
DIAMOND LAKE MINERALS, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 1999 and December 31, 1998
NOTE 4 - MINERAL PROPERTIES (Continued)
In addition to the cash payments, the optionors are to receive royalties
of 1% of net proceeds of sales of any and all products extracted from the
claims, to a total amount for royalties of $566,800.
Upon incorporation, the Subsidiary was assigned the optionee's position in
the agreement, for consideration of allotment to the shareholder-prospector
and grubstakers of 2,000,000 shares of the Subsidiary's common stock at a
deemed price of $0.18 per share. The group is also to receive on a pro-rata
basis, a royalty of 3% of net smelter returns from the property.
39 Claims in North Burgess:
The acquisition is subject to a 3% net smelter interest, which is defined
as 3% of gross receipts from sales of minerals from the properties.
NOTE 5 - RELATED PARTY TRANSACTIONS
Loans from shareholders, (substantially from the Company's principal
shareholder), are non-interest bearing and have no fixed terms of repayment.
In December 1994, by agreement, 340,320 shares were allocated to shareholders
at a price of $0.09 per share for conversion of $30,640 of the shareholders'
loans. In December 1995, by agreement, 146,667 shares were allocated to
shareholders at a price of $0.11 per share for conversion of $15,129 of the
shareholders' loans. In November 1997, 1,954,580 shares were allocated to a
shareholder at a price of $0.06 per share for conversion of $130,651 of the
related party loans. In March 1999, 400,000 shares were allocated to a
shareholder at a price of $0.10 per share for conversion of $39,420 of the
related party loans. The total amount owed to shareholders at September 30,
1999 and December 31, 1998 was $37,266 and $76,686, respectively.
Additional shares have been issued to the Company's principal shareholder
in lieu of unpaid services. In March 1998, 400,000 shares were issued to the
shareholder at a price of $0.10 per share for services valued at $39,804. In
March 1999, 600,000 shares were issued to the shareholder at a price of $0.10
per share for services valued at $58,806 and in September 1999, 400,000 shares
were issued to the shareholder at a price of $0.10 per share for services
valued at $39,204.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
During 1995, the Company entered into an agreement with Richland Mines,
Inc. (Richland) on behalf of the Subsidiary. Richland has already paid the
option price (included in the Company's income) which will allow it the
necessary time to investigate the potential for developing the mineral claims
held by the Subsidiary. Richland must expend $150,000 CDN in exploration
costs and pay the Company another $5,000 CDN to be able to acquire a 50%
ownership of certain mineral rights (not including graphite) on the properties
located in Bedford Township in Ontario, Canada.
F-17
<PAGE>
DIAMOND LAKE MINERALS, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 1999 and December 31, 1998
NOTE 7 - GOING CONCERN
The consolidated financial statements have been prepared on a going
concern basis. The Companies, and their abilities to continue as a going
concern, are dependant upon the ability of the Company to obtain the necessary
financing to meet its obligations and to repay its liabilities arising from
normal business operations when they come due. The Company has no established
sources of revenues and has no agreements, commitments or other sources of
financing. The Company plans to obtain financing through a secondary offering
of its previously authorized but unissued common stock.
NOTE 8 - ACQUIRED EQUIPMENT
During 1997, the Company acquired equipment that was in the building
purchased in 1997. The equipment was not included in the purchase price, but
was to be removed by the bank which owned the equipment. The bank gave the
Company full title to this equipment and the Company is currently trying to
sell this equipment.
<PAGE>
PART III
Item 1. Index to Exhibits
Exhibit No. Description
---------- ------------
2.1 Reorganization between the Company and Graphite
Mountain Inc., dated November 30, 1993
2.2 Agreement re: Acquisition of Timmins Properties, dated
Dec. 17, 1994
3.1.1 Articles of Incorporation, Jan. 5, 1954
3.1.2 Amendment to Articles of Incorporation, Nov. 28, 1958
3.1.3 Amendment to Articles of Incorporation, June 1961
3.1.4 Amendment to Articles of Incorporation, Jan. 18, 1972
3.1.5 Amendment to Articles of Incorporation, Feb. 1972
3.1.6 Amendment to Articles of Incorporation, Aug. 10, 1982
3.1.7 Amendment to Articles of Incorporation, Sept. 15, 1993
3.1.8 Amendment to Articles of Incorporation, Dec. 2, 1993
3.1.9 Amendment to Articles of Incorporation, Dec. 21, 1993
3.2 Bylaws
21 List of Subsidiaries
27 Financial Data Schedule
99.1 List of Mining Claims: Bedford Claims
99.2 List of Mining Claims: Timmins Claims
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
DIAMOND LAKE MINERALS, INC.
(Registrant)
Date: December 21, 1999 By: /s/ A. David Houston
________________________________
A. David Houston, President
Chairman of the Board of
Directors, Chief Financial
Officer, Chief Executive
Officer
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT (the "Plan") is made this 30th day of November, 1993,
between G & L ENERGY, INC., a corporation incorporated under the laws of the
State of Utah ("G&L"), GRAPHITE MOUNTAIN, INC., an Ontario, Canada
corporation ("GRAPHITE"), and the shareholders of GRAPHITE whose beneficial
ownership is represented by Mr. A. David Houston as Attorney in Fact and are
collectively hereinafter referred to as the "Shareholders".
G&L wishes to acquire all the issued and outstanding stock of GRAPHITE in
exchange for stock of G&L in a stock for stock transaction.
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, IT IS AGREED:
SECTION 1
Terms of Exchange
1.1 Number of Shares. Upon the execution hereof, the Shareholders
of GRAPHITE agrees to assign, transfer, and deliver to G&L, free and clear of
all liens, pledges, encumbrances, charges, restrictions or known claims of any
kind, nature or description all their shares of GRAPHITE stock which
constitutes all of the issued and outstanding shares of GRAPHITE aggregating
Five-Million-Four-Hundred-Thirty-Three-Thousand-Three-Hundred-Thirty-Three
(5,433,333) common shares, and G&L agrees to acquire such shares on the date
hereof, or as soon as practicable thereafter, by issuing and delivering in
exchange therefore solely common shares of G&L's stock, par value $0.001, in
the aggregate of Sixteen-Million-Eight-Hundred-Thousand (16,800,000) shares,
as subject to the provisions of this Plan which shall represent as a result
thereof, approximately 94% of the then issued and outstanding shares of G&L.
Subsequent to the date hereof, the Shareholders shall, upon the surrender of
the GRAPHITE certificates representing their respective beneficial and record
ownership of all of the issued and outstanding shares of GRAPHITE to G&L, as
soon as practicable hereafter, the Shareholders shall be entitled to receive a
certificate(s) evidencing shares of the exchanged G&L stock as provided for
herein. Upon the consummation of the transaction contemplated herein, G&L
shall be the beneficial and record owner of all of the issued and outstanding
stock of GRAPHITE.
1.2 Further Assurances. Subsequent to the execution hereof, and
from time to time thereafter, the Shareholders shall execute such additional
instruments and take such other action as G&L may request in order to more
effectively sell, transfer and assign clear title and ownership in the
GRAPHITE shares to G&L.
G & L Energy, Inc./Graphite Mountain, Inc.
AGREEMENT AND PLAN
Page 2
SECTION 2
Closing
The Closing contemplated by Section 1.1 shall be held at the office of
Robert J. Nielson, Esq., at the hour of 3:00 P.M., Mountain Time, on November
30, 1993, whose address is 3098 South Highland Dr., Suite 300, Salt Lake
City, Utah, 84106, or in any event no later than December 31, 1993, unless
another place or time is agreed upon in writing by the parties. The Closing
may also be accomplished by wire, express mail or other courier service,
conference telephone communications or as otherwise agreed by the respective
parties or their duly authorized representatives.
SECTION 3
Representations, Warranties and Covenants of G&L
G&L represents and warrants to, and covenants with, the Shareholders and
GRAPHITE as follows:
3.1 Corporate Status. G&L is a corporation duly organized, validly
existing and in good standing under the laws of the State of Utah,
incorporated on the 5th day of January, 1954.
3.2 Capitalization. The authorized capital stock of G&L as of the
Closing Date consists of 50,000,000, par value of $0.001. As of the date
hereof there are 999,000 common shares of G&L issued and outstanding. The
foregoing shares constitute fully paid, non-assessable shares. There are no
outstanding options, warrants, or calls or any understandings, agreements,
commitments, contracts or promises with respect to the issuance of G&L's
common stock or with regard to any option, warrants or other contractual
rights to acquire any of G&L's authorized but unissued common shares.
3.3 Financial Statements. G&L hereby warrants and covenants to
GRAPHITE that the audited balance sheets of G&L for its years ended December
31, 1992, and 1991, and for interim period ended May 31, 1993, and the
related statements of operations, stockholders' equity, and cash flows for the
periods then ended, together with the notes for such periods, have been
prepared by G&L's certified public accountants and have been prepared in
accordance with the generally accepted accounting principles, consistently
applied throughout the periods involved. G&L further warrants and represents
that it can deliver balance sheets for its years ended December 31, 1985
through December 31, 1989.
G & L Energy, Inc./Graphite Mountain, Inc.
AGREEMENT AND PLAN
Page 3
3.4 Litigation. There are no material actions, suits, or
proceedings pending or, to best knowledge of G&L, threatened by or against or
affecting G&L at law or in equity, or before any governmental agency or
instrumentality, domestic or foreign, or before any arbitrator of any kind;
G&L does not have any knowledge of any default on its part with respect to
any judgement, order, writ, injunction, decree, warrant, rule, or regulation
of any court, arbitrator, or governmental agency or instrumentality.
3.5 Books and Records. From the date hereof, and for any
reasonable period subsequent thereto, G&L and its present Management will (i)
give to the Shareholders and GRAPHITE or their duly authorized representatives
full access during normal business hours to all of its books, records,
contracts and other corporate documents and properties so that the
Shareholders and GRAPHITE or their duly authorized representatives may inspect
and audit them; and (ii) furnish such information concerning the properties
and affairs of G&L as the Shareholders and GRAPHITE or their duly authorized
representatives may reasonably request. Any such request to inspect G&L's
books and records should be directed to G&L's President, Mr. Thomas Warren, at
G&L's offices located at 2220 East 4800 South, Suite 442, Salt Lake City,
Utah, USA 841117.
3.6 Confidentiality. Until the Closing (and thereafter if
there is no Closing), G&L and its representatives will keep confidential any
information which they obtain from the Shareholders or from GRAPHITE
concerning its properties, assets and the proposed business operations of
GRAPHITE. If the terms and conditions of this Plan imposed on the parties
hereto are not consummated on or before 5:00 pm MST on December 31, 1993 or
otherwise waived or extended in writing to a date mutually agreeable to the
parties hereto, G&L will return to GRAPHITE all written matter with regard to
GRAPHITE obtained in connection with the negotiation or consummation of this
Plan.
3.7 Conflict with Other Instruments. The transactions
contemplated by this Plan will not result in the breach of any term or
provision of, or constitute a default under any indenture, mortgage, deed of
trust, or other material agreement or instrument to which G&L was or is a
party, or to which any of its assets or operations are subject, and will not
conflict with any provision of the Articles of Incorporation or Bylaws of G&L.
3.8 Corporate Authority. G&L has full corporate power and authority
to enter into this Plan and to carry out its obligations hereunder and will
deliver to the Shareholders and GRAPHITE, or their respective representatives,
at the Closing a certified copy of resolutions of its Board of Directors
authorizing execution of this Plan by its officers and performance thereunder.
G & L Energy, Inc./Graphite Mountain, Inc.
AGREEMENT AND PLAN
Page 4
3.9 Special Meeting of Shareholders. G&L hereby warrants and
represents that it has called a Special Meeting of the Shareholders of G&L to
be held on November 30, 1993, at 11:00 A.M. MST at the Red Lion Hotel, 255
South West Temple, Salt Lake City, Utah 84101, for the purposes of ratifying
and adopting the within Plan, and to further adopt resolutions enabling G&L
(i) to change the name of G&L to DIAMOND LAKE MINERALS, INC.; (ii) to elect A.
David Houston, William P. Houston and Brian King as members of G&L's Board of
Directors to serve until G&L's next Annual Meeting or until their successors
are duly elected and qualified; (iii) to adopt and ratify an Agreement and
Plan of Reorganization as between G&L and GRAPHITE; and (iv) to transact any
other business which may properly come before the Meeting.
3.10 Resignation of Directors. At the Closing, the current
Directors of G&L will submit their resignations as directors, seriatim, and
A. David Houston, William Houston and Brian King, will be appointed as
Directors to fill the vacancies created thereby.
3.11 Special Covenants and Representations Regarding the Exchanged
G&L Stock. The consummation of this Plan and the transactions herein
contemplated include the issuance of the exchanged G&L shares to the
Shareholders, which constitutes an offer and sale of securities under the
Securities Act of 1933, as amended, and applicable states securities laws, if
any. Such transaction shall be consummated in reliance on exemptions from the
registration and prospectus delivery requirements of such statutes which
depend interalia on the circumstances under which the Shareholders acquire
such securities.
SECTION 4
Representations, Warranties and Covenants of GRAPHITE
and the Shareholders
GRAPHITE and the Shareholders (to their best knowledge, information and
belief) represent and warrant to, and covenant with, G&L as follows:
4.1 GRAPHITE Shares. The Shareholders are the beneficial owners of
all of the issued and outstanding shares of GRAPHITE, of whatever class or
series, and warrants and covenants it has full right, title and interest in
and to the same, free and clear of any encumbrances, liens or adverse claims
of whatever kind or nature.
