U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 3 TO FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Utah Clay Technology, Inc.
(Name of small business issuer in its charter)
Utah 1400 87-0520575
---------- --------------------------- -------------
(state of (Primary Standard Industrial (IRS Employer
incorporation) Classification Code Number) I.D. Number)
3985 South 2000 East
Salt Lake City, UT 84124
801-424-0223
- -------------------------------------------------------------------------------
(Address and telephone number of registrant's principal
executive offices and principal place of business)
Dennis S. Engh
3985 South 2000 East
Salt Lake City, UT 84124
801-424-0223
- -------------------------------------------------------------------------------
(Name, address and telephone number of agent for service)
Copies to:
Thomas J. Kenan, Esq., Fuller, Tubb, Pomeroy & Stokes
201 Robert S. Kerr Avenue, Suite 1000
Oklahoma City, OK 73102
Approximate date of proposed sale to the public: As soon as
practicable after the Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(c) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following box. [ ]
Calculation of Registration Fee
==============================================================================
Title of Proposed Proposed
each class maximum maximum
of securities Amount offering aggregate Amount of
to be to be price offering registration
registered registered per unit price fee
- ------------------------------------------------------------------------------
Common Stock 590,000 (1) (1) $103(1)
(1) These 590,000 shares are to be offered by three selling shareholders
from time to time at fluctuating market prices. The registration fee for these
shares is based on the average of a bid price of $0.5 and an ask price of
$0.656 on March 30, 2000 on the OTC Bulletin Board. Reg. 230.457(c).
The registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission acting pursuant to said section 8(a)
may determine.
PROSPECTUS
UTAH CLAY TECHNOLOGY, INC.
590,000 Shares of Common Stock
590,000 shares of common stock are being offered by three selling
security holders, Dennis S. Engh, James Groscost and the law firm of
McKay, Burton and Thurman, all of Salt Lake City, Utah. None of the proceeds
of sale will go to the company. All proceeds will go to the selling security
holders and for the payment of their brokerage commissions. Mr. Engh is the
chief executive officer and a director of Utah Clay Technology.
The selling security holders will offer the 590,000 shares from time
to time in the over-the-counter market through brokers at fluctuating market
prices. They may also offer the shares in negotiated transactions, through
the writing of options on the securities, a combination of such methods of
sale, or otherwise. Sales may be made at fixed prices which may be changed,
at market prices prevailing at the time of sale, or at negotiated prices.
--------------------------
Our common stock formerly traded on the OTC Bulletin Board.
Its trading symbol was "UTCL". It is presently quoted in the "Pink Sheets."
--------------------------
The purchase of these shares involves Neither the Securities and Exchange
a high degree of risk. See Commission nor any state securities
"Risk Factors," beginning on page 1. commission has approved or
disapproved these securities or
determined if this offering
memorandum is truthful or complete.
Any representation to the contrary
is a criminal offense.
Utah Clay Technology, Inc.
3985 South 2000 East
Salt Lake City, UT 84124
Telephone 801-424-0223
October ___, 2000
TABLE OF CONTENTS
Page
Summary .............................................................. 1
Our Company .................................................. 1
Risk Factors ......................................................... 1
No commercially viable deposits of kaolin
have been found. ..................................... 1
We require, but do not have, the funds
needed to conduct an exploration
program that would determine whether
our properties do or do not contain
reserves of kaolin. .................................. 2
The market for our common stock is poorly
developed. Purchasers of our securities
should anticipate a thin and
volatile market. ..................................... 2
Use of Proceeds ...................................................... 2
Determination of Offering Prices ..................................... 2
The Selling Security Holders ......................................... 2
Plan of Distribution ................................................. 3
Legal Proceedings .................................................... 4
Directors, Executive Officers, Promoters and
Control Persons .............................................. 5
Significant Consultants and Other Personnel .................. 6
Securities Ownership of Certain Beneficial
Owners and Management ........................................ 8
Description of Securities ............................................ 8
Common Stock ................................................. 8
Voting Rights ........................................ 8
Dividend Rights ...................................... 9
Liquidation Rights ................................... 9
Preemptive Rights .................................... 9
Registrar and Transfer Agent ......................... 9
Dissenters' Rights ................................... 9
ii
Preferred Stock .............................................. 9
Series A Preferred Stock ..................................... 9
Interest of Named Experts and Counsel ................................ 10
Indemnification ...................................................... 10
Description of Business .............................................. 11
Business Development ......................................... 11
Kaolin ...................................................... 12
The Market for Kaolin ........................................ 12
Results of Tests on the Utah Clay Deposits ................... 12
Competition .................................................. 13
Distribution Methods ......................................... 13
Patents ...................................................... 13
Government Approval of Principal Products .................... 13
Government Regulations ...................................... 13
Costs and Effects of Complying with
Environmental Laws ................................... 14
Employees .................................................... 14
Working Capital Requirements ................................. 14
Product Research and Development During
the Next Twelve Months ............................... 14
Additional Employees ......................................... 14
Description of Property .............................................. 15
Location and Means of Access to the
Properties ........................................... 15
Description of Our Title ..................................... 16
History of Mineral Exploration ............................... 21
Plant and Equipment .......................................... 22
Plan of Operations for the Next Twelve Months ................ 23
Rock Formations and Mineralizations .......................... 24
Geology ...................................................... 25
Certain Relationships and Related Transactions ....................... 26
Market for Common Equity and Related
Stockholder Matters .......................................... 27
Holders ...................................................... 28
Dividends .................................................... 28
Penny Stock Regulations .............................................. 28
The Penny Stock Suitability Rule ............................. 29
The Penny Stock Disclosure Rule .............................. 30
Effects of the Rule .......................................... 30
Potential De-Listing of Common Stock ......................... 30
Reports to Security Holders .................................. 30
Executive Compensation ............................................... 31
Stock Options ................................................ 31
Directors .................................................... 31
Employment Contracts ......................................... 31
Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure .......................... 32
iii
Additional Information ............................................... 32
Financial Statements ................................................. 32
SUMMARY
Our Company. Our company, Utah Clay Technology, Inc., is an
exploration-stage corporation organized to explore, define and test kaolin clay
from our White Mountain and Oro Blanco leases and three other properties under
option to lease to us. Subject to our obtaining the necessary funds, we
propose to continue to explore our properties and to develop our properties
if the exploration and tests should indicate that development is warranted.
All properties are in the State of Utah.
There is no assurance that there is a commercially viable mineral
deposit on any of the properties. Laboratory tests conducted by independent
laboratories have determined that our properties, to some extent, contain a
mineral composition of hydrothermal kaolin that has met industry standards
for fillers in paint. We must conduct further exploration before we can make a
final evaluation as to the economic and legal feasibility of developing our
properties.
Some 200 tons of kaolin were taken from our White Mountain site, tested
and processed at an independent mill. This material was sold to a paint
company and used by it in a commercial paint product.
RISK FACTORS
--------------
The following principal factors make the offering described herein
speculative and one of high risk. An investment in the shares should not be
made by persons who cannot afford the loss of their entire investment.
No commercially viable deposits of kaolin have been found.
The efforts of our founders and then of our company after its
incorporation in 1994 have been to locate the principal kaolin deposits in
Utah, place them under lease, and conduct exploratory drilling for property
appraisal purposes.
Our limited exploratory drilling to date has outlined a potential
product slate of small particle size calcined and uncalcined clays. Calcined
clays are clays that have been heated to such a high temperature that the
clays' molecular structure has been modified. The extracted minerals have been
tested both in the laboratory and with commercial buyers, but our limited
exploratory drilling has been insufficient in scope to outline commercially
viable reserves.
Since we have no reserves, we cannot estimate how long we will be able
to provide marketable kaolin from our properties.
1
We require, but do not have, the funds needed to conduct an
exploration program that would determine whether our properties do or do not
contain reserves of kaolin.
A proper drilling and testing program on our Oro Blanco and
White Mountain leases will cost approximately $500,000. We lack this capital
and have not identified a source for this capital need.
We have options to acquire three other properties that are
owned by the persons that manage our company. The exercise prices of these
three options have not been set but are to be the fair market values of the
properties as determined by an independent engineer. We do not have the funds
needed to conduct a proper drilling and testing program on these three,
optioned properties and have not identified a source for this capital need.
The market for our common stock is poorly developed. Purchasers of
our securities should anticipate a thin and volatile market.
There are many days when our common stock does not trade at
all in the over-the-counter market. The spread between the quoted bid and ask
prices is usually great. The stock has never traded above $5, the price
required to remove certain trading requirements imposed on Bulletin Board
"penny stocks." Until these trading requirements are removed, many brokerage
firms will not allow their brokers to recommend our stock for purchase by
their customers.
USE OF PROCEEDS
All proceeds from the sale of the 590,000 shares of common stock will
go to the selling security holders for their own personal use after the payment
of any brokerage commissions.
DETERMINATION OF OFFERING PRICES
Each of the selling security holders proposes to sell his shares
primarily through broker-dealers at prevailing market prices. They may also
offer the securities in private transactions at negotiated prices.
THE SELLING SECURITY HOLDERS
There are three selling security holders: Dennis S. Engh, 500,000
shares; James Groscost, 10,000 shares; and the law firm of McKay,
Burton and Thurman, 80,000 shares.
2
Dennis S. Engh has been a director and the chief executive officer of
Utah Clay Technology since its organization in 1994. All of the company's
mining leases and options to acquire mining leases were acquired from entities
under the direct control and partial ownership of Mr. Engh and other members
of his family.
James Groscost is the owner of a trucking company in the Salt Lake
City, Utah area. He is not affiliated with Utah Clay.
McKay, Burton and Thurman is a Salt Lake City, Utah law firm that has
represented Utah Clay in many matters over the past several years. It is not
affiliated with Utah Clay. The beneficial owner of the law firm's shares is
one person, William H. Thurman.
The selling security holders' ownership of the company's common stock,
both before and after the offering, is as follows:
Percent
Selling Security Holder Amount of Total
========================= ======== ===========
Dennis S. Engh:
----------------
Owns now 4,641,197 19.89
Owned after sale of
500,000 shares 4,141,197 17.75
James Groscost:
-----------------
Owns now 10,000 0.04
Owned after sale of
10,000 shares 0 0
McKay, Burton & Thurman:
--------------------------
Owns now 80,000 0.34
Owned after sale of
80,000 shares 0 0
PLAN OF DISTRIBUTION
Each of the selling security holders may effect sales from time to time
in transactions in the over-the-counter market at market prices prevailing at
the time of sale or in negotiated transactions at negotiated prices. Sales
could be made at fixed prices, which each could change.
Each of the selling security holders may effect such transactions by
selling the securities directly to a purchaser, through broker-dealers acting
as agents or to broker-dealers who may purchase the securities as principals
and thereafter sell the securities from time to time in the over-the-counter
market, in negotiated transactions or otherwise. Such broker-dealers, if any,
3
may receive compensation in the form of discounts, concessions or commissions
from the selling security holders or the purchaser for whom such
broker-dealers may act as agents or to whom they may sell as principals. The
compensation as to a particular broker-dealer may be in excess of customary
commissions.
The selling security holders and broker-dealers, if any, acting in
connection with any such sale might be deemed to be "underwriters" within the
meaning of Section 2(11) of the Securities Act. Any commission received by
them and any profit on the resale of the securities might be deemed to be
underwriting discounts and commissions under the Securities Act.
With respect to the plan of distribution for the sale by the selling
security holders as stated above,
o to the extent that the securities are sold at a fixed price or
by option at a price other than the prevailing market price,
such price would need to be set forth in this prospectus;
o if the securities are sold in block transactions and the
purchaser wishes to resell the securities purchased, such
arrangements would need to be described in this prospectus; and
o if the compensation paid to broker-dealers is other than usual
and customary discounts, concessions or commissions, disclosure
of the terms of the transaction in this prospectus would be
required.
We have been advised that the selling security holders understand the
prospectus delivery requirements for sales made pursuant to this prospectus
and that, if there are changes to the stated plan of distribution or if
additional information as noted above is needed, a post-effective amendment
with current information would need to be filed before offers are made and
no sales could occur until such amendment is declared effective.
LEGAL PROCEEDINGS
Neither Utah Clay Technology nor any of its property is a party to or
the subject of a pending legal proceeding.
We are unaware of any proceeding that a governmental authority is
contemplating that would involve us or any of our property.
4
We are unaware of any material proceeding to which any director,
officer or affiliate of the company, any owner of record or beneficially of
more than five percent of any class of voting securities of the company, or
security holder is a party adverse to the company or has a material interest
adverse to the company.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
A list of the current officers, directors and significant consultants
appears below. The directors of the company are elected annually by the
shareholders. The officers serve at the pleasure of the board of directors.
The directors do not receive fees or other remuneration for their services.
Position Held
Person Office Since
-------------------------- -------------------------- ------------
Dennis S. Engh, 60 President and Director 1994
Thomas F. Harrison, 49 Vice President and Director 1994
Daniel H. Engh, 49 Vice President and Director 1994
Darin D. Engh, 29 Secretary, Treasurer and Director 1994
Carmen J. (Tony) Lotito, 55 Director of Marketing and Director 1994
Robert F. Conley, Ph.D., 65 Consultant 1994
Daniel H. Engh, listed in the above table, is the brother of
Dennis S. Engh. Darin D. Engh is the son of Dennis S. Engh and the nephew of
Daniel H. Engh.
