U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
(Amendment No. 6)
SUMMA METALS CORP.
(Name of Small Business issuer in its Charter)
Nevada 1041 88-0315984
(State or Jurisdiction of (Primary Standard Industrial I.R.S. Employer
Incorporation or organization Classification Code No. Identification No.
28281 Crown Valley Parkway, Ste 225, Laguna Niguel, CA, 92677-1461
(949) 348-9749
(Address and Telephone Number of Principal Executive Offices )
28281 Crown Valley Parkway, Ste. 225, Laguna Niguel, CA. 92677-1461
(949) 348-9749
(Address of principal place of business or intended principal place of
Business)
Michael M. Chaffee
28281 Crown Valley Parkway, Ste 225,
Laguna Niguel, CA, 92677-1461
(949) 348-9749
(Name, Address and Telephone Number of Agent for Service)
Approximate date of proposed sale to the public: As soon as practicable after
the effective date of this Registration Statement.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering |_| __________
If this Form is a post effective amendment filed pursuant to Rule 462(c) under
the Securities Act, please check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering |_| ___________
If this Form is a post effective amendment filed pursuant to Rule 462(d) under
the Securities Act, please check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering |_| ___________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box |_| ___________
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
============================================================================================================================
<S> <C> <C> <C> <C>
Title of Amount to Proposed Proposed Amount of
each Class be Maximum Maximum Registration
of Registered Offering Aggregate Fee
Securities Price Per Offering
to be Unit (1) Price (1)
Registered
- ----------------------------------------------------------------------------------------------------------------------------
Units each consisting of one share 510,000 $6.00 $ 3,060,000 $ 928
of Common Stock $.001 par value,
one Class A Warrant and one Class
B Warrant
- ----------------------------------------------------------------------------------------------------------------------------
Comnon Stock $.001 par value (2) 510,000 $8.00 $ 4,080,000 $1,237
- ----------------------------------------------------------------------------------------------------------------------------
Common Stock $.001 par value (3) 510,000 $7.00 $ 3,570,000 $1,082
- ----------------------------------------------------------------------------------------------------------------------------
Total $10,710,000 $3,247
============================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
(2) Issuable upon exercise of the Class A Warrants
(3) Issuable upon exercise of the Class B Warrants
<PAGE>
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
SUMMA METALS CORP.
Cross-Reference Sheet pursuant to Item 501(b) of Regulation S-K between
Registration Statement (Form SB-2) and Form of Prospectus.
Item Number and Caption Caption in Prospectus
1. Front of Registration Statement Cover Page-Inside Front
and Outside Front Cover Page Cover page-Back Cover
of Prospectus
2. Inside Front and Outside Back Inside Front Cover Page
Cover Pages of Prospectus Back Cover page
3. Summary Information and Risk Summary of Prospectus
Factors Risk Factors
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Cover Page; Description of Shares
6. Dilution Dilution
7. Selling Security Holders Not Applicable
8. Plan of Distribution Cover Page; Inside Cover Page;
Offering
9. Legal Proceedings Litigation
10. Directors, Executive Officers Management
Promoters and Control Persons
11. Security Ownership of Certain Principal Shareholders
Beneficial Owners and Management
12. Description of Securities Offering; Description of Shares
13. Interest of Named Experts and Legal Matters
Counsel
14. Disclosure of Commission Position Indemnification
on Indemnification for Securities
Act
15. Organization Within Last Five Certain Transactions
Years
16. Description of Business Business of the Company
17. Management's Discussion and Business of the Company
Analysis of Plan of Operation
18. Description of Property Business of the Company
19. Certain Relationships and Certain Transactions
Related Transactions
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20. Market for Common Equity and Risk Factors
Related Stockholder Matters
21. Executive Compensation Management-Remuneration
22. Financial Statements Financial Statements
23. Changes in and Disagreements Not Applicable
With Accountants on Accounting
and Financial Disclosures
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SUMMA METALS CORP.
(A Nevada Corporation)
Minimum 130,000 Units
Maximum 510,000 Units
---------------------
Offering Price $6.00 Per Unit
-----------------------------
Summa Metals Corp. (the "Company") hereby offers a minimum of 130,000 and a
maximum of 510,000 Units ("Units") each Unit consisting of one share of the
Company's common stock (the "Common Stock" or "Shares") and two redeemable
common stock purchase warrants ("Warrants"), designated "A Warrants" and "B
Warrants". Each of the A Warrants entitles the registered holder hereof to
purchase one share of the Common Stock at a price of $8.00, subject to
adjustment in certain circumstances at any time after the Warrants become
separately tradeable, until 12 months from the date of this Prospectus. Each of
the B Warrants entitles the registered holder therof to purchase one share of
the Common Stock at a price of $7.00, subject to adjustment in certain
circumstances, at any time after the exercise of the A Warrant related to the
Units until 24 months from the date of this Prospectus. The Common Stock and the
Warrants included in the Units will not be separately transferable until 90 days
after the date of this Prospectus or such earlier date as the Company may
determine. See "Description of Securities".
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND SUBSTANTIAL
DILUTION TO THE POTENTIAL INVESTORS AND SHOULD BE PURCHASED ONLY BY PERSONS WHO
CAN AFFORD TO LOSE THEIR ENTIRE INVESTMENT. (SEE "RISK FACTORS" AND "DILUTION.")
PRIOR TO THIS OFFERING, THERE HAS BEEN NO PUBLIC MARKET FOR THE SHARES OF
THE COMPANY, AND THERE CAN BE NO ASSURANCE THAT A PUBLIC MARKET WILL RESULT
FOLLOWING THE SALE OF THE SHARES OFFERED HEREBY OR THAT THE SHARES CAN BE SOLD
AT OR NEAR THE OFFERING PRICE, OR AT ALL. THE INITIAL PUBLIC OFFERING PRICE HAS
BEEN ARBITRARILY DETERMINED BY THE COMPANY BASED UPON WHAT IT BELIEVES
PURCHASERS OF SUCH SPECULATIVE ISSUES WOULD BE WILLING TO PAY FOR THE SECURITIES
OF THE COMPANY AND BEARS NO RELATIONSHIP WHATSOEVER TO ASSETS, EARNINGS, BOOK
VALUE OR ANY OTHER ESTABLISHED CRITERIA OF VALUE.
THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES DIVISION OF ANY STATE, NOR HAS THE
COMMISSION OR ANY STATE PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES AND WARRANTS ARE OFFERED BY THE COMPANY SUBJECT TO PRIOR SALE,
ACCEPTANCE OF THE SUBSCRIPTIONS BY THE COMPANY AND APPROVAL OF CERTAIN LEGAL
MATTERS BY COUNSEL TO THE COMPANY.
OFFEREES AND SUBSCRIBERS ARE URGED TO READ THIS PROSPECTUS CAREFULLY AND
THOROUGHLY.
- --------------------------------------------------------------------------------
Underwriter Proceeds to the
Price (1) Commissions Company (2)(3)
- --------------------------------------------------------------------------------
Price Per Unit $ 6.00 $ .60 $ 5.40
Aggregate
Subscription:
(130,000 Units
Minimum) $ 780,000 $ 78,000 $ 702,000
(510,000 Units
Maximum) $3,060,000 $ 306,000 $2,754,000
- --------------------------------------------------------------------------------
The date of this Prospectus is February , 1999.
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1. The offering price of $6.00 per Unit has been arbitrarily determined by
the Company. The price per Unit was selected because the Company believes it can
sell the Units at that price. The price has no relation to the value of the
Company or its assets, or any other established criteria of value. The Units are
offered for cash or check only and must be accompanied by a properly completed
and executed subscription agreement. (See "OFFERING.")
A minimum of 130,000 Units are being offered on a "best efforts,
all-or-none" basis and an additional 380,000 Units are being offered on a
"best-efforts" basis by the Company on the terms described herein under the
caption "Offering". There is no assurance that any or all of the Units will be
sold. The Offering will commence on the effective date of this Prospectus and
continue for a period of 90 days, unless extended by the Company for an
additional 90 days, or until completion of the Offering, whichever occurs
sooner. All funds received in this Offering will be held in escrow by American
Securities Transfer and Trust, Inc. at Union Bank & Trust, 100 Broadway, Denver,
Colorado until a minimum of $780,000 has been received, at which time such sum
will be paid to the Company. Thereafter, all funds received by the escrow agent
will be immediately paid to the Company until a maximum of $3,060,000 has been
received or the Offering period expires, whichever first occurs. If a minimum of
$780,000 is not received by the expiration of the offering period, all funds
will promptly be returned to subscribers without interest or deduction. (See
"OFFERING" and "UNDERWRITING.")
2. The Company has engaged the services of Boe & Company, 3668 So. Jasper
St., Aurora, CO 80013, an Underwriter who is a member of the National
Association of Securities Dealers, Inc. (NASD) as its agent to sell the Units to
the public, and will agree to pay sales commissions equal to 10% of the gross
sales price of the Units to said broker-dealer for any Units they may sell. No
sales commissions will be paid unless a minimum of 130,000 Units have been
subscribed and paid for. For purposes of estimating net proceeds, it is assumed
the full 10% commission will be paid on all 510,000 Units.
3. Before deduction for filing, printing and miscellaneous expenses
relating to this Offering, estimated at $8,000.00; legal and accounting fees,
estimated at $32,000.00; a possible nonaccountable expense allowance, payable to
the Underwriter in an amount equal to 3% of the sales price per Unit, or an
aggregate total of $134,800.00, to be paid by the Company out of the proceeds of
this Offering.
THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION
NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER
TO SELL ANY SECURITIES TO ANY PERSON IN ANY JURISDICTION WHERE SUCH OFFER OR
SOLICITATION WOULD BE UNLAWFUL.
THE COMPANY HAS THE RIGHT, IN ITS SOLE DISCRETION TO ACCEPT OR REJECT
SUBSCRIPTIONS IN WHOLE OR IN PART, FOR ANY REASON OR FOR NO REASON.
THE COMPANY HAS TAKEN NO STEPS TO CREATE AN AFTERMARKET FOR THE COMMON
STOCK OFFERED HEREBY AND HAS MADE NO ARRANGEMENTS WITH BROKERS OR OTHERS TO
TRADE OR MAKE A MARKET IN THE COMMON STOCK. AT SOME TIME IN THE FUTURE, THE
COMPANY MAY ATTEMPT TO ARRANGE FOR INTERESTED BROKERS TO TRADE OR MAKE A
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MARKET IN THE COMMON STOCK AND TO QUOTE THE COMMON STOCK IN A PUBLISHED
QUOTATION MEDIUM. HOWEVER, NO SUCH ARRANGEMENTS HAVE BEEN COMMENCED AND THERE IS
NO ASSURANCE THAT ANY BROKERS WILL EVER HAVE SUCH AN INTEREST IN THE COMMON
STOCK OR THAT THERE EVER WILL BE A MARKET THEREFOR.
THE COMPANY WILL PROVIDE AUDITED FINANCIAL STATEMENTS TO ITS SHAREHOLDERS
ON AN ANNUAL BASIS AND WILL PROVIDE UNAUDITED FINANCIAL STATEMENTS ON A
QUARTERLY BASIS.
UNTIL_____________________, ALL DEALERS EFFECTING TRANSACTIONS IN THE
REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE
REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF
DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO
THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
SUBSEQUENT TO THE COMPLETION OF THIS OFFERING, THE COMPANY WILL BECOME
SUBJECT TO THE INFORMATIONAL REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF
1934, AND IN ACCORDANCE THEREWITH, WILL BE REQUIRED TO FILE REPORTS AND OTHER
INFORMATION WITH THE SECURITIES AND EXCHANGE COMMISSION. SUCH REPORTS AND
INFORMATION CAN BE INSPECTED AND COPIED AT THE PUBLIC REFERENCE FACILITIES
MAINTAINED BY THE COMMISSION AT 450 FIFTH STREET, N.W., WASHINGTON, D.C. 20549
AND COPIES OF SUCH MATERIAL CAN BE OBTAINED FROM THE PUBLIC REFERENCE SECTION OF
THE COMMISSION, 450 FIFTH STREET, N.W. WASHINGTON, D.C. 20549 AT PRESCRIBED
RATES. THE COMPANY INTENDS TO FURNISH ITS SHAREHOLDERS WITH ANNUAL REPORTS
CONTAINING AUDITED FINANCIAL STATEMENTS AND WITH ADDITIONAL INFORMATION
CONCERNING THE BUSINESS AFFAIRS OF THE COMPANY WHEREVER DEEMED APPROPRIATE BY
ITS BOARD OF DIRECTORS.
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<PAGE>
TABLE OF CONTENTS
----------------- PAGE NO.
-------
SUMMARY OF PROSPECTUS 1
The Company 1
The Offering 1
RISK FACTORS 2
Start-up Company 2
No Known Ore Reserves and Uncertainty in Attaining Successful
Exploration Results in the Company's Properties 2
Uncertainty in Attaining Environmental Permits 2
Speculative Nature of the Mineral Exploration Industry 3
High Risk 3
Reliance On Outside Financing 3
Dependence on Additional Financing; Risk of Unavailability 4
Reliance Upon Officers and Directors 4
Dependence on Key Employees 4
Conflicts of Interest 4
Certain Transactions 4
Control of the Company 4
Benefit to Present Shareholders 5
Dilution; Excessive Burden of Risk 5
Sale of Shares at Substantial Discount 5
Possible Rule 144 Sales 5
Markets Uncertain 6
Industry Conditions 6
Sensitivity to Economic Conditions 6
Competition 6
Supply Factors 7
Insurance; Indemnification 7
No Cash Dividends Paid 7
Arbitrary Determination of Offering Price 7
No Present Market for Securities 7
Compliance with "Penny Stock" Rules 8
Issuance of Additional Shares 8
No Commitments to Purchase Shares 8
Government Regulations 9
MANAGEMENT OVERVIEW 9
USE OF PROCEEDS 10
DILUTION 11
CAPITALIZATION 14
SUMMARY FINANCIAL INFORMATION 14
OFFERING 14
Engagement of the Services of an Underwriter 14
Offering Period and Expiration Date 15
Procedures for Subscribing 15
Determination of Offering Price 15
Escrow 16
Right to Reject 16
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TABLE OF CONTENTS, Continued
---------------------------- PAGE NO.
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UNDERWRITING 16
Proposed Underwriting Agreement 16
Proposed Underwriter Compensation 17
BUSINESS OF THE COMPANY 17
General 17
Environmental Regulations and Cyclical Metal Prices 18
The Exploration Stage 19
Description of Property 20
Government Regulations 25
Employees 26
Management's Discussion or Plan of Operation 26
MANAGEMENT 26
Officers and Directors 26
Background Information 27
Executive Compensation 28
Indemnification 29
Office Facilities 29
PRINCIPAL SHAREHOLDERS 29
Future Sales by Present Shareholders 30
DESCRIPTION OF SECURITIES 31
Units 31
Common Stock 31
The Warrants 31
Non-Cumulative Voting 33
Dividends 33
Reports to Shareholders 33
Transfer Agent 33
CERTAIN TRANSACTIONS 33
CONFLICTS OF INTEREST 35
LITIGATION 35
ADDITIONAL INFORMATION 35
EXPERTS 35
LEGAL MATTERS 36
FINANCIAL STATEMENTS 36
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SUMMARY OF PROSPECTUS
THE FOLLOWING INFORMATION IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED
INFORMATION AND FINANCIAL STATEMENTS APPEARING ELSEWHERE IN THIS PROSPECTUS, ALL
OF WHICH SHOULD BE READ CAREFULLY AND THOROUGHLY.
The Company
Summa Metals Corp., a Nevada corporation, (the "Company") was formed on
March 8, 1994. The Company currently maintains its principal offices at 28281
Crown Valley Parkway, Ste. 225, Laguna Niguel, CA, 92677-1461, and its
registered agent's office at 1025 Ridgeview Drive, Suite 400, Reno, Nevada
89509. The Company is engaged in the business of mineral processing, exploration
and mining. (See "BUSINESS OF THE COMPANY.")
The Company has a limited operating history. There is no assurance that the
Company will be successful in raising the capital or in developing the
properties. (See "MANAGEMENT" and "BUSINESS OF THE COMPANY"). The proceeds from
the sale of Shares offered hereby will enable the Company to continue its
exploration on the properties, assess and acquire new properties, and generally
develop and expand its business. (See "BUSINESS OF THE COMPANY", "CERTAIN
TRANSACTIONS", "RISK FACTORS" and "USE OF PROCEEDS.")
Messrs. Chaffee, Baptista and Popkoff, the Company's current officers,
directors and principal shareholders, may be deemed to be "parents" and
"promoters" of the Company. (See "MANAGEMENT" and "PRINCIPAL SHAREHOLDERS.")
The Offering
Securities Offered: A minimum of 130,000 and a maximum of 510,000 Units of
Common Stock, par value $.001. (See "OFFERING.")
Offering Price per Unit: $6.00 (See "OFFERING.")
Offering: The Units are being offered for a period not to exceed 90 days. Such
period may be extended by the Board of Directors for an additional 90 days. (See
"OFFERING.")
Net Proceeds: Approximately $638,000 (Minimum) $2,622,000 (Maximum) (See "USE OF
PROCEEDS.")
Use of Proceeds: To be used for offering expenses, exploration, drilling and
working capital. (See "USE OF PROCEEDS.")