G & L Energy, Inc./Graphite Mountain, Inc.
AGREEMENT AND PLAN
Page 5
4.2 Corporate Status. GRAPHITE is a corporation duly organized,
validly existing and in good standing under the laws of Ontario, Canada.
4.3 Capitalization. GRAPHITE has no maximum on the number of common
shares it is authorized to issue; its current issued and outstanding consists
5,433,333 shares of common stock with all of which are owned beneficially by
the Shareholders.
4.4 Financial Statements. GRAPHITE hereby represents, warrants and
covenants that the financial condition of GRAPHITE as represented by GRAPHITE
both orally and in writing, is a true and correct representation of the
financial condition of GRAPHITE, and that when the books and records of
GRAPHITE are audited, the audited financial statements shall not differ in
any material way with the representations heretofore made by GRAPHITE to G&L.
GRAPHITE hereby acknowledges its understanding that, as a condition precedent
to the Closing, that GRAPHITE shall have its books and records audited for
submission to G&L's independent public accountants in order that the be same
ready for consolidation as of the Closing Date, but in any event, no later
than thirty days from the Date of Closing, unless otherwise agreed to in
writing by the parties. GRAPHITE further certifies that the audited balance
sheet of GRAPHITE, shall reflect an approximate minimum of $ 1,000,000
(Canadian) in assets, and $ 180,000 (Canadian) in liabilities.
4.5 Undisclosed Liabilities. As of the date hereof, GRAPHITE has no
material or contingent liabilities of any nature, whether accrued, absolute,
or otherwise, except as disclosed to G&L.
4.6 Title to Property. GRAPHITE has good and marketable title to
all of its properties and assets, real and personal, proprietary or otherwise,
as will be reflected in the balance sheets of GRAPHITE, and the properties and
assets of GRAPHITE are subject to no mortgage, pledge, lien or encumbrance.
4.7 Litigation. There are no actions, suits, or proceedings pending
or, to best the knowledge of GRAPHITE, threatened by or against or affecting
GRAPHITE at law or in equity, or before any governmental agency or
instrumentality, domestic or foreign, or before any arbitrator of any kind;
GRAPHITE does not have any knowledge of any default on its part with respect
to any judgement, order, writ, injunction, decree, warrant, rule, or
regulation of any court, arbitrator, or governmental agency or
instrumentality.
4.8 Books and Records. From the date hereof, and for such
reasonable period thereafter as may be deemed appropriate, GRAPHITE will (i)
give to G&L or its duly authorized representatives full access during normal
business hours to all of its offices, books, records, contracts and other
corporate documents and properties so
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AGREEMENT AND PLAN
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that G&L or its duly authorized representatives may inspect and audit them;
and (ii) furnish such information concerning the properties and affairs of
GRAPHITE as G&L or its duly authorized representatives may reasonably request,
including, but not limited to, all information on GRAPHITE's chief asset, the
mining rights to 41 unpatented mining claims, located in Bedford Township,
Ontario, Canada, which claims contain a high concentration of graphite and
graphite associated minerals. A list of the foregoing claims is attached
hereto as Exhibit A, and incorporated herein by reference.
4.9 Confidentiality. Prior to the date of Closing (and continuously
if there is no Closing), GRAPHITE and the Shareholders and their duly
authorized representatives will keep confidential any information which they
obtain from G&L concerning its assets, liabilities, and business affairs. If
the transactions contemplated by this Plan are not consummated on or before
5:00 pm MST on December 31, 1993, or some other mutually agreed upon date,
GRAPHITE and the Shareholders agree to return to G&L all written matter with
respect to G&L obtained by them in connection with the negotiation or
consummation of this Plan.
4.10 Acquisition of Shares. The Shareholders represent and covenant
that they are acquiring the unregistered common shares of G&L to be delivered
to them under this Plan for through one or more exemptions as provided for
under the Securities Act of 1933, as amended, including the exemption provided
thereunder by Regulation D, Rule 504.
4.11 Title to Shares. The Shareholders are the beneficial and
record owners, free and clear of any liens and encumbrances, of whatever kind
or nature, of all of the shares of GRAPHITE of whatever class or series, which
the Shareholders has contracted to exchange.
SECTION 5
Special Covenants
5.1 GRAPHITE Information Incorporated in G&L's Reports. GRAPHITE
represents and warrants to G&L that all the information furnished under this
Plan shall be true and correct in all material respects and that there is no
omission of any material fact required to make the information stated not
misleading. GRAPHITE agrees to indemnify and hold G&L harmless, including each
of its Directors and Officers, and each person, if any, who controls such
party, under any applicable law from and against any and all losses, claims,
damages, expenses or liabilities to which
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AGREEMENT AND PLAN
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any of them may become subject under applicable law, or reimburse them for any
legal or other expenses reasonably incurred by them in connection with
investigating or defending any such actions, whether or not resulting in
liability, insofar as such losses, claims, damages, expenses, liabilities, or
actions arise out of or are based on any untrue statement, alleged untrue
statement, or omission of a material fact contained in such information
delivered hereunder.
5.2 Action Subsequent to Closing. Upon the execution hereof,
GRAPHITE will: (i) perform all of its obligations under material contracts,
leases, insurance policies, royalty contracts, and or documents relating to
its assets and business; (ii) use its best efforts to maintain and preserve
its business organization intact, to retain its key employees, and to maintain
its relationship with existing potential customers and clients; and (iii)
fully comply with and perform in all material respects all obligations and
duties imposed on it by the Ontario Department of Northern Affairs & Mines,
including, but not limited to keeping the assessment of GRAPHITE's 41 claims
up to date, and continue to do any all things necessary and requisite for the
actual commencement of mining operations on the claims set forth in Exhibit A
attached hereto and incorporated herein by reference and more particularly
described in the Report on Exploration Activities and Geological Compilation
report prepared for GRAPHITE by MDX GeoServices of Bridgenorth, Ontario.
SECTION 6
Conditions Precedent to Obligations of GRAPHITE
and the Shareholders
All obligations of GRAPHITE and the Shareholders under this Plan are
subject to the satisfaction, on or before the Closing Date, except as
otherwise provided for herein, or waived or extended in writing by the parties
hereto, of the following conditions:
6.1 Accuracy of Representations. The representations and warranties
made by G&L in this Plan were true when made and shall be true as of the
Closing Date (except for changes therein permitted by this Plan) with the same
force and effect as if such representations and warranties were made at and as
of the Closing Date; and, G&L shall have performed and complied with all
covenants and conditions required by this Plan to be performed and complied
with by G&L prior to or at the Closing, unless waived or extended in writing
by the parties hereto. GRAPHITE shall have been furnished with a certificate,
signed by a duly authorized executive officer of G&L and dated the Closing
Date, to the foregoing effect.
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AGREEMENT AND PLAN
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6.2 Officers' Certificate. GRAPHITE and the Shareholders shall
have been furnished with a certificate dated the Closing Date and signed by a
duly authorized executive officer of G&L, to the effect that no litigation,
proceeding, investigation, or inquiry is pending, or to the best knowledge of
G&L, threatened, which might result in an action to enjoin or prevent the
consummation of the transactions contemplated by this Plan, or which might
result in any material adverse change in the assets, properties, business, or
operations of G&L.
6.3 No Material Adverse Change. Prior to the Closing Date, there
shall have not occurred any material adverse change in the financial
condition, business, or operations of G&L, nor shall any event have occurred
which, with lapse of time or the giving of notice or both, may cause or create
any material adverse change in the financial condition, business or operations
of G&L, except as otherwise disclosed to GRAPHITE.
6.4 Accuracy of Financial Information and Completion of Audited
Financial Statements. That the audited financial statements dated December
31, 1992, and 1991 and for the interim period dated May 31, 1993, accurately
represent the financial condition of G&L for that same period, and that no
material adverse change shall have occurred during that interim period through
the Date of Closing.
6.5 Opinion of Counsel of G&L. G&L shall furnish to GRAPHITE and
the Shareholders an opinion dated as of the Closing Date and in form and
substance satisfactory to GRAPHITE and the Shareholders to the effect that:
(a) G&L is a corporation duly organized, validly existing, and in
good standing under the laws of the State of Utah with all requisite corporate
power to perform its obligations under this Plan;
(b) the business of G&L, as presently conducted, including the
upon the consummation hereof, the ownership of all of the issued and
outstanding shares of GRAPHITE, does not require it to register it to register
it as a foreign corporation in any jurisdiction other than under the
jurisdiction of the State of Utah, USA. G&L is not in violation of any
provision of its Articles of Incorporation or Bylaws and G&L has complied to
the best of its knowledge in all material respects with all the laws,
regulations, licensing requirements and orders applicable to its business
activities and has filed with the proper authorities, including the Department
of Commerce, Corporations Division, State of Utah, all statements and reports
required to be filed.
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AGREEMENT AND PLAN
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(c) the authorized and outstanding capital stock of G&L as set
forth in Section 3.2 above, and all issued and outstanding shares have been
duly and validly authorized and issued and are fully paid and non-assessable;
(d) there are no material claims, suits or other legal proceedings
pending or threatened against G&L of any court or before or by any
governmental body which might materially affect the business of G&L or the
financial condition of G&L as a whole and no such claims, suits, or legal
proceedings are contemplated by governmental authorities against G&L;
(e) G&L's initial public distribution of its common stock, sold
pursuant to a prospectus, which was granted an effective date by the United
States Securities Exchange Commission on February 25, 1972, was done in
accordance and in compliance with the rules and regulations as promulgated
under the Securities Act of 1933, as amended, (the "Act"), and complies with
the federal exemption from the registration provisions of the Act, as provided
therefor, and in compliance with the rules and regulations as promulgated by
the Securities Division of the State of Utah in which the public distribution
was made. Subsequent to the termination of its public offering, no stop
orders suspending the effectiveness of the distribution is or was in effect,
and no proceeding since the termination thereof for that purpose are pending
before or threatened by any state or federal agency or authority.
(f) G&L's common stock was distributed in compliance with an
exemption from the registration provisions as promulgated under Section 3(b)
of the Act, Regulation A, and represent and warrant, in connection therewith,
that the shares of common stock distributed pursuant to the foregoing
exemption are now freely tradeable in the over-the-counter market except as to
common shares of G&L beneficially owned by any "controlling person" of G&L or
any "affiliate" thereof, as those terms are defined under the Act.
(g) to the best knowledge of such counsel, the consummation of
the transactions contemplated by this Plan will not violate or contravene the
provisions of the Articles of Incorporation or Bylaws of G&L, or any contract,
agreement, indenture, mortgage, or order by which G&L is bound; and
(h) this Plan constitutes a legal, valid and binding obligation
of G&L enforceable in accordance with its terms, subject to the affect of any
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AGREEMENT AND PLAN
Page 10
bankruptcy, insolvency, reorganization, moratorium, or similar law affecting
creditors' rights generally and general principles of equity (regardless of
whether such principles are considered in a proceeding in equity or law).
(i) the execution and delivery of this Plan and the consummation
of the transactions contemplated hereby have been ratified by the shareholders
of G&L and have been duly authorized by its Board of Directors.
6.6 Other Items. GRAPHITE and the Shareholders shall have received
such further documents, certificates or instruments relating to the
transactions contemplated hereby as GRAPHITE and the Shareholders may
reasonable request.
SECTION 7
Conditions Precedent to Obligations of G&L
All obligations of G&L under this Plan are subject, at its option, to the
fulfillment, before or at the Closing, of each of the following conditions:
7.1 Accuracy of Representations. The representations and
warranties made by GRAPHITE and the Shareholders under this Plan were true
when made and shall be true at the Closing Date with the same force and effect
as if such representations and warranties were made at and as of the Closing
Date (except for changes therein permitted by this Plan), and GRAPHITE and the
Shareholders shall have performed or complied with all covenants and
conditions required by this Plan prior to or at Closing. G&L shall have been
furnished with a certificate(s), signed by duly authorized officers of
GRAPHITE and the Shareholders and dated the Closing Date, to the foregoing
effect.
7.2 Officers' Certificate. G&L shall have been furnished with a
certificate dated the Closing Date and signed by a duly authorized executive
officer of GRAPHITE to the effect that no litigation, proceeding,
investigation, or inquiry is pending, or to the best knowledge of GRAPHITE,
threatened, which might result in an action to enjoin or prevent the
consummation of the transactions contemplated by this Plan, or which might
result in any material adverse change in the assets, properties, business, or
operations of GRAPHITE.
7.3 No Material Adverse Change. Prior to the Closing Date, there
shall have not occurred any material adverse change in the financial
condition, business, or operations of GRAPHITE, nor shall any event have
occurred which, with lapse of time
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AGREEMENT AND PLAN
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or the giving of notice or both, may cause or create any material adverse
change in the financial condition, business or operations of GRAPHITE.
7.4 Opinion of Counsel as of Closing Date. An opinion of counsel
shall be provided to G&L by counsel for GRAPHITE representing that:
(a) GRAPHITE is duly incorporated, validly existing and in good
standing under the laws of Ontario, Canada;
(b) GRAPHITE holds all requisite power and authority to own its
properties and carry on its business as conducted on the Closing Date;
(c) the authorized and outstanding capital of GRAPHITE as set
forth in Section 4.3 above and all issued and outstanding shares of its
capital stock have been duly and validly authorized and issued, and are fully
paid and non-assessable;
(d) the Shareholders are the beneficial and registered owners of
GRAPHITE's issued and outstanding securities according to the books and
records;
(e) to the best knowledge and belief of counsel, no options,
warrants or other rights to acquire shares are outstanding with respect to the
shares of capital stock of GRAPHITE.