Dennis S. Engh. Mr. Engh studied botanical science and business at
the University of Utah. After college he became the manager for Engh Floral
Corporation, a family-owned business, advancing to president over a ten-year
period. In 1981 he became president of Dienco Oil Development, Inc., an oil
well development company later purchased by a company in Texas. In 1986 he
became president of The Clothes Link, a seven-store women's clothing store
system in Utah. From 1985 to 1990 he also supervised all land acquisition for
industrial minerals for Pioneer Minerals, Inc., a Utah corporation. He then
became president of that company. During that same period he also organized
and operated a landscape and grounds maintenance business which performed
contract work in Utah, Idaho and Nevada. He organized Utah Clay Technology in
1994 and has served as its president since its organization.
Thomas F. Harrison. Mr. Harrison received a bachelor of science
degree in biology in 1972 and a master's of business administration degree
from the University of Utah in 1988. He was a microfilming supervisor for
Mineral Records, Inc. from 1976 to 1979. He served as the executive vice
president and the director of program development for CompHealth, Inc. from
5
1980 to 1992. In this capacity he supervised the operations of 200 persons
in three offices. There were approximately 300 physicians working for the
company at any one time. Since 1995 Mr. Harrison has been president of
Buffalo Energy Corp., which develops energy projects for Indian Nations.
Daniel H. Engh. Mr. Engh received a bachelor of science degree in
accounting from the University of Utah in 1973. Upon graduation he joined
the Engh Floral Corporation where he managed the accounts, payroll,
receivables and handled tax matters. He trained personnel in numerous phases
of accounting and supervised a staff of 130 persons in this $3 million-a-year
business. In 1984 he became controller and buyer for Della's Flower & Gifts,
Inc. He than joined the staff of The Clothes Link where he was responsible
for lease negotiations, personnel and overseeing various store operations. In
1988 he became the secretary and treasurer for Pioneer Minerals, Inc. and was
in charge of all accounting costs, controls, lease procurement and title
operations. Since the formation of that organization Mr. Engh has been
active in the field work, exploration and assessment of industrial minerals in
the State of Utah. Mr. Engh has served since 1985 as a tax audit manager for
the Utah Tax Commission.
Darin D. Engh. Darin D. Engh is President of Engh Flowers, Inc., a
retail and wholesale garden center and nursery stock outlet which was
organized in 1990, expanded to four locations along the Wasach Front of Utah,
has 40 employees, and has gross annual sales today of approximately $1
million. Mr. Engh has received a bachelor of science in political geography
at the University of Utah.
Carmen J. (Tony) Lotito. Mr. Lotito received a bachelor of science
degree in accounting in 1967 from the University of Southern California. He
joined the accounting firm of Pannell, Kerr, Forester & Co. as the senior
accountant in charge of management and audit services for that company's
San Diego, California office. In 1974 he formed his own management and
financial services organization. In this respect, he provides direct
management assistance and consulting financial services to oil and gas
industry clients, retail operations, and food manufacturing and distribution
companies. In 1988 he joined ConAgra, Inc. in San Antonio, Texas where he
oversaw research and development, sales and marketing of specialty products
under development. In 1994 he joined Utah Clay Technology and has served and
still serves as its director of marketing.
Significant Consultants and Other Personnel.
- --------------------------------------------
Robert F. Conley, Ph.D.. Dr. Conley acts as a consultant to the
company. He received a bachelor of science degree in chemistry, a masters of
science degree in electro-chemistry and a doctor of philosophy degree in
inorganic chemistry and mineralogy, all from Indiana University. He was
6
employed for four years at the Indiana Geological Survey in evaluating
industrial minerals and development technologies. Then, he joined the
Georgia Kaolin Company and was in charge of research into high technology
processes, electrochemical studies, and research into a variety of new
products. At the request of the Engineering Conference, he developed a series
of lectures on the mechanics and chemistry of delamination grinding. He
continues to give annual seminars in the U.S. and in Europe on this topic.
In 1974 Dr. Conley formed Mineral and Resource Technology with three
other scientists to perform contract research on minerals and to develop new
products, especially pigments. He is the author of approximately 30 patents
on mineral and specialty material systems, their process of generation and
separation. He is the coauthor of two books on industrial fine grinding and
chemical treatment of mineral systems for Polymer Corporation.
In 1977 Dr. Conley developed the electric process for producing ultra
high purity solder now used by most electronic circuit board manufacturers in
the U.S. From 1978 through 1981 Dr. Conley worked under contract by the
Federal Power Commission in Mexico to design a system and to work with the
mineral reserves in Mexico to produce alumina and aluminum metal from
low-grade mexican ores. Dr. Conley is active in the general area of high
technology and has been an annual guest lecturer for 15 years for the
chemistry department at Kent State University on mineral pigment development,
dispersion techniques and other aspects of pigment processing for the paint,
plastics and polymer industries.
No executive officer, director, person nominated to become a director,
promoter or control person of our company has been involved in legal
proceedings during the last five years such as
o bankruptcy,
o criminal proceedings (excluding traffic violations and other
minor offenses), or
o proceedings permanently or temporarily enjoining, barring,
suspending or otherwise limiting his involvement in any type
of business, securities or banking activities.
o Nor has any such person been found by a court of competent
jurisdiction in a civil action, or the Securities and Exchange
Commission or the Commodity Futures Trading Commission to have
violated a federal or state securities or commodities law.
7
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The table below sets forth the beneficial ownership of securities of
the company by the officers and directors, individually, and as a group, and
each person who is known to the company to be the beneficial owner of more
than five percent of any class of the company's voting securities:
Shares of
Shares of Series A
Common Stock Percent Preferred Stock Percent
------------ ------- --------------- -------
Dennis S. Engh 4,641,197 19.8 27,180 32.0
Thomas F. Harrison 4,555,592 19.5 51,037 60.2
Daniel H. Engh 4,786,307 20.4 -- --
Carmen J. (Tony) Lotito 2,447,492 10.4 6,600 7.8
Darin D. Engh 100,000 0.4 -- --
Robert and Jeannette Nelson 1,312,500 5.6 -- --
Officers and Directors as a group (5
persons) 16,530,588 70.6 84,817 100.0
Jeannette Nelson, listed in the above table, is the sister of
Dennis S. Engh, and Daniel H. Engh and the aunt of Darin D. Engh.
There are no arrangements which may result in a change in control of
the company.
DESCRIPTION OF SECURITIES
The company is authorized to issue 30 million shares of common stock,
$0.001 par value, and 10 million shares of preferred stock, $0.001 par value.
The presently outstanding 23,421,874 shares of common stock and 84,817 shares
of preferred stock are fully paid and nonassessable.
Common Stock
- -------------
Voting Rights. Holders of shares of common stock are entitled to one
vote a share on all matters submitted to a vote of the shareholders. Shares
of common stock do not have cumulative voting rights, which means that the
holders of a majority of the shareholder votes eligible to vote and voting
for the election of the board of directors can elect all members of the board
of directors.
8
Dividend Rights. Holders of record of shares of common stock are
entitled to receive dividends when and if declared by the board of directors
out of funds of the company legally available therefor.
Liquidation Rights. Upon any liquidation, dissolution or winding up
of the company, holders of shares of common stock are entitled to receive pro
rata all of the assets of the company available for distribution to
shareholders after distributions are made to the holders of the company's
preferred stock.
Preemptive Rights. Holders of common stock do not have any
preemptive rights to subscribe for or to purchase any stock, obligations or
other securities of the company.
Registrar and Transfer Agent. The company's registrar and transfer
agent is Interwest Transfer Company, Inc., 1981 East Murray Holladay Road,
Suite 100, Salt Lake City, Utah 84117.
Dissenters' Rights. Under current Utah law, a shareholder is afforded
dissenters' rights which, if properly exercised, may require the company to
purchase his shares. Dissenters' rights commonly arise in extraordinary
transactions such as
o mergers,
o consolidations,
o reorganizations,
o substantial asset sales,
o liquidating distributions, and
o certain amendments to the company's certificate of incorporation.
Preferred Stock
- ----------------
The company is also authorized to issue 10 million shares of
preferred stock, $0.001 par value.
The preferred stock or any series of preferred stock has no qualities
or preferences over the common stock until the board of directors acts.
The board can designate discreet series of the preferred stock. By board
resolution it can carve out a series of preferred stock with specific
qualities or preferences.
Series A Preferred Stock
- -------------------------
We have issued 84,817 shares of Series A Preferred Stock at $5.00 a
share for a total of $424,085, which stock -
9
o is entitled to annual dividends of $0.50 a share payable only
from earnings of the company and cumulative if payable but
missed,
o is non-voting,
o does not carry preemption rights and
o is preferred over the company's common stock in the event of
the liquidation and dissolution of the company.
The Series A Preferred Stock is neither convertible into Common Stock
nor redeemable at the option of the holder. It is redeemable at the option
of the company.
There are no provisions in the company's charter or bylaws that would
delay, defer or prevent a change in control of the company.
INTEREST OF NAMED EXPERTS AND COUNSEL
Thomas J. Kenan is named in the registration statement of which this
prospectus is a part as having given an opinion on the validity of the
offered securities. His spouse, Marilyn C. Kenan, is the trustee and sole
beneficiary of the Marilyn C. Kenan Trust, which is the record owner of
764,194 shares of common stock of the company. Mr. Kenan disavows any
beneficial interest in the shares owned of record by such trust.
INDEMNIFICATION
Under Utah corporation law, a corporation is authorized to indemnify
officers, directors, employees and agents who are parties or threatened to be
made parties to any civil, criminal, administrative or investigative suit or
proceeding by reason of the fact that they are or were a director, officer,
employee or agent of the corporation or are or were acting in the same
capacity for another entity at the request of the corporation. Such
indemnification includes reasonable expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement if they acted in good faith
and in a manner reasonably believed to be in or not opposed to the best
interests of the corporation.
With respect to any criminal action or proceeding, these same
indemnification authorizations apply if these persons had no reasonable cause
to believe their conduct was unlawful.
In the case of any action by the corporation against such persons,
the corporation is authorized to provide similar indemnification. But, if any
such persons should be adjudged to be liable for negligence or misconduct in
the performance of duties to the corporation, the court conducting the
10
proceeding must determine that such persons are nevertheless fairly and
reasonably entitled to indemnification.
To the extent any such persons are successful on the merits in defense
of any such action, suit or proceeding, Utah law provides that they shall be
indemnified against reasonable expenses, including attorney fees. A
corporation is authorized to advance anticipated expenses for such suits or
proceedings upon an undertaking by the person to whom such advance is made to
repay such advances if it is ultimately determined that such person is not
entitled to be indemnified by the corporation.
Indemnification and payment of expenses provided by Utah law are not
deemed exclusive of any other rights by which an officer, director, employee
or agent may seek indemnification or payment of expenses or may be entitled to
under any bylaw, agreement, or vote of stockholders or disinterested
directors. In such regard, a Utah corporation behalf of any person who is or
was a director, officer, employee or agent of the corporation.
As a result of such corporation law, Utah Clay may, at some future
time, be legally obligated to pay judgments (including amounts paid in
settlement) and expenses in regard to civil or criminal suits or proceedings
brought against one or more of its officers, directors, employees or agents,
as such.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the company pursuant to the foregoing provisions or otherwise, the
company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable.
DESCRIPTION OF BUSINESS
Business Development
Utah Clay Technology, Inc. was incorporated on March 1, 1994 in the
State of Utah. Since our organization we have been engaged in the process of -
o locating kaolin deposits in Utah,
o obtaining the legal rights to these deposits,
o conducting exploratory operations,
o testing the extracted minerals in the laboratory, and
o selling samples of the processed form of our kaolin to a
commercial company for market evaluation.
11
We have financed these activities by the sale of capital stock for
money, advances by shareholders and by the exchange of capital stock for
services rendered to our company.
Utah Clay is held together by the day-to-day services of
Dennis S. Engh, our chief executive officer, and Thomas F. Harrison, a vice
president and chief financial officer, and the part-time services of
Carmen J. (Tony) Lotito, marketing director. They serve without receiving
a regular monthly salary check. It will be difficult to replace any of them
unless we obtain the liquid resources to pay salaries.
Kaolin
Kaolin is a mineral term for a hydrated aluminum silicate with the
general formula, AL2 SI2 O5 (OH)4. It occurs in a broad range of particle
sizes from 200 microns down to about 0.2 microns. It also occurs in a variety
of crystal structures and shapes. The Utah kaolin is quite white in the
ground. Dry processing retains that whiteness.
The Market for Kaolin
Kaolin is commonly known as "China clay" and is used extensively as a
mineral filler in paint, plastics, paper, ceramics, pharmaceuticals and
cosmetics, because it does not react chemically. It also has a white color
and smoothness after grinding. Industrial users of kaolin combine it with
other raw materials, called formulations, and have developed over 600
different applications. The largest single application is for coating paper
to hide the pulp strands and to give the paper a gloss finish. Another major
use is in the paint industry as an extender to reduce the amount of titanium
dioxide needed to reflect light. Kaolin is also used in refractory clays,
plastics, ceramics, rubber and fiberglass.
Results of Tests on the Utah Clay Deposits
The kaolin taken from our White Mountain site in the test runs shows
that the mineral can be removed by a ripper on a caterpillar tractor and
loaded on trucks with a front end loader.
The kaolin must be processed to bring it to industry standards. Utah
Clay has tested the stages of the processing that are needed for these
industry standards. These tests include:
o grinding to small particle sizes
o calcination - a process of heating the clay to about 1800
degrees Fahrenheit for a time, which changes its molecular
structure, and
12
o paint formulation tests.
These tests have outlined two classes of products that can fit into
established markets. These are an uncalcined kaolin clay and a calcined
kaolin clay, each in various small particle sizes.