Number of Shares: Outstanding
Before the Offering: 4,555,000
After the Offering: 4,685,000 (Minimum)
5,065,000 (Maximum)
(See "OFFERING" and "DESCRIPTION OF SHARES.")
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RISK FACTORS
------------
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES AN EXCEPTIONALLY
HIGH DEGREE OF RISK AND IS EXTREMELY SPECULATIVE IN NATURE. IN ADDITION TO THE
OTHER INFORMATION REGARDING THE COMPANY CONTAINED IN THIS PROSPECTUS, INVESTORS
SHOULD CONSIDER MANY IMPORTANT FACTORS IN DETERMINING WHETHER TO PURCHASE THE
SECURITIES OFFERED HEREBY. THE FOLLOWING RISK FACTORS ARE NOT EXHAUSTIVE, BUT
ARE MERELY ILLUSTRATIVE, OF THE SUBSTANTIAL RISKS INVOLVED IN AN INVESTMENT OF
THIS NATURE.
1. Start-up Company.
The Company has only been in business for a short period of time and has
engaged in limited business since its inception. There is no assurance that the
Company will be successful in raising the funds or, if the funds are raised,
there is no assurance that the Company will be able to develop the properties,
or that the properties will be profitable if and when developed. The Company
anticipates being able to sustain operations for a period of at least twelve
months after receipt of the minimum proceeds ( and twenty-four months after
receipt of the maximum proceeds) of this Offering, without being compelled to
seek additional funds to continue exploration of its current properties. (See
"MANAGEMENT","CERTAIN TRANSACTIONS" and "BUSINESS OF THE COMPANY").
2. No Known Ore Reserves and Uncertainty in Attaining Successful Exploration
Results in the Company's Properties.
A portion of the proceeds of this Offering will be used to explore
properties which the Company reasonably believes have potential mineral
deposits. The properties which the Company has targeted are in the exploration
stages. In general, the exploration work has included research of historical
data, geological mapping, geological sampling, geophysical surveys and minor
excavation and repairs. During the exploration stage, the Company seeks to
determine if any mineral resources do, in fact, exist and then will further
determine if the Company can economically develop the same. Although Management
believes there is a sufficient basis to engage in exploration on the properties
that it has targeted for exploration, there is absolutely no assurance that such
exploration will result in the discovery of known ore deposits. The Company does
not claim that known ore deposits exist on any of the properties which it is
going to explore. No ore bodies have yet been located and/or identified, and
there can be no assurance that any will be discovered. Further, there can be no
assurance that, in the event the Company is able to prove such deposits in the
future, it will have the financial resources to extract, concentrate, or deliver
for sale, any significant amounts of gold, silver, copper, or any other
commercially viable deposits. The shares offered herein have a real value only
in the event significant bodies of commercial ore are proven. (See "BUSINESS OF
THE COMPANY".)
3. Uncertainty in Obtaining Environmental Permits.
The Company does not currently have any permits that may be required by the
various federal, state and local mining and environmental agencies to begin work
on any of its properties. While the Company has had preliminary conversations
with certain controlling agencies, and has been given general support for its
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concepts in developing the properties, there can be no assurance that the
Company will be successful in obtaining such permits. (See "BUSINESS OF THE
COMPANY".)
4. Speculative Nature of the Mineral Exploration Industry.
Gold, silver and strategic metals exploration is highly speculative in
nature, involving many risks which even a combination of scientific knowledge
and experience frequently cannot overcome, often resulting in unproductive
efforts. Further, the market price of gold, silver and strategic metals is quite
volatile and beyond the control of the Company. If the price of any of these
precious metals drops dramatically, the Company's exploration efforts, which
have been limited and have not, to date, been profitable, could be further
reduced or continue to be rendered uneconomical. The degree of speculation is
further magnified when a company is in the exploration stages and is operating
at a loss, as has been the case with the Company. While Management believes the
funds from this Offering will be sufficient to reach its exploration and
development objectives, there can be no assurance that it will be successful,
that any production will be obtained, or that production, if obtained, will be
profitable. In any such event, any investment in the Shares of this Offering
would be extremely risky and, where, as here, the mining exploration is poorly
financed, the risks become even higher and the most common result would be a
loss of the shareholder's entire investment. (See "BUSINESS OF THE COMPANY",
"MANAGEMENT" and "FINANCIAL STATEMENTS".)
5. High Risk.
An investment in the shares offered hereunder involves an extremely high
degree of risk. A prospective investor should, therefore, be aware that in the
event the Company's exploration is not successful, any investment in the
Company's Common Stock may be entirely lost and the Company may be faced with
the possibility of liquidation. In the event of liquidation, the existing
shareholders would, to the extent that assets would be available for
distribution, receive a disproportionately greater share of the assets in
relation to their cash investment in the Company than would the public
shareholders, in that holders of Common Stock are entitled to share on a pro
rata basis in the assets, if any, of the Company that would be available for
distribution. (See "BUSINESS OF THE COMPANY", "DILUTION" and "PRINCIPAL
SHAREHOLDERS".)
6. Reliance on Outside Financing.
The Company believes that the minimum proceeds of this Offering will
provide sufficient cash to fund its operations and current obligations for the
next twelve months. Should the Company expand its operations and/or make
acquisitions that would require funds in addition to the funds received in this
Offering, it may have to seek additional debt or equity financing. There can be
no assurance that such financing would be available on terms acceptable to the
Company, as and when needed. Since its inception, the Company's operations have
been financed, in part, through private sales of the Company's securities, and
the balance of financing was obtained through a loan. (See "CERTAIN
TRANSACTIONS".)
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7. Dependence On Additional Financing/Risk of Unavailability.
The continued operation of the Company will be dependent upon its ability
to generate revenues from its current operations/properties and/or obtain
further financing, if and when needed, through borrowing from banks or other
lenders or equity funding. There is no assurance that sufficient revenues can be
generated or that additional financing will be available, if and when required,
or on terms favorable to the Company. (See "USE OF PROCEEDS.")
8. Reliance Upon Officers and Directors.
The Company is wholly dependent, at present, upon the personal efforts and
abilities of its officers and directors. While the Company will solicit business
through its officers and directors, there can be no assurance as to the volume
of business, if any, which the Company may obtain, or that its operations will
prove to be profitable. Of the three officers and directors of the Company, Mr.
Chaffee and Mr. Baptista will devote full time to the Company's business. (See
"MANAGEMENT" and "CERTAIN TRANSACTIONS.")
9. Dependence on Key employees.
The success of the Company is dependent, in large part, on the active
participation of Messrs. Chaffee and Baptista, its officers and directors, who
are also its key employees. The loss of their services would materially
adversely affect the Company's business and future success. The Company does not
have any employment agreements with either Mr. Chaffee or Mr. Baptista nor does
it have any key-man life insurance in effect at the present time; however, it is
seeking information and quotations regarding the same and may obtain such
coverage, if the cost thereof is reasonable. (See "MANAGEMENT.")
10. Conflicts of Interest.
The Company anticipates obtaining certain of its products and services from
companies of which a former officer, director and principal shareholder is an
officer, director and/or principal shareholder. All such products and services
will be obtained by the Company at rates and on conditions competitive in the
marketplace and favorable to the Company. (See "CERTAIN TRANSACTIONS.")
11. Certain Transactions.
The Company has previously engaged, and will continue to engage in certain
transactions with a former officer, director and principal shareholder, and will
endeavor to insure that such transactions will be as favorable to the Company as
comparable arm's-length transactions would be. (See PRINCIPAL SHAREHOLDERS",
"CERTAIN TRANSACTIONS" and "FINANCIAL STATEMENTS.")
12. Control of the Company.
Upon the sale of all the Shares offered hereby, the present shareholders of
the Company will continue to control the Company and will be able to elect a
majority of the Board of Directors and, thereby, control the business operations
and policies of the Company. (See "PRINCIPAL SHAREHOLDERS" AND "DILUTION.")
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<PAGE>
13. Benefit to Present Shareholders.
Following the successful completion of this Offering, the present
shareholders of the Company will own approximately 97% (minimum) or 90%
(maximum) of the outstanding Common Stock. The majority of the present
shareholders purchased their shares at prices substantially below the price at
which Shares are offered hereunder. Therefore, the present shareholders will
experience an immediate increase in the net tangible book value of their
securities, while the purchasers of Shares in this Offering will experience an
immediate dilution in the value of their securities. (See "PRINCIPAL
SHAREHOLDERS" and "DILUTION.")
14. Dilution: Excessive Burden of Risk.
The present shareholders of the Company acquired their shares at a cost
less than that which the purchasers hereunder will pay for their Shares.
Accordingly, an investment in the Common Stock of the Company by the Subscribers
will result in the immediate dilution of the net tangible book value of their
Shares. Subscribers purchasing Shares hereunder will bear a risk of loss, while
control of the Company will effectively remain in the hands of the present
shareholders. (See "DILUTION" and "PRINCIPAL SHAREHOLDERS.")
15. Sale of Shares at Substantial Discount.
Based on the serious financial condition of the Company and its compelling
need to raise money to continue its business operations and remain viable until
approval of this Registration Statement and sale of the Units being sold herein,
the Company was compelled to sell a large number of its shares of restricted
Common Stock for a small amount of money in order to continue its existence.
(See "PRINCIPAL SHAREHOLDERS", "DILUTION" and "CERTAIN TRANSACTIONS.")
16. Possible Rule 144 Sales.
A total of 4,555,000 shares of the Company's Common Stock have been issued
by the Company prior to this Offering and 1,250,000 of those shares are held by
persons who are, or were, officers, directors and control persons, who hold such
shares as "restricted securities", as that term is defined in Rule 144
promulgated under the Securities Act of 1933, as amended (the "Act"). These
securities may only be sold in compliance with Rule 144, which provides, in
essence, that a person (or persons whose shares are aggregated) beneficially
owning restricted securities for a period of one year may sell, every three
months, in brokerage transactions, a number of shares equal to the greater of
one percent of the total number of the Company's then outstanding shares of
Common Stock or the average weekly trading volume in the Company's Common Stock
during the preceding four calendar weeks. 2,275,000 of the shares presently
outstanding were issued between March and June, 1994; 2,280,000 of the shares
presently outstanding were issued in March, 1995. The possible sale of these
restricted shares under Rule 144, may, in the future, have a depressive effect
on the price of the Company's Common Stock in the over-the-counter market,
assuming there is such a market, of which there can be no assurance.
5
<PAGE>
Furthermore, persons holding restricted securities for two years who are not
"affiliates" of the Company, as that term is defined in Rule 144, may sell their
securities pursuant to Rule 144 without any limitations on the number of shares
sold. Notwithstanding the foregoing, shareholders holding 4,300,000 Shares
(constituting 94.4% of the Company's issued and outstanding stock) have executed
"Lock-up" Agreements with the Underwriter and the Company, agreeing not to sell
or otherwise transfer any of their Shares for a period of twelve (12) months
from the effective date of the Offering. (See "PRINCIPAL SHAREHOLDERS -FUTURE
SALES BY PRESENT SHAREHOLDERS" and "DILUTION RESTRICTED SHARES ELIGIBLE FOR
FUTURE SALE.")
17. Markets Uncertain.
Despite the business experience of the officers, directors and principal
shareholders of the Company, there can be no assurance that the mining
properties acquired by the Company will be productive and/or profitable, or that
such production and/or profitability will be sufficient to permit the Company to
be successful in the future or to expand or continue to operate. The mineral
exploration and development business is directly linked to the price of and
market for precious metals and, if there were a drastic reduction in such prices
and/or market, the Company's business could be significantly impacted. (See
"MANAGEMENT" and " BUSINESS OF THE COMPANY.")
18. Industry Conditions.
The mineral exploration, processing and mining industry is directly linked
to the price and sale of precious metals and is, therefore, highly subject to
change. Assuming there were a drastic reduction or increase in the price and or
sale of precious metals, the Company's business could be significantly impacted.
There can be no assurance that the volume of production and/or sales that the
Company projects will be established, continue or grow in the future. The
Company's limited operating history and limited financial resources could result
in its being unable to respond quickly to market changes which may have an
adverse effect on the Company's revenues and earnings. (See "BUSINESS OF THE
COMPANY.")
19. Sensitivity to Economic Conditions.
The continued existence of the Company is highly dependent upon the
condition of the mineral exploration and development industry. The economic
viability of that market, in turn, is highly dependent on, among many other
factors, including political issues and general economic conditions. During
periods of economic downturn or slow economic growth, coupled with eroding
consumer confidence or rising inflation, the price and/or sale of precious
metals could be severely impacted. Such factors would likely have an immediate
effect on the Company's operations. (See "BUSINESS OF THE COMPANY.")
20. Competition.
There is intense competition in the mineral exploration and development
industry in which the Company operates. Many of the Company's competitors have
greater financial and other resources, better distribution networks or greater
name recognition than the Company. There can be no assurance that the Company
will be able to successfully compete in this industry. (See "BUSINESS OF THE
COMPANY.")
6
<PAGE>
21. Supply Factors.
Competition and unforeseen limited sources of supplies in the industry
could result in occasional spot shortages of supplies of certain products which
the Company may use in its operations. There can be no assurance the Company
will be able to obtain certain products and materials which it requires, without
interruption, or on terms favorable to the Company. (See "BUSINESS OF THE
COMPANY.")
22. Insurance; Indemnification.
The Company has limited capital and, therefore, does not currently have a
policy of insurance against liabilities arising out of the negligence of its
officers and directors and/or deficiencies in any of its business operations.
Even assuming it obtained insurance, there is no assurance that such insurance
coverage would be adequate to satisfy any potential claims made against the
Company, its officers and directors, or its business operations or products. Any
such liability which might arise could be substantial and may exceed the assets
of the Company. However, the Articles of Incorporation and By-Laws of the
Company provide for indemnification of officers and directors to the fullest
extent permitted under Nevada law. Insofar as indemnification for liabilities
arising under the Securities Act of 1933 may be permitted to directors, officers
and controlling persons, it is the opinion of the Securities and Exchange
Commission that such indemnification is against public policy, as expressed in
the Act, and is therefore, unenforceable. (See "FINANCIAL STATEMENTS" and
"BUSINESS OF THE COMPANY.")
23. No Cash Dividends Paid.
No cash dividends have been paid on the shares of the Company to date, nor
is it anticipated that any such dividends will be paid to shareholders in the
foreseeable future. Any income received from operations will be reinvested and
devoted to the Company's future operations and/or to expansion. (See
"DESCRIPTION OF SECURITIES.")
24. Arbitrary Determination of Offering Price.
The offering price of the Units being offered hereunder was determined
arbitrarily by the Company. Such offering price should not be considered an
indication of, nor was it based upon, the actual value of the Company and the
offering price may bear no direct relationship to the book value, assets or
earnings of the Company, or any other recognized criteria of value. (See
"OFFERING.")
25. No Present Market for Securities.
There is presently no market for the Company's securities and there can be
no assurance that any such market will develop. In the event a public trading
market does develop, there is no assurance it will continue. Therefore, any
investment in the Company's Common Stock may be highly liquid and without a
market value. (See "OFFERING.")
7
<PAGE>
26. Compliance with "Penny Stock" Rules.
Rule 3a51-1 of the Exchange Act defines a "penny stock" as an equity
security that is not, among other things: a) a reported security (i.e., listed
on certain national securities exchanges); b) a security registered or approved
for registration and traded on a national securities exchange that meets certain
guidelines, where the trade is effected through the facilities of that national
exchange; c) a security listed on NASDAQ; d) a security of an issuer that meets
certain minimum financial requirements, i.e., "net tangible assets" in excess of
$2,000,000 (if the issuer has been continuously operating for less than three
years) or $5,000,000 (if the issuer has been continuously operating for more
than three years), or "average revenue" of at least $6,000,000 for the last
three years); or e) a security with a price of at least $5.00 per share for the
transaction in question or that has a bid quotation (as defined in the Rule) of
at least $5.00 per share. Under Rule 3a51-1, if the Company's Common Stock sells
below $5.00 per share, the Company's Common Stock will fall within the
definition of "penny stock."
If the Company's Common Stock is deemed to be a penny stock, trading
therein will be subject to the requirements of Rule 15g-9 and Section 15(g)
under the Exchange Act. Rule 15g-9 imposes additional sales practice
requirements on broker-dealers who sell non-exempt securities to persons other
than established customers. For transactions covered by the rule, the
broker-dealer must make a special suitability determination for the purchaser
and receive the purchaser's written agreement to the transaction prior to the
sale. Pursuant to Section 15(g) and related Rules, brokers and/or dealers, prior
to effecting a transaction in penny stock, will be required to provide investors
with written disclosure documents containing information concerning various
aspects involved in the market for penny stocks as well as specific information
about the penny stock and the transaction involving the purchase and sale of
that stock, e.g., price quotes and broker-dealer and associated person
compensation. Subsequent to the transaction, the broker will be required to
deliver monthly or quarterly statements containing specific information about
the penny stock. The foregoing requirements will most likely negatively affect
the ability of purchasers herein to sell their shares in the secondary market.
27. Issuance of Additional Shares.
Assuming sale of all Units offered hereby, there will still be 19,945,000
shares (assuming a minimum subscription) or 19,445,000 shares (assuming a
maximum subscription) of Common Stock which the Board of Directors will have
authority to issue. The issuance of any such shares to persons other than the
public investors herein will reduce the amount of control held by the public
investors following this Offering and may result in a dilution of the book value
per share. There are presently no commitments, contracts or intentions to issue
any additional shares to any persons other than as set forth herein. (See
"DILUTION.")
