As filed with the Securities and Exchange Commission on January , 1998
SEC Registration No.
SECURITIES AND EXCHANGE COMMISSION
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
SUMMA METALS CORP.
------------------
(Exact Name of Registrant as Specified in its Charter)
Nevada 1041 88-0315984
- ---------------------------- ------------------------- ------------
(State or other Jurisdiction Primary Standard IRS Employer
of incorporation) Industrial Classification I.D. No.
28281 Crown Valley Parkway, Ste 225, Laguna Niguel, Ca, 92677-1461
(714) 348-9749
- --------------------------------------------------------------------------------
(Address and Telephone Number of Registrant's Principal Executive Offices and
Principal Place Of Business)
Michael M. Chaffee
28281 Crown Valley Parkway, Ste 225, Laguna Niguel, Ca, 92677-1461
(714) 348-9749
- --------------------------------------------------------------------------------
(Name, Address and Telephone Number of Agent for Service)
Copies to:
Steven L. Siskind, Esq.
645 Fifth Avenue, Suite 403
New York, New York 10022
(212) 750-2002
- --------------------------------------------------------------------------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
CALCULATION OF REGISTRATION FEE
=====================================================================================================
Title of Amount of Proposed Proposed Aggregate Amount of
each Class Securities Maximum Maximum Underwrit- Registration
of to be Offering Aggregate ers Fee
Securities Registered Price Per Offering Commission
to be Unit (1) Price (1) (2)
Registered
- -----------------------------------------------------------------------------------------------------
Common $927.27
Stock
- -----------------------------------------------------------------------------------------------------
Minimum 130,000 $6.00 $ 780,000 $ 78,000
- -----------------------------------------------------------------------------------------------------
Maximum 510,000 $6.00 $3,060,000 $306,000
=====================================================================================================
(1) Estimated solely for the purpose of calculating the registration fee
Pursuant to Rule 457.
(2) The Company has entered into a "best efforts" Underwriting Agreement to sell
the Units offered hereby and is, therefore, assuming net proceeds after a
commission would be paid. (See "Underwriting.") This amount does not include a
non-accountable expense allowance in an amount equal to 3% and Warrants equal to
10% of the shares sold by the underwriter in the public offering.
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.
i
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
2. 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
ii
18. Description of Property Business of the Company
19. Certain Relationships and Certain Transactions
Related Transactions
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
iii
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 January , 1998.
iv
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 Steven L.
Siskind, counsel for the Company at First National Bank of Long Island, 253 New
York Avenue, Huntington, New York 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 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.
In addition, Messrs. Michael M. Chaffee, Raymond Baptista, and Eric
Popkoff, the officers and directors of the Company, will also act as sales
agents for the Company, but will receive no commission from their sale of any
Units offered hereby. Messrs. Chaffee, Baptista, and Popkoff, will not register
as broker-dealers pursuant to Section 15 of the Securities Exchange Act of 1934,
as amended, in reliance upon Rule 3a4-1, which sets forth those conditions under
which a person associated with an Issuer may participate in the Offering of the
Issuer's securities and not be deemed to be a broker-dealer:
(a) None of such persons are subject to a statutory disqualification, as
that term is defined in Section 3(a)(39) of the Act, at the time of his
participation; and,
(b) None of such persons are compensated in connection with his or her
participation by the payment of commissions or other remuneration based
either directly or indirectly on transactions in securities; and
v
(c) None of such persons are, at the time of his participation, an
associated person of a broker-dealer; and
(d) All of such persons meet the conditions of Paragraph (a)(4)(ii) of Rule
3a4-1 of the Exchange Act, in that they (A) primarily perform, or are
intended primarily to perform at the end of the Offering, substantial
duties for or on behalf of the Issuer otherwise than in connection with
transactions in securities; and (B) are not a broker or dealer, or an
associated person of a broker or dealer, within the preceding twelve (12)
months; and (C) do not participate in selling and offering of securities
for any Issuer more than once every twelve (12) months other than in
reliance on Paragraphs (a)(4)(i) or (a)(4)(iii).