Competition
The United States is the largest single producer of kaolin in the
world. Currently, ninety percent of the U.S. production comes from deposits
in Georgia and South Carolina. It has been mined from this area for over 90
years. There are several companies located in this area that provide this
kaolin to the U.S. and world markets, companies against whom we will have to
compete should we obtain production of kaolin. Most of the standards for the
world industry are based on the kaolin from this area.
Distribution Methods
There are numerous companies in the U.S. whose business is the
distribution of industrial minerals and chemicals. These companies normally
have specific regions where they operate.
We anticipate that any sale of kaolin products by us, should we
encounter commercial quantities of kaolin and obtain the capital to develop
them, would be done through these third-party distributors of industrial
minerals.
Patents
Utah Clay has no patents.
Government Approval of Principal Products
There is no need to obtain government approval to sell kaolin and
kaolin products. The mining leases of the company, owned or under option to
lease, are mining claims or leases of lands owned by the U.S. Government or
the State of Utah. Annual rentals of $100 per claim for the federal mining
claims must be paid to the Bureau of Land Management. The annual lease
payment to the State of Utah totals $2,106 for the four state leases.
Government Regulations
The permitting of exploration work we have on U.S. Government leases
in Utah is subject to federal regulations that are co-administered by the Utah
State Division of Oil, Gas and Mining and the Bureau of Land Management. We
have obtained a small miner's permit for the White Mountain site from the
Bureau of Land Management and the State of Utah's Division of Oil, Gas and
Mining. This permit allows us to continue to remove tonnage of kaolin from
the site for commercial testing.
13
The White Mountain and Oro Blanco sites have been surveyed for
sensitive plant species. The survey was conducted by a certified
environmental firm retained by the company. No sensitive species were found
on either site.
Costs and Effects of Complying with Environmental Laws
There are costs involved in complying with environmental laws in the
exploration for kaolin. Disturbances to the land caused by our exploratory
drilling will have to be reclaimed to a state typical of the surrounding area.
Employees
We have two full time employees and two part time employees. The full
time employees are Dennis S. Engh, president, and Thomas F. Harrison, vice
president and chief financial officer. The part time employees are Carmen
(Tony) Lotito, marketing director, and Daniel H. Engh, vice president. We
estimate that our part-time employees work for us approximately fifteen hours
a week.
Working Capital Requirements
We need approximately $500,000 to conduct a proper drilling and
testing exploration program on our White Mountain and Oro Blanco leases
during the next twelve months. We have not identified a source of this
capital. However, we need little working capital to survive day-to-day. Our
full-time and part-time employees and consultants will accept stock in lieu
of cash for their personal services, as they have mainly done in the past.
We have a stock subscription receivable of $98,100 as of June 30,
2000 from which our current cash requirements are being met. We should be
able to continue to satisfy our cash requirements until March 2001 from this
source.
Product Research and Development During the Next Twelve Months
Subject to our obtaining the necessary funds, we propose to perform
approximately $50,000 in research and development during the next twelve
months in an effort to determine the best calcination parameters for
processing kaolin for use in cement. We have been and are working with an
industry partner with regard to the use of partially calcined kaolin in cement.
14
Additional Employees
We have no plans to hire additional employees until we should
establish that we have commercial reserves of kaolin and obtain the funds to
develop them.
DESCRIPTION OF PROPERTY
We have mining leases to extract minerals from mining claims in the White
Mountain area and the Oro Blanco area in western Utah. We have options to
acquire mining leases to extract minerals from mining claims in the Koosharem
area and the Kimberly area in central Utah and in the Topaz area in western
Utah. The properties are near the Union Pacific rail lines and interstate
tracking routes I-70 and I-15.
Location and Means of Access to the Properties
White Mountain Claims. The White Mountain claims are located in Beaver
County, Utah approximately 25 miles west of Milford, Utah. Forty-one federal
placer and overlapping lode claims are located in Sections 4-10 in Township 29
South, Range 13 West and in Sections 1 and 12 in Township 29 South, Range 14
West.
Access to the area is provided by county gravel roads and 1.6 miles of
unimproved, Bureau of Land Management ("BLM") roads. Limited upgrade of the
BLM roads would be necessary to bring mining equipment to the White Mountain
site.
15
Oro Blanco Claims. The Oro Blanco claims are located six miles west of
the White Mountain claims in Beaver County, Utah. Ninety-one federal placer
and overlapping lode claims and four Utah State mineral leases covering these
deposits are located in Sections 13-15, 21-24, 25-28, 32 and 34-36 in
Township 29 South, Range 15 West and in Sections 1-3 and 10, 11 and 18 in
Township 30 South, Range 15 West.
Access to the property is provided by county roads and unimproved BLM
roads. Limited upgrades of the BLM roads would be necessary to bring mining
equipment to the Oro Blanco site.
Koosharem Claims. The Koosharem claims are located in Piute and Sevier
Counties, Utah. Twelve unpatented federal placer and overlapping lode claims
are located on lands managed by the National Forest Service in Townships 26
and 27 South, Ranges 1 and 2 West.
Access to the area is provided by BLM roads. The road is currently used
by another mining operation adjacent to our claims.
Kimberly Claims. The Kimberly claims are located in Sevier County,
Utah. Twenty-six unpatented federal placer and overlapping lode claims are
located on lands managed by the National Forest Service in Township 26 South,
Range 4.5 West.
Access to the site is provided by unimproved Forest Service roads.
Limited upgrade of the roads would be necessary to bring mining equipment to
the site.
Topaz Claims. The Topaz claims are located in Juab County, Utah
approximately 40 miles west of Delta, Utah. Twenty-six federal placer and
overlapping lode claims are located on lands managed by the National Forest
Service in Township 13 South, Ranges 10, 11 and 12 West and Township 14
South, Range 11 West.
Access to the area is provided by county gravel roads and unimproved BLM
roads. Limited upgrades to the BLM roads would be required to bring mining
equipment to the site.
Description of Our Title
White Mountain Claims. The lode mining claims are reserved from the BLM
in the name of Don and Anola Fullmer, who are unaffiliated with our company.
The Fullmers have granted a mining lease to Dennis S. Engh and Daniel H.
Engh. Dennis Engh is president and a director of Utah Clay, and Daniel Engh
is a vice president and director of Utah Clay.
o This lease from the Fullmers provides for -
o an annual $5,000 minimum lease payment,
o a minimum production requirement of 6,000 tons a year starting
in 2005,
o a $2.50 a ton production royalty payment with a Consumer Price
Index annual escalator clause on the royalty, and
o the payment of all annual fees to the BLM to maintain the
claims.
The lease expires March 15, 2005, unless commercial production of at
least 5,000 tons a year is being obtained from any or all of the claims
subject to the lease. The lease extends perpetually thereafter if the
production minimums are met. The Engh family has incorporated the Fullmer
lease with their own placer claims into one lease assigned to Utah Clay as
described below.
16
The White Mountain placer claims are held by the Engh family, who have
granted a mining lease to Utah Clay. These persons include Dennis and Judith
Engh, husband and wife; Daniel H. and Connie Engh, husband and wife;
Darin D. Engh, and Holly Engh Kingdon (the "Engh Family"). Dennis Engh is
president and a director of Utah Clay, the brother of Daniel Engh and the
father of Darin Engh and Holly Engh Kingdon. Daniel Engh is a vice president
and a director of Utah Clay. Darin Engh is a director of Utah Clay.
The Engh family lease provides for -
o a $5,000 minimum annual lease payment to the Enghs or a $2.50
a ton production royalty payment with a Consumer Price Index
escalation clause, whichever is greater,
o a three percent royalty payment on the gross value of all ores
taken from the property,
o the payment of all fees required to maintain the claims with
the BLM, and
o all the terms of the Engh lease with the Fullmers for the lode
claims to be met by Utah Clay.
The term of the Engh family lease is March 27, 2004 and thereafter as
long as commercial production is obtained.
There appears on the next page a detailed map of Utah Clay's White
Mountain property. There is shown on the map outlines of -
o the claims area,
o the Blue Placer claims,
o the Julie White placer claims, and
o the Julie White lode claims.
17
(Detailed map of Utah Clay's
White Mountain property
included in courtesy copies
[not filed electronically])
There is shown on the map outlines of -
o the claims area,
o the Blue Placer claims,
o the Julie White placer claims, and
o the Julie White lode claims.
18
Oro Blanco Claims. These 91 federal lode and placer claims and
four Utah State mineral leases are all held by the Engh family. A 5.5
percent production royalty on ores taken from the four state leases must be
paid to the State of Utah.
The Engh family has granted a lease on these properties to Utah Clay.
Utah Clay is to pay -
o all fees to the BLM to maintain the claims,
o and a $5,000 minimum annual lease payment to the Enghs or a
$2.50 a ton production royalty payment with a Consumer Price
Index escalation clause, whichever is greater, and
o a production royalty of three percent on the gross value of
the ores taken from the property.
The term of the lease is March 27, 2004, and as long thereafter as
commercial production is maintained.
There appears on the next page a detailed map of Utah Clay's Oro
Blanco property. There is shown on the map outlines of -
o the mining area of interest,
o the Engh Family lode claims,
o the Engh Family placer claims, and
o the State of Utah mineral leases.
19
(Detailed map of Utah Clay's
Oro Blanco property
included in courtesy copies
[not filed electronically])
There is shown on the map outlines of -
o the mining area of interest,
o the Engh Family lode claims,
o the Engh Family placer claims, and
o the State of Utah mineral leases.
20
Koosharem, Kimberly and Topaz Claims. These claims are all reserved
from the BLM in the name of Don and Anola Fullmer, who are unaffiliated with
our company. The Fullmers have granted leases on the claims to Daniel and
Dennis Engh, whose affiliation with Utah Clay is described above. Daniel and
Dennis Engh have granted options to Kaolin of the West, LLC, for it to obtain
an assignment of the leases. The members and owners of Kaolin of the West,
LLC, are Dennis S. Engh, Daniel H. Engh, Thomas F. Harrison and Carmen J.
(Tony) Lotito.
The royalty payments for the leases are identical to those of the
White Mountain mining claims, including the royalty payments to the Enghs and
the Fullmers.
Each of the three options expires March 27, 2004. A payment of
$10,000 for each option - $5,000 to the Fullmers and $5,000 to the Enghs -
must be paid by June 10 of each year to extend the options past that date as
well as the payment of all federal and state rentals, taxes and other payments
associated with the mining claims. To exercise each option, Utah Clay must
pay to the owners of Kaolin of the West, LLC, in cash or in common stock of
the company, an amount of cash or common stock equal to the fair market value
of the premises subject to the optioned leases. The fair market value will be
determined by reference to an evaluation of any kaolin reserves as determined
by an independent engineer.
The mining claims of the three leases under option to the company
expire on March 27, 2004 unless by such date commercial production of at least
5,000 tons a year is being obtained from any or all of the claims subject to
each of the leases. Once the required level of commercial production has been
obtained, the term of each lease is extended for so long as the production
requirement is met.
History of Mineral Exploration
Both White Mountain and Oro Blanco have a history of mineral
exploration. The following descriptions concern areas on the leases of Utah
Clay.
White Mountain. Earth Sciences conducted some exploratory drilling on
property that is now under our control in White Mountain in the late 1960s and
early 1970s. Earth Sciences was a consortium of companies that was looking
for commercial deposits of alunite. They found alunite and associated deposits
of kaolin by rotary percussion drilling. Data for these holes is not
available. An overview of the geology and a summary of their drilling results
is outlined in the published Final Environmental Statement date stamped August
26, 1977 by the BLM and signed by Curt Berklund, Director, Bureau of Land
Management.
21
Buena Vista Mining drilled seven holes on the White Mountain lease in
1992. Buena Vista was a company controlled by the Engh Family. The Enghs
have made that information accessible to Utah Clay. The cores were stored and
are available for chemical and brightness analysis.
Utah Clay has an open test pit that reveals high brightness kaolin
exposed at the surface. Samples have been taken from the pit to test the
kaolin for use in paints and other industries.
Neither proven nor probable reserves have been established.
Oro Blanco. Earth Sciences conducted extensive exploration for
molybdenum, uranium, gold and flourite in the Oro Blanco region of the
Wah Wah Mountains in the late 1960s and early 1970s. Earth Sciences drilled
241 core and rotary holes in the area subject to our claims. They found
deposits of both kaolin and alunite. This information is outlined in a report
by Joseph Shearer, a registered geologist. He was retained by Fire Clay
Minerals, Inc., a company controlled by the Engh Family.
Fire Clay Minerals, Inc. next drilled 104 core holes in the area subject
to our placer claims. The holes total 10,982 feet and outline a deposit of
high brightness kaolin and alunite. This drilling was done in 1989 and is
outlined in a report by R.R. Culpert, Ph.D.
An area of 130 by 300 feet was stripped of overburden to expose a kaolin
deposit. Samples have been taken from this area to test for brightness and
chemistry.
Neither proven nor probable reserves have been established.
Koosharem and Kimberly Claims. There have been no significant operations
on these claims other than the annual assessment work on the perceived
deposits.
Topaz Claims. Utah Clay conducted a limited drilling program on the Topaz
claims property in 1995. Evidence of a certain form of kaolite, called
halloysite, was found. Drilling was not sufficient to prove any reserves.
Plant and Equipment
There is no plant or equipment at any of the sites of the mining claims.
Power can be supplied to the White Mountain site from Utah Power &
Light's grid four miles to the east. Power can be supplied to the
Oro Blanco site from Utah Power & Light's grid ten miles to the east.