(f) this Plan has been duly and validly authorized, executed, and
delivered by GRAPHITE and constitutes the legal and binding obligation of
GRAPHITE, subject to effect of any bankruptcy, insolvency, reorganization,
moratorium, or similar law affecting creditors' rights generally, and general
principles of equity, (regardless of whether such principles are considered a
proceeding in equity or law);
(g) except as otherwise disclosed to G&L or as set forth in this
Plan, such counsel does not have knowledge of any litigation, proceeding, or
governmental investigation threatened against or relating GRAPHITE or its
properties and business or against or relating to the transactions
contemplated by this Plan.
7.5 Other Items. G&L shall receive further documents, certificates,
or instruments relating to the transactions contemplated hereby as G&L may
reasonably request.
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AGREEMENT AND PLAN
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SECTION 8
Termination
8.1 Termination by GRAPHITE or the Shareholders. This Plan may be
terminated at any time prior to the Closing Date by action of the GRAPHITE or
the Shareholders, if G&L shall fail to comply in any material respect with any
of the covenants or agreements contained in this Plan or if any of its
representations and warranties contained herein shall be inaccurate in any
material respect.
8.2 Termination by G&L. This Plan may be terminated at any time
prior to the Closing Date by any action of the Board of Directors of G&L if
either the Shareholders or GRAPHITE shall fail to comply in any material
respect with any of the covenants and agreements contained in this Plan or if
any of its representations and warranties contained herein shall be
inaccurate in any material respect.
8.3 Termination by Mutual Consent. This Plan may be terminated at
any time prior to the Closing Date by mutual consent of G&L, expressed by
action of its Board of Directors, GRAPHITE, or its sole Shareholders, the
Shareholders.
If this Plan is terminated pursuant to Section 8, this Plan shall be of
no further force and effect and no obligation, right or liability shall arise
hereunder. Each party shall bear its own costs in connection herewith.
SECTION 9
General Provisions
9.1 Further Assurances. At any time, and from time to time, after
the Closing, each party will execute such additional instruments and take such
action as may be reasonably requested by the other party to confirm or perfect
title to any property transferred hereunder or otherwise to carry out the
intent and purposes of this Plan.
9.2 Payments of Estimated Costs and Fees. As G&L and GRAPHITE may
mutually determine, G&L and GRAPHITE agree, at their expense, to divide and
pay the estimated costs and fees incurred in connection with the execution and
consummation of the Plan all the parties hereto.
9.3 Press Release and Shareholders Communications. On the Date of
Closing, or as soon thereafter as practicable, G&L, GRAPHITE, and the
Shareholders
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AGREEMENT AND PLAN
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shall cause to have promptly prepared and disseminated a news release
concerning the execution and consummation of the Plan, such press release and
communication to be released promptly and within the time required by the
laws, rules and regulations as promulgated by the United States Securities
and Exchange Commission, and concomitant therewith to cause to be prepared a
full and complete letter to G&L's shareholders which shall contain information
required by Regulation 240.14f-1 as promulgated under section 14(f) as
mandated under the Securities and Exchange Act of 1934, as amended.
9.4 Notices. All notices and other communications required or
permitted hereunder shall be sufficiently given if personally delivered to its
of sent by registered mail, or certified mail, return receipt requested,
postage prepaid, or by prepaid telegram addressed as follows:
If to G&L, to: G&L ENERGY, INC.
2220 East 4800 South, Suite 422
Salt Lake City, Utah 84117
With a copy to: _______________________________
________________________________
________________________________
If to GRAPHITE, to: GRAPHITE MOUNTAIN, INC.
P.O. Box 190
Warkworth, Ontario, CANADA K0K 3K0
If to the Shareholders: C/O A. David Houston
same address as above
With a copy to: Robert J. Nielson, Esq.
3098 So. Highland Dr., Suite 350
Salt Lake City, Utah 84106
or at such other addresses as shall be furnished in writing by any party in
the manner for giving notices hereunder, and any such notice or communication
shall be deemed to have been given as of the date so delivered, mailed, sent
by facsimile transmission, or telegraphed.
9.5 Entire Agreement. This Plan represents the entire agreement
between the parties relating to the subject matter hereof, including any
previous letters of intent, understandings, or agreements between G&L,
GRAPHITE and the Shareholders with
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AGREEMENT AND PLAN
Page 14
respect to the subject matter hereof, all of which are hereby merged into this
Plan, which alone fully and completely expresses the agreement of the parties
relating to the subject matter hereof. There are no other courses of dealing,
understandings, agreements, representations, or warranties, written or oral,
except as set forth herein.
9.6 Governing Law. This Plan shall be governed by and construed and
enforced in accordance with the laws of the State of Utah.
9.7 Tax Treatment. GRAPHITE and G&L acknowledge that each are being
by their own tax advisors in connection with this transaction, and neither has
made any representation or warranties to the other with respect to treatment
of such transaction or any part or effect thereof under applicable tax laws,
regulations, or interpretations; and no attorney's opinion or tax revenue
ruling has been obtained with respect to the tax consequences under the
hereunder.
9.8 Attorney's Fees. In the event that any party prevails in any
action or suit to enforce this Plan, or secure relief from any default
hereunder or breach hereof, the non-prevailing party or parties shall
reimburse the prevailing party or parties for all costs, including reasonable
attorney's fees, incurred in connection therewith.
9.9 Amendment or Waiver. Every right and remedy provided herein
shall be cumulative with every other right and remedy, whether conferred
herein, at law or in equity, and may be enforced concurrently or separately,
and no waiver by any party of the performance of any obligation by the other
shall be construed as a waiver of the same or any other default then,
theretofore, or thereafter occurring or existing. Any time prior to the
expiration of thirty (30) days from the date hereof, this Plan may be amended
by a writing signed by all parties hereto, with respect to any of the terms
contained herein, and any term or condition of this Plan may be waived or the
time for performance thereof may be extended by a writing signed by the party
or parties for whose benefit the provision is intended.
9.10 Counterparts. This Plan may be executed simultaneously in two
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
9.11 Headings. The section and subsection headings in this Plan are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Plan.
9.12 Parties in Interest. Except as may be otherwise expressly
provided herein, all terms and provisions of this Plan shall be binding upon
and inure to the benefit of
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AGREEMENT AND PLAN
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the parties hereto and their respective heirs, beneficiaries, personal and
legal representatives, and assigns.
IN WITNESS WHEREOF, the parties have executed this Plan and Agreement of
Reorganization effective the day and year first above written.
G&L ENERGY, INC.
By: /s/ Thomas R. Warren Attest: /s/ Greg Markham
--------------------------- ----------------------------
Thomas R. Warren, President Greg Markham, Asst. Secretary
GRAPHITE MOUNTAIN, INC.
By: /s/ A. David Houston Attest: /s/ A. Patterson
--------------------------- -----------------------------
A. David Houston, President
The Shareholders:
By: /s/A. David Houston Attest: /s/ A. Patterson
---------------------------
A. David Houston
Attorney-in-Fact
AGREEMENT
This AGREEMENT, made and entered into this 17th day of Dec., 1994, by and
between Diamond Lake Minerals, Inc., a publicly held Utah corporation ("DLMI")
and P. & G. Development (P & G), a Canadian company, formed under the
Prospecting and Grubstaker's Act, of the Province of Ontario, Canada.
For and in consideration of the mutual covenants contained herein, and
for other good and valuable consideration, the adequacy and sufficiency of
which is hereby acknowledged, the parties hereto agree as follows:
1. Assignment of Property and Consideration. P & G hereby assigns,
sells, transfers, and conveys all of its right, title and interest in those
thirty-nine (39) mining claims located in the North Burgess Township, County
of Lanark, Southern Ontario, Canada, a description of which is attached hereto
as Exhibit "A" and incorporated herein by reference, and hereinafter referred
to as the "Timmins" graphite property.
(a) As consideration for the foregoing sale, transfer and conveyance
of all of P & G's mining rights in the thirty-nine (39) mining claims to
DLMI, DLMI shall, upon execution hereof, issue an aggregate of FOUR-MILLION
(4,000,000) DLMI common shares, to be issued to P & G or its designees as set
forth in Exhibit "B", attached hereto, and incorporated herein by reference,
and in addition, the sum of NINETY-THOUSAND UNITED STATES DOLLARS ($90,000
US). P & G agrees to accept, however, in lieu of the $90,000 US, 360,000
shares, which 360,000 shares shall be part of the total of the 4,000,000
shares to be delivered hereunder, and shall constitute shares issued pursuant
to an exemption provided therefor under Rule 504, Regulation D, as promulgated
under the Sewcurities Act of 1933, as amended, with the balance of the
4,000,000 shares, or 3,640,000 common shares, to be issued under the exemption
provided for under Seciton 4(2) of the Securities Act of 1933, as shares
issued "in a transaction not involving a public offering." The issuance of
the 4,000,000 shares, that is 360,000 common shares to be issued pursuant to
Rule 504 and in lieu of the $90,000, and 3,640,000 common shares issued
pursuant to Section 4(2) of the Securitie Act, shall constitute the full and
complete consideration for the transfer of the foregoing claims, excepting
reservation by P & G of a Three Percent (3%)smelter return in favor of P & G
of any and all minerals mined and drilled from and of the foregoing thirty-
nine (39) mining claims.
(b) It is understood and agreed by the parties, that the parties have
agreed that the common shares of DLMI to be issued to P & G as a consideration
for this transaction, will be issued with an agreed upon value of Twenty-Five
Canadian Cents ($0.25 Canada) per share, which approximates the average bid
price of the DLMI common stock as traded on the NASD Bulletin Board over-the-
counter-market in the United States as of the date hereof.
1
<PAGE>
2. Authority of P & G. P & G warrants, covenants and represents
that it owns 100% of the interest in the Timmins property, and that the same
is free and clear of any liens and encumbrances, and P & G has, pursuant to a
resolution adopted by its Managing Members, and subsequently unanimously
approved by its Members, the full power and authority to execute this
Agreement and to transfer all its rights in the Timmins property to DLMI,
reserving however, a 3% net smelter interest in favor of P & G.
3. Definition of 3% Smelter Return/Determination of Market Price.
A 3% smelter return, retained by P & G, shall be defined as the amount equal
to 3% of the gross proceeds of the sale of any minerals or mineral products
from the Timmins property. The average price obtained by DLMI for graphite or
other mineral products products sold, will be the average price of graphite
ore determined as of three days prior to delivery of the same to any
processor, purchaser or refiner thereof. The weighing or sampling of the
ore, at which a representative of P & G may be present or a designee thereof,
prior to the delivery, will be accepted as final. The absense of a
representative of P & G to witness and verify any such sampling or weighing
shall constitute a waiver of the right in each instance. After weighing and
sampling of any graphite ore or other mineral ores, the same may be placed in
process, co-mingled, or otherwise disposed of by DLMI.
4. Revenues Due P & G by DLMI. Any revenues due as a result of
the sale of graphite products or other mineral products by DLMI shall be paid
on a quarterly basis to P & G or on some other date as may be mutually agreed
upon by the parties. Any monies paid, shall be due when DLMI has received the
actual receipts from sale of graphite or any other mineral products. P & G
shall be entitled, upon a reasonable request by P & G, to the books and
records of DLMI for purposes of reviewing sales of graphite or other ores and
the receipt of any and all revenues in connection therewith.,
5. Conduct of Mining and Restoration by DLMI. DLMI shall conduct
all of its mining operations in such a manner as not to unduly damage the
lands conveyed hereunder and otherwise agrees to restore said lands as near
to their present condition as reasonably possible, and to otherwise comply
with any and all terms, conditions and statutes and laws as may be enacted
referencing environmental or other restoration procedures applicable to the
subject property in a timely manner and in compliance with such laws,
ordinances or regulations. DLMI shall conduct all operations in such a manner
as not to obstruct, impair or interfere with the natural drainage of the
lands, or the streams or the other bodies of water on or in the vicinity of
the lands, except as may be necessary to effect its mining operations. DLMI
agrees to not leave on such lands pits or lakes of an area of more than 40
acres.
6. P & G's Title to Property. P & G hereby warrant and agrees
(a) to furnish DLMI a preliminary title report, title report, and
title insurance, as mutually agreed upon by the parties, for the 39 claims
described in Exhibit "A" . P & G shall otherwise permit DLMI, its
representatives and counsel
2
<PAGE>
to examine all abstracts of title, title opinions, title files, ownership
maps, records, surveys, and al other material which P & G has or which are
pertinent to the title, condition and memorandum or any business activity
concerning mining operations on the property or that have been performed on
the property in the past and any other material which P & G has and which are
pertinent to the title and mining operations to any of the Timmin's property.
(b) that the delivery by P & G of any such abstracts, surveys, and
other title information and curative material to DLMI's title counsel as he
may reasonably request for the purpose of showing that P & G has good and
marketable title to the Timmin's property, and any transfer hereunder, shall
be subject to a favorable opinion by DLMI's title counsel as to the status of
P & G's title to the Timmin's property.