3. Before deduction for filing, printing and miscellaneous expenses
relating to this Offering, estimated at $5,000.00; legal and accounting fees,
estimated at $35,000.00; 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 $131,800.00, 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 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 MAY, IN ITS DISCRETION, 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.
vi
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.
vii
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 3
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 9
Government Regulations 9
MANAGEMENT OVERVIEW 9
USE OF PROCEEDS 10
DILUTION 12
CAPITALIZATION 14
SUMMARY FINANCIAL INFORMATION 14
OFFERING 14
Engagement of the Services of an Underwriter:
Shares to be Sold by Officers and Directors 14
Offering Period and Expiration Date 16
Procedures for Subscribing 16
Determination of Offering Price 16
Escrow 16
Right to Reject 17
viii
TABLE OF CONTENTS, Continued
----------------------------
PAGE NO.
UNDERWRITING 17
Proposed Underwriting Agreement 17
Proposed Underwriter Compensation 17
BUSINESS OF THE COMPANY 18
General 18
Environmental Regulations and Cyclical Metal Prices 18
The Exploration Stage 19
Description of Properties 20
Government Regulations 25
Employees 26
Management's Discussion and Analysis of Financial
Condition and Results of Operations 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 30
Common Stock 30
Units 31
Non-Cumulative Voting 32
Dividends 32
Reports to Shareholders 33
Transfer Agent 33
CERTAIN TRANSACTIONS 33
CONFLICTS OF INTEREST 34
LITIGATION 34
ADDITIONAL INFORMATION 34
EXPERTS 35
LEGAL MATTERS 35
FINANCIAL STATEMENTS F-1
ix
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
current drilling and 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.")
1
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. While the Company believes it
will be able to acquire the funds necessary to develop the properties through
this Offering, there is no assurance that it will be successful in raising the
funds or, if raised, that the properties will be developed and/or 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 forced to seek additional funds for exploration and development 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 the
properties held by the Company. Although Management believes there is a
sufficient basis to engage in exploration, there is absolutely no assurance that
such exploration will result in the discovery of known ore reserves. The Company
does not claim that known ore reserves exist on any of its properties. Further,
there can be no assurance that, in the event the Company is able to prove such
reserves 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 resource. 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
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".)
2
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 and development program 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".)
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 sufficientrevenues 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.")
3
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 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" and
"CERTAIN TRANSACTIONS".)
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.")
4
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 1,260,000 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 two years 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,
5
assuming there is such a market, of which there can be no assurance.
Furthermore, persons holding restricted securities for three 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. (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
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 iliquid and without a
market value. (See "OFFERING.")
7
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.")
8
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 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 not 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 properties are currently in the exploration stage and,
therefore, the Company has yet to determine the presence of any economically
viable resources.
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
assuming, of course, that viable resources 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 a viable resource is 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
9
the results of the exploration process at the Deep Gold Mine, the Company may,
at that time, postpone the exploration and development of its other properties
to insure sufficient 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 successful
completion of this Offering; however, not having completed the Phase I property
evaluations on any of its properties, 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 a viable resource will be located on
each property, 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 each
property until the Phase I property evaluations have been completed.
Minimum Maximum
Description Subscription Subscription
- --------------------------- ------------ ------------
Total Proceeds $780,000 $3,060,000
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
Exploration and Development $ 50,000 $ 360,000
Administrative and Salaries 114,700 250,000
Subcontractors:
Deep Gold 10,000 15,000
Gold Spur 10,000 50,000
Promontorio 35,000
Equipment (4):
Deep Gold 120,000 120,000
Gold Spur 430,000
Promontorio 250,000
Indirect Expenses:
Insurance 14,000 28,000
Bonding 10,000 20,000
Repay Loans (5) 90,000 90,000
Working Capital 219,900 974,000
- --------------- -------- ---------
Total Net Proceeds $638,600 $2,622,200
10
(1) Assumes that, if the services of an underwriter are engaged, an
underwriters' commission of 10% will be paid on all Shares sold. No
underwriters' commissions will be paid for Shares sold by management of the
Company (See "UNDERWRITING" and "OFFERING.")
(2) Assumes that a non-accountable expense allowance may be paid to the
underwriter equal to 3% of the Units sold.