22
Plan of Operations for the Next Twelve Months
We earlier entered into two agreements for the preliminary evaluation
of our properties and the cost of building a processing facility.
ISG Resources, Inc. We provided access to our properties to ISG
Resources, Inc. of Salt Lake City, Utah, for the purpose of enabling it to
determine the feasibility of a joint venture between it and our company for
the mining, production and marketing of certain kaolin clay products from our
properties. ISG Resources twice extended the term of this agreement. It
finally advised us that our kaolin would be acceptable for producing a product
that it markets but that it markets an insufficient quantity of this product
to justify building a production facility solely for this product.
Precision Systems Engineering. Precision Systems Engineering of Salt
Lake City, Utah was employed in June 1999 to provide an estimate of the cost
of designing and constructing a kaolin clay processing facility for our
company. It provided an initial estimate but, due to our inability to pay for
a complete study, design and estimate, we and it suspended further efforts in
this regard until we can pay for a complete design and estimate.
During the next twelve months we propose to re-analyze the seven core
holes that were drilled on the White Mountain property by Buena Vista Mining
in 1992. This analysis will cover the brightness, alteration minerals,
percent of alteration and color along with other tests. Then, subject to the
availability of funds, we will conduct a new drilling program. Our plan
provides that holes will be drilled on 200-foot spacing to define the areas
of greatest shallow, high brightness kaolinite. The drilling will commence
outward from the test pit where a previous hole encountered 136 feet of white
kaolin. The next phase of drilling will concentrate on the highest potential
areas found in the first holes. The spacing will be 100 feet. The holes
will be drilled to 150 feet. The drilling will produce cores. Samples from
these cores will be tested for brightness, color, specific gravity, chemical
composition and contaminates. The goal of this drilling and analysis of the
cores is to establish the presence of mineralized material. We will then
combine this information with the requirements of industry standards, prices
of marketable kaolin and recovery costs to determine the degree of legal and
economic feasibility of further activities.
Should this determination be favorable for further activities, we will
seek the funds needed to construct a processing facility. The initial
engineering and design work performed for us by Precision Systems Engineering
concluded that the cost of a processing facility will be from $5 million to
23
$10 million, depending on the capacity of the facility. We have not located
a source of these funds.
We estimate it will take approximately one year after the funds are
committed to the facility to complete its design and construction and to make
it operational. Only then would we first obtain revenues for our company.
We have not identified a source of capital for our drilling program.
We propose to approach persons known to our management and familiar with our
company's history as the source of this capital.
Oro Blanco. A drilling and testing program similar to that planned for
White Mountain is contemplated. There was an indication from the previous
program that a promising trend of kaolin continues to the east past where the
previous drilling program stopped. This trend will be explored in the new
drilling program.
Koosharem, Kimberly and Topaz Claims. We have no present proposed
program of exploration on these properties that are subject to our options to
acquire. They are without known reserves.
Rock Formations and Mineralization
White Mountain: Kaolin, hydrated silica and alunite occur as a mixed
mineral system in the White Mountain region of Utah in the lower and upper
tuff members of an unnamed geological formation. These minerals vary in their
percentages throughout the deposits and have formed where acid-rich,
hydrothermal fluids have strongly altered the tuffs. "Tuff" is a geological
term for rock composed of finer kinds of volcanic detritus commonly fused
together by heat.
The percentages of the three primary components vary depending upon
the composition of the tuff and the heat and character of the hydrothermal
fluids. Kaolin, for example can occur from 99% down to 25%. Alunite
typically occurs in the range 2% to 12%. Hydrated silica in the form of opal
and opal CT make up the major portion of the remainder. Because these three
components are all white and all insoluble in water, their combination makes a
good, non-reactive white pigment for incorporation in paint, plastics, paper
and other products. When the mixtures are calcined at high temperatures, the
products are virtually indistinguishable from 100% kaolin calcined at the same
temperature, except that the hydrothermal materials are whiter.
Strong alteration of the tuff to kaolin, alunite and hydrated silica
occurs for about two miles along east-west faults. Local centers for high
24
kaolin and alunite occur where north-northwest faults intersect the main
east-west structural feature. Individual centers range in size from 250 to
500 feet in width and extend 2000 feet in length along the principal feeder
fault. In these alteration zones, the kaolin and alunite grade outward in
composition. At their termination, bands of high iron oxide, red in color,
occur, usually followed by hard silica.
Chemical analyses of the whitest regions within the deposit suggest
small amounts of iron oxide (as hematite and goethite) of 0.3%, occasional
calcium sulfate (0.5%) and some jarosite (0.5%), a mineral similar in
character to alunite but containing iron structurally substituted for
aluminum. The remainder of the impurities, as Mg, Ca, K, Na, and Ti, are less
than 2% total and are similar to impurities in commercial kaolins from Georgia
and South Carolina.
These impurities are not separated during the commercial processing
and have no deleterious effect on pigment properties in the end products.
Numerous chemical analyses of the kaolinite have been done. They
uniformly show low amounts of contaminants, specifically iron.
Typical amounts of other minerals are:
Fe 0.172%
Na2O 0.296%
K2O 1.48%
CaO 0.505%
MgO 0.118%
Oro Blanco. The geology is similar to that at White Mountain, but the
alteration is more complex.
Koosharem, Kimberly and Topaz Claims. Each of these areas shows the
hydrothermal alteration of volcanic tuffs. The geology has not been studied
in sufficient detail to describe it accurately.
Geology
Drilling and testing which has been conducted to date on our
properties suggest that the cap rock (mineralization which occurs on top of
the kaolin) is shallow in many locales, often less than 25 feet in thickness.
The veins of mineralized kaolin (and associated minerals) under this cap rock
are often quite wide and of a consistent color and composition, especially
after the calcination process is employed. Further drilling and analyses and
required to evaluate the usable volume and grade as well as to develop the
initial mining plan.
25
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1998 the company issued 2,100,774 shares of its common stock
at $0.18 a share to the following officers and directors of the company,
persons owning more than five percent of any class of security of the company,
or to members of their immediate family:
Relationship No. of Shares Value of
Person to the Company Issued Consideration
------ -------------- ------ -------------
Della Engh Mother of Dennis and 823,333 $ 148,200
Daniel Engh
Dennis S. Engh President and Director 581,900 104,742
Carmen J. (Tony) Lotito Director of Marketing 332,659 59,879
and Director
Thomas F. Harrison Vice President, Chief 135,872 24,467
Financial Officer and
Director
Daniel H. Engh Vice President and 227,010 40,862
--------- ---------
Director
2,100,774 $ 378,150
The consideration we received from Della Engh for the above shares was
the cancellation of loan indebtedness in the indicated amount owed by Utah
Clay to her. The consideration we received from the other persons named above
was the cancellation of debt in the indicated amounts arising from unpaid
compensation for their services as officers of Utah Clay.
On December 27, 1999 we issued 17,739,500 shares of our common stock
as the purchase price for an assignment of the Oro Blanco mining lease. The
shares were valued at $0.001 a share for a total purchase price of $17,739.50.
At the time of the purchase, our common stock had not traded in the
over-the-counter market for several weeks, and the stockholders' capital in
Utah Clay was impaired. The seller of the Oro Blanco lease was Utah Kaolin
Corporation, an affiliate of Utah Clay by reason of common directors of the
two companies and by reason of common control of the two companies through
majority ownership of the voting stock of each company by the directors of the
two companies.
Utah Kaolin Corporation subsequently distributed the 17,739,500 shares
to its shareholders. One of those shareholders, Thomas J. Kenan, who is legal
counsel to Utah Clay and to Utah Kaolin, transferred 650,194 shares to a trust
under the control of his spouse, Marilyn C. Kenan, who also is the primary
beneficiary of the trust. He donated remaining 10,000 shares to his legal
26
assistant, Sherie S. Adams. The complete distribution of the 17,739,500 shares
of Utah Clay stock by Utah Kaolin was as follows:
No. of
Shares
Person Relationship to the Company Issued
------ --------------------------- ------
Dennis S. Engh President and Director 3,979,297
Daniel H. Engh Vice President and Director 3,979,297
Thomas F. Harrison Vice President and Director 3,869,666
Carmen J. (Tony) Lotito Director of Marketing and Director 1,984,833
Marilyn C. Kenan, Spouse of Thomas J. Kenan, 650,194
Trustee of the Marilyn securities law counsel to the
C. Kenan Trust company
Dorcas Ardella Engh Mother of Dennis S. Engh and 850,000
Daniel H. Engh
Sherie S. Adams Legal Assistant to Thomas J. 10,000
Kenan, securities law counsel to
the company
Robert N. Nelson and Brother-in-law and sister of 1,300,000
Jeanette E. Nelson, TTEE Dennis S. Engh and Daniel H. Engh,
FBO Nelson Family and uncle and aunt to Darin Engh
Revocable Trust UAD 2-
28-91
Raymond and Olga Nelson Son and daughter-in-law of Robert 200,000
N. Nelson and Jeanette E. Nelson
Jack Nelson Son of Robert N. and Jeanette E. 100,000
Nelson
Kendrick O. Morrison None (non-affiliated shareholder) 816,213
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock was earlier quoted on the OTC Bulletin Board under
the stock symbol "UTCL". The high and low bid information for the stock
during 1998, 1999 and the first quarter of 2000 is set forth below. The
information was obtained from the OTC Bulletin Board and reflects inter-dealer
prices, without retail mark-up, mark-down or commission and may not represent
actual transactions:
Calendar
Quarter High Low
--------- ------- ---------
1998:
1st Qtr 2.125 1.75
2nd Qtr 2.0625 1.625
3rd Qtr 1.875 1.3125
4th Qtr 1.53125 0.125
27
1999:
1st Qtr 0.3438 0.1600
2nd Qtr 0.8438 0.1875
3rd Qtr 0.6250 0.1300
4th Qtr 0.5000 0.1875
2000:
1st Qtr 1.125 0.25
During the period from May 3, 2000 to the date of this prospectus
our common stock was removed from the Bulletin Board and was quoted only in
the "Pink Sheets". We anticipate that our common stock will once again be
admitted to quotation privileges on the Bulletin Board within a few days
after the date of this prospectus.
Holders. There are approximately 200 holders of record of our common stock.
There are three holders of record of our Series A Preferred Stock, for which
there is no trading market.
Dividends. No cash dividends have been declared during the last two years for
either the common stock or the Series A Preferred Stock. There are no
restrictions that limit the ability of the company to pay dividends on the
common stock or that are likely to do so in the future other than the
requirement that dividends be paid first to the holders of the company's
preferred stock.
PENNY STOCK REGULATIONS
Our common stock has always traded at a price less than $5 a share and
is subject to the rules governing "penny stocks."
A "penny stock" is any stock that:
o sells for less than $5 a share,
o is not listed on an exchange or authorized for quotation on
The Nasdaq Stock Market, and
o is not a stock of a "substantial issuer." Utah Clay
Technology is not now a "substantial issuer" and cannot become
one until it has net tangible assets of at least $5 million,
which it does not now have.
There are statutes and regulations of the Securities and Exchange
Commission that impose a strict regimen on brokers that recommend penny stocks.
28
The Penny Stock Suitability Rule
Before a broker-dealer can recommend and sell a penny stock to a new
customer who is not an institutional accredited investor, the broker-dealer
must obtain from the customer information concerning the person's financial
situation, investment experience and investment objectives. Then, the
broker-dealer must "reasonably determine" (1) that transactions in penny
stocks are suitable for the person and (2) that the person, or his advisor,
is capable of evaluating the risks in penny stocks.
After making this determination, the broker-dealer must furnish the
customer with a written statement setting forth the basis for this
suitability determination. The customer must sign and date a copy of the
written statement and return it to the broker-dealer.
Finally the broker-dealer must also obtain from the customer a written
agreement to purchase the penny stock, identifying the stock and the number of
shares to be purchased.
The above exercise delays a proposed transaction. It causes many
broker-dealer firms to adopt a policy of not allowing their representatives to
recommend penny stocks to their customers.
The Penny Stock Suitability Rule, described above, and the Penny Stock
Disclosure Rule, described below, do not apply to the following:
o transactions not recommended by the broker-dealer,
o sales to institutional accredited investors,
o sales to "established customers" of the broker-dealer -
persons who either have had an account with the broker-dealer
for at least a year or who have effected three purchases of
penny stocks with the broker-dealer on three different days
involving three different issuers, and
o transactions in penny stocks by broker-dealers whose income
from penny stock activities does not exceed five percent of
their total income during certain defined periods.
29
The Penny Stock Disclosure Rule
Another Commission rule - the Penny Stock Disclosure Rule - requires
a broker-dealer, who recommends the sale of a penny stock to a customer in a
transaction not exempt from the suitability rule described above, to furnish
the customer with a "risk disclosure document." This document includes a
description of the penny stock market and how it functions, its inadequacies
and shortcomings, and the risks associated with investments in the penny stock
market. The broker-dealer must also disclose the stock's bid and ask price
information and the dealer's and salesperson's compensation related to the
proposed transaction. Finally, the customer must be furnished with a monthly
statement including prescribed information relating to market and price
information concerning the penny stocks held in the customer's account.
Effects of the Rule
The above penny stock regulatory scheme is a response by the Congress
and the Commission to known abuses in the telemarketing of low-priced
securities by "boiler shop" operators. The scheme imposes market impediments
on the sale and trading of penny stocks. It has a limiting effect on a
stockholder's ability to resell a penny stock.