(c) that prior to the execution hereof, P & G will undertake the
necessary measures to cure any title defects or encumbrances to which DLMI
takes exception and that otherwise in the opinion of DLMI would materially
interfere with the proposed operation and use of the Timmin's property by
DLMI.
(d) that all warranties, representations and covenants with respect
to the nature and condition of P & G's good and marketable title to the
Timmin's property shall survive the execution hereof.
7. Acknowledgment of Investment Intent. P & G and its members
understand, acknowledge and agree that the 3,640,000 of the 4,000,000 DLMI
common shares to be issued pursuant hereto, as part of the consideration for
the purchase by DLMI of P & G's Timmin's property, constitute "restricted
shares" as that term is defined under the Securities Act of 1933, as amended;
and, that P & G and its members are taking the DLMI shares for "investment
purposes and not with a view to subsequently distribute the same". P & G and
its members agree to execute and deliver to DLMI a letter similar in form to
the letter attached hereto as Exhibit "C", and incorporated herein by
reference, representing and warranting that the DLMI shares are being received
for investment purposes and that under present U.S. law, any subsequent
transferability thereof is restricted for a period of no less than two years.
The DLMI shares being delivered hereunder shall have a restrictive legend
imprinted thereon indicating the DLMI shares are subject to restrictions on
transferability and that "stop transfer" instructions shall be submitted to
DLMI's transfer agent, American Registrar and Transfer Company, Inc. of Salt
Lake City, Utah, for the purpose of indicating in DLMI's transfer records the
restrictive nature of the DLMI stock, together with instructions that the
same may not be transferred unless the same are the subject of a Registration
Statement in effect or pursuant to an exemption from the registration
provisions, and further pursuant to an opinion of counsel satisfactory to DLMI
that the shares can be transferred in a manner contemplated or requested by P
& G or any one of its members.
8. Conditions Precedent to the Obligations of DLMI. All
obligations of DLMI under this Agreement are subject to the fulfillment, prior
to or upon the execution hereof, of each of the following conditions:
a) The representations and warranties of P & G set forth in
this Agreement shall be true and correct in all material respects as of the
date when made and shall be deemed to have been made again at and as of the
date hereof.
b) P & G shall have duly performed and complied with, in all
material respects, all things required by the Agreement, to be performed or
complied with by it prior to or upon the execution hereof.
c) P & G shall have delivered to DLMI a certificate of the
Managing Member of P & G dated as of the execution date, certifying, to the
best of his knowledge and belief, as to the fulfillment of the conditions
imposed according to the foregoing paragraphs.
d) P & G shall deliver to DLMI the favorable written memorandum
dated upon the execution hereof, to the effect that (i) P & G is an
organization duly organized and validly existing and in good standing under
the laws of the Province of Ontario, Canada and was duly organized and
qualified under the Prospector and Grubstaker's Act, as then in effect, and
as is now presently constituted, and has the proper authority to own and
operate its properties and assets and to conduct its business as it is now
conducted; (ii) all necessary proceedings by P & G, including unanimous
approval by its members, have been taken to authorize the consummation of the
transactions contemplated hereby and the performance by P & G of its
obligations hereunder and the execution and delivery by P & G of all
instruments of conveyance and other documents contemplated hereby, and the
execution of this shall constitute valid and binding agreements of P & G in
accordance with their respective terms; (iii) the manner in which P & G is
conducting its business is not in violation of any applicable law or
regulation materially affecting the Timmin's property or the operation
thereof; (iv) P & G's Management knows of no impediment, legal or otherwise,
with respect to any provision, law, ordinance or enactment, either Provincial
or Federal, referencing the Prospector's and Grubstaker's Act and to P & G's
consummating the transactions contemplated in this Agreement; and (v) such
matters incident to the transactions contemplated hereby as DLMI may
reasonably request.
9. Governmental Consents.
(a) Except and unless as DLMI shall agree, in writing, need not be
obtained, there shall have been obtained, each consent of governmental
authorities "other than consents required in connection with the transfer of
mining claims under township, Ontario Provincial or any Federal law, or
consent to the transfer is limited
4
<PAGE>
exclusively to such consent as is prescribed by the applicable laws, rules and
regulations, and other than consents customarily obtained after closing" and
each consent and waiver of preferential right to purchase necessary to permit
the valid sale and transfer to and be purchased by DLMI of the Timmin's
graphite property.
(b) There shall not have been introduced in, or enacted or voted
by any township, Canadian Province, or legislation, which, in DLMI's
judgement, would be materially prejudicial to the income tax consequences to
DLMI with respect to transactions contemplated by this Agreement.
10. Conditions Precedent to P & G's Obligations. All obligations
of P & G under this Agreement are subject to the fulfillment as conditions
precedent, prior to or upon the execution hereof, of each of the following
conditions:
a) The representations and warranties of DLMI set forth in this
Agreement shall be true and accurate in all material respects as of the date
hereof, and, except to the extent necessary to reflect the consummation of any
transactions provided for herein or consented to or approved in writing by P &
G, shall then be true in all material respects.
b) DLMI shall have duly performed and complied with, in all
material respects, all things required by this Agreement to be performed or
complied with by it prior to or upon the execution hereof.
c) This Agreement, and the proposed purchase of the Timmin's
property by DLMI has been approved and adopted at a special meeting of DLMI's
Board of Directors duly called and held for such purpose by the vote of a
majority of its Board of Directors entitled to vote at such a meeting.
d) DLMI shall have delivered to P & G the favorable written
opinion of Robert J. Nielson, Attorney at Law, special securities counsel for
DLMI, prior to or upon the execution hereof, to the effect that (i) DLMI is a
corporation duly organized, validly existing and in good standing in the state
of Utah, and has the corporate power to own and operate its properties and
assets and to conduct its business as it is now conducted; (ii) the
execution of this Agreement and the issuance 4,000,000 of DLMI's common
shares, has been duly and validly authorized, and when issued and delivered,
shall constitute fully paid and non-assessable shares; (iii) counsel knows
of no impediment, legal or corporate, to DLMI's concluding the transactions
called for in this Agreement, and (iv) such other matters incident to the
transaction contemplated hereby as P & G may reasonably request.
e) It is not contemplated that DLMI will request from the United
States Internal Revenue Service a ruling, or rulings, in form and substance
concerning any gain or loss of income, capital gains or with respect to any
tax consequence that may
5
<PAGE>
or may not be recognized by P & G or DLMI as a result of the contemplated sale
by P & G of the Timmin's property to DLMI in the matter contemplated herein.
Further, each of the parties hereto agrees to consult with their own tax
counsel to the gain, income, Canadian and U.S. tax provisions and tax
consequences applicable to the within contemplated transaction.
11. Conveyance and Transfer of Title. Upon the execution hereof,
P & G shall also execute the instruments conveying and transferring all of P &
G's title and interest in the Timmin's property to DLMI, which shall contain
the general warranties and covenants and an adequate description of the
Timmin's property to be delivered to DLMI with the required documentary tax
stamps affixed thereto by P & G and cancelled, if any there be. P & G further
agrees, that, from time to time, at DLMI's request, and without further
consideration, P & G shall execute and deliver such further documents and take
such further action as DLMI reasonably may require to more effectively convey,
transfer to, and vest in DLMI, good title to the Timmin's property.
12. DLMI's Title to Timmin's Property. Upon execution hereof, and
by the execution of the conveyance referred to above, DLMI shall have good and
marketable title to all of the Timmin's property, as described in Exhibit "A"
attached hereto, free of all liens, charges and encumbrances, except as
otherwise disclosed and agreed to by DLMI pursuant to written waivers,
excepting (i) taxes constituting a lien but not yet due and payable (ii)
defects or irregularities of title or encumbrances which are not such as to
interfere materially with the operation, value or use of any of the Timmin's
property or materially affect title thereto.
13. Delivery of DLMI Shares to P & G. Upon the execution hereof,
and concomitant with the transfer and execution of the conveyance of the
Timmin's property to DLMI, DLMI shall, as soon as practicable, deliver to P &
G and its members identified in Exhibit "B" attached hereto, 4,000,000 DLMI
common shares, which shares will be issued pursuant to certain exemptions from
the registration provisions of the Securities Act of 1933, as amended and as
further discussed in Paragraph 1(a).
14. Execution of Investment Letters. In connection with the delivery
of 3,640,000 of the 4,000,000 forgoing DLMI shares, P & G, and each member
thereof, agrees to execute an "investment letter" in a form similar to that
attached hereto as Exhibit C.
15. Neither party has employed or entered into any agreement,
arrangement or understanding with any broker or finder in connection with this
Agreement or the transactions contemplated hereby, and each party so
represents and warrants to the other. Each party hereby agrees to indemnify,
save and hold harmless the other party, its shareholders, members, directors
and officers from and against any and all claims, losses, damages, costs or
expenses of any kind or character arising out of or resulting from any
agreement, arrangement or understanding alleged to have been made by it with
any broker or finder in connection with this Agreement or the transactions
contemplated hereby.
6
<PAGE>
16. Termination. In the event of the termination of this
Agreement, pursuant to the terms and provisions hereof, neither party shall
have any liability hereunder, of any nature whatever, to the other, including
any liability for damages; provided that this paragraph shall not preclude
liability attaching to a party who has caused a termination hereof by an act,
or by its failure to act, in violation of the terms and provisions hereof, and
in the event of suit, a violation of any other term or provision hereof, the
prevailing party shall be entitled to costs incurred in connection therewith,
and reasonable attorney fees.
17. Notices. All notices, requests, demands, and other
communications hereunder shall be in writing and shall be deemed to have been
given if delivered or mailed, first class postage prepaid:
If to DLMI, to: Diamond Lake Minerals, Inc.
Box 190
Warkworth, Ontario CANADA K0K 3K0
ATTN: Mr. A.D. Houston, President
With a copy to: Robert J. Nielson, Esq.
3098 Highland Drive, Suite 350
Salt Lake City, Utah 84106
If to P & G Development:
18. Binding Effect. This Agreement shall inure to the benefit of
and be binding upon the parties named herein and their respective successors
and assigns; nothing in this Agreement, express or implied, is intended to
confer upon any other person any rights or remedies under or by reason of this
Agreement.
19. Claims. Neither the conveyance of the Timmin's property, nor
the delivery of the DLMI shares pursuant to this Agreement, shall operate to
extinguish any claim, representation, warranty or agreement hereunder, unless
such representation, warranty or agreement shall survive the expiration of one
year from the date hereof, unless (a) a claim in respect thereof has been
asserted in writing prior to, or at least one month prior to such expiration,
(b) it relates to obligations of the parties which are to continue after the
execution hereof as distinguished from the representations and warranties of
the parties contained in this Agreement and in certificates and documents
delivered hereunder, or (c) it is contained in an instrument of conveyance,
assignment or transfer executed and on delivery in accordance with this
Agreement.
20. Amendments. This Agreement may not be amended, supplemented or
otherwise modified except by an instrument in writing signed by both P & G and
DLMI. This Agreement cannot be assigned in any manner by either P & G or DLMI
without the express written permission of the other, which permission shall
not be unreasonably
7
<PAGE>
withheld. This Agreement contains the entire agreement of the parties hereto
with respect to the transactions covered hereby and there are no
representations, warranties, agreements, undertakings or conditions, express
or implied, except as set forth herein.
21. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
22. Governing Law. The parties agree that without regard to
conflicts of law considerations, this Agreement shall be construed and
governed by the law of the Province of Ontario, Canada.
IN WITNESS WHEREOF, the undersigned parties hereto have duly executed
this Agreement as of the date first above written.
P & G DEVELOPMENT, INC.
/s/ A. David Houston
By:__________________________________
, Managing Member
/s/ Diane Greer
ATTEST:____________________________
DIAMOND LAKE MINERALS, INC.
/s/ A. David Houston
By:__________________________________
A. David Houston, President
/s/ Diane Greer
ATTEST:_____________________________
<PAGE>
Exhibit A
List of Timmins Mining Claims
<PAGE>
Exhibit B
List of Shareholders of Designees to
Receive stock in the Transaction
Between the Company and P&G
<PAGE>
Exhibit C
Sample Investment Letter
<PAGE>
Exhibit D
Exploration Strategy/Geology Report by MDX Geoservices
<PAGE>
<Stamped with the seal of
Secretary of State of Utah
As received on Jan 5 1954>
GARDEN & LAWN EQUIPMENT COMPANY
We, the undersigned, for the purpose of forming a corporation under the laws
of the State of Utah, do hereby associate ourselves and agree as follows,
to-wit:
ARTICLE I
The name of this corporation hereby formed shall be "Garden & Lawn Equipment
Company".
ARTICLE II
This corporation is hereby organized at Salt Lake City, Salt Lake County,
State of Utah.
ARTICLE III
The names of the incorporators and their respective places of residence
are as follows, to-wit:
Name Address
W. A. McCormick Salt Lake City, Utah
Pam G. McCormick Salt Lake City, Utah
W. W. McCormick Salt Lake City, Utah
Louis* M. McCormick Salt Lake City, Utah
L. H. Keeler Salt Lake City, Utah
ARTICLE IV
This corporation shall exist for One hundred years unless sooner dissolved
according to law.
ARTICLE V
The general nature of the business of this corporation shall be to buy, and to
sell and distribute, both wholesale and retail, all kinds of powered equipment
and garden and lawn accessories; to buy, lease, acquire, hold, own, sell, let,
or otherwise dispose of such property, both real and personal, as is necessary
to carry an the above stated business; to make and enter into contracts of
every kind and nature incidental to the aforesaid business with any
individual, firm, association, or corporation, private, public, or municipal,
and with the government or public authorities of the United States or any
state or division thereof; to do any and all of the things hereinabove set
forth and such other things as are incidental or conducive to the attainment
of the above business objects.