(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) Similar equipment will be required to expand the exploratory stages of the
Deep Gold, Promontorio and the Gold Spur. This equipment will consist mainly of
material handling and crushing machines, pumps, tanks and piping for use in a
leach process, portable power generators, and material separation devices. It is
the intent of the Company to use second-hand equipment for the largest segment
of the work, however, because of the exploratory nature of each of the projects,
the exact equipment specifications have not yet been determined. Management has
been able to generally identify the size, type and cost of the equipment which
will be needed and is confident that standard equipment currently available in
the Western U.S. will adequately meet the needs of the individual project
requirements. There can be no absolute assurance that this will be the case and,
in the event said equipment is not easily located, it could have a negative
impact on both the Company's ability to begin materials processing and the use
of the proceeds of this Offering. (See "MANAGEMENT OVERVIEW" and "BUSINESS OF
THE COMPANY-The Exploration Stage".)
(5) 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 and issue them 30,000
shares of restricted Common Stock of the Company. The $20,000 loan was used as
partial payment for acquisition of the Big Mike property. (See "CERTAIN
TRANSACTIONS.")
On April 8, 1994, the Company entered into a promissory note in the amount
$100,000 with Amyn Dahya, an officer, director and principal shareholder of
Casmyn Corp. The Note was due and payable on March 29, 1995, but was extended by
the parties to September 30, 1998. It was also agreed between the parties that
no portion of the Note would be repaid from the proceeds of this Offering, but
rather, the Note will be repaid from revenues generated by the Company from its
mining operations. The $100,000 loan was used for operating expenses and
salaries. (See "CERTAIN TRANSACTIONS", "BUSINESS OF THE COMPANY" and
"MANAGEMENT".)
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
11
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 an amended Prospectus
reflecting 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.
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 October 31, 1997, the net tangible book value of the shares of the
Company (total assets, excluding intangible assets, less total liabilities,
excluding contingent liabilities) was ($180,642) or ($.04) 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 $599,358, based upon a minimum subscription (or $2,879,358, based
upon a maximum subscription), or approximately $.13 per Share, based upon a
minimum subscription (or $.57 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 $.17
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 $5.83 per Share, based upon a minimum
subscription (or $5.43 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.
12
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.
PRESENT SHAREHOLDERS
--------------------
Minimum Subscription Maximum Subscription
-------------------- --------------------
Price Per Share $ .001 $ .001
Net Tangible Book
Value per Share $ (.04) $ (.04)
before Offering
Net Tangible Book
value per Share $ .13 $ .57
after Offering
Increase to present
Shareholders in
net tangible book
value per share due
to Offering $ .17 $ .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% 10%
PUBLIC INVESTORS
----------------
Minimum Subscription Maximum Subscription
-------------------- --------------------
Price per Share $ 6.00 $ 6.00
Dilution per Share $ 5.87 $ 5.43
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%
13
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.
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.")
CAPITALIZATION
--------------
The following table sets forth the capitalization of the Company as of
October 31, 1997, 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) (Maximum)
Common Stock:
25,000,000 Shares
authorized, par value
$.001, issued and
outstanding 4,555,000 4,685,000 5,065,000
Shareholders' Equity: ($ 180,642) $ 599,358 $2,879,358
SUMMARY FINANCIAL INFORMATION
BALANCE SHEET DATA: October 31, 1997
Current Assets.......................................$ 30
Current Liabilities..................................$ 239,795
Total Assets.........................................$ 59,153
Shareholders' Equity.................................$(180,642)
(See "FINANCIAL STATEMENTS)
OFFERING
--------
Engagement of the Services of an Underwriter: Shares to be sold by Officers and
- --------------------------------------------------------------------------------
Directors:
- ----------
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
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. In addition, the Company also intends to sell the Units
offered hereunder through its officers and directors, Messrs. Michael M.
Chaffee, Raymond C. Baptista and Eric Popkoff who will receive no commission
from their sale of any Units offered hereby. It is assumed that a full 10%
underwriters' commission may be paid on the maximum of 510,000 Units. (See
"UNDERWRITING.")