28. No Commitments to Purchase Units.
There is no commitment of any kind on the part of anyone to purchase all or
any part of the 510,000 Units being offered hereby; consequently, the Company
can give no assurance that all or any part of the Units will be sold. However,
the escrow arrangements provide that unless 130,000 Units are sold
8
<PAGE>
and $780,000 is raised within 90 days from the date of this Prospectus, unless
extended at the discretion of the Company for an additional 90 days, the
proceeds will be returned in full to the subscribers, without any interest
thereon or deductions therefrom. Thus, an investor could invest money in the
Company for as long as 180 days, through the subscription for Units hereunder,
and have the money returned without interest.
29. Government Regulations.
The Company will be subject to all governmental rules, laws and regulations
relating to the mining industry, both in the U.S. and Mexico, where its current
properties are located, and fully intends to comply therewith. However, there is
no assurance the governmental agencies having jurisdiction over the Company, its
operations and properties, may enact laws, rules and/or regulations in the
future which may have an adverse impact on the Company. (See "BUSINESS OF THE
COMPANY.")
MANAGEMENT OVERVIEW
-------------------
All of the Company's current activities are in the exploration stage. The
Company seeks to identify properties that demonstrate the presence of
economically viable mineral deposits. The Company will concentrate on properties
that it believes may contain commercially recoverable values of Silver, Copper,
Cobalt and Gold in both the United States and Mexico. If any such property is
identified, the Company will initiate the exploration process. (See "BUSINESS OF
THE COMPANY")
The first business operations of the Company will consist of performing a
preliminary evaluation on each property to provide the Company with sufficient
information to determine the merits, if any, of each property. This first phase
of evaluation will consist of gathering information relative to the perceived
economic value of each property, the anticipated costs to develop the property
(including permitting and environmental costs), and the estimated amount of time
which will be needed to reach a positive cash flow status for each property. In
the event any of the properties appear to warrant further consideration, the
Company must then prioritize each proposed site development plan (Plan of
Operations) and allocate the funds necessary to execute the same, including a
substantial contingency reserve. The Company must then submit the Plan of
Operations to the appropriate environmental agencies for approval, of which
there can be no assurance. (See "RISK FACTORS-Uncertainty in Attaining
Environmental Permits", "RISK FACTORS-Government Regulations" and "BUSINESS OF
THE COMPANY".)
The first project the Company intends to develop will be the Deep Gold Mine
located in Inyo County, California, assuming, of course, that viable deposits
are identified during the exploration process on the property and that the
Company is able to meet federal, state and local mining and environmental
requirements for the property, of which there can be no assurance. (See RISK
FACTORS-Uncertainty in Attaining Environmental Permits", "RISK
FACTORS-Government Regulations" and "BUSINESS OF THE COMPANY".) The Company has
determined that, if viable deposits are identified at the Deep Gold Mine, and
assuming favorable regulatory reviews, the materials would be easy to access and
process using existing technology and equipment. Depending on the results of the
exploration process at the Deep Gold Mine, the Company may, at that time,
postpone the exploration of its other properties to insure sufficient
9
<PAGE>
financial resources are available to complete development of the Deep Gold Mine.
USE OF PROCEEDS
---------------
As set forth below, the Company estimates the net proceeds from this
Offering will be approximately $638,600, assuming a minimum subscription, or
$2,622,000, assuming a maximum subscription, after deducting $78,000, assuming a
minimum subscription, or $306,000, assuming a maximum subscription, for sales
commissions and $40,000 for estimated offering expenses, including legal and
accounting fees. The proceeds from this Offering are expected to be disbursed,
in the priority set forth below, during the first 12 months after completion of
this Offering; however, not having completed the Phase I property evaluations on
any property, the Company reserves the right to amend, in its discretion, the
proposed Use of Proceeds pending the results of such evaluations.
The following projections assume that viable deposits will be located on
properties which the Company has targeted for exploration, that it will be
economically feasible to process the materials, and that the mineralization is
of the type that will lend itself to the Company's proposed extraction
techniques. None of these assumptions have been proven, however, and there can
be no assurance that they will be proven on any property until the Phase I
property evaluations have been completed.
<TABLE>
<CAPTION>
Minimum Maximum
Description Subscription Subscription
- ----------- ------------ ------------
<S> <C> <C> <C>
Total Proceeds $780,000 $3,060,000 <C>
Offering Expenses:
Sales Commissions (1) 78,000 306,000
Non-Accountable Expense
Allowance (2) 23,400 91,800
Legal and Accounting Fees
and Offering Expenses (3) 40,000 40,000
-------- ---------
Net Proceeds $638,600 $2,622,200
% of Net % of Net
Proceeds Proceeds
-------- --------
Exploration $ 50,000 7.83 $ 360,000 13.72
Administrative and Salaries 220,000 34.45 220,000 8.40
Indirect Expenses:
Insurance 14,000 2.20 28,000 1.07
Bonding 10,000 1.57 20,000 .76
Repay Loans (4) 30,000 4.70 30,000 1.14
Working Capital(5) 314,600 49.25 1,964,200 74.91
- --------------- --------- ----- --------- -----
Total Net Proceeds $638,600 100% $2,622,200 100%
</TABLE>
(1) Assumes that an underwriters' commission of 10% will be paid on all Shares
sold. (See "UNDERWRITING" and "OFFERING.")
(2) Assumes that a non-accountable expense allowance may be paid to the
underwriter equal to $23,400 in the event of a minimum subscription or $91,800
or in the event of a maximum subscription.
10
<PAGE>
(3) The organizational and offering expenses, including accounting, legal,
printing, clerical and other expenses, and registration and filing fees, are
estimated to total $40,000.
(4) On March 7, 1995, the Company entered into a Loan Agreement with C.W. and
Neva B. Lewis, unrelated third parties, wherein the Lewis' advanced $20,000 in
cash to the Company. In consideration for the loan, the Company agreed to pay
the Lewis' $50,000 from the proceeds of this Offering. In addition, the Company
sold them 30,000 shares of restricted Common Stock of the Company at par value
for a total consideration of $30. The $20,000 loan was used as partial payment
for the contract deposit of the Big Mike property. Subsequent to December 31,
1997, $20,000 was paid to Lewis, reducing the balance due from the proceeds of
the offering to $30,000. (See "CERTAIN TRANSACTIONS.")
(5) Assuming receipt of the minimum subscription, the Company intends to utilize
working capital proceeds to complete Phase 1, Phase 2 and Phase 3 Exploration on
the Deep Gold project, and Phase 1 and Phase 2 on the Gold Spur project, which
the Company estimates will cost approximately $200,000 and $115,000
respectively. Additional working capital funds in excess of the minimum
subscription will be applied to building a prototype plant operation at the Deep
Gold Project (approximately $500,000) and/or complete Phase 3 Exploration of the
Gold Spur Project (approximately $100,000), assuming Phase 1 and 2 Exploration
results warrant such expenditure. Additional working capital funds will be
utilized for evaluation of the Promontorio project (approximately $125,000).
Utilization of any funds in excess of those amounts will depend largely on the
results of the exploration phases of the Deep Gold and Gold Spur projects. In
the event such projects prove to be viable, working capital will be expended on
additional equipment necessary to develop the projects, salaries for additional
personnel, consulting fees for outside consultants and for general operation of
the Company. The amounts of such expenditures cannot be readily estimated at
this time, as they are entirely dependent on the results of the preliminary
explorations.
While the Company currently intends to utilize the proceeds of this Offering
substantially in the manner set forth above, the Company reserves the right to
reassess and reassign such use if, in the judgement of the Board of Directors,
such changes are necessary or advisable in the circumstances. At present, no
material changes are contemplated, however, working capital could be used to
acquire other mining properties or interests therein. The Company does not know
of any such properties nor is there any assurance that any such properties could
be acquired with the limited funds in working capital it will have available.
Should there be any material changes in the Company's use of proceeds in
connection with this Offering, it will issue a post effective amendment to its
Registration Statement to reflect such change.
Until used, the working capital proceeds will be invested in certificates
of deposit or U.S. Treasury Notes.
DILUTION
--------
"Dilution" represents the difference between the offering price and the net
tangible book value per share immediately after the completion of this Offering.
"Net tangible book value" is the amount that results from subtracting the total
liabilities and intangible assets from the Company's total assets. Dilution
arises mainly from the arbitrary decision by the Company to establish the
offering price of the Shares offered hereunder based on market factors rather
than book value considerations.
11
<PAGE>
In addition, it is important to note that the present shareholders of the
Company's Common Stock acquired their shares at a price substantially lower than
the Offering price due to the Company's need to acquire working capital during
the past two years. The present shareholders, therefore, will incur an immediate
substantial increase in the price which they paid for their shares and the
purchasers of shares in the Offering will incur an immediate substantial
dilution in the price which they pay for their shares.
As of September 30, 1998, the net tangible book value of the shares of the
Company (total assets, excluding intangible assets, less total liabilities,
excluding contingent liabilities) was ($300,877) or ($.07) per share based upon
4,555,000 shares outstanding at that time.
Upon completion of this Offering, but without taking into account any
change in such net tangible book value after completion of this Offering, other
than that resulting from the sale of the Shares offered hereby, the net tangible
book value of the 4,685,000 shares, based upon a minimum subscription (or
5,065,000 shares, based upon a maximum subscription) to be outstanding will be
approximately $479,123, based upon a minimum subscription (or $2,759,123, based
upon a maximum subscription), or approximately $.11 per Share, based upon a
minimum subscription (or $.54 per Share, based upon a maximum subscription).
Accordingly, the net tangible book value of the Shares held by the present
shareholders of the Company (i.e., 4,555,000 Shares) will be increased by $.18
per Share, based upon a minimum subscription (or increased by $.61 per Share,
based upon a maximum subscription), without any additional investment on their
part and the purchasers of the Shares offered hereby will incur immediate
dilution (a reduction in net tangible book value per Share from the offering
price of $6.00 per Unit) of approximately $5.89 per Share, based upon a minimum
subscription (or $5.46 per Share, based upon a maximum subscription).
After completion of this Offering, the purchasers of the Shares offered
hereby will own approximately 3% (10%) of the total number of shares then
outstanding, for which they will have made a cash investment of $780,000, based
upon a minimum subscription (or $3,060,000, based upon a maximum subscription),
or $6.00 per share. The current shareholders of the Company will own
approximately 97% (90%) of the total number of shares then outstanding, for
which they have made actual cash contributions of $4,555, or $.001 per share.
The following table sets forth a comparison of the respective investments of
the current shareholders and the public investors, assuming both a minimum and
maximum subscription.
12
<PAGE>
PRESENT SHAREHOLDERS
--------------------
Minimum Subscription Maximum Subscription
-------------------- --------------------
Price Per Share $ .001 $ .001
Net Tangible Book
Value per Share $ (.07) $ (.07)
before Offering
Net Tangible Book
value per Share $ .11 $ .54
after Offering
Increase to present
Shareholders in
net tangible book
value per share due
to Offering $ .18 $ .61
Capital
contributions $ 4,555 $ 4,555
Number of Shares
outstanding
before Offering 4,555,000 4,555,000
Number of Shares
outstanding
After Offering 4,555,000 4,555,000
Percentage of ownership
after the Offering 97% 90%
PUBLIC INVESTORS
----------------
Minimum Subscription Maximum Subscription
-------------------- --------------------
Price per Share $ 6.00 $ 6.00
Dilution per Share $ 5.89 $ 5.46
Capital contributions $ 780,000 $3,060,000
Number of Shares after
the Offering held by the
Public Investors 130,000 510,000
Percentage of ownership
after the Offering 3% 10%
All 4,555,000 of the Company's currently outstanding shares of Common Stock
are "restricted securities" which, in the future, may be sold pursuant to Rule
144 under the Securities Act of 1933, as amended, if available. Rule 144
currently provides, in essence, that persons holding restricted securities for a
period of one year may each sell, every three months, in brokerage transactions,
a number of shares equal to one percent of the aggregate number of the Company's
outstanding shares, and after two years, persons other than "affiliates" of the
Company, may sell shares without any volume restrictions. However, holders of
4,300,000 shares of the Company's currently outstanding shares (constituting
94.4% of such shares) have executed "Lock-up" Agreements with the Underwriter
and the Company, agreeing not to sell or otherwise transfer any of their shares
for a period of twelve (12) months from the effective date of this Offering.
Sales of shares (a) held by present shareholders, after applicable
restrictions expire; and (b) offered in this Offering, which would be
immediately resalable, may have a depressing effect on the price of the
Company's shares in any market that may develop. (See "DILUTION.")
13
<PAGE>
CAPITALIZATION
--------------
The following table sets forth the capitalization of the Company as of
September 30, 1998, and as adjusted to reflect the sale of the minimum (maximum)
Shares offered hereby and the application of the net proceeds therefrom. (See
"FINANCIAL STATEMENTS.")
Present As Adjusted
------- -----------
(Minimum)
Common Stock:
25,000,000 Shares
authorized, par value
$.001; 4,555,000
issued and outstanding $ 4,555 $ 4,685
Shareholders' Equity: ($ 300,877) $ 479,123
SUMMARY FINANCIAL INFORMATION
BALANCE SHEET DATA: September 30, 1998
Current Assets $ 52,165
Current Liabilities $ 521,988
Total Assets $ 221,111
Shareholders' Equity $(300,877)
(See "FINANCIAL STATEMENTS)
OFFERING
--------
Engagement of the Services of an Underwriter:
The Company has engaged the services of an underwriter who is a member of
the National Association of Securities Dealers, Inc. ("NASD") to offer its Units
directly to prospective investors on a "best-efforts, all-or none" basis as to a
minimum of 130,000 Units and on a "best-efforts" basis as to an additional
380,000 Units.
14
<PAGE>
The Company has agreed to pay a sales commissions equal to 10% of the gross
sales price of the Units to such underwriter for any Units it may sell, plus a
nonaccountable expense allowance of 3% of the gross proceeds and Warrants equal
to 10% of the shares sold to the public. However, no sales commissions or
expense allowance will be paid unless a total of 130,000 Units have been
subscribed and paid for.
The Units will be offered by the Company subject to prior sale and subject
to approval of certain legal matters by the Company's legal counsel. The Company
reserves the right to reject any subscription in whole or in part, for any
reason or for no reason.
A total of 2,050,000 shares of the Company's Common Stock were issued to
two persons who were officers, directors and control persons of the Company, in
April, 1994 and a total of 2,505,000 shares were issued to unrelated third
parties in March, 1994 and March, 1995. Such shares are all "restricted
securities" as that term is defined in Rule 144, promulgated under the
Securities Act of 1933, as amended, and under such Rule, may not be sold for a
period of at least two years from acquisition thereof. However, as indicated
above, holders of 4,300,000 shares (constituting 94.4% of the Company's
outstanding shares) have executed "Lock-up" Agreements with the Underwriter and
the Company, agreeing not to sell or otherwise transfer any of their shares for
a period of twelve (12) months from the effective date of the Offering. (See
"CERTAIN TRANSACTIONS.")
Prior to this Offering, there has been no market for the Company's Shares.
Consequently, the offering price has been determined arbitrarily by the Company
and should not be considered an indication of the actual value of the Company's
Shares. There can be no assurance that the Common Stock offered hereby can be
resold at the offering price, or at all. Nor can there be any assurance that any
public market for the Company's Common Stock will develop. It is anticipated
that the Shares will trade in the over-the counter market.
Offering Period and Expiration Date
This Offering will commence on the date of this Prospectus and continue for
a period of ninety (90) days, unless extended, by the Company for an additional
ninety (90) days, or unless this Offering is completed or otherwise terminated
by the Company (the "Expiration Date").
Procedures for Subscribing
Each investor subscribing for any of the Shares offered hereby will be
required to execute a Subscription Agreement and tender it, to the Underwriter,
together with a check or certified funds payable to the Escrow Agent, for
acceptance or rejection of their subscription.
Determination of Offering Price
The public offering price of the Shares has been determined arbitrarily by
the Company. The price does not bear any relationship to the Company's assets,
book value, earnings, or other established criteria for valuing a privately held
company. In determining the number of Shares of Common Stock to be offered and
the offering price, the Company's capital structure, financial condition,
prospects for the Company and the industry in general, and the general condition
of the securities market were considered by the Company. Accordingly, the
offering price should not be considered an indication of the actual value of the
Company's securities.
15
<PAGE>
Escrow
Proceeds from the subscription for Units will be transmitted by noon of the
next business day after receipt by the Underwriter to be deposited in a special
account at Union Bank & Trust, 100 Broadway, Denver, Colorado, until a minimum
of 130,000 Units have been sold, at which time the proceeds will be paid to the
Company by the Underwriter from time to time as received. Thereafter, proceeds
will be paid directly to the Company until a maximum of 510,000 Units have
been sold or the offering period expires, whichever first occurs. If 130,000
Units are not sold by the Expiration Date, or any extension thereof, or if this
Offering is terminated sooner, all funds which have been received will be
promptly returned to the subscribers without interest or deduction.
All checks for subscriptions should be made payable to Union Bank & Trust
Company/Summa Metals Corp. Escrow Account.