<PAGE>
ARTICLE VI
The principal place of business of this corporation @hall. be at 1626 South
State Street, Salt Lake City, Utah, but business, finance, and transfer
offices may be established by the Board of Directors, and business may be
transacted at any place or places in the United States, and meetings of the
Board of Directors may be held for the transaction of any business of the
corporation at such places outside of the State of Utah and elsewhere within
said state than at its principal place of business as the Board of Directors
may by resolution or by by-law provide.
ARTICLE VII
The amount of stock each party has subscribed is an follows:
Name Amount of Stock
W. A. McCormick 497 shares
W. W. McCormick 497 shares
Erma G. McCormick 2 shares
Louise M. McCormick 2 shares
L. H. Kesler 2 shares
TOTAL 1,000 shares
ARTICLE VIII
This corporation is authorized to issue only one class of shares of stock; the
total number of such shares is 1,000, with which total number it shall
commence business: and all of such shares are to be without par value.
ARTICLE IX
In case a stockholder desires to son his share or shares of stock, he must
first offer them for sale to the remaining stockholders, it being the
intention hereof to give them a preference in the purchase of the same, and
any attempted sale in violation of this provision is null and void. A
stockholder desiring to sell his stock shall file notice in writing of his
intention with the secretary of the corporation, stating the terms of sale,
and unless his terms are accepted by any or all of the other stockholders
within 30 days thereafter, they shall be deemed to have waived their privilege
of purchasing and he shall be at liberty to sell to anyone else.
<PAGE>
ARTICLE X
This corporation shall consist of a Board of Directors, and of the following
officers: a President, a Vice-President, and a Secretary-Treasurer. Said Board
of Directors shall consist of five members, each of whom shall be the holder
of at least one share of stock of this corporation in his own right as shown
by the books of the company.
A director may hold more than one office and may be an officer of the
corporation concurrently with his directorship tenure.
All directors of the corporation shall be elected annually by the holders of
the stock of this corporation at the annual meeting hereinafter provided for
and the directors shall choose and elect the officers of this corporation.
Until the first annual meeting of the stockholders of this corporation
hereinafter provided for and the election and qualification of their
successors, W. A. McCormick shall be President and Director, W. W. McCormick
shall be Vice-President and Director, L. H. Kesler shall be Secretary-
Treasurer and Director, Erma G. McCormick shall be a Director and Louise M.
McCormick shall be a Director.
The term of office of the officers of this corporation shall be one year and
until their successor or successors shall be elected and qualified.
Any vacancy caused by death, resignation, or removal shall be filled by the
Board of Directors though less than a quorum, and any person or persons so
appointed shall hold office until the next annual meeting of the stockholders
of this corporation and until the election and qualification of their
successor or successors.
Any officer or director may resign at any time by filing with the President a
written resignation.
ARTICLE XI
Three members of the Board of Directors shall constitute a quorum and shall be
authorized to transact business and exercise the corporation powers of this
corporation.
The general management of this corporation shall rest with the Board of
Directors of this corporation which may adopt such by-laws as they deem
proper, not inconsistent with this agreement or the laws of the State of Utah,
and may appoint such committees and agents for the carrying out of the work of
this corporation as they deem for the best interests of the corporation and
may vest such committees and agents with such powers in the management of such
corporation an the Board may deem for the best interest of the corporation;
the Board of Directors shall have the power and authority to prescribe the
duties of the officers of the corporation, fix their salaries, and generally
conduct, control, and regulate the company's business and its affairs. The
Board of Directors by resolution shall have the power to sell, mortgage, or
otherwise dispose of the property of this corporation without the consent,
ratification, or approval of the stockholders.
ARTICLE XIII
The private property of the stockholders of this corporation shall not be
liable for the debts and obligations of this corporation.
ARTICLE XIII
The annual meeting of the stockholders of this corporation for the election of
directors and for the transaction of business coming on regularly before such
meeting shall be held in the first week of February, 1954, at the principal
place of business of the corporation, and annually thereafter at the same time
and place unless otherwise provided in the by-laws of this corporation. A
representation or majority of the issued out-standing stock of the corporation
shall be necessary to hold such meeting.
The directors shall be elected by ballot and each holder of the stock of this
corporation shall be entitled to one vote for each share of stock standing in
his name upon the books of the company at the time of the meeting, provided,
however, that any stockholder may vote either in person or by agent or proxy.
ARTICLE XIV
This corporation hereby takes and receives in full payment of 994 shares of
the above subscribed non-par stock an assignment from W. A. McCormick and W.
W. McCormick of all their right, title and interest in and to all and every
asset of every description of the Garden & Lawn Equipment Company of which
company the said assignors are the solo owners.
<PAGE>
The above assets are necessary to the business of this corporation and the
fair cash value of the same is or exceeds the sum of Ten Thousand Dollars
($10,000.00).
IN WITNESS WHEREOF, the parties hereto respectively subscribed
their names this 28 day of December 1953.
/s/ W.A. McCormick
/s/ W.W. McCormick
/s/ L.H. Kesler
/s/ Erma G. McCormick
/s/ Louise M. McCormick
STATE OF UTAH )
)SS
COUNTY OF SALT LAKE )
W. A. McCormick, W. W. McCormick and L. H. Kesler, being each duly sworn,
depose and say that they are acquainted with the assets mentioned in Article
XIV of the foregoing Articles of Incorporation, transferred to and accepted by
this corporation in full payment of 994 shares of its stock: that in their
judgment said properties and interests are reasonably worth the amount in cash
for which they wore accepted by the corporation, to-wit, the sum of Ten
Thousand Dollars ($10,000.00).
/s/ W.A. McCormick
/s/ W.W. McCormick
/s/ L.H. Kesler
Subscribed and sworn to before me this 28th day of December,1953,
/s/ signature illegible
Notary Public
Residing in Salt Lake City, Utah
My commission expires Jan. 3 1956
State OF UTAH )
)
COUNTY Of SALT LAKE )
W. A. McCormick, W. W. McCormick and L. H. Kesler being first duly sworn on
his oath and not one for the other, deposes and says: That he is one of the
incorporators named in and who subscribed the foregoing Articles of
Incorporation of the Garden & Lawn Equipment Company; that it is bona fide
their intention to commence and carry on the business mentioned in the said
Articles of Incorporation, and that the affiants verily believe that each
party to the Articles of Incorporation has paid or is able to and will pay the
amount of stock subscribed for by him; and that at least ten percent of the
stock subscribed by each stockholder and not less than ten percent of the
total stock of the company has been paid in.
Subscribed and sworn to
before this 28 day
of December, 1953
/s/ Signature illegible
Notary Public
residing in Salt Lake City, Utah
My commission expires$ Jan 3, 1956
<Stamp of Secretary
Of State of State
Of Utah -Received
NOV 28 1958>
CERTIFICATE OF AMENDMENTS
STATE OF UTAH )
)ss
County of Salt Lake )
MAURICE MORTON AND MURRAY WILLIAMS, President and Secretary respectively of
the Garden & Lawn Equipment Corporation, a corporation organized and existing
under the laws of the State of Utah, do hereby certify that said corporation
at a special meeting of the stockholders thereof held in Salt Lake City, Utah,
on the 12th day of October, 1958, amended its Articles of Incorporation so
that hereafter Article I and Article VIII shall read as follows:
ARTICLE I
The name of this corporation hereby formed shall be "G & L Equipment Company".
ARTICLE VIII
This corporation is authorized to issue only one class of shares of stock; the
told number of such shares is 11,000, with which total number it shall
commence business and all of such shares are to be without par value.
We further certify that all at the stock entitled to vote was represented at
said meeting and voted in favor of said amendments.
/s/ Maurice E. Morton
President
/s/ Murray Williams
Secretary
STATE OF UTAH )
)ss
County of Salt )
On the 21 day of October, 1958, personally appeared before me
MAURICE MORTON and MURRAY WILLIAMS, the signers of the foregoing certificate
of amendments, known to me to be the President and Secretary of Garden and
Lawn Equipment Company, who duly acknowledged to me that they executed said
certificate of amendments.
Subscribed and sworn to before me this 21 day of October,1958.
/s/ signature illegible
My Commission expires Notary Public, residing at
August 27, 1961 Salt Lake City, Utah
<Stamp of the
Secretary of
State of Utah
Received
JUN 9 1961>
CERTIFICATE OF AMENDMENTS
STATE OF UTAH )
)ss
County of Salt Lake )
MAURICE MORTON AND MURRAY WILLIAMS, President and Secretary respectively of
the Garden & Lawn Equipment Corporation, a corporation organized and existing
under the laws of the State of Utah, do hereby certify that said corporation
at a special meeting of the stockholders thereof held in Salt Lake City, Utah,
on the 8 day of May 1961, amended its Articles of Incorporation so that
hereafter Article IV, and Article V , and Article VIII, shall read as follows:
ARTICLE IV
This corporation shall exist in Perpetuity unless dissolved or duly
unincorporated pursuant to the laws of Utah.
ARTICLE V
Paragraph 2. To engage in any other business or activity for profit which is
permitted to a corporation by law, provided that the Board of Directors shall
by resolution specify such business, businesses, activity or activities, and
should special licenses or permits be required, such licenses or permits shall
be secured prior to commencement of such business or activities.
ARTICLE VIII
This corporation is authorized to issue only one class of shares of stock; the
total number of such shares is 22,000, with which total number it shall
commence business and all of such shares are to be without par value.
We further certify that all of the stock entitled to vote was represented at
said meeting and voted in favor of said amendments.
/s/ Maurice Morton
President
/s/ Murray Williams
Secretary
STATE OF UTAH )
)ss
County of Salt Lake )
On the 8th day of May, 1956, personally appeared before
me MAURICE MORTON and MURRAY WILLIAMS, the signers of the foregoing
certificate of amendments, known to me to be the President and Secretary of
Garden and Lawn Equipment company, who duly acknowledged to me that they
executed said Certificate of Amendment.
Subscribed and sworn to before me this 8th day of May, 1961.
/s/ Robert Ryberg
My Commission Expires 11-2-62
Notary Public, residing
at Salt Lake City, Utah
<Stamped Office
of Secretary of
State 1972 JAN 18
APR 8 03 #29114>
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
G & L EQUIPMENT COMPANY
Pursuant to the Provisions of Section 16-10-54 of the Utah Business
Corporation Act, the undersigned corporation adopts the following Articles of
Amendment to its Articles of Incorporation:
FIRST: The name of the corporation is: G & L Equipment Company.
SECOND: The following amendments of the Articles of Incorporation were adopted
by the shareholders of the corporation on Dec. 15 1971, in the manner
prescribed by the Utah Business Corporation Act:
Article Eight of the Articles of Incorporation presently provides as follows:
ARTICLE VIII
This corporation is authorized to issue only one class of shares of stock; the
total number of such shares is 22,000, with which total number it shall
commence business; and all of such shares are to be without par value.
Article Eight of the Articles of Incorporation is amended to read as follows:
ARTICLE VIII
The total authorized stock of this corporation shall be divided into fifty
million (50,000, 000) shares, each having a par value of $. 001, to be issued
by the Board of Directors without any pre-emptive rights whatsoever and each
share outstanding shall be entitled to one vote without cumulative voting.
THIRD: The number of shares of the corporation outstanding at the time of such
adoption was 8,079, and the number of shares entitled to vote thereon was
8,079.
FOURTH: The designation and number of outstanding shares of each class
entitled to vote thereon as a class were as follows:
Number of
Class Shares
No par value Common 8,079
FIFTH: The number of shares voted for such amendment was 8,079, and the number
of shares voted against such amendment was none.
SIXTH: The number of shares of each class entitled to vote thereon as a class
voted for and against such amendment, respectively, was:
Class Number of Shares Voted
For Against
------------------- ---------- ------------
No Par value Common 8,079 None
SEVENTH: The manner, if not set forth in such amendment, in which any
exchange, reclassification, or cancellation of issued shares provided for in
the amendment shall be effected, is as follows:
The exchange of one share of the old no par value common stock presently
issued and outstanding for 618.8884 shares of the new $. 001 par value common
stock.
EIGHTH: The manner in which such amendment shall effect a change in the amount
of stated capital, and the amount of stated capital as changed by such
amendment, are as follows:
The capital goal was previously unstated. Such capital was divided into
22,000 shares of no par value common stock. By virtue of such amendment, the
stated capital is now $50,000 divided into an authorized 50,000,000 shares of
$.001 par value common stock.
Dated this 15 day of DEC. 1971.
G & L EQUIPMENT COMPANY
By /s/ M.E. Morton
Its President
By /s/ Murray Williams
Its Secretary
STATE OF UTAH )
)ss
County of Salt Lake )
I, Jay D. Edmonds, a notary public, do hereby certify Maurice E. Morton, who
being by me first duly sworn, declared that he is the President of G & L
Equipment Company, that he signed the foregoing document as President of the
corporation, and that the statements therein contained are true.