Our common stock likely will continue to trade below $5 a share and
be, for some time at least, a "penny stock" subject to the trading market
impediments described above.
Potential De-Listing of Common Stock
NASD Eligibility Rule 6530 issued on January 4, 1999, states that
issuers that do not make current filings pursuant to Sections 13 and 15(d) of
the Securities Exchange Act of 1934 are ineligible for listing on the OTC
Bulletin Board. Issuers who are not current with such filings are subject,
first, to having an "E" appended to their trading symbol and, then, to
de-listing if they fail to become current within a short period of time.
Our common stock was delisted on May 3, 2000, because we were not a reporting
company. We will become a reporting company the day the Commission makes
effective our registration statement of which this prospectus is a part.
We anticipate our Bulletin Board trading privileges, under our previous stock
trading symbol of "UTCL", will be restored within a few days after the date
on the cover of this prospectus. Even so, we will remain subject to delisting
at any time that we are not current in filing reports in the future.
Reports to Security Holders
We will file reports with the Securities and Exchange Commission.
These reports are annual 10-KSB, quarterly 10-QSB and periodic 8-K reports.
30
This prospectus is part of a registration statement that, when effective at
the Securities and Exchange Commission, subjects us to these reporting
requirements. We will furnish stockholders with annual reports containing
financial statements audited by independent public or certified accountants
and such other periodic reports as we may deem appropriate or as required by
law. The public may read and copy any materials we file with the SEC at the
Public Reference Room of the SEC at 450 Fifth Street, N.W., Washington, D.C.
20549. The public may obtain information on the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330. Utah Clay is an
electronic filer, and the SEC maintains an Internet Web site that contains
reports, proxy and information statements and other information regarding
issuers that file electronically with the SEC. The address of such
site is http://www.sec.gov.
EXECUTIVE COMPENSATION
No executive officer of the company has received total compensation
in any of the last three years that exceeds $100,000. The table below sets
forth all compensation awarded to, earned by, or paid to Dennis S. Engh, the
president of the company during 1999:
Long Term Compensation
---------------------------
Awards
-------------------------
Annual Compensation Securities Payouts
- - ------------------------------------ Underlying ----------------------
Other Annual Restricted Options/ LTIP All Other
Year Salary Bonus Compensation Stock Awards SARS Payouts Compensation
1999 $72,000 0 0 0 0 0 0
Stock Options. We have adopted a 2000 Stock Option Plan, the major provisions
of which Plan are as follows:
Options granted under the plan may be "employee incentive stock
options" as defined under Section 422 of the Internal Revenue Code or
non-qualified stock options, as determined by the option committee of the
board of directors at the time of grant of an option. The plan enables the
option committee of the board of directors to grant up to 500,000 stock
options to employees and consultants from time to time. The option
committee has granted no options.
Directors. There are no arrangements pursuant to which directors of the
company are compensated for their services as a director.
Employment Contracts. The company has no employment contracts with any person
or any compensatory plan or arrangement with any person that would result from
the resignation, retirement or any other termination of a person's employment
31
with the company or its subsidiaries or from a change in control of the
company or a change in a person's responsibilities following a change in
control of the company.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
The principal independent accountant of the company or any significant
subsidiary has not resigned, declined to stand for re-election, or been
dismissed by the company during the periods for which financial statements
are included herein.
ADDITIONAL INFORMATION
The company will furnish its shareholders with annual reports
containing audited financial information, reported upon by independent public
accountants. The company shall also furnish quarterly reports for the first
three quarters of each year containing unaudited financial information.
FINANCIAL STATEMENTS
The following financial statements are included as part of this
prospectus:
Page
------
Independent Auditors' Report ......................................... F-1
Balance Sheets December 31, 1999 and 1998 ............................ F-2
Statements of Operations
Year ended December 31, 1999 and 1998 ........................ F-4
Statements of Changes in Stockholders' Deficit
From inception (March 1, 1994) to
December 31, 1999 ............................................ F-5
Statements of Cash Flows
Year ended December 31, 1999; year ended
December 31, 1998; and cumulative from
inception (March 1, 1994) to
December 31, 1999 ............................................ F-7
Notes to Financial Statements ........................................ F-9
Balance Sheets June 30, 2000 (Unaudited) and
December 31, 1999 ............................................ F-18
32
Statements of Operations (Unaudited)
Quarter ended June 30, 2000 and 1999, and
cumulative from inception (March 1, 1994)
to June 30, 2000 ............................................. F-20
Statements of Cash Flows (Unaudited)
Quarter ended June 30, 2000 and 1999, and
cumulative from inception (March 1, 1994)
to June 30, 2000 ............................................. F-21
Notes to Financial Statements (Unaudited) ............................ F-23
33
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors
Utah Clay Technology, Inc.
We have audited the accompanying balance sheets of Utah Clay
Technology, Inc. (An Exploration stage company) as of December 31, 1999 and
1998 and the related statements of operations, stockholders' deficit and cash
flows for the years ended December 31, 1999 and 1998, and for the period from
inception (March 1, 1994) to December 31, 1999. These financial statements
are the responsibility of the company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and singnificant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Utah Clay
Technology, Inc. (An Exploration Stage company) as of December 31, 1999 and
1998 and the results of its operations and its cash flows for the years then
ended, and for the period from inception (March 1, 1994) to December 31,
1999, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming
that the company will continue as a going concern. As discussed in Note 11
to the financial statements, the company has suffered losses from operations
and remains in the Exploration stage. These conditions raise substantial
doubt about its ability to continue as a going concern. Management's plans
in regard to these matters are also described in Note 11. The financial
statements do not include any adjustments that might result from the
outcome of this uncertainly.
/s/ Kabani & Company, Inc.
Kabani & Company, Inc.
Fountain Valley, California
March 17, 2000
F-1
Utah Clay Technology, Inc.
(An Exploration Stage Company)
BALANCE SHEETS
December 31, 1999 & 1998
ASSETS
------
1999 1998
----------- -----------
Current Assets
Cash $ 640 $ 208
Receivables 350 100
----------- -----------
Total Current Assets 990 308
Properties & Equipment
Laboratory equipment 2,484 2,484
Machine design & configuration 128,000 -
Mining leases 45,073 27,333
----------- -----------
Total Properties & Equipment 175,557 29,817
----------- -----------
$ 176,547 $ 30,125
The accompanying notes are an integral part of these financial statements.
F-2
Utah Clay Technology, Inc.
( An Exploration Stage Company )
BALANCE SHEETS
December 31, 1999 & 1998
LIABILITIES AND STOCKHOLDERS' DEFICIT 1999 1998
------------------------------------- ------------ ------------
Current Liabilities
Accounts payable $ 358,839 $ 194,541
Advances payable- officers and directors 328,712 226,394
Notes payable 149,469 25,611
------------ ------------
Total Current Liabilities 837,020 446,546
Stockholders' Deficit
Preferred stock, par value $0.001;
10,000,000 shares authorized;
84, 817 shares issued and outstanding 85 85
Common stock, par value $0.001;
30,000,000 shares authorized; 23,331,874
shares in1999 and 5,592,374 shares in 1998
issued and Outstanding 23,332 5,592
Additional paid-in capital 1,451,691 1,451,691
Deficit accumulated from inception (2,135,581) (1,873,789)
------------ ------------
Total Stockholders' Deficit (660,473) (416,421)
------------ ------------
$ 176,547 $ 30,125
============ ============
The accompanying notes are an integral part of these financial statements.
F-3
Utah Clay Technology, Inc
(An Exploration Stage Company )
STATEMENTS OF OPERATIONS
Year ended December 31,
--------------------------
1999 1998
-------- --------
Revenues $ - $ -
Expenses:
Mineral lease rentals 64,531 48,608
General and administrative 197,161 514,643
--------- ---------
Loss before income taxes (261,692) (563,251)
Income taxes 100 100
--------- ---------
NET LOSS $ (261,792) $ (563,351)
=========== ===========
Basic and diluted Loss per
common share $ (0.04) $ (0.18)
=========== ===========
Basic and diluted weighted average
number of common shares
outstanding 5,835,381 3,127,762
=========== ===========
The accompanying notes are an integral part of these financial statements.
F-4
Utah Clay Technology, Inc.
( An Exploration Stage Company )
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
From Inception (March 1, 1994) to December 31, 1999
Deficit
Additional Accumulated
Preferred Stock Common Stock Paid-In From
Shares Amount Shares Amount Capital Inception Total
------ ------ ------ ------ ------- ----- -----
Shares issued for
cash March 1, 1994 -- $ -- 5,600,000 $ 56,000 $ $ $ 56,000
Shares issued for
services March 1,
1994 -- -- 14,400,000 144,000 -- -- 144,000
Net loss for period
March 1, 1994 to
December 31, 1994 -- -- -- -- -- (105,573) (105,573)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance December
31, 1994 -- -- 20,000,000 200,000 -- (105,573) 94,427
Net loss for the year
ended December 31
1995 -- -- -- -- -- (672,267) (672,267)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance December
31, 1995 -- -- -- 200,000 -- (777,840) (577,840)
1 for 10 reverse split
September 30, 1996 (20,000,000) (180,000) 180,000
Change of par value
to $0.001 -- -- -- (18,000) 18,000 -- --
Preferred stock
issued to related
parties for
cancellation of debt
September 30, 1996 84,817 85 -- -- 424,000 -- 424,085
Shares issued for
services in 1996 265,000 265 48,200 -- 48,465
Net loss for the year
ended December 31
-- -- -- -- -- (153,669) (153,669)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance December
31, 1996 84,817 $ 85 2,265,000 $ 2,265 $ 670,200 $ (931,509) $ (258,959)
The accompanying notes are an integral part of these financial statements.
F-5
Utah Clay Technology, Inc.
(An Exploration Stage Company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT (CONTINUE)
From Inception (March 1, 1994) to December 31, 1999
Deficit
Additional Accumulated
Preferred Stock Common Stock Paid-In From
Shares Amount Shares Amount Capital Inception Total
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance December
31, 1996 84,817 $ 85 2,265,000 $ 2,265 $ 670,200 $ (931,509) $ (258,959)
Shares issued for
cash in 1997 -- -- 100,000 100 199,900 -- 200,000
Shares issued for
debt cancellation
in 1997 -- -- 165,000 165 (165) -- --
Net loss for the year
ended December
31, 1997 -- -- -- -- -- (378,929) (378,929)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance December
31, 1997 84,817 85 2,530,000 2,530 869,935 (1,310,438) (437,888)
Shares issued for
outstanding
Warrants -- -- 389,600 389 103,634 -- 104,023
Shares issued for
debt cancellation
In 1998 -- -- 2,100,774 2,101 376,049 -- 378,150
Shares issued for
services in 1998 -- -- 572,000 572 102,073 -- 102,645
Net loss for the year
ended December31, 1998 -- -- -- -- -- (563,351) (563,351)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance December
31, 1998 84,817 85 5,592,374 5,592 1,451,691 (1,873,789) (416,421)
Shares issued for
mining lease -- -- 17,739,500 17,740 -- -- 17,740
Net loss for the year
ended December
31, 1999 -- -- -- -- -- (261,792) (261,792)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance December
31, 1999 84,817 $ 85 23,331,874 $ 23,332 $ 1,451,691 $(2,135,581) $ (660,473)
=========== =========== =========== =========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
F-6
Utah Clay Technology, Inc.
(An Exploration Stage Company)
STATEMENTS OF CASH FLOWS
Cumulative
from inception
Year ended Year ended (March 1, 1994)
December 31, December 31, to December 31,
1999 1998 1999
-------------- -------------- ---------------
Cash flows from operating activities:
Net loss $ (261,792) $ (563,351) $ (2,135,581)
Adjustments to reconcile net loss to net cash
used in operating activities:
Issuance of common stock for services - 102,645 295,110
Decrease in other assets - 9,975 -
(Increase) in receivables (250) (100) (350)
Increase in Accounts payable 164,298 67,600 507,039
------------- -------------- ---------------
Net cash used in operating activities (97,744) (383,231) (1,333,782)
Cash flows from investing activities:
Mining leases - - (27,333)
Machine design & configuration (128,000) - (130,484)
Net cash used in investing activities (128,000) - (157,817)
Cash flows from financing activities:
Net proceeds from advances by
Officers/directors 102,318 246,856 982,747
Proceeds from notes payable 123,858 25,611 149,469
Issuance of shares - 104,023 360,023
------------- -------------- ---------------
Net cash provided by financing activities: 226,176 376,490 1,492,239
Net increase (decrease) in cash & cash
equivalent 432 (6,741) 640
Cash & cash equivalent - beginning of period 208 6,949 -
------------- -------------- ---------------
Cash at end of period $ 640 $ 208 $ 640
============= ============== ===============
The accompanying notes are an integral part of these financial statements.
F-7
Utah Clay Technology, Inc.
(An Exploration Stage Company)
STATEMENTS OF CASH FLOWS (CONTINUE)
Cumulative
from inception
Year ended Year ended (March 1, 1994)
December 31, December 31, to December
1999 1998 1999
----------- ---------- ----------
Supplemental disclosures:
Cash paid during the period for:
Interest $ 4,802 $ 2,149 $ 6,951
============== ========== ========
Income tax $ 300 $ 250 $ 850
============== ========== ========
Non-cash investing and financing activities:
Issuance of common stock for services $ -- $ 102,645 $295,110
============== ========== ========
Issuance of preferred stock for debt $ -- $ -- $424,085
============== ========== ========
Issuance of common stock for acquisition
of Mining rights $ 17,740 $ -- $ 17,740
============== ========== ========
Issuance of common stock against
cancellation of debt - Advances and
accrued expenses $ -- $ 378,150 $802,235
============== ========== ========
The accompanying notes are an integral part of these financial statements.