Right to Reject
The Company shall have the right to accept or reject subscriptions in whole
or in part, for any reason or for no reason. All monies from rejected
subscriptions shall be returned immediately to the investors without interest or
deduction. Subscriptions for securities shall be accepted or rejected within 48
hours after receipt thereof by the Company.
UNDERWRITING
------------
Proposed Underwriting Agreement
The Company has entered into an Underwriting Agreement (the "Underwriting
Agreement") with Boe & Company, a member of the National Association of
Securities Dealers ("NASD") as its agent to publicly offer and sell a minimum of
130,000 Units on a "best-efforts, all-or-none basis" up to a maximum of 510,000
Units on a "best-efforts basis" at a public offering price of $6.00 per Unit,
for a total maximum offering of $3,060,000. If a total of 130,000 Units is not
sold within 90 days from the commencement of the Offering, which period may be
extended for an additional period of up to 90 days upon the mutual consent of
the Company and the Underwriter, all proceeds received would be promptly
refunded to subscribers in full, without interest or deductions for commissions
or expenses. All proceeds from the sale of the Units will be payable to "Union
Bank & Trust Company/Summa Metals Corp. Escrow Account", and will be deposited
in an escrow account maintained at Union Bank & Trust by American Securities
Transfer & Trust, Inc. as Escrow Agent (the "Escrow Agent"), pursuant to an
Escrow Agreement among the Company, the Underwriter and the Escrow Agent.
16
<PAGE>
Proposed Underwriter Compensation
The Underwriting Agreement further provides that, subject to the sale of a
minimum of 130,000 up to a maximum of 510,000 Units offered hereby, the
Underwriter will receive (a) a cash commission of 10% of the gross price of each
Unit it sells (i.e. $.60 per Unit, or a total of $78,000.00, assuming a minimum
subscription, or $306,000.00, assuming a maximum subscription) and (b) a
non-accountable expense allowance of 3%, and warrants to purchase additional
shares (without underlying warrants) in the amount of 10% of the number of Units
sold to the Public by the Underwriter. (SEE "UNDERWRITERS AGREEMENT") Any
unexpended portion of the non-accountable expense allowance may be retained by
the underwriter and may be deemed additional underwriting compensation for the
purposes of the Securities Act of 1933, as amended.
The Underwriter warrants are exercisable at a price of $7.20 per share and
are exercisable only during the 48 month period commencing 12 months after the
Effective Date of the Registration Statement and expire 60 months after such
Effective Date. The Warrants may not be sold, transferred, assigned or
hypothecated for a period of one (1) year from the effective date of the
offering except to officers or partners of the Underwriter and members of the
selling group. There is no committment for the Company to file a Registration
Statement with the Securities and Exchange Commission with respect to the shares
of Common Stock underlying the Underwriter's Warrants.
The foregoing is a summary of the principal terms of the Underwriting
Agreement and does not purport to be complete. Reference is made to the copy of
said proposed Underwriting Agreement which is on file as Exhibit 1 to the
Registration Statement of which this Prospectus is a part.
BUSINESS OF THE COMPANY
Summa Metals Corp., a Nevada corporation, was incorporated on March 8,
1994. The Company maintains its statutory registered agent's office at 1025
Ridgeview Drive, Suite 400, Reno, Nevada 89509. The Company presently maintains
its business offices at 28281 Crown Valley Parkway, Ste. 225, Laguna Niguel, CA,
92677-1461. (See "OFFICE FACILITIES" in this section.)
General
The Company is an exploration stage company engaged in the acquisition, and
exploration of properties with an uncertain mineral potential. The Company
acquired certain mining and tailing properties from Mr. Chaffee, an officer,
director and principal shareholder and from Dr. Pray, a former officer, director
and principal shareholder, in exchange for the issuance of an aggregate of
2,050,000 shares of the Company's restricted Common Stock (See "CERTAIN
TRANSACTIONS"), and is attempting to raise the capital required for exploration,
and if warranted by the results of the Phase 1 evaluation, the development of
these properties. The Company will also explore other properties that the
Company reasonably believes have the potential for future development of mineral
deposits. The Company will make appropriate announcements to its shareholders in
the event it becomes aware of other properties suitable for exploration for
future development of mineral deposits. There is no assurance, however, that the
Company will be successful in raising the capital necessary to complete any
exploration program, or that it will have the financial resources to develop any
properties regardless of the outcome of the exploration process. There are no
preliminary agreements or understandings with respect to any other properties,
than those described herein. (See "MANAGEMENT" and "BUSINESS OF THE COMPANY").
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Environmental Regulations and Cyclical Metal Prices
Environmental laws and regulations relating to federal lands are expected
to be tightly enforced by the U.S. Bureau of Land Management and U.S. Forest
Service. The Company, however, feels that as long as Forest Service regulations
are fully complied with, there should be no serious economic problems
encountered because of wilderness laws or any other federal, state or local
environmental protection laws. The Company anticipates no discharge of water
into any active stream, creek, river, lake or any other body of water regulated
by environmental laws or regulations and that no significant endangered species
will be disturbed by its operations. Recontouring and revegitation of disturbed
surface areas will be completed pursuant to federal, state and local
requirements. Any portals, adits or shafts will be sealed upon abandonment of a
property. It is difficult to estimate the cost effects of compliance with
environmental laws inasmuch as the methods and procedures of exploration within
federal lands or U.S. Bureau of Land Management and Forest Service lands are
similar to those methods and procedures adopted by the Company as a matter of
Company policy and procedure.
The Company intends to operate its properties in strict compliance with all
environmental regulations applicable to the mineral processing and mining
industry. While the Company considers itself to be pro-active with respect to
environmental considerations and has a history of working with the federal,
state and local agencies in the mining industry, there can be no assurance that
the Company will be able to procure the necessary permits to operate any of its
properties. In addition, it is possible that certain regulatory agencies could,
in fact, make it impossible for the Company to even explore its properties
and/or prohibit the Company from performing the work necessary for the Company
to complete its "economic" evaluations. (See "BUSINESS OF THE COMPANY-The
Exploration Stage" and "MANAGEMENT".)
Prior to the Company being able to perform any work on any property, the
Company will be required to submit, and have approved, a Plan of Operations
specific to each particular property with each appropriate regulatory agency.
This approval process is often time consuming and expensive and the outcome is
always uncertain. Even assuming the Company is successful in obtaining a permit
to explore or operate any property, the financial responsibilities placed upon
the Company as a condition for the issuance of such approvals may render a
property uneconomically viable for development and the Plans of Operation may,
at that time, be abandoned.
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Other factors which could have a material impact upon the Company's future
financial performance include such considerations as the cyclical nature of the
mining industry, which may have an effect on the Company's potential
profitability. However, it is difficult to determine whether the cyclical price
of precious metals and other minerals explored for by the Company will increase
or decrease. Thus, management feels that the inherent risk of a decrease in the
price of minerals is balanced by the possibility of an increase in the price of
minerals. In general, the costs of mining today are much greater than in
previous years due to both inflation and the added costs of complying with the
variety of environmental laws and safety regulations which govern the mining
industry.
The Exploration Stage
The exploration process in general is divided into three (3) phases. Phase
1 begins with a thorough search of the available geologic literature, personal
interviews with geologists, mining engineers and others familiar with the
properties. This initial work is then augmented with geological mapping
and testing and geophysical testing.
The second phase of the exploration process involves an initial examination
of the underground characteristics of the vein structure that was identified by
Phase 1 of exploration. Phase 2 is aimed at identifying a deposit of potential
economic importance. While the exact exploration process is site specific, the
general methods of exploration may include trenching, advanced geophysical work
and core drilling to aid in the determination of subsurface characteristics of
the structure. The geophysical work is designed to give a general understanding
of the location and extent of mineralization at depths that are unreachable by
surface excavations, and provide a target for more extensive trenching and core
drilling. After a thorough analysis of the data collected in Phase 2, a
determination is made as to whether or not the property warrants a Phase 3
study.
Phase 3 is aimed at precisely defining the depth, the width, the length,
the tonnage and the value per ton of the mineral deposits so that it can be
considered a proven ore body within stringent industry standards. This is
accomplished through extensive surface trenching and extensive core drilling. A
mineral deposit is not a proven ore body until it has been technically,
economically and legally proven.
At the completion of the exploration stage, and assuming that an
economically viable deposit has been discovered, the Company will then
prioritize development based upon the financial resources available at that
time.
A more detailed description of the proposed exploration process for each of
the Company's properties is contained in the "Description of Properties" section
which follows.
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Description of Property
The Company has acquired rights and interests in and to certain mining
properties, as listed below. Most of these properties consists of unpatented
mining claims. The validity of unpatented mining claims depends, to an extent,
upon numerous circumstances and factual matters, many of which are discoverable
of record or by other available means, and is subject to many uncertainties of
existing law and its applications. One of the requirements of initiating a valid
mining claim is that the claim must be staked on a mineralized area. Further
exploration and mineral assessments will be performed during Phase l of the
exploration process to determine if sufficient mineralization exists to develop
the properties. The Company intends to continue to perform annual assessment
work on its property, as well as comply with state and federal regulations
regarding the claims, until Phase 1 results can be assessed. (See "CERTAIN
TRANSACTIONS" and "CONFLICTS OF INTEREST.")
The Deep Gold Mine
The Deep Gold Mine, consisting of one unpatented placer claim is located on
approximately 80 acres in Marble Canyon, Inyo County, California, approximately
40 miles north of Barstow, California. The claim was located amidst some old
1930's mining claims. Dr. Ralph E. Pray, a former officer, director and
principal shareholder of the Company located one of the claims in 1981 and over
the course of several years, acquired the other three (3) claims from their
respective locators. In 1981, a new road was built into the property, a new
headframe was placed over the 150-ft. deep shaft and the workings were cleaned
out. The property was subleased to the Company for $100.00 per year for twenty
years, with the right to extend the lease for an additional twenty years. In
addition, Dr. Pray received shares of Common Stock of the Company as
consideration for the sublease. It is a requirement of the federal Bureau of
Land Management ("BLM") that a mining property owner perform required minimum
assessment work in order to maintain title to the property. The property owner
is required to file annual reports with the BLM confirming that such assessment
work has been performed. After Dr. Pray resigned as an officer and director of
the Company, in order to insure that the Company will be timely notified by the
BLM of any changes in Federal law affecting the property, the Company caused
title to the property to be transferred to Michael Chaffee, Raymond Baptista,
Brian Jackowitz and Bruce Cooper, all of whom are shareholders of the Company.
Such transfer was accomplished by Dr. Pray disclaiming ownership to such
property on March 10, 1998, and Messrs. Chaffee, Baptista, Jackowitz and Cooper
filing a claim to the property. On April 6, 1998, Messrs. Chaffee, Baptista,
Jackowitz and Cooper subleased the property to the Company on the same terms as
the original sublease with Dr. Pray. During the term of the sublease, the
Company will have all of the sublessors' right, title and interest in and to the
property, and any revenues derived therefrom.
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During 1994, the Company maintained the required permits for the mine,
reviewed geophysical data establishing a probable channel and mapped three drill
sites for early exploration. The volume of placer material available on the Deep
Gold claims has been estimated using the channel width and thickness values
reported in the California Division of Mines Report XXXIV for Lewis and Iron
Nugget claim groups, now included in the Deep Gold group. The average width of
the channel is 57 feet and the average thickness is reported to be 6 feet.
The Deep Gold Mine is not located in a Wilderness Study area and is not,
therefore, subject to the federal rules and regulations regarding such an area.
Assuming that the Phase 1 evaluation of the Gold Spur Mine is positive, the
Company intends to mine the property in the following manner. The channel at the
shaft elevation, near the north bank, will be delineated by reverse circulation
hammer drilling. The compacted, lightly cemented sand and gravel will be drilled
and blasted. Large rock fragments will be left behind in high, underground
fence-wire enclosures.
When removal of the material closest to Entry No. 2 has been completed, the
treatment plant will be moved down slope to the collar of Entry No. 3 and
material in the lower 500 feet of the drift will reach the surface through Entry
No. 3.
Broken sand/gravel placer materials from the channel will be dumped
directly onto a heavy vibrating screen. Oversize will go to waste. Minus 1/2
inch will be screened at 20 mesh. Fine concentrate will be treated to remove
magnetics and all concentrates, if any are found to exist, will be further
processed, examined, weighed and prepared for shipment. The mine will have three
drill roads cut from the main road to the geophysical anomalies found recently
during a magnetometer survey by Dr. Pray. A contract driller will be employed to
rotary drill three holes to depths of about 150 feet, where bedrock will be
encountered. Once the channel has been located, if one is found to exist, it
will be delineated by rapid drilling on 10 or 20 foot centers. A shallow decline
will be driven to the channel, and the material will be processed on site to a
heavy concentrate for delivery to the Monrovia laboratory.
Allocation of Proceeds - Deep Gold Mine
The Company has allocated $10,000, assuming receipt of the minimum proceeds
of this Offering to complete its Phase 1 evaluation, and $135,000, assuming
receipt of the maximum proceeds of this Offering, to the exploration, and if
warranted by the results of the Phase 1 evaluation, the development of the Deep
Gold Mine. The Company estimates that the evaluation process on this property
will take approximately 30 days to complete. The balance of the funds allocated
will be expended at the discretion of the Company based upon the results of the
Phase 1 exploration process and the status of the Company's financial
commitments to other projects being explored and/or developed at the time.
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The Gold Spur Mine
The Gold Spur Mine, an underground gold mine located on nine lode claims
and one mill site in Coyote Canyon County, on the southwest flank of the
Panamints, in Inyo County, California, is located directly between mines
operated by Canyon Resources and Keystone, a prolific gold producer during the
1980's. The Gold Spur Mine originally operated between 1907 and 1940 and
consists of 11 Lode Claims and 1 mill site on approximately 80 acres. Dr. Ralph
E. Pray, a former officer, director and principal shareholder of the Company,
re-filed the claims in 1973 and again in 1979 as sole owner and subleased the
property to the Company for $100.00 per year for twenty years, with the right to
extend the lease for an additional twenty years. In addition, Dr. Pray received
shares of Common Stock of the Company as consideration for the sublease. It is a
requirement of the federal Bureau of Land Management ("BLM") that a mining
property owner perform required minimum assessment work in order to maintain
title to the property. The property owner is required to file annual reports
with the BLM confirming that such assessment work has been performed. After Dr.
Pray resigned as an officer and director of the Company, in order to insure that
the Company will be timely notified by the BLM of any changes in Federal law
affecting the property, the Company caused title to the property to be
transferred to Michael Chaffee. Such transfer was accomplished by Dr. Pray
disclaiming ownership to such property on March 10, 1998, and Mr. Chaffee filing
a claim to the property. On April 6, 1998, Mr. Chaffee subleased the property to
the Company on the same terms as the original sublease with Dr. Pray. During the
term of the sublease, the Company will have all of the sublessors' right, title
and interest in and to the property, and any revenues derived therefrom.
In 1994, the Company performed extensive repairs on a two-mile mine road,
using a rented 6-yard loader; rebuilt the aerial tramway mid-point cable tower;
re-timbered the 50-ton main ore bin floor; repaired the stationary aerial
tramway engine; and rebuilt the facilities operating the freshwater well on the
property. About 3,000 lbs. of heavy timber was delivered to the mine, most of
which was obtained from freeway repair crews following the Northridge,
California earthquake. The total cost expended on this work by the Company was
approximately $14,500.00.
Approximately 200 tons of material was drilled and stockpiled by the
Predecessor Company in 1991. This material lies in the mine awaiting transport
to either a millsite established by the Company or to a nearby milling operation
for extraction and treatment. The camp is at the base of the mountain, 600 feet
below. A small mine and mill operation could be fabricated immediately,
utilizing existing facilities.
The property is already equipped with a fresh water well and tanks, basic
housing facilities, an improved access road, septic system, buried utilities for
gas and water, main ore bins, a cable-type ore delivery system from the main
portal, structural timbers, a 225 CFM air compressor and security dates at the
main access road.
The Gold Spur mine was at one time considered part of a Wilderness Study
area, but was removed from the same in 1994 and is, therefore, no longer subject
to the federal rules and regulations regarding such an area.
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The validity of unpatented mining claims, depends, to an extent upon
numerous circumstances and factual matters, many of which are discoverable of
record or by other available means, and is subject to many uncertainties of
existing law and its applications. One of the requirements of initiating a valid
mining claim is that the claim be staked on a mineralized area. The Gold Spur
Mine was, in the opinion of the Company, mineralized to an extent sufficient to
meet government requirements and common mining industry practice. However,
further Company exploration and mineral assessments performed by government
agencies may indicate that these claims are not sufficiently mineralized and may
later be abandoned or determined to be invalid because of insufficient
mineralization. The Company intends to perform the annual assessment work, as
well as comply with state and federal regulations regarding this claim, until
full exploration of potential mineralization can be assessed.
Upon completion of this Offering, the Company intends to continue with its
exploratory work in the upper workings of the mine using the newly repaired
aerial tramway system. The Company also intends to start the repair of the
surface mine rail system, utilizing the timbers delivered to the mine in 1994.
Mine product, assuming any valuable minerals exist, will be stockpiled during
the exploration of the present underground workings. The purpose of this
exploratory effort will be to establish that there is a sufficient amount and
grade of minerals to warrant placing the mine into production. The existing
exposed veins will be explored, measured, tested and assayed during this
exploration process.