/s/ Jay D. Edmonds
Notary Public
Residing at Salt Lake City,
Utah
My commission expires: 4/28/73
<Stamped received Office
Of Secretary of State
1972 FEB 24 Apr 7 44
#29114>
ARTICLES OF AMENDMENT TO THE
ARTICLES OF INCORPORATION OF
G & L EQUIPMENT COMPANY
Pursuant to the Provisions of Section 16-10-54 of the Utah Business Corporation
Act,the undersigned corporation adopts the following Articles of Amendment to
its Articles of Incorporation:
1. Article V of the Articles of Incorporation lion presently provides as
follows:
The general nature of the business of this corporation shall be to buy, and to
sell and distribute, both wholesale and retail, all kinds of powered equipment
and garden and lawn accessories; to buy, lease, acquire, hold, own, sell, let,
or otherwise dispose of such Properly, both real and personal, as is necessary
to carry on the above-stated business; to make and enter into contracts of
every kind and nature incidental to the aforesaid business with any
individual, firm, association, or corporation, private, public, or municipal,
and with the government or public authorities of the United States or any
state of division thereof, to do any and all of the things hereinabove set
forth and such other things as are incidental or conducive to the attainment
of the above business objects.
To engage in any other business or activity for profit which is permitted to a
corporation by law, provided that the Board of Directors shall by resolution
specify such business, businesses, activity or activities, and should special
licenses or permits be required, such licenses or permits shall be secured
prior to commencement of such business or activities.
Article V of the Articles of Incorporation is hereby amended to provide as
follows:
The general nature of the business of this corporation shall be as follows:
1. To buy and to sell, or otherwise acquire or dispose of, both wholesale and
retail, motorcycles, snowmobiles and other types of recreational or commercial
vehicles and equipment.
2. To buy and to sell, or otherwise acquire or dispose of, both wholesale and
retail, such parts, accessories and other items as may be related to
recreational and commercial vehicles and equipment.
3. To service and to repair all types of recreational and commercial vehicles
and equipment.
4. To buy, sell, acquire or dispose of, and to service or repair such other
vehicles or equipment as may be related to the stated business of the
corporation.
5. To acquire, by purchase, lease or otherwise, and to sell, convey or
otherwise dispose of such property, both real and personal, as may be
necessary to carry out the stated business of the corporation.
6. To transact such other business as may be necessary to carry out the
business of the corporation.
2. Article VI of the Articles of Incorporation presently provides as follows:
The principal place of business of this corporation shall be at 1626 South
State Street, Salt Lake City, Utah, but business, finance, and transfer
offices may be established by the Board of Directors, and business may be
transacted at any place or places in the United States, and meetings of the
Board of Directors may be held for any transaction of any business of the
corporation at such places outside of the State of Utah and elsewhere within
said state than at its principal place of business as the Board of Directors
may by resolution or by by-law provide.
Article VI of the Articles of Incorporation is hereby amended to provide as
follows:
The principal place of business of this corporation shall be at 1522 South
State Street, Salt Lake City, Utah 84115, but business, finance, and transfer
offices may be established by the Board of Directors, and business may be
transacted at any place or places in the United States, and meetings of the
Board of Directors may be held for the transaction of any business of the
corporation at such places outside of the State of Utah and elsewhere within
said state than at its principal place of business as the Board of Directors
may by resolution or by by-law provide.
3. Article IX of the Articles of Incorporation presently provides as follows:
In case a stockholder desires to sell his share or shares of stock, he must
first offer them for sale to the remaining stockholders, it being the
intention hereof to give them a preference in the purchase of the same, and
any attempted sale in violation of this provision is null and void. A
stockholder desiring to sell his stock shall file notice in writing of his
intention with the secretary of the corporation, stating the terms of sale,
and unless his terms are accepted by any or all of the other stockholders
within 30 days thereafter, they shall be deemed to have waived their privilege
of purchasing and he shall be at liberty to sell to anyone else.
Article IX of the Articles of Incorporation is hereby amended to provide:
There shall be no pre-emptive rights by existing shareholders to purchase the
shares of stock of the corporation, and such shares may be sold by any
shareholder lawfully entitled to sell said shares, and without any preference
to existing shareholders.
4. A Article X of the Articles of Incorporation presently provides as follows:
This Corporation shall consist of a Board of Directors, and of the following
officers: a President, a Vice-President, and a Secretary Treasurer. Said Board
of Directors shall consist of five members, each of whom shall be the holder
of at least one share of stock of this corporation in his own right as shown
by the books of the company.
A director may hold more than one office and may be an officer of the
corporation concurrently with his directorship tenure.
All directors of the corporation shall be elected annually by the holders of
the stock of this corporation at the annual meeting hereinafter provided for
and the directors shall choose and elect the officers of this corporation.
Until the first annual meeting of the stockholders of this corporation
hereinafter Provided for and the election and qualification of their
successors, W. A. McCormick shall be President and Director, W. W.
McCormick shall be Vice-President and Director, L. H. Kesler shall be
Secretary -Treasurer and Director, Erma G. McCormick shall be a Director and
Louise M. McCormick shall be a Director.
The term of office of the officers of this corporation shall be one year and
until their successor or successors shall be elected and qualified.
Any vacancy caused by death, resignation, or removal shall be filled by the
Board of Directors though less than a quorum, and any person or persons so
appointed shall hold office until the next annual meeting of the stockholders
of this corporation and until the election and qualification of their success
or successors.
Any officer or director may resign at any time by filing with the President a
written resignation.
Para. 1, Article X of the Articles of Incorporation is hereby amended to
provide as follows:
This corporation shall consist of a Board of Directors, and of the following
officers: a President, a Vice-President, and a Secretary-Treasurer. Said Board
of Directors shall consist of three members none of which shall be required to
be a shareholder of the corporation.
Dated this 28 day of December 1971.
G & L EQUIPMENT COMPANY
by /s/Maurice E. Morton
Maurice E. Morton,President
by /s/ Murray S. Williams
Murray S. Williams.
Secretary Treasurer
CERTIFICATE OF AMENDMENTS
I, Murray S. Williams, hereby certify that I am the duly elected Secretary -
Treasurer of G & L Equipment Company, and that the foregoing Amendments to the
Articles of Incorporation of G & L Equipment Company were adopted by the
shareholders of the corporation on December 28, 1971, in the manner prescribed
by law.
STATE OF UTAH )
: ss. /s/ Murray Williams
County of Salt Lake ) MURRAY WILLIAMS
I, Jay D. Edmonds, a notary public, do hereby certify that on the 28 day
1971, personally appeared before me Maurice E. Morton and Murray S. Williams,
who being first duly sworn, declared that they were the President and
Secretary -Treasurer, respectively, of G & L Equipment Company; that they
signed the foregoing and that the statements therein contained are true.
/s/ Jay D. Edmonds
Jay D. Edmonds, Notary Public
Residing at Salt Lake City,Utah
My commission expires April 28, 1973
#29114
Filed in the office of the Lt. Gov./Sec. Of
State, of the State of Utah on the 10th
day of Aug A.D. 1982
David S. Monson
Lt. Gov/Sec. Of State
Filing Clerk MC $25
ARTICLES OF AMENDMENT TO
ARTICLES OF INCORPORATION OF
G & L EQUIPMENT COMPANY
These Articles of Amendment and the Certificate thereon are
made and executed pursuant to Section 16-10-54 and 16-10-55, Utah Code
Annotated, for the purpose of amending the Articles of Incorporation of G & L
Equipment Company, a Utah corporation, as indicated hereunder.
The undersigned Blaine C. Taylor, Ray E. Warren, and Thomas R. Warren
being all of the directors of said corporation, do hereby respectively certify
as follows:
I .
That a meeting of the Board of Directors of G & L Equipment Company was
held on the 22nd day of June, 1982, at Salt Lake City, Utah wherein the Board
of Directors voted unanimously to amend the Articles of incorporation of G & L
Equipment Company as indicated below.
II.
That a meeting of all the stockholders of G & L Equipment Company was
held on the 22nd day of June, 1982 at 2:35 p.m. in Salt Lake City, Utah,
pursuant to notice to all the stockholders of G & L Equipment Company.
III.
That there are 8,120,000 shares issued, outstanding and entitled to Vote as
of the date of the meeting of stockholders. That there Were 6,817,000 shares
present or by proxy at the meeting on June 22, 1982, and at such meeting the
following resolution was presented, and upon motion duly made and seconded,
the same was adopted with 4,164,000 shares voting in favor of the resolution;
2,593,000 voting against; and 60,000 shares abstaining.
<PAGE>
Resolution
---------
RESOLVED, that Article I of the Articles of Incorporation of G & L
Equipment Company, be amended to read as follows:
ARTICLE I. The name of this corporation is
G & L ENERGY, INC.
We further certify that Blaine C. Taylor, Ray E. Warren and Thomas R.
Warren are the officers and directors of the corporation and we, therefore,
execute these Articles of Amendment to the Articles of Incorporation of said
corporation.
IN WITNESS WHEREOF, we have hereunto set our hands this 30 day of July,
1982.
/s/ Blaine C. Taylor
Blaine C. Taylor,
President and Director
/s/ Thomas R. Warren
Thomas R. Warren
Vice President & Director
/s/ Ray E. Warren
Ray E. Warren
Secretary Treasurer & Director
STATE OF UTAH )
:ss
County of Salt Lake )
On the 30 day of July, 1982, personally appeared before me Blaine C. Taylor,
Ray E. Warren and Thomas R. Warren, who, being first duly sworn, acknowledged
to me that they are the officers and directors of G & L Energy, Inc., formerly
G & L Equipment Company, and that they signed the foregoing document for the
purposes stated therein.
/s/
NOTARY PUBLIC
Residing at Salt Lake County, Utah
My Commission Expires: 8/13/82
State of Utah Stamped RECEIVED
Department of Commerce 1993 SEP 15 PM 1:56
Division of Corporations and Commercial Code Division of Corpora.
Hereby certify that the foregoing has been filed State of Utah
and approved on the 15th day of Sept 1993
at the office of this Division and hereby issue
this Certificate thereof
Examiner JS Date 9/15/93
/s/Korla T. Woods
Division Director
ARTICLES OF AMENDMENT TO
ARTICLES OF INCORPORATION OF
G & L ENERGY, INC.
The Articles of Incorporation and Amendments thereto, of G & L ENERGY, INC.,
are hereby amended, pursuant to 16-1 0a-1 006 Utah Code Annotated, as follows:
I
The name of the corporation is: G & L ENERGY, INC.
II.
The capitalization of the corporation shall be amended as follows:
The aggregate number of shares which this corporation shall have to issue is
15,000,000 shares of $0.001 par stock. All stock of the corporation shall be
of the same class, common, and shall have the same rights and privileges.
All shares issued by the corporation prior to this Amendment, when returned to
the company for transfer, shall be issued at a rate of one share for each
twenty shares, thus effecting a reverse split of one for twenty.
III
The aforesaid Amendment was adopted by the shareholders of the corporation
on July 15, 1992. The total shares outstanding at the time of said vote was
19,980,000 and the number of shares voting in aforesaid Amendment was
12,352,000. <handwritten: unanimous vote /s/ RJN>
G & L ENERGY, INC.
By: /s/ Tom Warren
TOM WARREN Secretary
State of Utah Stamped RECEIVED
Department of Commerce 1993 DEC 2 AM 8:28
Division of Corporations and Commercial Code Division of Corpora.
Hereby certify that the foregoing has been filed State of Utah
and approved on the 2nd day of DEC 93
at the office of this Division and hereby issue
this Certificate thereof
Examiner BS Date 12/2/93
CERTIFICATE OF AMENDMENT
TO THE ARTICLES OF INCORPORATION OF
G&L ENERGY, INC.
A Special Meeting of Shareholders of G&L ENERGY, INC. the
"Company") was held on the 30th day of November, 1993 at the Red
Lion Hotel, 255 South West Temple, Salt Lake City, Utah 84101, at
11:00 A.M. Mountain Standard Time pursuant to notice thereof. On
the date of the Meeting there were 999,000 common shares issued
and outstanding, and there were present or represented by proxy
at the Meeting common shares, all of which voted in favor of adopting a
resolution authorizing the Company's Board of Directors to amend
the Company's Articles of Incorporation as follows:
Article I - NAME is proposed to be amended as follows:
ARTICLE I
NAME
The name of the corporation is DIAMOND LAKE MINERALS, INC.
WHEREFORE, the Corporation has hereunto set its hand this the day of November,
1993.
G&L ENERGY, INC.
/s/ Thomas R. Warren
- ---------------------
Thomas R. Warren, President
/s/ Greg Markham
- ----------------
Greg Markham, Secretary
State of Utah Stamped RECEIVED
Department of Commerce 1993 DEC 21 PM 4:17
Division of Corporations and Commercial Code Division of Corpora.
Hereby certify that the foregoing has been filed State of Utah
and approved on the 21st day of Dec 1993
at the office of this Division and hereby issue
this Certificate thereof
Examiner BS Date 12/21/93
CERTIFICATE OF AMENDMENT
TO OF THE ARTICLES OF INCORPORATION
DIAMOND LAKE MINERALS, INC.
(fka G&L ENERGY, INC.)
A Special Meeting of Shareholders of G&L Energy, INC. (the "Company") was
held on the 30th of November, 1993 at the Red Lion Hotel, 255 South West
Temple, Salt Lake City, Utah, 84101, at 11:00 a.m. Mountain Standard Time
pursuant to notice thereof. On the date of the Meeting there were 999,000
common shares issued and outstanding, and there were present or represented by
proxy at the Meeting 716,500 common shares, all of which voted in favor of
adopting a resolution authorizing the Company's Board of Directors to amend
the Company's Articles of Incorporation as follows:
Article VIII - STOCK is proposed to be amended as follows:
ARTICLE VIII
STOCK
(a) The Corporation is authorized to issue two classes of shares to be
designated respectively "preferred" and "common". The total number of shares
which the corporation is authorized to issue is One-Hundred Million
(100,000,000) shares. The number of preferred shares authorized is Fifty-
Million (50,000,000) shares, and the par value of each such share is $.001.