Messrs. Chaffee, Baptista and Popkoff will not register as broker-dealers
pursuant to Section 15 of the Securities Exchange Act of 1934, as amended, in
reliance upon Rule 3a4-1, which sets forth those conditions under which a person
associated with an Issuer may participate in the Offering of the Issuer's
securities and not be deemed to be a broker-dealer:
1. None of such persons are subject to a statutory disqualification, as that
term is defined in Section 3(a)(39) of the Act, at the time of his
participation; and,
2. None of such persons are compensated in connection with his or her
participation by the payment of commissions or other remuneration based either
directly or indirectly on transactions in securities; and
3. None of such persons are, at the time of his participation, an associated
person of a broker-dealer; and
4. All of such persons meet the conditions of Paragraph (a)(4)(ii) of Rule
3a4-1 of the Exchange Act, in that they (A) primarily perform, or are intended
primarily to perform at the end of the Offering, substantial duties for or on
behalf of the Issuer otherwise than in connection with transactions in
securities; and (B) are not a broker or dealer, or an associated person of a
broker or dealer, within the preceding twelve (12) months; and (C) do not
participate in selling and offering of securities for any Issuer more than once
every twelve (12) months other than in reliance on Paragraphs (a)(4)(i) or
(a)(4)(iii).
The officers and directors intend to advertise and hold investment meetings
in various states where the Offering will be registered. The officers and
directors will distribute the Prospectus to prospective investors at the
meetings and to friends and relatives interested in the Offering.
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,
15
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. (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 Company,
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.
Escrow
Proceeds from the subscription for Units will be transmitted by noon of the
next business day after receipt by the Company to be deposited in a special
account at First National Bank of Long Island, 253 New York Avenue, Huntington,
New York, 11743 until a minimum of 130,000 Units have been sold, at which time
the proceeds will be paid to the Company. 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 willbe promptly returned
to the subscribers without interest or deduction.
All checks for subscriptions should be made payable to Steven L. Siskind,
Attorney Escrow Account for the benefit of Summa Metals Corp.
16
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 Steven
L. Siskind, Attorney Escrow Account for the benefit of Summa Metals Corp., and
will be deposited in an escrow account maintained at First National Bank of Long
Island, by Steven L. Siskind, counsel for the Company as Escrow Agent (the
"Escrow Agent"), pursuant to an Escrow Agreement among the Company, the
Underwriter and the Escrow Agent.
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 in the amount of 10% of the number of Units sold to the
Public. (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 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 28(c) to the
Registration Statement of which this Prospectus is a part.
17
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 a mineral processing and mining 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 development of the properties. There is no assurance, however, that the
Company will be successful in raising the capital or in developing the
properties. (See "MANAGEMENT" and "BUSINESS OF THE COMPANY").
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 specie
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".)
18
Prior to the Company being able to perform any work on any of the
properties, including certain pilot plant operations, 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 its properties, the financial responsibilities placed upon
the Company as a condition for the issuance of such approvals may render some or
all of its properties uneconomic to develop and the Plans of Operation may, at
that time, be abandoned.
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
All of the Company's properties are in the exploration stages. In general,
the exploration work has included research of historical data, geologic mapping,
geochemical sampling, geophysical surveys and minor excavation and repairs.
During the exploration stage, the Company will seek to determine if any mineral
resources do, in fact, exist and then will further determine if the Company can
economically develop the same. No ore bodies have yet been located and/or
identified on any of the Company's properties and there can be no assurance that
they exist.
At the completion of the exploration stage, and assuming that an
economically viable resource does exist, the Company will then prioritize the
development of each of its properties based upon the financial resources
available at that time.
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 geologic mapping,
geophysical testing and geochemical testing. Phase I has been completed on all
of the Company's properties.
19
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.
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.
Description of Properties
The Company has acquired rights and interests in and to certain mining
properties, as listed below. Most of these properties consist 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 all of its properties, 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. 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 is
subleased to the Company for $100.00 per year in perpetuity. In addition, Dr.
20
Pray received shares of Common Stock of the Company as consideration for the
sublease. During the term of the sublease, the Company will have all of Dr.
Pray's right, title and interest in and to the property, and any revenues
derived therefrom.
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
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
21
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.
If only the minimum proceeds from this Offering are realized, and the
results of the Phase 1 exploration process are positive, the Company believes
that the amount allocated to the exploration and development will be sufficient
to place into operation a small pilot plant to process any minerals which are
found. However, additional funds would be required to expand the mining
operations and no assurance can be given that the Company will have or will be
able to obtain such funds if and when they are needed.
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 subleases the
property to the Company for the sum of $100.00 per year and a work clause
guaranteeing Dr. Pray's involvement in the exploration and development thereof.