From the results of the exploration process, the Company intends to prepare
a complete economic evaluation for presentation to the Company's Board of
Directors who will make the final decision whether to expand mining activities
on the property. There is no assurance the Company will be able to locate any
valuable minerals at the Gold Spur Mine, or if any are found, that they will be
able to be successfully removed and/or sold profitably, or at all.
Allocation of Proceeds - Gold Spur
In the event only the minimum received from the offering, the Company will
delay expending funds for evaluation of the Gold Spur until such time as it has
completed its evaluation of the other properties in its portfolio. The Company
has allocated $100,000, assuming receipt of the maximum proceeds of this
Offering, to the exploration of the Gold Spur Mine, subject to completion of the
Phase 1 evaluation process. The Company estimates that the cost for the
evaluation process on this property will be approximately $10,000 and should
take approximately 30 days to complete. The balance of the funds allocated will
be expended at the discretion of the Company based upon the results of the Phase
1 exploration process and the status of the Company's financial commitments to
other projects being explored and/or developed at the time.
Promontorio
The Promontorio property is designated as the "La Campana" and is located
35 miles northwest of the City of Durango in the municipality of El Oro, Mexico,
at Latitude 25.13 North and Longitude 105.09 West. The actual property is 13
kilometers north of the mining city of Promontorio and consists of approximately
135 acres of mill tailings.
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On January 8, 1992, Dr. Ralph E. Pray, a former officer, director and
principal shareholder of the Company, entered into an Agreement with Jose A.
Echenique, an unrelated third party, whereby Dr. Pray acquired the rights to
treat and/or remove the mill tailings at the Promontorio. Dr. Pray has no
possessory rights to the property; merely the tailings on the property. The term
of the Agreement is for a period of ten years and provides for a royalty payment
to Mr. Echenique of 5% of any gross revenues derived from the tailings. Mr.
Echenique retains full ownership in the land and improvements thereon, but the
same is fully available to Dr. Pray during the term of the Agreement. The
Company subleases the rights to the mill tailings from Dr. Pray for the sum of
$100.00 U.S. per year. As additional consideration, Dr. Pray received shares of
Common Stock of the Company in exchange for the sublease. During the term of the
sublease, which extends from 1992 to 2002, the Company will have all of Dr.
Pray's right, title and interest in and to the mill tailings and any revenues
derived therefrom.
The mill tailings lie behind the Promontorio Dam, built in 1890, and were
washed in behind the dam by repeated rainfall across upstream Promontorio silver
cyanide mill tailings. This fill material reaches within one foot of the stone
structure top of the dam. In 1994, while under lease to Dr. Pray, a crew of six
men removed 700 lbs. of samples from the 1880-1915 tailing deposit and delivered
them to the Mineral Research Laboratory, owned by Dr. Pray since 1967. Tests
were conducted at the lab to establish the feasibility of upgrading the material
by gravity before chemical processing as previous efforts to extract the silver
contained in the Promontorio tailings by unrelated third parties had proven not
to be economically viable. It is the Company's opinion that the low recovery
rates using standard cyanide extraction have been the result of a lack of
understanding of the presence of manganese within the mineral structure. The
manganese effectively blocks the action of the cyanide. The Company believes
that the solution is to first separate the manganese and then use conventional
cyanide techniques to extract the silver materials. Due to lack of finances,
however, the Company has only performed laboratory tests to substantiate its
theories relative to the presence and actions of the manganese.
Although Dr. Pray has held the lease to the Promontorio since January 1992,
and has performed extensive laboratory testing and sampling of the Promontorio,
he has never attempted to fully explore or develop the property and extract any
minerals due to a lack of funding. The proceeds from this Offering will afford
the Company an opportunity to determine the economic potential of this property.
Access to the property is via an existing mining and logging 17 kilometer
road from the village at the base of the mountain to the dam. While this access
road is currently passable, some improvements will have to be made in order for
the Company to be able to transport the equipment and machinery necessary to
conduct its extraction operations. The Company has estimated the cost to improve
the road for the pilot plant to be approximately $30,000.00. The Company is
hopeful that some of these costs will be shared with the local logging
companies; however, there is no assurance that this will be the case and the
Company is, therefore, prepared to pay the entire amount. The Federal Government
in Mexico has offered to supervise the repairs. Upon completion of the repairs
to the access road, the Company intends to set up a pilot plant to run 24 hours
per day at the Monrovia laboratory facility owned and operated by Dr. Pray to
enable proper tank size determination, utilizing the 700 lbs. of samples
remaining at the lab. The Company intends to utilize portable power generation
equipment for its extraction operation at this site.
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The Company is also researching whether the extracted manganese may have
commercial value as a byproduct of the proposed process and intends to fully
explore such possibility as a means of generating additional revenues.
Allocation of Proceeds - Promontorio
In the event only the minimum proceeds are raised in this Offering,
exploration and development of the Promontorio will be abandoned until further
funds are generated by the Company, either by revenues from other properties, or
from additional financing.
In the event the maximum proceeds are received in this Offering, the
Company has allocated $125,000 to the exploration of the Promontorio, subject to
completion of the Phase 1 evaluation process. The Company estimates that
the cost for the evaluation process on this property will be approximately
$10,000 and should take approximately 30 days to complete. The balance of the
funds allocated will be expended at the discretion of the Company based upon the
results of the Phase 1 exploration process and the status of the Company's
financial commitments to other projects being explored and/or developed at the
time.
Government Regulations
Any mineral exploration program undertaken by the Company will be subject
to extensive federal, state and local laws, rules and regulations both in
existence now and future legislation. Such laws, rules and regulations could
cause additional expenses, capital expenditures, restrictions and/or delays in
the proposed exploration and/or the Company's properties.
Most of the Company's properties are under the jurisdiction of the Federal
Bureau of Land Management (the "BLM"). The BLM presently requires that a plan of
operation, which must include tailing disposal information and reclamation
policies for a property, be filed and approved prior to the commencement of any
mining or milling operations. In addition, in some instances, regulatory filings
and approvals must be obtained from other agencies such as the State Mining
Inspectors Office, the Federal Mining Inspectors Office, MSDHA and/or OSHA. The
Company's properties outside the U.S. are no less sensitive to environmental
compliance. The Company fully intends to comply with all laws, rules and
regulations specific to any country, state and/or municipality in which it will
conduct its mining and milling operations. Compliance with such regulations
increases the costs of mining operations.
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The Company will also be subject to the U.S. Occupational Safety and Health
Act and various California statutes dealing with working conditions at its mines
and mill sites. The Company intends to fully comply with all such environmental,
health and safety laws, rules, regulations and statutes.
At this time, no specific environmental plans have been disclosed in the
plans of operation filed and/or approved by the Company on any of its properties
and, therefore, no specific environmental concerns have been addressed herein.
Employees
The Company intends to use the services of subcontractors for all drilling,
exploration and site construction. The only direct employees of the Company will
be its officers and directors.
Management's Discussion and Analysis of Financial Condition and Results of
Operation
During the next 12 months of operation, the Company will concentrate on
the completion of the Phase 1 evaluation process on the Deep Gold, the Gold Spur
and Promontorio (See "MANAGEMENT OVERVIEW"). The Company will also review other
sites which it believes may have potential for Phase 1 evaluation. Upon receipt
of the minimum proceeds from this offering, the Company will have sufficient
capital to operate for the next 12 month period. The Company will not perform
any product research and development during such period. The Company anticipates
no purchase of any major equipment nor any significant changes in the number of
employees during such 12 month period.
MANAGEMENT
----------
Officers and Directors
Each director of the Company is elected to a term of one year and serves
until his/her successor is elected and qualified. Each officer of the Company is
elected by the Board of Directors to a term of one year and serves until his/her
successor is duly elected and qualified or until he/she is removed. The Board of
Directors has no nominating, auditing or compensation committees.
The officers and directors of the Company, and further biographical information
concerning them are as follows:
Name and Address Age Position
- ---------------- --- --------
Michael M. Chaffee 55 Chairman of the Board
1588 Sea Lancer Dr.
Lake Havasu City, Arizona
86403
Raymond Baptista 56 Executive V.P. and Chief
5405 Miracopa Drive Financial Officer and
Simi Valley, CA. 94671 Director
Eric A. Popkoff 43 Vice President Investor
1750 East 23rd Street Relations and Director
Brooklyn, NY 11229
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Background Information
Michael M. Chaffee - Mr. Chaffee has been the President and Chairman of the
Board of Directors of the Company since inception. From January 1989 to April 1,
1994, Mr. Chaffee was the President and Chief Executive Officer of Summa Metals
Corp., a Colorado corporation engaged in the extraction and processing of metals
and other elements from previously discarded natural mineral deposits. He
recently retired as President, Chief Executive Officer and Chairman of the Board
of Applied Biomedical Sciences, a public company engaged in the business of
developing proprietary products to improve wound care management and a variety
of drug delivery systems. Prior to forming Applied Biomedical Sciences, he held
senior positions as Executive Vice President and Chief Operating Officer of
several large corporations. Mr. Chaffee graduated from the Northrop Institute of
Technology in 1964 with a B.S. Degree in Electronic Engineering and completed
additional graduate work at the University of Southern California in Business
and Biomedical Engineering. He is devoting full time to the business of the
Company.
Raymond Baptista - Mr. Baptista has been the Chief Financial Officer and a
Director of the Company since inception. He will be responsible for all finance,
corporate strategies and business policies. From 1986 to 1994, Mr. Baptista was
the Senior Vice President and Chief Financial Officer for Applied Biomedical
Sciences, a public company engaged in the research and development of
collagen-based biomedical products. Applied Biomedical Sciences was founded by
Michael M. Chaffee, another officer, director and principal shareholder of the
Company. Mr. Baptista has over 25 years experience in the banking industry, both
nationally and internationally. He is a graduate of St. Stanislaus College,
Georgetown, Guyana and the Graduate School of Banking, Pacific Coast Banking
School, University of Washington, Seattle, Washington. He is devoting full time
to the business of the Company.
Eric A. Popkoff - From 1989 to 1994 Mr. Popkoff was a teacher of social studies
and accounting and business practices at various sites in the New York City
Public School system. He is currently an adjunct lecturer in economics at
Brooklyn College, City University of New York. Since 1994 he has been the
President and Chief Executive Officer of Undiscovered Equities Research Corp.,
an information services company located in Brooklyn, New York, which provides
research on request from securities brokers and broker dealers, and distributes
from time to time a written review of selected securities. Mr. Popkoff holds an
MBA in Management and an MBA in International Business from Baruch College,
CUNY.
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Executive Compensation
None of the officers and/or directors of the Company are party to any
standard arrangements or contracts regarding compensation for their services. No
officer and/or director has received any compensation for his services to the
Company since the Company's inception on March 8, 1994. From time to time, Mr.
Chaffee has been reimbursed for expenses advanced by him on behalf of the
Company. There are presently no plans to provide any of the officers and/or
directors of the Company with any pension plan, stock option, annuity, bonus,
insurance, profit-sharing or similar benefit plans, except for the option
granted to Eric A. Popkoff to purchase 900,000 shares at an option exercise
price of $.001 per share at any time within the two year period beginning with
the commencement of his employment.(See "PRINCIPAL SHAREHOLDERS") Each of the
officers and/or directors will, however, be reimbursed for any out-of-pocket
expenses incurred on behalf of the Company. Upon completion of the minimum
Offering the following salaries will be paid
to the officers and directors of the Company:
Name Capacities Served Annual Compensation
---- ----------------- -------------------
Michael M. Chaffee President and Chairman $ 80,000.00
of the Board
Raymond Baptista Chief Financial Officer $ 70,000.00
and Director
Eric A. Popkoff Vice-President-Corporate $ 62,000.00
Relations, Director
These salaries will not be retroactive and will only commence upon
completion of the minimum Offering.
There is a proposed two year employment contract between the Company and
Mr. Popkoff, effective upon the Closing of the minimum offering, which provides
for an annual salary of $62,000 the first year of the contract and $70,000 the
second year of the contract. Thereafter, Mr. Popkoff will serve at the will of
the Board. There are no proposed employment contracts between the Company and
Messrs. Chaffee & Baptista, who both serve at the will of the Board. There are
no proposed terminations of employment or change - in - control arrangements
between the Company and any of its officers and/or directors.
No Option/SAR Grants or long-term Incentive Plans-Awards have been granted
or awarded to any officers or directors of the Company and there are presently
no plans to implement any such benefits, except as provided in the employment
contract of Mr. Popkoff, which grants him, upon commencement of his employment
by the Company, the option to purchase up to 900,000 shares of the Company's
restricted common stock at a price of $.001 per share.
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Indemnification
Pursuant to the By-Laws of the corporation, the Company has agreed to
indemnify an officer or director who is made a party to any proceeding,
including a law suit, because of his/her position, if he/she acted in good faith
and in a manner he/she reasonably believed to be in the best interest of the
corporation and, in certain cases, may advance expenses incurred in defending
any such proceeding. To the extent that the officer or director is successful on
the merits in any such proceeding as to which such person is to be indemnified,
the Company must indemnify him/her against all expenses incurred, including
attorney's fees. With respect to a derivative action, indemnity may be made only
for expenses actually and reasonably incurred in defending the proceeding, and
if the officer or director is judged liable, only by a court order. The
indemnification is intended to be to the fullest extent permitted by Nevada law.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, may be permitted to officers, directors or persons
controlling the Company, pursuant to the foregoing provisions, the Company has
been informed that, in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in said Act and is
therefore unenforceable.
Office Facilities
The Company's principal offices are located at 28281 Crown Valley Pkwy, Ste
225 Laguna Niguel, California. on a rent-free basis. Upon completion of sale of
the minimum number of Units pursuant to this Offering, the Company intends to
remain on these premises, and will be charged approximately $735 per month for
rent pursuant to a month-to-month verbal lease.
The Company also maintains a small field office in Lake Havasu City,
Arizona, on a month-to-month verbal lease and pays $180.00 per month and
utilizes office space at the Mineral Research Laboratory in Monrovia California
on an "as needed" basis.
29
<PAGE>
PRINCIPAL SHAREHOLDERS
----------------------
The following table sets forth certain information regarding ownership of
the Company's Common Stock as of the date of this Memorandum, and as adjusted to
reflect the sale of the Shares offered hereby, by each officer and director, all
officers and directors as a group, and by all other shareholders who own 5% or
more of the Company's Common Stock.
No. Percent Ownership Percent Ownership
of Before Offering After Offering
Shares Minimum Maximum
------ ------- -------
Michael M. Chaffee 1,050,000 23% 22.4% 20.7%
Raymond C. Baptista 200,000 4.4 4.3 3.9
Anchor Holdings Corp.(1) 727,500 16 15.5 14.4
Bruce Cooper 500,000 11 10.7 9.9
All Officers and
Directors as a 1,250,000 27.4% 26.7 24.7
Group (2)(3)
_________________________
(1) Anchor Holdings Corp. ("Anchor") primary business is construction. The
sole shareholder, officer and director of Anchor is Loy E. Plaster, who has
sole voting and investment power for Anchor. Mr. Plaster has no relationship
to any officer or director of the Company.
(2) Does not include 900,000 shares which Eric A. Popkoff has an option to
purchase upon commencement of his employment.
(3) Assumes that all of the Units offered hereby are sold, of which there can be
no assurance, and that the present shareholders do not purchase any Units in
this Offering. In either of such events, their percentage ownership would
increase accordingly. (See "RISK FACTORS-CONTROL OF THE COMPANY", "DILUTION" and
"OFFERING.")
30
<PAGE>
Future Sales by Present Shareholders
The aggregate of 4,555,000 shares of Common Stock held by the present
shareholders are deemed "restricted securities, as that term is defined in Rule
144 of the Rules and Regulations of the SEC promulgated under the Act ("Rule
144"). Under Rule 144, such shares can be publicly sold, subject to volume
restrictions and certain restrictions on the manner of sale, commencing two
years after their acquisition. Sales of shares by "affiliates" are also subject
to volume restrictions and certain other restrictions pertaining to the manner
of sale, all pursuant to Rule 144. Notwithstanding the foregoing, shareholders
holding 4,300,000 shares (constituting 94.4% of the Company's issued and
outstanding stock) have executed Lock-up Agreements with the Underwriter and the
Company, agreeing not to sell or otherwise transfer any of their Shares for a
period of twelve (12) months from the effective date of the Offering.
The 130,000 (510,000) Shares offered hereby are not "restricted securities"
under Rule 144 and can be publicly sold without compliance with Rule 144,
assuming there is a market therefor, of which there can be no assurance.
DESCRIPTION OF SECURITIES
-------------------------
Common Stock
The following description of the Company's securities does not purport to
be complete and is subject in all respects to applicable Nevada law and to the
provision of the Company's Certificate of Incorporation and By-laws, the Warrant
Agreement among the Company, the Underwriter, and American Securities Transfer &
Trust, Inc., as warrant agent (the "Warrant Agent"), pursuant to which the
Warrants will be issued, and the Underwriting Agreement between the Company and
the Underwriter, copies of all of which have been filed with the Commission as
Exhibits to the Registration Statement of which this Prospectus is a part.
Units
The Company is offering a minimum of 130,000 and a maximum of 510,000 Units
of Common Stock, par value $.001, pursuant to this Prospectus, at a price of
$6.00 per Unit. No fractional Units may be purchased. Each Unit consists of one
Share of Common Stock (the "Common Stock" or "Shares") and two common stock
purchase warrants ("Warrants"), designated "A Warrants" and "B Warrants".