The number of common shares authorized is Fifty-Million (50,000,000) shares,
and the par value of each such share is $.001.
<PAGE>
(b) The authorized common stock of this corporation may be issued at such
time, upon such terms and conditions, and for such consideration as the Board
of Directors shall determine.
(c) The preferred shares may be issued in series and from time to time
with such designations, preferences, and relative participating, optional, or
other rights, qualifications, limitations, or restrictions thereof as shall be
stated and expressed in the resolution or resolutions providing for the issue
of such class, classes or series adopted by the Board of Directors, pursuant
to the authority hereby given as provided by statute. Each class or series may
be made subject to redemption as such time and at such price or prices as such
resolution or resolutions providing for the issue of such stock shall state
and express. The holders of the preferred stock of any class or series shall
be entitled to receive dividends at such rates, on such conditions, and at
such times, and shall be entitled to such rights upon the dissolution of, or
upon any distribution of, the assets of the corporation, and the preferred
stock of any class or series may be convertible into or exchangeable for
shares of any other class, classes, or series of capital stock of the
corporation, at such price or prices, or at such rates of exchange, and with
such adjustments, and shall be stated and expressed in the resolution or
resolutions of the Board of Directors providing for the issuance thereof.
<PAGE>
WHEREFORE, the Corporation has hereunto set its hand this 30th day of
November, 1993.
DIAMOND LAKE MINERALS, INC.
/s/ Thomas R. Warren
- ---------------------
Thomas R. Warren, President
/s/ Greg Markham
- ----------------
Greg Markham, Secretary
BY-LAWS OF
G & L EQUIPMENT COMPANY
ARTICLE I - OFFICES
------------------
The principal office of the corporation in the State of Utah shall be
located in the City of Salt Lake, County of Salt Lake. The corporation may
have such other offices, either within or without the state of incorporation
as the Board of Directors may designate or as the business of the corporation
may from time to time require.
ARTICLE II - STOCKHOLDERS
--------------------------
2.1 ANNUAL MEETING.
The annual meeting of the stockholders shall be held on the third Tuesday
of June in each year, beginning with the year 1983 at the hour of 2:00 o'clock
p. m. for the purpose of electing directors and for the transaction of such
other business as may come before the meeting. If the day fixed for the annual
meeting shall be a legal holiday such meeting shall be held on the next
succeeding business day.
2.2 SPECIAL MEETINGS.
Special meetings of the stockholders, for any purpose or purposes, unless
otherwise prescribed by statute, may be called by the President or by the
Directors, and shall be called by the President at the request of the holders
of not less than fifty-one percent (51%) of all the outstanding shares of the
corporation entitled to vote at the meeting.
2.3 PLACE OF MEETING.
The Directors may designate any place, either within or without the state
unless otherwise prescribed by statute, as the place of meeting for any annual
meeting or for any special meeting called by the Directors. A waiver of notice
signed by all stockholders entitled to vote at a meeting may designate any
place, either within or without the state, unless otherwise prescribed by
statute, as the place for holding such meeting. If no designation is made, or
if a special meeting be otherwise called, the place of meeting shall be the
principal office of the corporation.
<PAGE>
2.4 NOTICE OF MEETING.
Written or printed notice stating the place, day and hour of the meeting
and, in case of a special meeting, the purpose or purposes for which the
meeting is called, shall be delivered not less than ten (10) nor more than
fifteen (15) days before the date of the meeting, either personally or by
mail, by or at the direction of the President or Secretary, or the officer or
persons calling the meeting to each stockholder of record entitled to vote at
such meeting. If mailed, such notice shall be deemed to be delivered when
deposited in the United States mail, addressed to the stockholder at his
address as it appears on the stock transfer books of the corporation, with
postage thereon prepaid.
2.5 CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE.
For the purpose of determining stockholders entitled to notice of or to
vote at any meeting of stockholders or any adjournment thereof, or
stockholders entitled to receive payment of any dividend, or in order to make
a determination of stockholders for any other proper purpose, the Directors of
the corporation may provide that the stock transfer books shall be closed for
a number of days to be designated by the Board of Directors. If the stock
transfer books shall be closed for the purpose of determining stockholders
entitled to notice of or to vote at a meeting of stockholders, such books
shall be closed for a number of days determined by the Board of Directors
immediately preceding such meeting. In lieu of closing the stock transfer
books, the Directors may fix in advance a date as the record date for any such
determination of stockholders, such date in any case to be not more than
twenty (20) days and, in case of a meeting of stockholders, not less than the
date of the meeting of stockholders. 'If the stock transfer books are not
closed and no record date is fixed for the determination of stockholders
entitled to notice of or to vote at a meeting of stockholders, or stockholders
entitled to receive payment of a dividend, the date on which notice of the
meeting is mailed or the date on which the resolution of the directors
declaring such dividend is adopted, as the case may be, shall be the record
date for such determination of stockholders. When a determination of
stockholders entitled to vote at any meeting of stockholders has been made as
provided in this section, such determination shall apply to any adjournment
thereof.
<PAGE> 2
2.6 VOTING LISTS.
The officer or agent having charge of the stock transfer books for shares
of the corporation shall make, at least fifteen (15) days before each meeting
of stockholders, a complete list of the stockholders entitled to vote at such
meeting, or any adjournment thereof, arranged in alphabetical order, with the
address of and the number of shares held by each, which list, for a period of
fifteen (15) days prior to such meeting, shall be kept on file at the
principal office of the corporation and shall be subject to inspection by any
stockholder at any time during usual business hours. Such list shall also be
produced and kept open at the time and place of the meeting and shall be
subject to the inspection of any stockholder during the whole time of the
meeting. The original stock transfer book shall be prima facie evidence as to
who are the stockholders entitled to examine such list or transfer books or to
vote at the meeting of stockholders.
2.7 QUORUM.
At any meeting of stockholders forty percent (40%) of the outstanding
shares of the corporation entitled to vote, represented in person or by proxy,
shall constitute a quorum at a meeting of stockholders. If less than said
number of the outstanding shares are represented at a meeting, a majority of
the shares so represented may adjourn the meeting from time to time without
further notice. At such adjourned meeting at which a quorum shall be present
or represented, any business may be transacted which might have been
transacted at the meeting as originally notified. The stockholders present at
a duly organized meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of enough stockholders to leave less than a
quorum.
2.8 PROXIES.
At all meetings of stockholders, a stockholder may vote by proxy
executed in writing by the stockholder or by his duly authorized attorney in
fact. Such proxy shall be filed with the Secretary of the corporation before
or at the time of the meeting.
2.9 VOTING.
Each stockholder entitled to vote in accordance with the terms and
provisions of the certificate of incorporation and these by-laws shall be
entitled to one (1) vote, in person or by proxy, for each share of stock
entitled to vote held by such
<PAGE> 3
stockholders. Upon the demand of any stockholder, the vote for Directors and
upon any question before the meeting shall be by ballot. All elections for
Directors shall be decided by plurality vote; all other questions shall be
decided by majority vote except as otherwise provided by the Certificate of
Incorporation or the laws of this state.
2.10 ORDER OF BUSINESS.
The order of business at all meetings of the stockholders, shall be as
follows:
1. Roll Call.
2. Proof of notice of meeting or waiver of notice.
3. Reading of minutes of preceding meeting.
4. Reports of officers.
5. Reports of Committees.
6. Election of Directors.
7. Unfinished Business.
B. New Business.
2.11 INFORMAL ACTION BY STOCKHOLDERS.
Unless otherwise provided by law, any action required to be taken at a
meeting of the shareholders, or any other action which may be taken at a
meeting of the shareholders, may be taken without a meeting if a consent in
writing, setting forth the action so taken, shall be signed by all of the
shareholders entitled to vote with respect to the subject matter thereof.
ARTICLE III - BOARD OF DIRECTORS
---------------------------------
3.1 GENERAL POWERS.
The business and affairs of the corporation shall be managed by its Board
of Directors. The Directors shall in all cases act as a board, and they may
adopt such rules and regulations for the conduct of their meetings and the
management of the corporation, as they may deem proper, not inconsistent with
these by-laws and the laws of this State.
3.2 NUMBER, TENURE AND QUALIFICATIONS.
The number of Directors of the corporation shall be not more than nine
(9) nor less than three (3). Each Director shall hold office until the next
annual meeting of stockholders and until his successor shall have been elected
and qualified.
<PAGE> 4
3.3 REGULAR MEETINGS.
A regular meeting of the Directors, shall be held without other notice
than this by-law immediately after, and at the same place as the annual
meeting of stockholders. The Directors may provide, by resolution, the time
and place for the holding of additional regular meetings without other notice
than such resolution.
3.4 SPECIAL MEETINGS.
Special meetings of the Directors may be called at the request of the
President or any two Directors. The person or persons authorized to call
special meetings of the Directors may fix the place for holding any special
meeting of the Directors called by them.
3.5 NOTICE.
Notice of any special meeting shall be given at least ten (10) days
previously thereto by written notice delivered personally, or by telegram or
mailed to each Director at his business address. If mailed, such notice shall
be deemed to be delivered when deposited in the United States mail so
addressed, with postage thereon prepaid. If notice be given by telegram, such
notice shall be deemed to be delivered when the telegram is delivered to the
telegraph company. The attendance of a Director at a meeting shall constitute
a waiver of notice of such meeting, except where a Director attends a meeting
for the express purpose of objecting to the transaction of any business
because the meeting is not lawfully called or convened.
3.6 QUORUM.
At any meeting of the Directors two-thirds (2/3rds) shall constitute a
quorum for the transaction of business, but if less than said number is
present at a meeting, a majority of the directors present may adjourn the
meeting from time to time without further notice.
3.7 MANNER OF ACTING.
The act of the majority of the Directors present at a meeting at which a
quorum is present shall be the act of the Directors.
3.8 NEWLY CREATED DIRECTORSHIPS AND VACANCIES.
Newly created directorships resulting from an increase in the number of
Directors and vacancies occurring in the Board
<PAGE> 5
for any reason except the removal of Directors without cause may be filled by
a vote of a majority of the Directors then in office, although less than a
quorum exists. Vacancies occurring by reason of the removal of Directors
without cause shall be filled by vote of the stockholders. A Director elected
to fill a vacancy caused by resignation, death or removal shall be elected to
hold office for the unexpired term of his predecessor.
3.9 REMOVAL OF DIRECTORS.
Any or all of the Directors may be removed for cause by vote of the
stockholders or by action of the Board. Directors may be removed without cause
only by vote of the stockholders.
3.10 RESIGNATION.
A Director may resign at any time by giving written notice to the Board,
the President or the Secretary of the corporation. Unless otherwise specified
in the notice, the resignation shall take effect upon receipt thereof by the
Board or such officer, and the acceptance of the resignation shall not be
necessary to make it effective.
3.11 COMPENSATION.
No compensation shall be paid to Directors, as such, for their services,
but by resolution of the Board a fixed sum and expenses for actual attendance
at each regular or special meeting of the Board may be authorized. Nothing
herein contained shall be construed to preclude any Director from serving the
corporation in any other capacity and receiving compensation therefor.
3.12 PRESUMPTION OF ASSENT.
A Director of the corporation who is present at a meeting of the
Directors at which action on any corporate matter is taken shall be presumed
to have assented to the action taken unless his dissent shall be entered in
the minutes of the meeting or unless he shall file his written dissent to such
action with the person acting as the Secretary of the meeting before the
adjournment thereof or shall forward such dissent by registered mail to the
Secretary of the corporation immediately after the adjournment of the meeting.
Such right to dissent shall not apply to a Director who voted in favor of such
action.
3.13 EXECUTIVE AND OTHER COMMITTIES.
The Board, by resolution, may designate from among its members an
executive committee and other committees, each consist
<PAGE> 6
ing of three (3) or more Directors. Each such committee shall., serve at the
pleasure of the Board.
ARTICLE IV - OFFICERS
----------------------
4.1 NUMBER.
The officers of the corporation shall be a President, a Vice-President, a
Secretary and a Treasurer, each of whom shall be elected by the Directors.
Such other officers and assistant officers as may be deemed necessary may be
elected or appointed by the Directors.
4.2 ELECTION AND TERM OF OFFICE.
The officers of the corporation to be elected by the Directors shall be
elected annually at the first meeting of the Directors held after each annual
meeting of the stockholders. Each officer shall hold office until his
successor shall have been duly elected and shall have qualified or until his
death or until he shall resign or shall have been removed in the manner
hereinafter provided.
4.3 REMOVAL.
Any officer or agent elected or appointed by the Directors may be removed
by the Directors whenever in their judgment the best interests of the
corporation would be served thereby, but such removal shall be without
prejudice to the contract rights, if any, of the person so removed.
4.4 VACANCIES.
A vacancy in any office because of death, resignation, removal.,
disqualification or otherwise, may be filled by the Directors for the
unexpired portion of the term.