F-8
Utah Clay Technology, Inc.
(An Exploration Stage Company)
Notes to Financial Statements
December 31, 1999 and 1998
Note 1- Summary of significant accounting policies
Organization and nature of operations
Utah Clay Technology, Inc. (the "Company"), a Utah corporation, was
incorporated on March 1, 1994. The planned operations of the Company are to
engage in mining, processing and marketing of minerals. For the period from
inception (March 1, 1994) to December 31, 1999 the Company had no revenues.
The Company is classified as An Exploration stage company because its
principal activities involve obtaining the capital necessary to execute its
strategic business plan.
Cash and cash equivalents
The Company considers all liquid investments with a maturity of three
months or less from the date of purchase that are readily convertible into
cash to be cash equivalents.
Issuance of share for services
Valuation of shares for services is based on the fair market value of
services.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Properties & equipment
Equipment is recorded at cost. The Company has adopted the straight-line
method in computing depreciation for financial reporting purposes and
generally uses accelerated methods for income tax purposes. The annual
provision for depreciation will be computed principally in accordance with the
following ranges of asset lives: laboratory equipment- 3 to 5 years;
processing equipment- 3 to 10 years. Equipment was acquired and set up in
late, 1997. No depreciation expense has been recorded in the financial
statements as the company is yet to use any of its equipment and mining
properties. (See Note 4).
F-9
Utah Clay Technology, Inc.
(An Exploration Stage Company)
Notes to Financial Statements
December 31, 1999 and 1998
Reclassifications
Certain items in the prior year financial statements have been
reclassified for comparative purposes to conform with the presentation in the
current years' presentation. These reclassifications have no effect on the
previously reported income (loss).
Income taxes
Deferred income tax assets and liabilities are computed annually for
differences between the financial statements and tax basis of assets and
liabilities that will result in taxable or deductible amounts in the future
based on enacted laws and rates applicable to the periods in which the
differences are expected to affect taxable income (loss). Valuation allowance
is established when necessary to reduce deferred tax assets to the amount
expected to be realized.
Basic and diluted net loss per share
Net loss per share is calculated in accordance with the Statement of
financial accounting standards No. 128 (SFAS No. 128), "Earnings per share".
SFAS No. 128 superseded Accounting Principles Board Opinion No.15 (APB 15).
Net loss per share for all periods presented has been restated to reflect the
adoption of SFAS No. 128. Basic net loss per share is based upon the weighted
average number of common shares outstanding. Diluted net loss per share is
based on the assumption that all dilutive convertible shares and stock options
were converted or exercised. Dilution is computed by applying the treasury
stock method. Under this method, options and warrants are assumed to be
exercised at the beginning of the period (or at the time of issuance, if
later), and as if funds obtained thereby were used to purchase common stock
at the average market price during the period.
Stock-based compensation
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-
Based Compensation". SFAS No. 123 prescribes accounting and reporting
standards for all stock-based compensation plans, including employee stock
options, restricted stock, employee stock purchase plans and stock
appreciation rights. SFAS No. 123 requires compensation expense to be recorded
(i) using the new fair value method or (ii) using the existing accounting
rules prescribed by Accounting Principles Board Opinion No. 25, "Accounting
for stock issued to employees" (APB 25) and related interpretations with
proforma disclosure of what net income and earnings per share would have been
had the company adopted the new fair value method. The company adopted this
standard in 1998 and the implementation of this standard did not have any
impact on its financial statements.
F-10
Utah Clay Technology, Inc.
(An Exploration Stage Company)
Notes to Financial Statements
December 31, 1999 and 1998
Fair value of financial instruments
Statement of financial accounting standard No. 107, Disclosures about
fair value of financial instruments, requires that the company disclose
estimated fair values of financial instruments. The carrying amounts reported
in the statements of financial position for current assets and current
liabilities qualifying as financial instruments are a reasonable estimate of
fair value.
Comprehensive income
Statement of financial accounting standards No. 130, Reporting
comprehensive income (SFAS No. 130), establishes standards for reporting and
display of comprehensive income, its components and accumulated balances.
Comprehensive income is defined to include all changes in equity, except
those resulting from investments by owners and distributions to owners. Among
other disclosures, SFAS No. 130 requires that all items that are required to
be recognized under current accounting standards as components of
comprehensive income be reported in a financial statements that is displayed
with the same prominence as other financial statements. The company adopted
this standard in 1998 and the implementation of this standard did not have a
material impact on its financial statements.
Reporting segments
Statement of financial accounting standards No. 131, Disclosures about
segments of am enterprise and related information (SFAS No. 131), which
superceded statement of financial accounting standards No. 14, Financial
reporting for segments of a business enterprise, establishes standards for
the way that public enterprises report information about operating segments
in annual financial statements and requires reporting of selected information
about operating segments in interim financial statements regarding products
and services, geographic areas and major customers. SFAS No. 131 defines
operating segments as components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and in
assessing performances. The company adopted this standard in 1998 and the
implementation of this standard did not have a material impact on its
financial statements.
Pension and other benefits
In February 1998, the Financing accounting standards board issued
statement of financial accounting standards No. 132, Employers'
disclosures about pension and other post-retirement benefits
(SFAS No. 132), which standardizes the disclosures requirements for pension
and other post -retirement benefits. The company adopted this standard in
1998 and the implementation of this standard did not have any impact on its
financial statements.
F-11
Utah Clay Technology, Inc.
(An Exploration Stage Company)
Notes to Financial Statements
December 31, 1999 and 1998
Accounting for the costs of computer software developed or obtained for
internal use
In March 1998, the Accounting standards executive committee of the
American institute of certified public accountants (ASEC of AICPA) issued
Statement of position (SOP) No. 98-1, "Accounting for the costs of computer
software developed or obtained for internal use", effective for fiscal years
beginning after December 15, 1998. SOP N0. 98-1 requires that certain costs
of computer software developed or obtained for internal use be continued
capitalized and amortized over the useful life of the related software. The
company adopted this standard in fiscal 1999 and the implementation of this
standard did not have a material impact on its financial statements.
Costs of start-up activities
In April 1998, the ASEC of AICPA issued SOP No. 98-5, "Reporting on the
costs of start-up activities", effective for fiscal years beginning after
December 15, 1998. SOP 98-5 requires the costs of start-up activities and
organization costs to be expensed as incurred. The company adopted this
standard in fiscal 1999 and the implementation of this standard did not have
a material impact on its financial statements.
Accounting developments
In June 1998, the FASB issued SFAS No. 133,
"Accounting for derivative instruments and hedging activities", effective for
fiscal years beginning after June 15, 1999, which has deferred to June 30,
2000 by publishing of SFAS No. 137. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts (collectively referred to
as derivatives), and for hedging activities. This statement requires that an
entity recognize all derivative as either assets or liabilities in the
statement of financial condition and measure those instruments at fair value.
The accounting for changes in the fair value of a derivative instrument
depends on its intended use and the resulting designation. The company does
not expect that the adoption of this standard will have a material impact
on its financial statements.
Note 2- Income taxes
Since the Company has not generated taxable income since inception, no
provision for income taxes has been provided (other than minimum franchise
taxes paid to the State of Utah). Differences between income tax benefits
computed at the federal statutory rate and reported income taxes for 1999
and 1998 are primarily attributable to the valuation allowance for net
operating losses (NOL) and other permanent differences.
F-12
Utah Clay Technology, Inc.
(An Exploration Stage Company)
Notes to Financial Statements
December 31, 1999 and 1998
The net deferred tax (benefit) due to NOL carried forward, as of
December 31, 1999 and 1998, consisted of the following:
1999 1998
---- ----
Deferred tax asset $ 418,389 $ 313,672
Deferred tax asset valuation allowance (418,389) (313,672)
---------- ----------
Balance as of December 31 $ -- $ --
========== ==========
A summary of Net operating losses carried forward and their expiration
date is as follows:
Year of Expiration Net Operating Losses
------------------ --------------------
2009 $ 105,573
2010 79,963
2011 112,380
2012 199,733
2013 286,532
2014 261,792
------------ ------------
Total $ 1,045,973
============ ============
Note 3- An exploration stage company
An exploration stage company is one for which principal operations of
mining have not commenced or principal operations have generated an
insignificant amount of revenue. Management of an exploration stage company
devotes most of its activities in conducting exploratory mining operations.
The company expenses all exploration costs as incurred. Operating losses
have been incurred through December 31, 1999, and the Company continues to
use, rather than provide, working capital in this operation. Although
management believes that it is pursuing a course of action that will
provide successful future operations, the outcome of these matters is
uncertain.
Note 4- Mining lease and related expenditures
Management and other shareholders formed the Company to obtain the
necessary financing to mine, explore, develop, operate and sell kaolin.
The Company owns two mining lease (including acquisition of a mining
lease in December 1999) and has options to acquire three other mining leases
held by founders (these parties are also directors and officers of the
Company) of the Company. The Company expenses all acquisition, Exploration
and development costs that relate to specific mineral properties.
F-13
Utah Clay Technology, Inc.
(An Exploration Stage Company)
Notes to Financial Statements
December 31, 1999 and 1998
The realization of the costs of mining properties and deferred expenses is
dependent upon sales of kaolin on a commercial basis from the reserves of
ore bodies. For the period from inception ( March 1, 1994 ) to December
31, 1999 the Company had no revenues. To commence operations, the Company's
management believes significant additional equity and debt financing will be
required.
Note 5- Accounts payable and accrued expenses
Accounts payable and accrued expenses as of December 31, 1999 and 1998,
consist of the following:
1999 1998
---- ----
Lease rentals payable $ 82,571 $ 52,906
Litigation settlement -- 40,000
Legal fees 66,249 36,508
Machine design & configuration 128,000 --
Health Insurance 12,343 --
Miscellaneous 69,676 62,127
--------- ---------
$ 358,839 $ 191,541
========= =========
Note 6-Advances payable - Officers & Directors
Advances payable represents amount payable to officers or directors of
the company in lieu of their services or for advances made to the company. In
1998, the company issued common stock against a portion of advances
outstanding. The advances payable to officers and directors are unsecured,
interest free and due on demand.
Following is a summary of Advances payable to officers and directors of the
company, as of December 31, 1999 and 1998:
Balance as on December 31, 1997 $ 209,488
Advances from officers and directors during 1998 287,454
Less: Issuance of 1,277,495 common stock @$0.18 per share (229,950)
Repayment of advances in 1998 (40,598)
---------
Balance as on December 31, 1998 226,394
Advances from officers and directors during 1999 127,000
Less: Repayment of advances in 1999 (24,682)
---------
Balance as on December 31, 1999 $ 328,712
=========
F-14
Utah Clay Technology, Inc.
(An Exploration Stage Company)
Notes to Financial Statements
December 31, 1999 and 1998
Note 7-Notes payable
Notes payable as on December 31, 1999 and 1998 comprised of following:
1999 1998
---- ----
Note payable-Bank, bearing an interest rate of 4 percent over
the prime rate (7.75% on 12/31/99 and 8.50% on 12/31/98)
and due on demand. $ 24,005 $ 25,611
Note payable to an affiliated company, unsecured, interest
free and due on demand. 30,464 --
Notes payable to individuals related to officers of the
company, bearing an interest rate of 10% per annum,
unsecured and due on demand 50,000 --
Notes payable to others, bearing an interest rate of 10% per
annum, unsecured and due on demand 20,000 --
Notes payable to others, interest free, unsecured and due on
demand 25,000 --
--------- ---------
Total $ 149,469 $ 25,611
========= =========
Note 8- Preferred Stock
Effective September 30, 1996, the Company authorized the following
transactions:
( a ) Authorization of 10,000,000 shares of preferred Stock at par
value of $ 0.001.
( b ) The Company issued to the following officers, directors and
shareholders in exchange for the cancellation of the debt represented by
$ 424,085 in advances, 84,817 shares of Series A Preferred Stock at $ 5.00
a share, which stock is entitled to annual dividends of $0.50 a share payable
from the earnings of the Company and cumulative if missed, is non-voting and
is preferred over the company's common Stock in the event of the liquidation
and dissolution of the Company. The Series A Preferred Stock is neither
convertible into common Stock nor redeemable at the option of the holder
but is redeemable at the option of the company.
Amount of Number of
Debt Price / Preferred
Name Converted Share Shares
- - ---- ----------- ----------- -----------
Thomas F. Harrison $ 255,185 $ 5.00 51,037
Dennis S. Engh 168,900 $ 5.00 33,780
----------- -----------
Total $ 424,085 84,817
=========== ===========
F-15
Utah Clay Technology, Inc.
(An Exploration Stage Company)
Notes to Financial Statements
December 31, 1999 and 1998
Note 9- Litigation
Utah Clay was a defendant in a lawsuit brought for the recovery of
$ 50,000, interest and attorney fees by Six Way, Inc. and Daniel W. Jacksons
Trustee of the MJB Trust. The Company acknowledged the loan made to it by the
plaintiffs, which was the basis for the civil action. The claim was settled
for $60,000, including interest and litigation costs of $10,000, to be
payable by 1999. By December 31, 1999, the whole amount was paid off. The
outstanding liability of $40,000 as of December 31, 1998 is included in
Accounts payable and accrued expenses.
Note 10- Acquisition of mining lease
The company acquired a mining lease of Kaolin mineral from an affiliated
company for $17,740 on December 27, 1999. The Company issued 17,739,500 shares
of common stock @$0.001 per share in lieu of consideration of mining lease.