Common Stock
The authorized capital stock of the Company consists of 25,000,000 shares
of Common Stock, par value $.001 per share. The holders of Common Stock (i) have
equal ratable rights to dividends from funds legally available therefor, when,
as and if declared by the Board of Directors, of the Company; (ii) are entitled
to share ratably all of the assets of the Company available for distribution to
holders of Common Stock upon liquidation, dissolution 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 provisions or rights
applicable thereto; and (iv) are entitled to one non-cumulative vote per share
on all matters on which stockholders may vote. All shares of Common Stock now
outstanding are fully paid for and non-assessable and all shares of Common Stock
which are the subject of this Offering, when issued, will be fully paid for and
nonassessable.
The Board of Directors is authorized to issue additional Common Stock within
the limits authorized by the Company's Articles of Incorporation and Bylaws.
31
<PAGE>
The Warrants
Each of the A Warrants entitles the registered holder hereof to purchase
one share of the Common Stock at a price of $8.00, subject to adjustment in
certain circumstances at any time after the Warrants become separately
tradeable, until 12 months from the date of this Prospectus. Each of the B
Warrants entitles the registered holder thereof to purchase one share of the
Common Stock at a price of $7.00, subject to adjustment in certain
circumstances, at any time after the exercise of the A Warrant related to the
Units until 24 months from the date of this Prospectus. The Common Stock and the
Warrants included in the Units will not be separately transferable until 90 days
after the date of this Prospectus or such earlier date as the Company may
determine. The shares of Common Stock underlying the Warrants, when issued upon
the exercise thereof and payment of the purchase price, will be fully paid and
nonassessable.
The Warrants will be issued pursuant to a Warrant Agreement among the
Company, the Underwriter and the Warrant Agent, and will be evidenced by warrant
certificates in registered form. Upon notice to the Warrant holders, the Company
has the right to reduce the exercise price or extend the expiration date of the
Warrants. The exercise price and number of shares of Common Stock issuable upon
the exercise of the Warrants are subject to adjustment upon the occurrence of
certain events, including stock splits, combinations and reclassification. The
Company has reserved from its authorized but unissued shares a sufficient number
of shares of Common Stock for issuance upon the exercise of Warrants.
The Warrants may be exercised upon the surrender of the Warrant Certificate
on or prior to the expiration of the exercise period, with the form of election
to purchase included on the Warrant Certificate properly complete and executed,
together with payment of the exercise price to the Warrant Agent. No fractional
shares will be issued upon the exercise of the Warrants. The Warrants do not
confer upon the holders thereof any voting rights or any other rights as
shareholders of the Company. The exercise price of the Warrants is arbitrary and
there can be no assurance that the value of the Common Stock will ever rise to a
level where exercise of the Warrants would be of any economic benefit to the
Warrant holder.
In order for the holder to exercise the Warrants, there must be a current
registration statement on file with the Securities and Exchange Commission and
various state securities commissions to continue registration of the shares of
Common Stock underlying the Warrants. The Company intends to file an amendment
to this Registration Statement covering the Warrants at a time when the market
price of the Common Stock is higher than the exercise price of the Warrants. The
filing of an amendment to this Registration Statement could result in
substantial expense to the Company, and there can be no assurance that the
Company will be able to file an amendment to this Registration Statement. The
Company will make reasonable efforts and believes that is will be able to
qualify the shares of Common Stock underlying the Warrants for sale in those
states where the Units are offered. The Warrants may be deprived of any value if
a current prospectus covering the Shares issuable upon exercise thereof is not
kept effective, if the underlying Shares are not qualified in states in which
the Warrant holder resides, or if the holder is unable to sell the Warrants.
Warrant holders who move to states in which the Warrants are not qualified for
sale may not be able to exercise their Warrants.
32
<PAGE>
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 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. After this
Offering is completed, the present shareholders will own 97% (90%) of the
outstanding shares. (See "PRINCIPAL SHAREHOLDERS.")
Dividends
As of the date of this Prospectus, the Company has not paid any cash
dividends to shareholders nor does it anticipate payment of any such cash
dividends in the foreseeable future. The declaration of any future cash
dividends will be at the discretion of the Board of Directors and will depend
upon earnings, if any, capital requirements and the financial position of the
Company, general economic conditions, and other pertinent actors.
Reports to Shareholders
The Company will furnish annual reports to shareholders containing audited
financial statements of the Company, and will also furnish unaudited quarterly
financial statements.
Transfer Agent
The Company has appointed American Securities Transfer & Trust, Inc.,
Denver, Colorado, as the transfer agent for its Common Stock.
CERTAIN TRANSACTIONS
In April, 1994, the Company issued 1,050,000 shares of restricted Common
Stock to Michael M. Chaffee, an officer, director and principal shareholder of
the Company and 1,000,000 shares of restricted Common Stock to Dr. Ralph E.
Pray, who at that time was an officer, director and principal shareholder, in
exchange for assets (mining properties) owned by Messrs. Chaffee and Pray prior
to becoming officers, directors and principal shareholders of the Company. Since
no Phase 1 evaluation had been done, and accordingly, no value was assigned to
such property, the number of shares issued to Messrs. Chaffee and Pray were
arbitrarily determined by Messrs. Chaffee and Pray, the principal shareholders
of the Company. (See "BUSINESS OF THE COMPANY", "PRINCIPAL SHAREHOLDERS",
"MANAGEMENT" and "FINANCIAL STATEMENTS.")
In a private sale of securities in March, 1994, the Company issued 225,000
shares of restricted Common Stock to Amyn Dahya, an unrelated third party, as
additional consideration for a loan in the amount of $100,000.00, a portion of
which was used to acquire some of the current properties owned by the Company.
Mr. Dayha does not have registration rights with respect to any of the shares
purchased. The loan was due and payable on March 29, 1995 and accrues interest
at the rate of 12% per annum ($1,000 per month) until paid in full. The payment
date was subsequently extended and the note is now due on February 15, 1999. No
principal payments have been made on such note, and as of September 30, 1998
accrued interest amounts to $54,000 and will continue to accrue at the rate of
$1,000 per month. No proceeds of the offering will be applied toward repayment
of the note. (See "PRINCIPAL SHAREHOLDERS" and "FINANCIAL STATEMENTS.")
33
<PAGE>
In a private sale of securities in March, 1995, the Company issued
2,200,000 shares of restricted Common Stock to Anchor Holdings, Inc., an
unrelated third party, in exchange for $2,200.00 in cash. Anchor Holdings, Inc.
does not have registration rights with respect to any of the shares purchased.
(See "PRINCIPAL SHAREHOLDERS" and "FINANCIAL STATEMENTS.")
On March 7, 1995, the Company entered into a Loan Agreement with C.W. and
Neva B. Lewis ("Lewis"), unrelated third parties, wherein Lewis advanced
$20,000.00 to the Company. The proceeds of such loan were utilized for partial
payment of the contract deposit for the Big Mike Mine property. In consideration
for the loan, the Company will pay Lewis the sum of $50,000 from the proceeds of
this Offering. In addition, the Company sold 30,000 shares of its restricted
Common Stock to Lewis at par value for a total consideration of $30. Lewis does
not have registration rights with respect to any of the shares purchased.
Subsequent to December 31, 1997, $20,000 was repaid to Lewis, reducing the
balance due from the proceeds of the offering to $30,000. (See "USE OF
PROCEEDS.")
On March 10, 1995, the Company entered into a Purchase Agreement with Big
Mike Limited Partnership to acquire all right, title and interest in and to
certain unpatented mining claims in Pershing County, Nevada. The purchase price
for the property was $125,000.00, and 150,000 shares of the Company's common
stock upon Closing of the transaction. The purchase price was to be paid as
follows: $25,000 upon signing the contract; the balance of $100,000 and the
150,000 shares upon closing of the transaction. Because of the currently reduced
price of copper, the Company has elected not to complete the purchase, and has
forfeited the $25,000 down payment. The Company has no further liability
pursuant to the contract.
The Company anticipates using the services of Mineral Research Laboratory
for all of its primary geological sampling, testing and ore certification.
Mineral Research Laboratory is wholly owned by Dr. Ralph Pray, a former officer,
director and principal shareholder of the Company. Dr. Pray may be required to
hire additional personnel to work directly on the Company's projects and the
salaries of all such personnel would be reimbursed by the Company for the hours
devoted to the business of the Company. The Company estimates that the amount
expended to Mineral Research Laboratory could be between $2,000 and $3,000 per
month, depending on the work load and number of additional employees required.
Any such services obtained from the Mineral Research Laboratory and/or Dr. Pray
will be obtained at rates and on conditions competitive in the marketplace and
favorable to the Company. (See "MANAGEMENT", "BUSINESS OF THE COMPANY" and
"CONFLICTS OF INTEREST".)
34
<PAGE>
CONFLICTS OF INTEREST
---------------------
Certain conflicts of interest presently exist from the standpoint that one
of the former Officers of the Company is directly involved in and owns another
business which will be utilized by the Company and for which he will receive
compensation from the Company. Dr. Ralph E. Pray, a former officer, director and
principal shareholder of the Company, is an officer, director and principal
shareholder of Mineral Research Laboratory in Monrovia, California, a facility
which will act as the Company's primary geological sampling, testing and
certification center. (See "RISK FACTORS - CONFLICTS OF INTEREST", "CERTAIN
TRANSACTIONS", "MANAGEMENT", "USE OF PROCEEDS" and "PRINCIPAL SHAREHOLDERS.")
The foregoing arrangement with Dr. Pray was made by the Company and did not
result from arm's-length negotiations. Accordingly, this arrangement could be
deemed as a conflict of interest, not only from the standpoint that Dr. Pray
will be paid from proceeds of this Offering, but also to the extent that he will
be devoting his time and energy to other companies and projects which may
compete with the Company. (See "RISK FACTORS - CONFLICTS OF INTEREST", "CERTAIN
TRANSACTIONS", "MANAGEMENT", "USE OF PROCEEDS" and "PRINCIPAL SHAREHOLDERS.")
LITIGATION
----------
The Company is not a part to any pending litigation and, to the best of its
knowledge, none is contemplated or threatened.
ADDITIONAL INFORMATION
----------------------
The Company has filed with the Securities and Exchange Commission
("Commission"), 450 Fifth Street N.W., Washington, D.C. 20549, an SB-2
Registration Statement under the Securities Act of 1933, as amended, with
respect to the securities offered by this Prospectus. This Prospectus omits
certain information contained in the Registration Statement. For further
information, reference is made to the Registration Statement and the Exhibits
and Schedules filed therewith. Statements contained in this Prospectus as to the
contents of any document referred to are not necessarily complete, and where
such document is an Exhibit to the Registration Statement, each such statement
is deemed to be qualified and amplified in all respects by the provisions of the
Exhibit. Copies of the complete Registration Statement, including Exhibits, may
be examined at the Securities and Exchange Commission offices in Washington,
D.C. Copies of the Registration Statement may be obtained upon payment of the
usual fees prescribed by the Commission for reproduction and handling.
EXPERTS
-------
The audited financial statements of the Company as of December 31, 1994,
1995, 1996, and 1997, included in this Prospectus, have been examined by
Luxenberg & Associates, Certified Public Accountants, 22431 Antonio Parkway,
#B160-457, Rancho Santa Margarita, California 92688.
35
<PAGE>
LEGAL MATTERS
-------------
The law office of Steven L. Siskind, 645 Fifth Avenue, Suite 403, New York,
New York 10022, Telephone (212) 750-2002, has acted as legal counsel for the
Company regarding the validity of the securities offered hereby.
FINANCIAL STATEMENTS
--------------------
The Company's fiscal year ends December 31. The financial statements for
the Company for the period ended September 30, 1998 and the audited financial
statements for the periods ended December 31, 1997, 1996, 1995 and 1994 follow
immediately.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
--------------------------------------
Item 24. Indemnification of Directors and Officers.
The only statute, charter provision, bylaw, contract, or other arrangement
under which any controlling person, director or officer of the Registrant is
insured or indemnified in any manner against any liability which he may incur in
his capacity as such, is as follows:
(1) Article XII of the Articles of Incorporation of the Company, filed as
Exhibit 3.1 to the Registration Statement.
(2) Article XI of the By-Laws of the Company, filed as Exhibit 3.2 to the
Registration Statement.
(3) Nevada Revised Statutes, Chapter 78.
The general effect of the foregoing is to indemnify a control person,
officer or director from liability, thereby making the Company responsible for
any expenses or damages incurred by such control person, officer or director in
any action brought against them based on their conduct in such capacity,
provided they did not engage in fraud or criminal activity.
36
<PAGE>
Item 25. Other Expenses of Issuance and Distribution.
The estimated expenses of the offering (assuming all Shares are sold), all
of which are to be paid by the Registrant, are as follows:
SEC Registration Fee $ 3,250.00
National Association of
Securities Dealers, Inc.
Filing Fees 800.00
Printing Expenses 500.00
Accounting Fees and Expenses 5,000.00
Legal Fees and Expenses 27,000.00
Blue Sky Fees/Expenses 1,000.00
Transfer Agent Fees 500.00
Miscellaneous Expenses 1,950.00
----------
TOTAL $40,000.00
Item 26. Recent Sales of Unregistered Securities.
During the past three years, the Registrant has sold the following
securities which were not registered under the Securities Act of 1933, as
amended.
Name and Address Date Shares Consideration
- ---------------- ---- ------ -------------
Anchor Holdings, Inc. 3-24-95 2,200,000 raise capital
5277 Cameron Street #130
Las Vegas, NV 89118
C.W. & Neva B. Lewis 3-7-95 30,000 additional consideration
P.O. Box 1160 for $20,000 loan
Powell, Wyoming 82435
37
<PAGE>
Item 27. Exhibits.
The following Exhibits are filed as part of this Registration Statement,
pursuant to Item 601 of Regulation K. All Exhibits have been previously filed
unless otherwise noted.
Exhibit No. Title
- ----------- -----
1 Underwriting Agreement
1.1 Selected Dealers Agreement
1.2 Warrant Agreement
3 Articles of Incorporation
3.1 Bylaws
4.1 Subscription Agreement*
5 Opinion of Steven L. Siskind, Esq. regarding the legality of
the Securities being registered
10.1 Promissory Note payable to Amyn Dahya
10.2 Extension Agreement with Amyn Dahya
10.3 Agreement with Jose Echenique re: Promontorio Mine Tailings
10.4 Relinquishment of Gold Spur Mining Claim by Ralph E. Pray
10.5 Relinquishment of Deep Gold Mining Claim by Ralph E.Pray
and others
10.6 Deep Gold Mining Claim Location Notice by Michael M. Chaffee
and others
10.7 Gold Spur Lode Mining Claim Location Notice by Michael M. Chaffee
10.8 Gold Spur Mine Lease between M. Chaffee & Summa Metals Corp.
10.9 Deep Gold Mine Lease between M. Chaffee & Summa Metals Corp.
10.10 Loan Agreement with C.W. & Neva Lewis
10.11 Proceeds Escrow Agreement*
10.12 Employment Agreement with Eric Popkoff
10.13 Form of Shareholders Lock-up Agreement
23 Consent of Steven L. Siskind, Esq. (See Exhibit 5)
23.1 Consent of Luxenberg & Associates, CPA*
* Filed herewith
38
<PAGE>
Item 28. Undertakings. Insofar as indemnification for liabilities arising under
the Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the Registration Statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
change to such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
39
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form SB-2 and has duly caused this Amendment No. 6 to
the Registration Statement to be signed on its behalf by the undersigned
thereunto duly authorized in Laguna Niguel, California on the 14th day of
February, 1999.
SUMMA METALS CORP.
By: /s/ Michael M. Chaffee, President
-------------------------------------
Michael M. Chaffee, President
Pursuant to the requirements of the Securities At of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signatures Date
/s/ Michael M. Chaffee February 11, 1999
------------------------------------------
Michael M. Chaffee
President and Director
/s/ Kathy A. Folkers February 11, 1999
------------------------------------------
Kathy A. Folkers, Secretary
/s/ Raymond Baptista February 11, 1999
------------------------------------------
Raymond Baptista, Director,
Treasurer and Chief Financial Officer
/s/ Eric A. Popkoff February 11, 1999
------------------------------------------
Eric A. Popkoff, Vice-President
Corporate Relations, Director
<PAGE>
SUMMA METALS CORP.
(an Development Stage Company)
Balance Sheet
September 30, 1998
ASSETS
CURRENT ASSETS
Cash $ 5,548
Prepaid expenses 46,617
-----------
TOTAL CURRENT ASSETS 52,165
Leasehold deposit - Notes 2 and 4 5,000
Due from stockholders 62,550
Other assets 225
Syndication costs 101,171
TOTAL ASSETS $ 221,111
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note payables - Note 3 $ 450,500
Accounts payable 13,488
Accrued interest payable - Note 3 58,000
-----------
TOTAL LIABILITIES - all current 521,988
-----------
COMMITMENTS AND CONTINGENCIES - Note 4
STOCKHOLDERS' EQUITY
Common stock - 25,000,000 shares
authorized, par value $.001,
4,555,000 issued and outstanding - Note 2 4,555
Accumulated deficit (305,432)
----------
TOTAL STOCKHOLDERS' EQUITY (300,877)
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 221,111
==========
<PAGE>
SUMMA METALS CORP.