4.5 PRESIDENT.
The President shall be the principal executive officer of the
corporation, and subject to the control of the Directors, shall in general
supervise and control all of the business and affairs of the corporation. He
shall, when present, preside at all meetings of the stockholders and of the
Directors. He may sign, with the Secretary or any other proper officer of the
<PAGE> 7
corporation thereunto authorized by the Directors, certificates for shares of
the corporation, any deeds, mortgages, bonds, contracts, or other instruments
which the Directors have authorized to be executed, except in cases where the
signing and execution thereof shall be expressly delegated by the Directors or
by these by-laws to some other officer or agent of the corporation, or shall
be required by law to be otherwise signed or executed; and in general shall
perform all duties incident to the office of President and such other duties
as may be prescribed by the Directors from time to time.
4.6 VICE-PRESIDENT.
In the absence of the President or in event of his death, inability or
refusal to act, the Vice-President shall perform the duties of the President,
and when so acting, shall have all the powers of and be subject to all the
restrictions upon the President. The Vice-President shall perform such other
duties as from time to time may be assigned to him by the President or by the
Directors.
4.7 SECRETARY.
The Secretary shall keep the minutes of the stockholders' and of the
Directors' meetings in one or more books provided for that purpose, see that
all notices are duly given in accordance with the provisions of these by-laws
or as required, be custodian of the corporate records and of the seal of the
corporation and keep a register of the address of each stockholder which shall
be furnished to the Secretary, have general charge of the stock transfer books
of the corporation and in general perform all duties incident to the office of
Secretary and such other duties as from time to time may be assigned to him by
the President or by the Directors.
4.8 TREASURER.
If required by the Directors, the Treasurer shall give a bond for the
faithful discharge of his duties in such sum and with such surety or sureties
as the Directors shall determine. He shall have charge and custody of and be
responsible for all funds and securities of the corporation; receive and give
receipts for moneys due and payable to the corporation from any source
whatsoever, and deposit all such moneys in the name of the corporation in such
banks, trust companies or other depositories as shall be selected in
accordance with these by-laws and in
<PAGE> 8
general perform all of the duties incident to the office of Treasurer and such
other duties as from time to time as may be., assigned to him by the President
or by the Directors.
4.9 SALARIES.
The salaries of the officers shall be fixed from time to time by the
Directors and no officer shall be prevented from receiving such salary by
reason of the fact that he is also a Director of the corporation.
ARTICLE V
---------
CONTRACTS, LOANS, CHECKS AND DEPOSITS
-----------------------------------
5. 1 CONTRACTS.
The Directors may authorize any officer or officers, agent or agents, to
enter into any contract or execute and deliver any instrument in the name of
and on behalf of the corporation, and such authority may be general or
confined to specific instances.
5.2 LOANS.
No loans shall be contracted on behalf of the corporation and no
evidences of indebtedness shall be issued in its name unless authorized by a
resolution of the Directors. Such authority may be general or confined to
specific instances.
5.3 CHECKS, DRAFTS, ETC.
All checks, drafts or other orders for the payment of money, notes or
other evidences of indebtedness issued in the name of the corporation, shall
be signed by such officer or officers, agent or agents of the corporation and
in such manner as shall from time to time be determined by resolution of the
directors.
5.4 DEPOSITS.
All funds of the corporation not otherwise employed shall be deposited
from time to time to the credit of the corporation in such banks, trust
companies or other depositaries as the Directors may elect.
ARTICLE VI
CERTIFICATES FOR SHARES AND THEIR TRANSFER
-------------------------------------------
6.1 CERTIFICATES FOR SHARES.
Certificates representing shares of the corporation shall be in such form
as shall be determined by the Directors.
<PAGE> 9
Such certificates shall be signed by the President and by the Secretary or by
such other officers authorized by law and by the Directors. All certificates
for shares shall be consecutively numbered or otherwise identified. The name
and address of the stockholders, the number of shares and date of issue, shall
be entered on the stock transfer books of the corporation. All certificates
surrendered to the corporation for transfer shall be cancelled and no new
certificates shall be issued until the former certificate for a like number of
shares shall have been surrendered and cancelled, except that in case of a
lost, destroyed or mutilated certificate a new one may be issued therefor upon
such terms and indemnity to the corporation as the Directors may prescribe.
6.2 TRANSFERS OF SHARES.
(a) Upon surrender to the corporation or the transfer agent of the
corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer, it shall be the
duty of the corporation to issue a new certificate to the person entitled
thereto, and cancel the old certificate; every such transfer shall be entered
on the transfer book of the corporation which shall be kept at its principal
office.
(b) The corporation shall be entitled to treat the holder of record of
any share as the holder in fact thereof, and, accordingly, shall not be bound
to recognize any equitable or other claim to or interest in such share on the
part of any other person whether or not it shall have express or other notice
thereof, except as expressly provided by the laws of this State.
ARTICLE VII - FISCAL YEAR
-------------------------
The fiscal year of the corporation shall begin on the 1st day of January
in each year.
ARTICLE VIII - DIVIDENDS
--------------------------
The Directors may from time to time declare, and the corporation may pay,
dividends on its outstanding shares in the manner and upon the terms and
conditions provided by law.
ARTICLE IX - SEAL
-----------------
The Directors shall provide a corporate seal which shall be circular in
form and shall have inscribed thereon the name of the corporation, the state
of incorporation, year of incorporation and the words, "Corporate Seal".
<PAGE> 10
ARTICLE X - WAIVER OF NOTICE
----------------------------
Unless otherwise provided by law, whenever any notice is required to be
given to any stockholder or Director of the corporation under the provisions
of these by-laws or under the provisions of the Articles of Incorporation, a
waiver thereof in writing, signed by the person or persons entitled to such
notice, whether before or after the time stated therein shall be deemed
equivalent to the giving of such notice.
ARTICLE XI - AMENDMENTS
-------------------------
These by-laws may be altered, amended or repealed and new by-laws may be
adopted by a vote of the stockholders representing a majority of all the
shares issued and outstanding, at any annual stockholders' meeting or at any
special stockholders' meeting when the proposed amendment has been set out in
the notice of such meeting.
SIGNATURE
The undersigned Directors of the corporation have reviewed these by-laws,
voted upon their acceptance, and by entering their signatures hereinbelow
accept these by-laws as the by-laws of their corporation.
/s/ signature illegible
/s/ R.E. Warren
/s/ signature illegible
/s/ Murray Williams
Exhibit 21
Subsidiaries of Diamond Lake Minerals Inc.
Name Jurisdiction of Incorporation
-------- -------------------------------
Graphite Mountain, Inc. Province of Ontario, Canada
Environmental Carbonates, Inc. Province of Ontario, Canada
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 9-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-END> SEP-30-1999 DEC-31-1998
<CASH> 79,112 1,380
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 79,112 1,380
<PP&E> 46,894 46,894
<DEPRECIATION> (21,296) (18,129)
<TOTAL-ASSETS> 104,710 30,145
<CURRENT-LIABILITIES> 85,353 211,612
<BONDS> 0 0
0 0
0 0
<COMMON> 37,130 33,246
<OTHER-SE> (17,773) (214,713)
<TOTAL-LIABILITY-AND-EQUITY> 104,710 30,145
<SALES> 0 0
<TOTAL-REVENUES> 0 0
<CGS> 0 0
<TOTAL-COSTS> 178,982 247,248
<OTHER-EXPENSES> 0 (1,335,691)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (178,982) (1,582,939)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (178,982) (1,582,939)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (179,982) (1,582,939)
<EPS-BASIC> (0.01) (0.05)
<EPS-DILUTED> (0.01) (0.05)
</TABLE>
BEDFORD CLAIMS
CLAIM LOCATION RECORDED
- --------- --------------------- ----------
SO 1037688 SW/4 LOT 17, CONC. VI April 26, 1988
SO 1037689 NE/4 LOT 20, CONC. VIII April 26, 1988
SO 1037690 SW/4 LOT 18, CONC. VI April 26, 1988
SO 1037691 SE/4 LOT 18, CONC. VI April 26, 1988
SO 1037692 NE/4 LOT 17, CONC. VI April 26, 1988
SO 1037693 SE/4 LOT 17, CONC. VI April 26, 1988
S0 1037694 SW/4 LOT 17, CONC. VII April 26, 1988
S0 1037695 NW/4 LOT 17, CONC. VII April 26, 1988
SO 1037696 SW/4 LOT 18, CONC. VII April 26, 1988
SO 1037697 NW/4 LOT 18, CONC. VII April 26, 1988
SO 1037698 NE/4 LOT 18, CONC. VII April 26, 1988
SO 1037699 SE/4 LOT 18, CONC. VII April 26, 1988
SO 1037700 SW/4 LOT 18, CONC. VIII April 26, 1988
S0 1037701 NW/4 LOT 18, CONC. VIII April 26, 1988
S0 1037702 SE/4 LOT 19, CONC. VI April 26, 1988
SO 1037703 NE/4 LOT 19, CONC. VI April 26, 1988
SO 1037704 NW/4 LOT 19, CONC. VII April 26, 1988
S0 1037705 SW/4 LOT 19, CONC. VII April 26, 1988
S0 1037706 SE/4 LOT 19, CONC. VII April 26, 1988
S0 1037707 NE/4 LOT 19, CONC. VII April 26, 1988
SO 1037708 W/2 OF E/2 LOT 20, CONC. VII April 26, 1988
SO 1037709 E/2 OF W/2 LOT 20, CONC. VII April 26, 1988
SO 1037710 W/2 OF W/2 LOT 20, CONC. VII April 26, 1988
SO 1037711 NW/4 LOT 20, CONC. VIII April 26, 1988
S0 1037712 SW/4 LOT 20, CONC. VIII April 26, 1988
SO 1037717 NE14 LOT 16, CONC. V April 26, 1988
SO 1037718 SE/4 LOT 16, CONC. V April 26, 1988
S0 1037719 NE/4 LOT 15, CONC. V April 26, 1988
SO 1037720 SE/4 LOT 15, CONC. V April 26, 1988
SO 1037721 NE/4 LOT 14, CONC. V April 26, 1988
SO 1037722 SE/4 LOT 14, CONC. V April 26, 1988
SO 1037723 SW/4 LOT 14, CONC. V April 26, 1988
SO 1037724 NW/4 LOT 14, CONC. V April 26, 1988
SO 1037725 SW/4 LOT 15, CONC. V April 26, 1988
SO 1037726 NW/4 LOT 15, CONC. V April 26, 1988
SO 1037727 SW/4 LOT 16, CONC. V April 26, 1988
SO 1037728 NW/4 LOT 16, CONC. V April 26, 1988
S0 1037729 NW/4 LOT 15, CONC. VI April 26, 1988
SO 1037730 SW/4 LOT 15, CONC. VI April 26, 1988
SO 1037731 NW/4 LOT 14, CONC. VI April 26, 1988
SO 1037732 SW/4 LOT 14, CONC. VI April 26, 1988
Exhibit 99
PROPERTY NORTH BURGESS TOWNSHIP
"TIMMINS CLAIMS"
N/W 1/4 Lot 25 Conc. IV SO 748722
N/E 1/4 Lot 23 Conc. IV claim # SO 748721
N/E 1/4 Lot 25 Conc. V claim # EO 840568
S/E 1/4 Lot 23 Conc. V claim # SO 748514
N/E 1/4 Lot 23 Conc. V SO 748517
N/W 11/4 Lot 23 Conc. V S0 748518
S/W 1/4 Lot 22 Conc. VI SO 748715
S/E 1/4 Lot 22 Conc. VI S0 748716
N/W 1/4 Lot 26 Conc. V claim # SO 840571
N/E 1/4 Lot 26 Conc. V claim # EO 840570
N/W 1/4 Lot 24 Conc. IV SO 748720
S/E 1/4 Lot 25 Conc. V claim # SO 840574
S/W 1/4 Lot 26 Conc. V SO 748510
S/E 1/4 Lot 26 Conc. V SO 748511
S/W 1/4 Lot 25 Conc. V SO 748512
N 1/4 of South Half Lot 21 Conc. V - claim # SO 748519
S/W 1/4 Lot 24 Conc. V1 - claim # SO 749711
S/E 1/4 Lot 24 Conc. VI SO 748712
S/E 1/4 Lot 21 Conc. V1 SO 748724
S/W 1/4 Lot 20 Conc. VI SO 748725
S/E 1/4 Lot 20 Conc. VI SO 748726
S/W 1/4 Lot 21 Conc. VI - claim # SO 748723
S/W 1/4 Lot 19 Conc. VI - claim # SO 748727
S/E 1/4 Lot 19 Conc. VI SO 748728
N/W 1/4 Lot 25 Conc. V EO 840569
S 1/4 of North half Lot 21 Conc. V S0 748718
N 1/4 of North half Lot 12 Conc. V SO 748717
S/W 1/4 Lot 25 Conc. VI SO 748709
S/E 1/4 Lot 25 Conc. VI S0 748710
S/W 1/4 Lot 23 Conc. VI S0 748713
S/E 1/4 Lot 23 Conc. VI SO 748714
N/E 1/4 Lot 24 Conc. V EO 840566
N/W 1/4 Lot 24 Conc. V EO 840567
S/E 1/4 Lot 24 Conc. V EO 840572
S/W 1/4 Lot 24 Conc. V EO 840573
S/W 1/4 Lot 23 Conc. V SO 748513
N/E 1/4 Lot 24 Conc. IV SO 748719
S/W 1/4 Lot 23 Conc. V SO 748515
S/E 1/4 Lot 18 Conc. VI SO 748516
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