As additional consideration, Dr. Pray received shares of Common Stock of the
Company in exchange for the sublease. During the term of the sublease, the
Company will have all of Dr. Pray's 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.
22
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.
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 the production of the Gold Spur until such time as it
has completed its evaluation of the other properties in its portfolio. The
Company my seek a joint venture partner or develop the property from income from
operations. The Company has allocated $480,000, assuming receipt of the maximum
proceeds of this Offering, to the exploration and development 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.
23
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.
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.
24
Upon the successful completion of this Offering, the Company intends to
place a small pilot plant in operation to perform scale-up tests and make final
adjustments to the extraction process. The tailings behind the massive stone dam
and the tailings still retained on the original site will be chemically treated
to first remove the manganese oxide masking the silver, followed by lime
addition and agitation cyanide leaching to remove the silver.
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.
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 $285,000 to the exploration and development 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.
25
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.
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
The Company has not yet commenced its mining operations and, therefore, has
no income or expenses, except for start-up costs expended by its officers and
directors and loans the Company secured to acquire the foregoing properties and
for operating expenses. (See "FINANCIAL STATEMENTS" and "CERTAIN TRANSACTIONS.")
No dividends have been paid out to date and the Company's directors,
officers and management have received no remuneration for their services, except
Mr. Chaffee, who has received $5,000.00 per month since March 8, 1994.
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
26
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
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.
27
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. Since October 1996,
he has been a vice president and director of Atlantis Aquafarm Inc. located in
Brooklyn, New York. Mr. Popkoff holds an MBA in Management and an MBA in
International Business from Baruch College, CUNY.
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.
Michael M. Chaffee, President and Chairman of the Board, is the only officer
and/or director receiving compensation for his services. Mr. Chaffee has
received a salary of $5,000.00 per month since the Company's inception on March
8, 1994. 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. 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 $ 70,000.00
Relations, Director
These salaries will not be retroactive and will only commence upon
completion of the minimum Offering.
There are proposed employment contracts between the Company and Messrs.
Chaffee, Baptista and Popkoff, effective upon the Closing of the minimum
offering. There are no proposed terminations of employment or change-in-control
arrangements between the Company and any of its officers and/or directors.
28
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.
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 successful completion
of this Offering, the Company intends to remain on these premises. The fees to
be charged to the Company for rent will be approximately $735 per month.
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 Laboratoy in Monrovia California
on an "as needed" basis.
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.
29
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. 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 (1)(2)
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.
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 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
- -----------------------------------
(1) Does not include 900,000 shares which Eric A. Popkoff has an option to
purchase upon commencement of his employment.
(2) 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
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.
The foregoing description concerning the Common Stock of the Company does
not purport to be complete. Reference is made to the Company's Articles of
Incorporation and Bylaws, as well as the applicable statutes of the State of
Nevada, for a more complete description of the rights and liabilities of
shareholders.
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 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.
Each of the 510,000 A Warrants sold in this offering will entitle the
registered holders thereof to purchase one share of the Common Stock at an
aggregate price of $8.00, subject to adjustment in certain circumstances, at any
time after the Warrant becomes separately tradeable, until 12 months from the
date of this Prospectus. Each of the 510,000 B Warrants will entitle the
registered holders thereof to purchase one share of Common Stock at a price of
$7.00, subject to adjustment in certain circumstances, at any time after
exercising the A Warrant related to the Units, until 24 months from 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 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,
31
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. 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 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.
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
32
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 may furnish unaudited quarterly
financial statements.
Transfer Agent
The Company has appointed American Securities Transfer, Incorporated,
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. (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 until paid in full. The payment date was
subsequently extended and the note is now due on September 30, 1998. (See
"PRINCIPAL SHAREHOLDERS" and "FINANCIAL STATEMENTS.")
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. In consideration for the loan, the Company will pay
Lewis the sum of $50,000 from the proceeds of this Offering and has issued
30,000 shares of its restricted Common Stock to Lewis. (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
33
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".)
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 arrangements 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
34
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, 1995,
1996 and October 31, 1997, included in this Prospectus, have been examined by
Luxenberg & Associates, Certified Public Accountants, 22431 Antonio Parkway,
#B160-457, Rancho Santa Margarita, California 92688.