(an Development Stage Company)
Statement of Operations
<TABLE>
<CAPTION>
For The Nine For The Nine Period Mar. 8, Period Mar. 8,
Months ended Months ended 1994 (inception) 1994 (inception)
Sept. 30, 1998 Sept. 30, 1997 to Sept. 30, 1998 to Sept. 30, 1997
-------------- -------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Interest income $ 307 $ - $ 1,193 $ 887
-------- --------- --------- ---------
Expenses
On-site operating expenses - 3,890 67,521 67,521
General and administrative 79,071 7,053 183,105 102,469
Interest 11,000 9,000 56,000 48,000
-------- --------- --------- ---------
Total expenses 90,071 19,943 306,626 217,990
-------- --------- --------- ---------
Net loss $(89,764) $ (19,943) $(305,433) $(217,103)
======== ========= ========= =========
Basic earnings per share $ (0.020) $ (.004) $ (.067) $ (.048)
======== ========= ========= =========
Diluted earnings per share $ (0.020) $ (.004) $ (.067) $ (.048)
======== ========= ========= =========
</TABLE>
<PAGE>
SUMMA METALS CORP.
(an Development Stage Company)
Statement of Stockholders' Equity
For the Nine Months Ended September 30, 1998 and 1997
Common Stock
Par Value $.001
---------------------------- Accumulated
Shares Amount Deficit
--------- ------- -----------
Balance - December 31, 1996 4,555,000 $ 4,555 $(163,606)
Net loss (19,943)
--------- ------- ---------
Balance - September 30, 1997 4,555,000 $ 4,555 $(183,549)
========= ======= =========
Balance - December 31, 1997 4,555,000 $ 4,555 $(215,668)
Net loss (89,764)
--------- ------- ---------
Balance - September 30, 1998 4,555,000 $ 4,555 $(305,432)
========= ======= =========
<PAGE>
SUMMA METALS CORP.
(an Development Stage Company)
Statement of Cash Flows
<TABLE>
<CAPTION>
For The Nine For The Nine Period Mar. 8, Period Mar. 8,
Months ended Months ended 1994 (inception) 1994 (inception)
Sept. 30, 1998 Sept. 30, 1997 to Sept. 30, 1998 to Sept. 30, 1997
-------------- -------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Cash Flows From Operating Activities:
Net loss $ (89,764) $ (19,943) $ (305,432) $ (183,549)
Adjustments to reconcile net income to net
cash provided by operating activities:
Increase in prepaid expenses (46,617) - (46,617) -
Increase in accounts payable 8,734 655 13,488 8,200
Increase in interest payable 13,000 9,000 58,000 42,000
-------- -------- --------- ----------
Cash consumed by operating activities (114,647) (10,288) (280,561) (133,349)
----------- -------- -------- ----------
Cash Flows From Investing Activities:
Due from stockholders (60,500) - (62,550) -
Leasehold deposit - - (5,000) (30,000)
Other assets (225) - (225) -
-------- -------- -------- ----------
Cash consumed by investing activities (60,725) (67,775) (30,000)
------- -------- -------- ----------
Cash Flows From Financing Activities:
Syndication costs (61,818) (7,118) (101,171) (32,118)
Proceeds from issuance of common stock - - 4,555 4,555
Proceeds from notes payable 230,500 18,000 450,500 193,200
-------- -------- --------- ----------
Cash provided from financing activities 168,682 10,882 353,884 165,637
------- -------- --------- ----------
Increase (decrease) in cash and cash equivalents (6,690) 594 5,548 2,288
Cash balance - beginning 12,238 1,694 - -
-------- -------- -------- ----------
Cash balance - ending $ 5,548 $ 2,288 $ 5,548 $ 2,288
======== ======== ========= ==========
Cash paid for interest and income taxes are as follows:
Interest $ - $ - $ - $ -
======== ========= ========= ==========
Income taxes $ - $ - $ - $ -
======== ========= ========= ==========
</TABLE>
<PAGE>
SUMMA METALS CORP.
(an Development Stage Company)
Notes to Financial Statements
For the Nine Months Ended September 30, 1998
THE COMPANY
Summa Metals Corp. (the Company) was incorporated on March 8, 1994, in the
state of Nevada, for the purpose of drilling and exploration of precious metals
on land that it currently has rights to and future properties it intends to
obtain. The Company has been in the development and exploration stage since its
formation.
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES
The following is a summary of the accounting policies and practices of the
Company:
Accounting method - The Company utilizes the accrual method of accounting
for financial statement reporting and income tax filing purposes.
Accounting for investments - Investments are accounted for using the cost
method of accounting.
NOTE 2 - INVESTMENT IN LEASEHOLD
The investment in leasehold consists of subleased rights to mine four
separate parcels of real property. One of the leasehold investments
consists of the subleased rights to certain mill tailings, primarily of
gold and silver, located in Durango, Mexico. The second and third
investments are the subleased rights to explore and mine properties located
in Northern California. The fourth investment is the subleased rights to
mine a currently non-operating, unpatented load and placer mining claim
located in Pershing County, Nevada.
During April 1994, the Company acquired the first three investments from
two of its stockholders. The Company issued 2,050,000 shares of its common
stock in exchange for the investment. The investment has been recorded at
the cost basis of the stockholders in accordance with generally accepted
accounting principles. Since the costs incurred by the stockholders would
have been operating expenses if the Company had incurred them, the cost
basis for these rights is zero and has been recorded at zero on the
Company's balance sheet.
NOTE 3 - NOTES PAYABLE
The notes payable consist of notes to fourteen different individuals. The
first note, in the amount of $100,000, bears interest at an annual rate of
twelve percent (12%). The entire amount of principal and interest is due at
maturity of the note, February 15, 1999. As of September 30, 1998 and 1997,
$54,000 and $42,000, respectively, of interest has been accrued on the note
payable.
The second stockholder note is in the amount of $20,000. In connection with
the issuance of this note payable, the Company sold the maker 30,000 shares of
common stock at par, for a total sales price of $30. The terms of the note
require a lump sum repayment of $50,000 upon receipt of funds from the public
offering of the Company. As of September 30, 1998, this note has been reduced by
a payment of $20,000.
The third stockholder note is in the amount of $50,000. The terms of the
note include the accrual of interest at an annual rate of ten and one-half
percent (10.5%) with all principal and interest due on August 31, 1999.
The remaining stockholder notes, in the aggregate amount of $270,500, are
payable to eleven separate individuals. The notes bear interest at annual rates
ranging from ten (10%) to sixteen percent (16%) with all principal and interest
due upon maturity. All eleven of these notes mature in the fourth quarter of
1998 or the first three quarters of 1999.
NOTE 4 - COMMITMENTS AND CONTINGENCIES
The Company has entered into an agreement with an individual whereby the
Company offered the position of Vice President of Corporate and Investor
relations. The terms of the agreement call for the individual to begin his
employment upon the completion of the initial public offering minimum
capitalization. The term of the agreement is for two years, to begin when
employment commences. In connection with the commencement of employment,
the employee will be given the option to acquire 900,000 shares of Company
stock, at an issuance price of $.001 per share. The option will allow the
employee to purchase the stock at any time within the two year period
beginning with the commencement of employment. The difference between the
exercise price of the option and the market value of the shares shall be
reported as deferred compensation and amortized over the two year life of
the contract, beginning with the commencement of employment.
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANT
The Stockholders
Summa Metals Corp.
Laguna Niguel, California
I have audited the accompanying balance sheets of Summa Metals Corp. (a
development stage company) (the Company) as of December 31, 1997, 1996, and 1995
and the related statements of operations, changes in stockholders equity and
cash flows for the years ended December 31, 1997, 1996 and 1995 and the period
from March 8, 1994 (inception) to December 31, 1997. These financial statements
are the responsibility of the Company's management. My responsibility is to
express an opinion on these financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing
standards. Those standards require that I plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above presents fairly,
in all material respects, the financial position of Summa Metals Corp. as of
December 31, 1997, 1996, and 1995, and the results of its operations, changes in
stockholders equity and its cash flows for the years ended December 31, 1997,
1996, and 1995 and the period from March 8, 1994 (inception) to December 31,
1997, in conformity with generally accepted accounting principles.
The Company is in the development stage at December 31, 1997. As discussed
in Note 5 to the financial statements, successful completion of the Company's
development program and, ultimately, the attainment of profitable operations are
dependent on future events, including obtaining adequate financing to fulfill
its development activities and achieving a level of sales adequate to support
the Company's cost structure.
Luxenberg & Associates, CPA
June 6, 1998
Rancho Santa Margarita, California
<PAGE>
SUMMA METALS CORP.
(an Development Stage Company)
Balance Sheets
December 31,
<TABLE>
<CAPTION>
1995 1996 1997
----------- ---------- ------------
ASSETS
CURRENT ASSETS
<S> <C> <C> <C>
Cash $ 17 $ 1,694 $ 12,238
---------- ---------- ------------
TOTAL CURRENT ASSETS 17 1,694 12,238
Leasehold deposit - Notes 2 and 4 25,000 30,000 5,000
Due from stockholders 2,050 2,050 2,050
Syndication costs - 19,000 39,353
Investments in leasehold - Notes 2 and 3 - - -
---------- ---------- ------------
TOTAL ASSETS $ 27,067 $ 52,744 $ 58,641
========== ========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note payables - stockholders - Note 3 $ 122,500 $ 175,200 $ 220,000
Accounts payable 2,500 3,595 4,754
Accrued interest payable - Note 3 21,000 33,000 45,000
---------- ---------- ------------
TOTAL LIABILITIES - all current 146,000 211,795 269,754
---------- ---------- ------------
COMMITMENTS AND CONTINGENCIES - Note 4
STOCKHOLDERS' EQUITY
Common stock - 25,000,000 shares
authorized, par value $.001,
4,555,000 issued and outstanding - Note 2 4,555 4,555 4,555
Accumulated deficit (123,488) (163,606) (215,668)
---------- --------- ------------
TOTAL STOCKHOLDERS' EQUITY (118,933) (159,051) (211,113)
---------- --------- ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 27,067 $ 52,744 $ 58,641
========== ========= ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
SUMMA METALS CORP.
(an Development Stage Company)
Statements of Operations
<TABLE>
<CAPTION>
Period from Mar. 8, For The Year For The Year For the Year
1994 (inception) Ended Ended Ended
to Dec. 31, 1997 Dec. 31, 1995 Dec. 31, 1996 Dec. 31, 1997
------------------ ------------- -------------- -------------
<S> <C> <C> <C> <C>
Interest income $ 887 $ 99 $ - $ -
-------------- ----------- -------------- ------------
Expenses
On-site operating expenses 67,521 12,000 12,720 28,890
General and administrative 103,034 18,802 14,398 11,172
Interest 45,000 12,000 12,000 12,000
-------------- ----------- -------------- ------------
Total expenses 216,555 42,802 40,118 52,062
-------------- ----------- -------------- ------------
Net loss $ (215,668) $ (42,703) $ (40,118) $ (52,062)
============== =========== ============== ============
Basic earnings per share $ (0.064) $ (0.009) $ (0.009) $ (0.011)
============== =========== ============= ============
Diluted earnings per share $ (0.064) $ (0.009) $ (0.009) $ (0.011)
============== =========== ============= ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
SUMMA METALS CORP.
(an Development Stage Company)
Statements of Changes in Stockholders' Equity
For The Period March 8, 1994 (inception) through December 31, 1997
Common Stock
Par Value $.001
-------------------------- Accumulated
Shares Amount Deficit
--------- -------- -----------
Original issuance of common stock
(March 1994) 2,050,000 $ 2,050 $ -
Issuance of common stock
(April 1994 - issuance of note
payable) - Note 3 225,000 225 -
Issuance of common stock
(June 1994) 50,000 50 -
Net loss - - (80,785)
--------- -------- -----------
Balance - December 31, 1994 2,325,000 2,325 (80,785)
Issuance of common stock
(March 1995 - cash) 2,200,000 2,200 -
Issuance of common stock
(March 1995 - note payable)
Note 3 30,000 30 -
Net loss - - (42,703)
--------- ----------- -----------
Balance - December 31, 1995 4,555,000 4,555 (123,488)
Net loss - (40,118)
--------- ------------ ----------
Balance - December 31, 1996 4,555,000 4,555 (163,606)
Net loss (52,062)
--------- ------------ ----------
Balance - December 31, 1997 4,555,000 $ 4,555 $ (215,668)
========= ============ ==========
The accompanying notes are an integral part of these financial statements.
<PAGE>
SUMMA METALS CORP.
(an Development Stage Company)
Statements of Cash Flows
<TABLE>
<CAPTION>
Period from Mar. 8, For The Year For The Year For The Year
1994 (inception) Ended Ended Ended
to Dec. 31, 1997 Dec. 31, 1995 Dec. 31, 1996 Dec. 31, 1997
------------------- ------------- -------------- -------------
Cash Flows From Operating Activities:
<S> <C> <C> <C> <C>
Net loss $ (215,668) $ (42,703) $ (40,118) $ (52,062)
Adjustments to reconcile net income to net
cash provided by operating activities:
Increase in accounts payable 4,754 2,500 1,095 1,159
Increase in interest payable 45,000 12,000 12,000 12,000
---------- ----------- ------------ ------------
Cash consumed by operating activities (165,914) (28,203) (27,023) (38,903)
----------- ----------- ------------- ------------
Cash Flows From Investing Activities:
Leasehold deposit (5,000) (25,000) (5,000) 25,000
---------- ----------- ------------- ------------
Cash consumed by investing activities (5,000) (25,000) (5,000) 25,000
---------- ----------- ------------- ------------
Cash Flows From Financing Activities:
Proceeds from issuance of common stock 2,505 2,230 - -
Syndication costs (39,353) - (19,000) (20,353)
Proceeds from notes payable - stockholders 220,000 22,500 52,700 44,800
---------- ----------- ------------- ------------
Cash provided from financing activities 183,152 24,730 33,700 24,447
---------- ----------- ------------- ------------
Increase in cash and cash equivalents 12,238 (28,473) 1,677 10,544
Cash balance - beginning - 28,490 17 1,694
---------- ---------- ------------- ------------
Cash balance - ending $ 12,238 $ 17 $ 1,694 $ 12,238
========== =========== ============= ============
Cash paid for interest and income taxes are as follows:
Interest $ - $ - $ - $ -
========== =========== ============= ============
Income taxes $ - $ - $ - $ -
========== =========== ============= ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
SUMMA METALS CORP.
(an Development Stage Company)
Notes to Financial Statements
For The Years Ended December 31, 1995, 1996 and 1997
THE COMPANY
Summa Metals Corp. (the Company) was incorporated on March 8, 1994, in the
state of Nevada, for the purpose of drilling and exploration of precious metals
on land that it currently has rights to and future properties it intends to
obtain. The Company has been in the development and exploration stage since its
formation.
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES
The following is a summary of the accounting policies and practices of the
Company:
Accounting method - The Company utilizes the accrual method of accounting
for financial statement reporting and income tax filing purposes.
Development stage - The company is a development stage enterprise as is
defined by Statement of Financial Accounting Standards (SFAS) No. 7,
Accounting and Reporting by Development Stage Enterprises.
Accounting for investments - Investments are accounted for using the cost
method of accounting.
NOTE 2 - INVESTMENT IN LEASEHOLD
The investment in leasehold consists of subleased rights to mine four
separate parcels of real property. One of the leasehold investments
consists of the subleased rights to certain mill tailings, primarily of
gold and silver, located in Durango, Mexico. The second and third
investments are the subleased rights to explore and mine properties located
in Northern California. The fourth investment is the subleased rights to
mine a currently non-operating, unpatented load and placer mining claim
located in Pershing County, Nevada.
During April 1994, the Company acquired the first three investments from
two of its stockholders. The Company issued 2,050,000 shares of its common
stock in exchange for the investment. The investment has been recorded at
the cost basis of the stockholders in accordance with generally accepted
accounting principles. Since the costs incurred by the stockholders would
have been operating expenses if the Company had incurred them, the cost
basis for these rights is zero and has been recorded at zero on the
Company's balance sheet.
The fourth investment was purchased in March 1995 for total consideration
of $125,000 (cash of $25,000 plus a note payable of $100,000, see note 3" )
plus an agreement on behalf of the Company to issue 150,000 shares of
restricted stock upon the payment of the note payable. If the note payment
is not paid when due, the seller has the option to terminate the agreement
and keep the $25,000 down payment. The terms of the agreement require that
in the event of termination, the Company will not issue the 150,000 shares
of stock. As of September 1997, the Company notified the seller that it was
not going to complete the transaction and forfeited the $25,000 deposit.
NOTE 3 - NOTES PAYABLE - STOCKHOLDERS
The notes payable - stockholders consists eight notes to different
stockholders. The first note, in the amount of $100,000, bears interest
at an annual rate of twelve percent (12%). The entire amount of principal
and interest is due at maturity of the note, February 15, 1999. As of
December 31, 1997, $45,000 of interest has been accrued on the note
payable.
<PAGE>
The second stockholder note is in the amount of $20,000. In connection with
the issuance of this note payable, the Company sold the maker 30,000 shares
of common stock at par, for a total sales price of $30. The terms of
the note require a lump sum repayment of $50,000 upon receipt of funds
from the public offering of the Company. As of December 31, 1997, no
interest has been accrued on this note.