Note 11-Going Concern uncertainty
The company's financial statements have been presented on the basis that
it is a going concern, which contemplates the realization of assets and
satisfaction of liabilities in the normal course of business. The company
incurred a net loss of $2,135,581 for the period from inception (March 1,
1994) to December 31, 1999. The company's current liabilities exceeded its
current assets by $836,030 and $446,238 as of December 31, 1999 and 1998,
respectively. The company's total liabilities exceeded its total assets by
$660,473 and $416,421 as of December 31, 1999 and 1998, respectively. These
factors, as well as the uncertain conditions that the company faces in its
day-to-day operations, create an uncertainty as to the company's ability to
continue as a going concern. The financial statements do not include any
adjustments that might be necessary should the company be unable to continue
as a going concern.
The company plans to finance the continued operations for the next year
through private funding and funding from officers of the company. In this
regard, the company raised $90,000 by issuing 260,000 shares through private
placement in the first quarter of 2000. The company has also issued an
additional 200,000 shares in March against which there is a subscription
receivable of $130,000. The company expects to collect the subscription
receivable in the third quarter of 2000. The company has also initiated
discussions with a third party processor of its kaolin to utilize the
reserves when they are defined.
F-16
Utah Clay Technology, Inc.
(An Exploration Stage Company)
Notes to Financial Statements
December 31, 1999 and 1998
12- Subsequent events & Commitments
Lease commitments
Subsequent to year ended December 31, 1999, the company entered in
to five separate lease addendum agreements for mining leases on two properties
and option for mining lease on three properties, at $10,000 per year, per
property, for next five years through March, 2005. The company also is
required to pay to the Bureau of land management, US Department of interior,
an amount of $21,000 per year pursuant to their mining lease and option
agreement.
Issuance of shares
Subsequent to year ended December 31, 1999 the company entered in
to various agreements with several parties, whereby, the company issued
1,540,000 shares for $573,000 in consideration for cash, services and
cancellation of debt, during the quarter ended March 31, 2000.
Stock Option
Subsequent to year ended December 31, 1999 the company has adopted
a stock option plan, under which options granted may be "employee incentive
stock options" as defined under Section 422 of the Internal revenue code or
non-qualified stock options, as determined by the option committee of the
board of directors at the time of grant of an option. The plan enables the
option committee of the board of directors to grant up to 500,000 stock
options to employees and consultants from time to time. The option
committee has granted no options. The date of grant of an Option shall, for
all purposes, be the date on which the Option Committee makes the
determination granting such Option, or such other date as is determined by
the Option Committee.
F-17
Utah Clay Technology, Inc.
(An Exploration Stage Company)
BALANCE SHEETS
June 30, 2000 & December 31, 1999
ASSETS June 30, December 31,
2000 1999
------------ --------------
(Unaudited)
Current Assets
Cash $ 42 $ 640
Receivables 350 350
Prepaid expenses 82,595 -
------------ -------------
Total Current Assets 82,987 990
Properties & Equipment
Laboratory equipment 2,484 2,484
Machine design & configuration 128,000 128,000
Mining leases 17,169 45,073
------------ -------------
Total Properties & Equipment 147,653 175,557
------------ -------------
$ 230,640 $ 176,547
============ =============
The accompanying notes are an integral part of these financial statements.
F-18
Utah Clay Technology, Inc.
( An Exploration Stage Company )
BALANCE SHEETS
June 30, 2000 & December 31, 1999
LIABILITIES AND STOCKHOLDERS' DEFICIT June 30, December 31,
2000 1999
(Unaudited)
------------ -------------
Current Liabilities $ 162,918 $ 358,839
Accounts payable
Advances payable- officers and directors 332,312 328,712
Notes payable 122,883 149,469
------------ -------------
Total Current Liabilities 618,113 837,020
Stockholders' Equity Deficit
Preferred stock, par value $0.001;
10,000,000 shares authorized;
84, 817 shares issued and outstanding 85 85
Common stock, par value $0.001;
30,000,000 shares authorized; 23,331,874
shares in1999 and 5,592,374 shares in 1998
issued and Outstanding 24,872 23,332
Additional paid-in capital 1,994,446 1,451,691
Stock subscription receivable (98,100) -
Deficit accumulated during the
development stage (2,308,776) (2,135,581)
------------ -------------
Total Stockholders' Deficit (387,473) (660,473)
------------ -------------
$ 230,640 $ 176,547
============ =============
The accompanying notes are an integral part of these financial statements.
F-19
Utah Clay Technology, Inc
(An Exploration Stage Company )
STATEMENTS OF OPERATIONS
(Unaudited)
Six months period
ended June 30,
2000 1999
---------------------------
Revenues $ - $ -
Expenses:
Mineral lease rentals 70,616 10,000
Inventory value adjustment
General and administrative 102,529 12,520
----------- -----------
Loss before income taxes (173,145) (22,520)
Income taxes 50 50
----------- -----------
NET LOSS $ (173,195) $ (22,570)
Basic and diluted Loss per
common share $ (0.007) $ (0.007)
=========== ===========
Basic and diluted weighted average
number of common shares
outstanding 24,199,719 3,127,762
=========== ===========
The accompanying notes are an integral part of these financial statements.
F-20
Utah Clay Technology, Inc.
(An Exploration Stage Company)
STATEMENTS OF CASH FLOWS
(Unaudited)
Cumulative
from inception
Period ended Period ended (March 1, 1994)
June 30, June 30, to June 30,
2000 1999 2000
------------ ------------ ---------------
Cash flows from operating activities:
Net loss $ (173,195) $ (22,570) $ (2,308,776)
Adjustments to reconcile net loss to net cash
used in operating activities:
Issuance of common stock for services 10,600 - 305,710
Decrease in prepaid expenses 78,100 - 78,100
(Increase) in receivables - - (350)
Increase (Decrease) in accounts payable (67,921) (1,950) 439,118
------------ ------------ ---------------
Net cash used in operating activities (152,416) (24,520) (1,486,198)
Cash flows from investing activities:
Mining leases 27,904 - 571
Machine design & configuration - - (130,484)
------------ ------------ ---------------
Net cash provided by (used in) investing
activities 27,904 - (129,913)
Cash flows from financing activities:
Net proceeds from advances by
Officers/directors 3,600 (375) 986,347
Proceeds from (payments of) notes payable (1,586) 27,071 147,883
Issuance of shares 121,900 - 481,923
------------ ------------ ---------------
Net cash provided by financing activities: 123,914 26,696 1,616,153
Net increase (decrease) in cash & cash
equivalent (598) 2,176 42
Cash & cash equivalent - beginning of period 640 208 -
------------ ------------ ---------------
Cash at end of period $ 42 $ 2,384 $ 42
============ ============ ===============
The accompanying notes are an integral part of these financial statements.
F-21
Utah Clay Technology, Inc.
(An Exploration Stage Company)
STATEMENTS OF CASH FLOWS (CONTINUE)
(Unaudited)
Cumulative
from inception
Period ended Period ended (March 1, 1994)
June 30, June 30, to June 30,
2000 1999 2000
------------ ------------ ---------------
Supplemental disclosures:
Cash paid during the period for:
$ - $ - $ 6,951
============ ============ ===============
Income tax $ - $ - $ 850
============ ============ ===============
Non-cash investing and financing activities:
Issuance of common stock for services $ 10,600 $ - $ 305,710
============ ============ ===============
Issuance of preferred stock for debt $ - $ - $ 424,085
============ ============ ===============
Issuance of common stock for acquisition
of Mining rights $ - $ - $ 17,740
============ ============ ===============
Issuance of common stock against
cancellation of debt - Prepaid, Advances
and accrued expenses $ 313,695 $ - $ 1,115,930
============ ============ ===============
Subscription receivable $ 130,000 $ - $ 130,000
============ ============ ===============
The accompanying notes are an integral part of these financial statements.
F-22
Utah Clay Technology, Inc.
(An Exploration Stage Company)
Notes to Unaudited Financial Statements
June 30, 2000 and 1999
(Unaudited)
Note 1- Summary of significant accounting policies
Organization and nature of operations
Utah Clay Technology, Inc. (the "Company"), a Utah corporation, was
incorporated on March 1, 1994. The planned operations of the Company are
to engage in mining, processing and marketing of minerals. For the period
from inception (March 1, 1994) to June 30, 2000 the Company had no revenues.
The Company is classified as An Exploration stage company because its
principal activities involve obtaining the capital necessary to execute its
strategic business plan.
Cash and cash equivalents
The Company considers all liquid investments with a maturity of three
months or less from the date of purchase that are readily convertible into
cash to be cash equivalents.
Issuance of share for services
Valuation of shares for services is based on the fair market value of
services.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Equipment and mining properties
Equipment is recorded at cost. The Company has adopted the straight-line
method in computing depreciation for financial reporting purposes and
generally uses accelerated methods for income tax purposes. The annual
provision for depreciation will be computed principally in accordance with the
following ranges of asset lives: laboratory equipment- 3 to 5 years;
processing equipment- 3 to 10 years. Equipment was acquired and set up in
late, 1997. No depreciation expense has been recorded in the financial
statements as the company is yet to use any of its equipment and mining
properties.
F-23
Utah Clay Technology, Inc.
(An Exploration Stage Company)
Notes to Unaudited Financial Statements
June 30, 2000 and 1999
(Unaudited)
Reclassifications
Certain items in the prior year financial statements have been
reclassified for comparative purposes to conform with the presentation in the
current period's presentation. These reclassifications have no effect on the
previously reported income (loss).
Income taxes
Deferred income tax assets and liabilities are computed annually for
differences between the financial statements and tax basis of assets and
liabilities that will result in taxable or deductible amounts in the future
based on enacted laws and rates applicable to the periods in which the
differences are expected to affect taxable income (loss). Valuation allowance
is established when necessary to reduce deferred tax assets to the amount
expected to be realized.
Basic and diluted net loss per share
Net loss per share is calculated in accordance with the Statement of
financial accounting standards No. 128 (SFAS No. 128), "Earnings per share".
SFAS No. 128 superseded Accounting Principles Board Opinion No.15 (APB 15).
Net loss per share for all periods presented has been restated to reflect the
adoption of SFAS No. 128. Basic net loss per share is based upon the weighted
average number of common shares outstanding. Diluted net loss per share is
based on the assumption that all dilutive convertible shares and stock options
were converted or exercised. Dilution is computed by applying the treasury
stock method. Under this method, options and warrants are assumed to be
exercised at the beginning of the period (or at the time of issuance, if
later), and as if funds obtained thereby were used to purchase common stock
at the average market price during the period.
Stock-based compensation
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-
Based Compensation". SFAS No. 123 prescribes accounting and reporting
standards for all stock-based compensation plans, including employee stock
options, restricted stock, employee stock purchase plans and stock
appreciation rights. SFAS No. 123 requires compensation expense to be recorded
(i) using the new fair value method or (ii) using the existing accounting
rules prescribed by Accounting Principles Board Opinion No. 25,
"Accounting for stock issued to employees" (APB 25) and related
interpretations with proforma disclosure of what net income and earnings per
share would have been had the company adopted the new fair value method. The
company adopted this standard in 1998 and the implementation of this standard
did not have any impact on its financial statements.
F-24
Utah Clay Technology, Inc.
(An Exploration Stage Company)
Notes to Unaudited Financial Statements
June 30, 2000 and 1999
(Unaudited)
Fair value of financial instruments
Statement of financial accounting standard No. 107, Disclosures about
fair value of financial instruments, requires that the company disclose
estimated fair values of financial instruments. The carrying amounts reported
in the statements of financial position for current assets and current
liabilities qualifying as financial instruments are a reasonable estimate of
fair value.
Comprehensive income
Statement of financial accounting standards No. 130, Reporting
comprehensive income (SFAS No. 130), establishes standards for reporting and
display of comprehensive income, its components and accumulated balances.
Comprehensive income is defined to include all changes in equity, except those
resulting resulting from investments by owners and distributions to owners.
Among other disclosures, SFAS No. 130 requires that all items that are
required to be recognized under current accounting standards as components of
comprehensive income be reported in a financial statements that is displayed
with the same prominence as other financial statements. The company adopted
this standard in 1998 and the implementation of this standard did not have a
material impact on its financial statements.
Reporting segments
Statement of financial accounting standards No. 131, Disclosures about
segments of am enterprise and related information (SFAS No. 131), which
superceded statement of financial accounting standards No. 14, Financial
reporting for segments of a business enterprise, establishes standards for
the way that public enterprises report information about operating segments in
annual financial statements and requires reporting of selected information
about operating segments in interim financial statements regarding products
and services, geographic areas and major customers. SFAS No. 131 defines
operating segments as components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and in
assessing performances. The company adopted this standard in 1998 and the
implementation of this standard did not have a material impact on its
financial statements.
Pension and other benefits
In February 1998, the Financing accounting standards board issued
statement of financial accounting standards No. 132, Employers' disclosures
about pension and other post-retirement benefits (SFAS No. 132), which
standardizes the disclosures requirements for pension and other
post-retirement benefits. The company adopted this standard in 1998 and the
implementation of this standard did not have any impact on its financial
statements.
F-25
Utah Clay Technology, Inc.