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 audited financial
statements for the Company for the period October 31, 1997, December 31, 1996
and December 31, 1995 follow immediately.
35
REPORT OF INDEPENDENT PUBLIC ACCOUNTANT
---------------------------------------
The Stockholders
Summa Metals Corp.
Lake Havasu City, Arizona
I have audited the accompanying balance sheet of Summa Metals Corp. as of
October 31, 1997 and December 31, 1996 and 1995 and the related statements of
operations, changes in stockholders equity and cash flows for the periods
January 1, 1995 through October 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
October 31, 1997 and December 31, 1996 and 1995, and the results of its
operations, changes in stockholders equity and its cash flows for the period
January 1, 1995 through October 31, 1997, in conformity with generally accepted
accounting principles.
The aforementioned financial statements have been prepared using generally
accepted accounting principles applicable to a going concern which contemplates
the realization of assets and liquidation of liabilities in the normal course of
business. As discussed in the attached notes, the Company has been in the
exploration stage since its inception on March 8, 1994. The Company has no
present source of income and will require financial assistance to pursue its
objectives and meet obligations as they become due. Realization of a major
portion of the assets is dependent upon the Company's ability to meet its future
financing requirements, and the success of future operations, the outcome of
which cannot be determined at this time.
/s/ Luxenberg & Associates
November 24, 1997
Rancho Santa Margarita, California
SUMMA METALS CORP.
(an Exploration Stage Company)
Balance Sheets
December 31, December 31, October 31,
1995 1996 1997
----------- ----------- ----------
ASSETS
CURRENT ASSETS
Cash $ 17 $ 1,694 $ 30
-------- --------- ---------
TOTAL CURRENT ASSETS 17 1,694 30
Leasehold deposit - Notes 2 and 4 25,000 30,000 30,000
Due from stockholders 2,050 2,050 2,050
Syndication costs - 19,000 27,073
Investments in leasehold - Notes 2 and 3 - - -
-------- --------- ---------
TOTAL ASSETS $ 27,067 $ 52,744 $ 59,153
======== ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable - stockholder - Note 3 $102,500 $ 155,200 $ 173,200
Note payable - stockholder - Note 3 20,000 20,000 20,000
Accounts payable 2,500 3,595 3,595
Accrued interest payable - Note 3 21,000 33,000 43,000
-------- --------- ---------
TOTAL LIABILITIES - all current 146,000 211,795 239,795
-------- --------- ---------
COMMITMENTS AND CONTINGENCIES - Note 4
STOCKHOLDERS' EQUITY
Common stock - 25,000,000 shares
authorized, par value $.001,
2,325,000 and 4,555,000 issued
and outstanding - Note 2 4,555 4,555 4,555
Accumulated deficit (123,488) (163,606) (185,197)
-------- --------- ---------
TOTAL STOCKHOLDERS' EQUITY (118,933) (159,051) (180,642)
-------- --------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 27,067 $ 52,744 $ 59,153
======== ========= =========
The accompanying notes are an integral part of these financial statements.
F-1
SUMMA METALS CORP.
(an Exploration Stage Company)
Statements of Operations
For The Year For The Year For the Ten
Ended Ended Months Ended
Dec. 31, 1995 Dec. 31, 1996 October 31, 1997
------------- ------------- ----------------
Interest income $ 99 $ - $ -
------------- ------------- ------------
Expenses
On-site operating expenses 12,000 12,720 3,890
General and administrative 18,802 14,398 7,701
Interest 12,000 12,000 10,000
------------- ------------- ------------
Total expenses 42,802 40,118 21,206
------------- ------------- ------------
Net loss $ (42,703) $ (40,118) $ (21,591)
============= ============= ============
The accompanying notes are an integral part of these financial statements.
F-2
SUMMA METALS CORP.
(an Exploration Stage Company)
Statements of Changes in Stockholders' Equity
For The Period January 1, 1995 through October 31, 1997
Common Stock
Par Value $.001
--------------- Accumulated
Shares Amount Deficit
--------- ------- -----------
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 (21,591)
--------- ------- ----------
Balance - October 31, 1997 4,555,000 $ 4,555 $ (185,197)
======== ======= ==========
The accompanying notes are an integral part of these financial statements.
F-3
SUMMA METALS CORP.