The third stockholder note is in the amount of $50,000. The terms of the
note include the accrual of interest at an annual rate of ten and one-half
percent (10.5%) with all principal and interest due on August 31, 1999.
The remaining stockholder notes, in the aggregate amount of $50,000, are
payable to five separate stockholders. The notes bear interest at annual
rates ranging from fourteen (14%) to sixteen percent (16%) with all
principal and interest due upon maturity. All five of these notes mature in
the second half of 1998.
NOTE 4 - COMMITMENTS AND CONTINGENCIES
The Company has entered into an agreement to acquire a leasehold interest
in a mining claim located in Pershing County, Nevada (See note 2). The
terms of the agreement require that the Company make a payment of $100,000
to complete the acquisition. As of September 30, 1995, the Company has made
a non-refundable deposit of $25,000 for the option to acquire the mine. In
September 1997, the Company notified the seller that it was not going to
complete the transaction.
The Company has entered into an agreement with an individual whereby the
Company offered the position of Vice President of Corporate and Investor
relations. The terms of the agreement call for the individual to begin his
employment upon the completion of the initial public offering minimum
capitalization. The term of the agreement is for two years, to begin when
employment commences. In connection with the commencement of employment,
the employee will be given the option to acquire 900,000 shares of Company
stock, at an issuance price of $.001 per share. The option will allow the
employee to purchase the stock at any time within the two year period
beginning with the commencement of employment. The difference between the
exercise price of the option and the market value of the shares shall be
reported as deferred compensation and amortized over the two year life of
the contract, beginning with the commencement of employment, as calculated
in accordance with SFAS No. 123, Accounting for Stock- Based Compensation.
No compensation calculation has been included in these financial statements
since the options have not yet been issued.
NOTE 5 - DEVELOPMENT STAGE
The Company is still in the development state of its evolution. As of
December 31, 1997, the Company does not have any revenue or other source of
income. Management recognizes the need to obtain additional sources of cash
to continue its development and operations. In this regard, Management has
obtained working capital loans from existing and new shareholders where
appropriate. Currently, Management is in the process of preparing an
initial public offering to obtain the necessary capital to continue its
development.
Exhibit 4.1
SUBSCRIPTION AGREEMENT
SUMMA METALS CORP.
28281 Crown Valley Parkway
Suite 225
Laguna Nigel, CA 92677-1461
Dear Sirs:
Concurrent with execution of this Agreement, the undersigned (the "Purchaser")
is purchasing ________________ Units of Common Stock of Summa Metals Corp. (the
"Company") at a price of $6.00 per Unit (the "Subscription Price")
Purchaser hereby confirms the subscription for and purchase of said number of
Units and hereby agrees to pay herewith the Subscription Price for such Units.
MAKE CHECK PAYABLE TO: Union Bank & Trust Company/Summa Metals Corp.
Escrow Account
Executed this day of , 1999 at
Street Address
City State Zip Code
Signature of Purchaser
Printed Name of Purchaser
Social Security Number/
Tax I.D.
Number of Shares Purchased
SUMMA METALS CORP.
BY:
Exhibit 10.11
PROCEEDS ESCROW AGREEMENT
This Proceeds Escrow Agreement (the "Agreement") is made and entered into this
day of May, 1998, by and between Summa Metals Corp., 28281 Crown Valley Parkway
Suite 225, Laguna Niguel, CA 92677, a Nevada corporation (the "Company/Issuer"),
American Securities Transfer & Trust, Inc., 1825 Lawrence St. Suite 444, Denver,
Colorado 80202, as escrow agent (the "Escrow Agent"), and Boe & Company, Inc.,
3668 So. Jasper St., Aurora, CO 80013, (the "Underwriter").
Premises
The Company proposes to offer for sale to the general public, through the
Underwriter of up to 510,000 Units on a "best efforts all or none,' basis as to
the first 130,000 Units, and a "best efforts only" basis as to the remaining
380,000 Units (the "Offering"), each Unit consisting of one (1) share of common
stock of the Company, par value $.001 per share, one (1) Class A Warrant to
purchase one share of common stock, and one (1) Class 3 Warrant to purchase one
share of common stock, pursuant to a Registration Statement on Form SB-2 (the
"Registration Statement") filed with the Securities and Exchange Commission.
Agreement
NOW, THEREFORE, the parties hereto agree as follows:
1. Commencing on the Effective Date of the Offering, and until termination
of this Agreement, all funds collected by the Underwriter from subscriptions for
the purchase of Units in the subject Offering shall be forwarded promptly to
Union Bank & Trust Company, 100 Broadway, Denver, Colorado 80209 (the
"Depository"), to be deposited in an escrow account established by the Escrow
Agent, but in any event no later than noon of the next business day following
receipt, and the Escrow Agent shall promptly deposit such funds with the Union
Bank & Trust Company, 100 Broadway, Denver, Colorado 80209 (the "Depository").
2. Collections. Simultaneously with delivery of such checks to the
Depository, the Underwriter shall deliver to the Escrow Agent a written account
of sale, which shall include the Investor's name and address, the number of
Units purchased, the amount paid therefor, social security number, taxpayer
identification number, and whether the consideration received was in the form of
a check, draft or money order ("Payment").
3. Any Payment received that is payable to a party other than Union Bank &
Trust Company/Summa Metals Corp. Escrow Account, and any Payment returned unpaid
to the Depository shall be returned to the Underwriter. In the event the Issuer
rejects an Investor after the Investor's Payment has been deposited into the
Escrow Account, Issuer shall certify in writing to the Escrow Agent the fact of
such rejection, the name of the Investor so rejected, and the amount of Payment
for Units made by such Investor, and shall direct Escrow Agent to return to such
Investor a check in the amount of such payment, without deduction, provided,
however, that if Payment by such Investor has been forwarded for collection but
<PAGE>
funds on which have not been collected, Escrow Agent shall have no duty to make
payment pursuant to this paragraph until receipt of such collected funds by
Escrow Agent. In the event Issuer rejects an Investor before the Investor's
Payment has been deposited in the Escrow Account, Issuer shall direct Escrow
Agent to return promptly the Investor's Payment, without interest, directly to
Investor.
4. Interest. Escrow Agent shall deliver to Issuer in a single, lump sum
payment all interest earned on funds deposited in the Escrow Account. No
interest shall be earned by or payable to Investors.
5. Investments. Collected funds deposited into the Escrow Account shall be
invested only in investments permitted under rule 15c2-4 of the Securities
Exchange Act of 1935, as amended.
6. Concurrently with the transmitting funds to the Depository, the
Underwriter shall also deliver to the Escrow Agent a schedule setting forth the
name and address of each subscriber whose funds are included in such
transmittal, the number of Units subscribed for, and the dollar amount paid. All
funds so deposited shall remain the property of the subscriber until the minimum
dollar threshold of $780,000 is met pursuant to the Registration Statement.
Until the minimum threshold is reached, the subscribers' funds held by the
Depository shall not be subject to any lien or charges by the Escrow Agent, or
judgments or creditors, claims against the Company.
7. If at any time prior to the expiration of the minimum offering period,
as specified in Paragraph 8, $780,000 has been deposited pursuant to this
Agreement, the Escrow Agent shall confirm the receipt of such funds to the
Company and Underwriter, and the Escrow Agent shall promptly transmit the
balance to the Company (such event is hereafter referred to as the "Closing") by
wire transfer and deliver all documents including the Shares as required.
Thereafter, the Depository shall continue to accept deposits from the
Underwriter and transmit, upon written request of the Company the balance to the
Company until the Offering is terminated. The Company shall notify the Escrow
Agent in writing of the completion of the Offering and shall schedule a final
closing for the final disbursement and settlement of the balance of funds in the
offering.
8. If the Underwriter has not deposited a minimum of $780,000 with the
Escrow Agent on or before 1999, but in any event no later than 180 days from the
Effective Date of the Offering, the Escrow Agent shall so notify the Company and
shall promptly transmit to those Investors who subscribed for the purchase of
Units from the Company, the amount of money each such Investor so paid without
interest. The Escrow Agent shall furnish to the Company verification of refunds
to all subscribers.
9. If at any time prior to the termination of this escrow, the Escrow Agent
is advised by the Securities and Exchange Commission, or any state securities
division, that a stop order has been issued with respect to the Registration
Statement, the Escrow Agent shall thereon return all funds with interest to the
respective subscribers.
10. It is understood and agreed that the duties of the Escrow Agent are
entirely ministerial, being limited to holding and disbursing monies deposited
by the Underwriter with the Depository, in accordance with this Agreement.
2
<PAGE>
11. The Escrow Agent is not responsible or liable in any manner whatsoever
for the sufficiency, correctness, genuineness, or validity of any instrument
deposited with it, or with respect to the form or execution of the same, or the
identity, authority, or rights of any person executing or depositing the same.
12. The Escrow Agent shall not be bound by notice of any default by any
person or to take any action with respect to such default involving any expense
or liability, unless notice in writing is given to any officer of the Escrow
Agent of such default by the Company or the Underwriter, and unless the Escrow
Agent is indemnified in manner satisfactory to it against any expense or
liability arising therefrom.
13. The Escrow Agent shall not be liable for acting on any notice, request,
waiver, consent, receipt, or other paper or document believed by it to be
genuine, and to have been signed by the proper party or parties.
14. The Escrow Agent shall not be liable for any error of judgment or for
any act done or step taken or omitted by it in good faith, or for any mistake of
fact or law, or for having anything which it may do or refrain from doing in
connection herewith, except its own willful misconduct.
15. The Escrow Agent may consult with legal counsel in the event of any
dispute or question as to the consideration of the foregoing instructions or its
duties hereunder and it shall incur no liability and shall be fully protected in
acting in accordance with the opinion and instructions of such counsel.
16. In the event of any disagreement between the undersigned, or any of
them, the person or persons named in the foregoing instructions, and/or any
other person, resulting in adverse claims and; or demands being made in
connection with or for any papers, money or property involved herein or affected
hereby, the Escrow Agent shall be entitled at its option to refuse to comply
with any such claim or demand so long as such disagreement shall continue and,
in so refusing, the Escrow Agent shall not be or become liable to the
undersigned or any of them or to any person named in the foregoing instructions
for the failure or refusal to comply with such conflicting or adverse demands,
and the Escrow Agent shall be entitled to continue to so refrain and refuse to
so act until:
(a) The rights of adverse claimants have been finally adjudicated in a
court assuming and having jurisdiction over the parties and the money,
papers and property involved herein or affected hereby; and/or
(b) All differences shall have been adjusted by agreement and the Escrow
Agent shall have been notified thereof in writing signed by all of the
persons interested.
17. The fee of the Escrow Agent is $5,000, payable as follows: $2,500 upon
execution of this Agreement and $2,500 upon the Closing. In addition, the Escrow
Agent shall be paid $5,000 on account of its expenses for acting as Escrow
Agent. Escrow Agent shall account to the Company for such expenses and refund
any remaining balance. The Escrow Agent shall be responsible for fees of the
Depository. The fee agreed upon for services rendered hereunder
3
<PAGE>
is intended as full compensation for the Escrow Agent's services as contemplated
by this Agreement, however, in the event that the conditions of this Agreement
are not fulfilled, or the Escrow Agent renders any material service not
contemplated by this Agreement, or there is any assignment of interest in the
subject matter of this Agreement, or any material modification thereof, or if
any material controversy arises hereunder, of the Escrow Agent is made a party
to or justifiably intervenes in any litigation pertaining to this Agreement, or
the subject matter hereof, the Escrow Agent shall be fully reimbursed for all
such extraordinary expenses, including reasonable attorney's fees, and all
extraordinary expenses shall be paid by the Company.
18. Resignation. The Escrow Agent may resign at any time and be discharged
from its duties as Escrow Agent hereunder by giving the other parties hereto at
least fifteen (15) days notice hereof. As soon as practicable after the
resignation, the Escrow Agent shall turn over to a successor escrow agent all
monies and property held hereunder (less such amount as Escrow Agent is entitled
to retain) upon presentation to Escrow Agent of the document appointing the new
escrow agent and its acceptance of such appointment. If no successor escrow
agent is appointed within a thirty (30) day period following such notice of
resignation, Escrow Agent shall deposit the monies and property with the
Superior Court of the State of Colorado in and for the County of Denver, or the
United States District Court for the Colorado District, as it deems appropriate.
19. Representations and Warranties. Issuer makes the following
representations and warranties to Escrow Agent:
(a) Issuer is a corporation duly formed and validly subsisting under the
laws of the State of Nevada, and has full power and authority to execute
and deliver this Escrow Agreement and to perform its obligations hereunder.
(b) This Escrow Agreement has been duly approved by all necessary corporate
action of the Issuer, including any necessary shareholder approval, has
been executed by duly authorized officers of the Issuer, and constitutes a
valid and binding agreement of the Issuer, enforceable in accordance with
its terms.
(c) The execution, delivery, and performance by the Issuer of this Escrow
Agreement will not violate, conflict with, or cause a default under the
articles of incorporation or By-laws of the Issuer, any applicable law or
regulation, any court order or administrative ruling or decree to which
issuer is a party or any of its property is subject, or any agreement,
contract, indenture, or other binding arrangement to which the Issuer is a
party or any of its property is subject.
(d) No party other than the parties hereto and the prospective Subscribers
have, or shall have, any lien, claim or security interest in the Escrow
Funds or any part thereof. No financing statement under the Uniform
Commercial Code is on file in any jurisdiction claiming a security interest
in or describing (whether specifically or generally) the Escrow Funds or
any part thereof.
4
<PAGE>
(e) Issuer hereby acknowledges that the status of Escrow Agent is that of
agent only for the limited purposes set forth herein, and hereby represents
and covenants that no representation or implication shall be made that the
Escrow Agent has investigated the desirability of advisability of
investment in the Shares or has approved, endorsed or passed upon the
merits of the investment therein and that the name of the Escrow Agent has
not and shall not be used in any manner in connection with the offer or
sale of the Shares other than to state that the Escrow Agent has agreed to
serve as escrow agent for the limited purposes set forth herein.
(f) All of the representations and warranties of the Issuer contained
herein are true and complete as of the date hereof and will be true and
complete at the time of any deposit to or disbursement form the Escrow
Funds.
20. Arbitration. Except as expressly provided herein, the parties agree
that any dispute which arises under this Agreement that cannot be resolved
through good faith discussions, shall be settled by arbitration to be held in
the City of Denver, Colorado using the Standard Commercial Arbitration Rules of
the American Arbitration Association.
21. Notice. All notices and other communications hereunder shall be in
writing and shall be deemed to have been validly served, given or delivered five
(50 days after deposit in the United States mail, by certified mail with return
receipt requested and postage prepaid, when delivered personally, one (1) day
after delivery to any overnight courier, or when transmitted by facsimile
transmissions facilities, and addressed to the party to be notified as follows:
If to Issuer: Summa Metals Corp.
28281 Crown Valley Parkway Suite 225
Laguna Niguel, CA 92677
With a copy to: Steven L. Siskind
645 Fifth Avenue, Suite 403
New York, New York 10022
If to the Escrow Agent: American Securities Transfer & Trust, inc.
1825 Lawrence Street
Suite 444
Denver, Colorado 80202-1817
If to the Underwriter: Boe & Company
3668 So. Jasper Street
Aurora, Colorado 80013
or to such other address as each party may designate for itself by like notice.
22. Amendments or Waiver. This Escrow Agreement may be changed, waived,
discharged or terminated only by a writing signed by the parties hereto. No
delay or omission by any party in exercising any right with respect thereto
5
<PAGE>
shall operate as a waiver. A waiver on any one occasion shall not be construed
as a bar to, or waiver of, any right or remedy on any future occasion.
23. Severability. To the extent any provision of this Escrow Agreement is
prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Escrow Agreement.
24. Governing Law. This Escrow Agreement shall be construed and interpreted
in accordance with the internal laws of the State of Colorado without giving
effect to the principles or rules governing conflict of laws.
25. Entire Agreement. This Escrow Agreement constitutes the entire
agreement between the parties relating to the acceptance, collection, holding,
investment and disbursement of the Escrow Funds and sets forth in their entirety
the obligations and duties of the Escrow Agent and Depository with respect to
the Escrow Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective duly authorized officers, as of the date first
above written.
SUMMA METALS CORPORATION
By: /s/ Raymond Baptista
------------------------------------------
Raymond Baptista, Executive Vice-President
AMERICAN SECURITIES TRANSFER & TRUST, INC.
By: /s/ Greg D. Tubbs
------------------------------------------
Greg D. Tubbs
Vice President
BOE & COMPANY, INC.
By: /s/ Jeffrey Boe, President
------------------------------------------
Jeffrey Boe, President
6
Exhibit 23.1
(LOGO) Luxenberg & Associates, CPA
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANT
----------------------------------------
I consent to the use in this Registration Statement of my report, dated June 6,
1998, on the financial statements of Summa Metals Corporation, as of December
31, 1997, 1996, and 1995, included herein and to the reference made to me under
the caption "Experts" in the prospectus.
/s/ Luxenberg & Associates, CPA
-----------------------------
Luxenberg & Associates, CPA
February 9, 1999
Rancho Santa Margarita, California
- --------------------------------------------------------------------------------
22431 Antonio Parkway, #BI60-457, Rancho Santa Margarita, California 92688
Tel: (714) 788-0402 Fax: (714) 788-0006