(an Exploration Stage Company)
Statements of Cash Flows
For The Period January 1, 1995 through October 31, 1997
For The Year For The Year For The Ten
Ended Ended Months Ended
Dec. 31, 1995 Dec. 31, 1996 Oct. 31, 1997
------------- ------------- -------------
Cash Flows From Operating Activities:
Net loss $ (42,703) $ (40,118) $ (21,591)
Adjustments to reconcile net income to net
cash provided by operating activities:
Increase in accounts payable 2,500 1,095 -
Increase in interest payable 12,000 12,000 10,000
------------- ------------- -------------
Cash consumed by operating activities (28,203) (27,023) (11,591)
------------- ------------- -------------
Cash Flows From Investing Activities:
Leasehold deposit (25,000) (5,000) -
------------- ------------- -------------
Cash consumed by investing activities (25,000) (5,000) -
------------- ------------- -------------
Cash Flows From Financing Activities:
Proceeds from issuance of common stock 2,230 - -
Syndication costs - (19,000) (8,073)
Proceeds from notes payable - stockholders 22,500 52,700 18,000
------------- ------------- -------------
Cash provided from financing activities 24,730 33,700 9,927
------------- ------------- -------------
Increase in cash and cash equivalents (28,473) 1,677 (1,664)
Cash balance - beginning 28,490 17 1,694
------------- ------------- -------------
Cash balance - ending $ 17 $ 1,694 $ 30
============= ============= =============
Cash paid for interest and income taxes are as follows:
Interest $ - $ - $ -
============= ============= =============
Income taxes $ - $ - $ -
============= ============= =============
The accompanying notes are an integral part of these financial statements.
F-4
SUMMA METALS CORP.
(an Exploration Stage Company)
Notes to Financial Statements
For The Period January 1, 1995 through October 31, 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.
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.
F-5
NOTE 3 - NOTES PAYABLE
The notes payable - stockholders consists two notes to two different
stockholders. The first note, in the amount of $100,000, bears interest at
an annual rate of twelve percent (12%). The note is payable to one of the
stockholders of the Company. The entire amount of principal and interest is
due at maturity of the note, October 1, 1998. As of October 31, 1997,
$43,000 of interest has been accrued on the note payable.
The second stockholder note, in the amount of $20,000, arose in connection
with the purchase by the stockholder of 30,000 shares of Company stock. 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 October 31, 1997, no
interest has been accrued on this note.
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. If the
Company decides to complete the transaction, it will need to make a final
payment of $100,000 on or before the extended due date of October 1, 1998.
F-6
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
--------------------------------------
Item 22. 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.
Item 23. 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 $ 930.00
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 30,000.00
Blue Sky Fees/Expenses 1,000.00
Transfer Agent Fees 500.00
Miscellaneous Expenses 1,270.00
----------
TOTAL $40,000.00
1
Item 24. Recent Sales of Unregistered Securities.
During the past three years, the Registrant sold securities, all of which
were shares of Common Stock which were not registered under the Securities Act
of 1933, as amended, pursuant to an exemption under Section 4(2) of that Act, as
follows:
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
In 1994, the Registrant sold securities, all of which were shares of Common
Stock which were not registered under the Securities Act of 1933, as amended,
pursuant to an exemption under Section 4(2) of that Act, as follows:
Name and Address Date Shares Consideration
- ---------------- ---- ------ -------------
Michael M. Chaffee 3-8-94 1,050,000 Assets/Leasehold Rights
1588 Sea Lancer Dr. (see "Financial
Lake Havasu City, AZ Statements")
86403
Dr. Ralph E. Pray 3-8-94 1,000,000 Assets/leasehold Rights
805 S. Shamrock Avenue (see "Financial
Monrovia, CA 91091 Statements")
Amyn Dahya 4-8-94 225,000 $100,000 Loan 3/25/94
1335 Greg Street (see "Financial
Sparks, NY 89431 Statements")
Glen Dobbs 6-28-94 4,000 Repay $10,000 Loan dated
1536 W. Pacific 10/3/92
Coast Highway
Long Beach, CA
90810
Robert Kay 6-28-94 10,000 Services
611 W. 6th Street
#2610
Los Angeles, CA
92262
2
Oline Higginbothem 6-28-94 10,000 Repay two Loans $15,000
722 N. Calle Rolph each dated 3/12/91
Palm Springs, CA & 8/1/91
92262
William Palmertree 6-28-94 5,000 Repay $15,000 Loan
13766 Star Hill Lane dated 3/2/93
La Punte, CA 91764
Maria Cammelo 6-28-94 10,000 Repay two Loans $15,000
Berth 202 each dated 3/12/91
Long Beach, CA 90744 & 8/1/91
Coy Green 6-28-94 1,000 Repay $2,000 Loan dated
12480 Cedar Street 6/2/92
Chino, CA 91709
John Adams 6-28-94 1,000 Repay $2,00 Loan
c/o Newmarks Center dated 1/15/93
Berth 204
Wilmington, CA 90744
Jospeh Granitelli 6-28-94 8,000 Repay $24,000 Loan
1260 Calle Suerte dated 1/23/92
Camerio, CA 93012
Tom Gibson 6-28-94 1,000 Repay $1,000 Loan
6821 Masquito Rd. dated 8/2/93
Placerville, CA 95667
All purchasers of the Registrant's Common Stock acknowledged in writing
that they were obtaining "restricted securities", as defined in Rule 144 under
the Act; that such shares cannot be transferred without appropriate registration
or exemption therefrom; that they must bear the economic risk of the investment
for an indefinite period of time; that they would not sell the securities
without registration or exemption therefrom; and that the Registrant would
restrict the transfer of the securities in accordance with such representations.
Each purchaser agreed that any certificate representing such shares would be
stamped with the usual legend restricting the transfer of such shares.
No underwriters were used in the sale and issuance of the foregoing shares
and none of the shares were offered publicly.
All of the foregoing shares were issued in transactions between the Company
and third parties not involving any public offering. The purchasers were all
friends and/or associates of the Company's officers and directors, some of whom
were "accredited investors", as that term is defined in Regulation D, Rule 501.
In addition, each of the sales was effected without the benefit of advertising
or any general solicitation and each purchaser represented that he/she had such
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knowledge and experience in financial and business matters such that he/she is
capable of evaluating the merits and risks of the prospective investment and
purchased the shares for their personal account without any view toward resale
or future distribution of whatsoever nature.
The shares issued to repay loans were issued to purchasers who fell within
the scope of the paragraph set forth above. The loans were advanced to the
Company on verbal agreements with the lenders and the funds were used in the
organizational phase of the Company.
The services provided by Robert Kay were for assistance in financial
consulting and structuring of the Company and its plan of distribution for this
Offering.
Item 25. Exhibits.
The following Exhibits are filed as part of this Registration Statement,
pursuant to Item 601 of Regulation K:
Exhibit No. Title
- ----------- -----
1 Underwriting Agreement
3.1 Articles of Incorporation
3.2 Bylaws
5 Opinion of Steven L. Siskind, Esq. regarding the legality of
the Securities being registered
24 Consent of Steven L. Siskind, Esq. (See Exhibit 5)
24(a) Consent of Luxenberg & Associates, CPA
28(a) Escrow Agreement
28(b) Subscription Agreement
28(c) Proposed Selected Dealers Agreement
28(e) Promissory Note payable to Amyn Dahya & Extension Agreement
28(f) Agreement with Jose Echenique re: Promontorio Mine Tailings
28(g) Gold Spur Mine Sublease
28(h) Deep Gold Mine Sublease
28(i) Loan Agreement with C.W. & Neva Lewis
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,
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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.
(This Space Left Blank Intentionally)
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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 Registration
Statement to be signed on its behalf by the undersigned thereunto duly
authorized in Lake Havasu City, Arizona on the day of January, 1997.
SUMMA METALS CORP.
By: /s/ Michael M. Chaffee
-------------------------------------
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 1-24, 1998
------------------------------ ----
Michael M. Chaffee
President and Director
/s/ Kathy A. Folkers 1-24, 1998
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Kathy A. Folkers, Secretary
/s/ Raymond Baptista 1-24, 1998
------------------------------ ----
Raymond Baptista, Director,
Treasurer and Chief Financial Officer
/s/ Eric A. Popkoff 1-24, 1998
------------------------------ ----
Eric A. Popkoff, Vice-President
Corporate Relations, Director
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