(An Exploration Stage Company)
Notes to Unaudited Financial Statements
June 30, 2000 and 1999
(Unaudited)
Accounting for the costs of computer software developed or obtained for
internal use
In March 1998, the Accounting standards executive committee of the
American institute of certified public accountants (ASEC of AICPA) issued
Statement of position (SOP) No. 98-1, "Accounting for the costs of computer
software developed or obtained for internal use", effective for fiscal years
beginning after December 15, 1998. SOP N0. 98-1 requires that certain costs
of computer software developed or obtained for internal use be continued
capitalized and amortized over the useful life of the related software. The
company adopted this standard in fiscal 1999 and the implementation of this
standard did not have a material impact on its financial statements.
Costs of start-up activities
In April 1998, the ASEC of AICPA issued SOP No. 98-5, "Reporting on the
costs of start-up activities", effective for fiscal years beginning after
December 15, 1998. SOP 98-5 requires the costs of start-up activities and
organization costs to be expensed as incurred. The company adopted this
standard in fiscal 1999 and the implementation of this standard did not have
a material impact on its financial statements.
Accounting developments
In June 1998, the FASB issued SFAS No. 133, "Accounting for derivative
instruments and hedging activities", effective for fiscal years beginning
after June 15, 1999, which has deferred to June 30, 2000 by publishing of
SFAS No. 137. SFAS No. 133 establishes accounting and reporting standards for
derivative instruments, including certain
derivative instruments embedded in other contracts (collectively referred to
as derivatives), and for hedging activities. This statement requires that an
entity recognize all derivative as either assets or liabilities in the
statement of financial condition and measure those instruments at fair value.
The accounting for changes in the fair value of a derivative instrument
depends on its intended use and the resulting designation. The company does
not expect that the adoption of this standard will have a material impact on
its financial statements.
Note 2- Income taxes
Since the Company has not generated taxable income since inception, no
provision for income taxes has been provided (other than minimum franchise
taxes paid to the State of Utah).
Note 3- An exploration stage company
An exploration stage company is one for which principal operations of
mining have not commenced or principal operations have generated an
insignificant amount of revenue. Management of an exploration stage company
devotes most of its activities in
F-26
Utah Clay Technology, Inc.
(An Exploration Stage Company)
Notes to Unaudited Financial Statements
June 30, 2000 and 1999
(Unaudited)
conducting exploratory mining operations. Operating losses have been incurred
through March 31, 2000, and the Company continues to use, rather than provide,
working capital in this operation. Although management believes that it is
pursuing a course of action that will provide successful future operations,
the outcome of these matters is uncertain.
Note 4-Going Concern uncertainty
The company's financial statements have been presented on the basis that
it is a going concern, which contemplates the realization of assets and
satisfaction of liabilities in the normal course of business. The company
incurred a net loss of $2,308,776 for the period from inception (March 1,
1994) to June 30, 2000. The company's current liabilities exceeded its
current assets by $535,126 and $836,030 as of June 30, 2000 and December
31, 1999, respectively. These factors, as well as the uncertain conditions
that the company faces in its day-to-day operations, create an uncertainty as
to the company's ability to continue as a going concern. The financial
statements do not include any adjustments that might be necessary should the
company be unable to continue as a going concern.
The company plans to finance the continued operations for the next year
through private funding and funding from officers of the company. In this
regard, the company raised $90,000 by issuing 260,000 shares through private
placement in the first quarter of 2000. The company has also issued an
additional 200,000 shares in March against which the Company raised $31,900
and there is a subscription receivable of $98,100 as of June 30, 2000. The
company expects to collect the subscription receivable in the fourth quarter
of 2000. The company has also initiated discussions with a third party
processor of its kaolin to utilize the reserves when they are defined.
Note-5 Basis of preparation
The accompanying unaudited condensed interim financial statements have
been prepared in accordance with the rules and regulations of the Securities
and Exchange Commission for the presentation of interim financial information,
but do not include all the information and footnotes required by generally
accepted accounting principles for complete financial statements. The audited
financial statements for the two years ended December 31, 1999 was filed on
April 7, 2000 with the Securities and Exchange Commission and is hereby
referenced. In the opinion of management, all adjustments considered necessary
for a fair presentation have been included. Operating results for the six-
month period ended June 30, 2000 are not necessarily indicative of the results
that may be expected for the year ended December 31, 2000.
F-27
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
The general corporation law of Utah and the bylaws of the Registrant
provide certain indemnification rights for directors, officers and agents of
the Registrant. These indemnification provisions are set forth in the
Prospectus under "Indemnification."
Item 25. Other Expenses of Issuance and Distribution
The estimated expenses of this offering, other than brokers'
commissions, are as follows:
Estimated
Item Amount
---------------------- -----------
Registration fees $ 250
Transfer agent's fees 1,500
Printing 2,000
Legal 20,000
Accounting 35,000
EDGAR provider fees 3,000
-----------
$61,750
The Registrant will pay all the above expenses. The selling security
holder will pay none of them.
Item 26. Recent Sales of Unregistered Securities
The following information is provided for all securities sold by the
Registrant within the past three years without registering the securities
under the Securities Act of 1933. All securities were shares of common stock.
There were no underwriters involved in the sales.
Dollar Value of
No. of Cash Other Type of
Date Shares Sold Purchasers Consideration Consideration
- ---------- ------------- ----------------------- ------------- -------------
1-1-97 to 265,000(1) 47 persons $200,000 $ 165
12-31-97
1998: 389,600(1) 9 persons(2) $104,040 -
823,333(1) Dorcas Engh - $148,200(3)
581,900(1) Dennis S. Engh - 104,742(3)
332,659(1) Carmen J. (Tony) Lotito - 59,879(3)
135,872(1) Thomas F. Harrison - 24,467(3)
34
11-30-98 227,010(1) Daniel H. Engh - 40,862(3)
07-21-98 200,000(1) Nobel House Financial - 36,000(4)
Services
10-21-98 300,000(1) Del Mar Financial Services - 54,000(4)
10-30-98 37,000(1) Investors Advisors - 6,600(4)
03-26-98 25,000(1) S.B. Stocks, U.S.A., Inc. - 250(4)
02-24-98 5,000(1) Strathmore Equities, Inc. - 050(4)
04-03-98 5,000 Strathmore Equities, Inc. 050(4)
12-99 17,739,500(5) Utah Kaolin Corporation - 17,740
03-20-00 to
04-03-00(6):
04-03-00 80,000(7) McKay, Burton & Thurman - 48,305
04-03-00 10,000(8) James Groscost - 2,600
03-20-00 10,000(9) Roger Huber - 4,000
03-20-00 10,000(10) J. W. Patterson - 5,000
03-20-00 500,000(11) E. G. Marchi - 125,000
03-20-00 60,000(12) Robert J. Conley - 65,000
03-20-00 400,000(13) Precision Systems - 128,000
Engineering, Inc.
- -------------------------------
(1) These shares were sold pursuant to the exemption from registration
provided by Regulation D, Rule 504 in a public offering. At the time
of the sales, the Registrant was not a reporting company, an
investment company or a blank check company. Assuming integration of
all Rule 504 sales made in 1997 and 1998, a total of $779,140 was
received in cash, cancellation of debt, or services rendered to the
Registrant in exchange for all shares sold pursuant to this exemption
from registration.
(2) These persons exercised warrants that had been issued to them in 1997
as part of the Regulation D, Rule 504 offering described in footnote
(1) above. These sales were also sold pursuant to the Rule 504
exemption from registration.
(3) These amounts represent the cancellation of debt owed to the
Registrant. The debts to Della Engh and Thomas Harrison represented
35
cash loans made to the Registrant by them. The other canceled debts
represent amounts owed to officers of the Registrant for unpaid
compensation for performance of their duties to the Registrant and
for reimbursement of outlays of cash they made on behalf of the
Registrant. The issuances of stock were made in reliance on the
exemption from registration provided by Regulation D, Rule 504.
See footnote (1) above.
(4) These amounts represent the value of services rendered to the
Registrant by the named entities. The nature of the services was
that of financial public relations - increasing the visibility of the
Registrant in the financial markets. The issuances of stock were
made in reliance on the exemption from registration provided by
Regulation D, Rule 504. See footnote (1) above.
(5) These shares were issued to purchase the Oro Blanco mining lease.
See "Certain Relationships and Related Transactions" in the
Prospectus. The shares were issued pursuant to the exemption from
registration provided by Regulation D, Rule 506. No public
solicitation or public advertising was employed. The purchaser of
the shares, Utah Kaolin Corporation, is an affiliate of the
Registrant. Utah Kaolin's management is also the management of Utah
Clay Technology. Utah Kaolin is owned by members of the Engh
family - who are the majority shareholders of Utah Clay; Carmen J.
(Tony) Lotito, an officer and director of Utah Clay; Dr. Kenneth
Morrison, an accredited investor; and Thomas J. Kenan, an accredited
investor.
(6) During this period Utah Clay approached seven creditors of the
company, listed below, and offered and sold them restricted common
stock in exchange for the cancellation of indebtedness owed to them
by the company. Two of the creditors were accredited, and five were
non-accredited investors. The sales were made in reliance upon the
Rule 506 exemption from registration. All five non-accredited
investors were sophisticated persons who had sufficient knowledge and
experience in financial and business matters to allow them to
evaluate the merits and risks of the investment. The offering
materials provided each investor were current and contained what the
company believed was all material information about the company
required by Rule 502(b)(2) of Regulation D, which information had
been prepared for an offering circular used in an unsuccessful Rule
506 offering attempted in December 1999. The financial statements
provided were audited statements of 1998 and 1999.
36
(7) These shares were issued in exchange for legal services provided to
Utah Clay during the period of March 1994 to September 1999 and were
issued pursuant to the exemption from registration provided by
Regulation D, Rule 506. No public solicitation or public advertising
was employed. The beneficial owner of these shares is William H.
Thurman, one of the partners of the law firm and an accredited
investor. He was provided a copy of an offering circular that had
been prepared for an unsuccessful Rule 506 offering conducted in
December 1999 as well as financial statements for 1999 and 1998. He
was given an opportunity to ask questions of management concerning
Utah Clay's affairs.
(8) These shares were issued in exchange for the cancellation of
indebtedness of Utah Clay that arose with regard to ore hauling
services provided by a company owned by Mr. Groscost, an accredited
investor. The shares were issued pursuant to the exemption from
registration provided by Regulation D, Rule 506. No public
solicitation or public advertising was employed. He was provided a
copy of an offering circular that had been prepared for an
unsuccessful Rule 506 offering conducted in December 1999 as well as
financial statements for 1999 and 1998. He was given an opportunity
to ask questions of management concerning Utah Clay's affairs.
(9) These shares were issued to this non-accredited investor to cancel
indebtedness owed to this person for services rendered with regard to
Utah Clay's mining properties. The shares were issued pursuant to
the exemption from registration provided by Regulation D, Rule 506.
No public solicitation or public advertising was employed. He was
provided a copy of an offering circular that had been prepared for an
unsuccessful Rule 506 offering conducted in December 1999 as well as
financial statements for 1999 and 1998. He was given an opportunity
to ask questions of management concerning Utah Clay's affairs.
(10) These shares were issued to this non-accredited investor to cancel
indebtedness owed to this person for his marketing services. The
shares were issued pursuant to the exemption from registration
provided by Regulation D, Rule 506. No public solicitation or
public advertising was employed. He was provided a copy of an
offering circular that had been prepared for an unsuccessful Rule
506 offering conducted in December 1999 as well as financial
statements for 1999 and 1998. He was given an opportunity to ask
questions of management concerning Utah Clay's affairs.
(11) These shares were issued to this non-accredited investor to cancel
indebtedness owed to this person for business planning consulting
37
services rendered for one year. The shares were issued pursuant to
the exemption from registration provided by Regulation D, Rule 506.
No public solicitation or public advertising was employed. He was
provided a copy of an offering circular that had been prepared for an
unsuccessful Rule 506 offering conducted in December 1999 as well as
financial statements for 1999 and 1998. He was given an opportunity
to ask questions of management concerning Utah Clay's affairs.
(12) These shares were issued to this non-accredited investor to cancel
indebtedness owed to this person for technical services with regard
to product development. The shares were issued pursuant to the
exemption from registration provided by Regulation D, Rule 506. No
public solicitation or public advertising was employed. He was
provided a copy of an offering circular that had been prepared for
an unsuccessful Rule 506 offering conducted in December 1999 as well
as financial statements for 1999 and 1998. He was given an
opportunity to ask questions of management concerning Utah Clay's
affairs.
(13) These shares were issued to this non-accredited investor to cancel
indebtedness owed to this person for technical engineering services
with regard to planning for processing plants. The shares were
issued pursuant to the exemption from registration provided by
Regulation D, Rule 506. No public solicitation or public
advertising was employed. He was provided a copy of an offering
circular that had been prepared for an unsuccessful Rule 506
offering conducted in December 1999 as well as financial statements
for 1999 and 1998. He was given an opportunity to ask questions of
management concerning Utah Clay's affairs.
Exhibits
The following exhibits are filed as part of this Registration Statement:
Exhibit
Number Description of Exhibit
3(i) - Articles of Incorporation of Utah Clay Technology, Inc. and
amendments thereto.*
3(ii) - Bylaws of Utah Clay Technology, Inc.*
38
5 - Opinion of Thomas J. Kenan on the legality of the securities
being registered. [Superseded by Exhibit No. 5.1.]
5.1 - Opinion of Thomas J. Kenan on the legality of the securities
being registered.**
9 - 2000 Stock Option Plan.*
10 - White Mountain mining lease, consisting of Amendment
Agreement of November 9, 1992; Mining Lease dated
March 1, 1994; Addendum to Mining Lease dated
March 15, 2000; and Addendum to Mining Lease dated
March 27, 2000.*
10.1 - Oro Blanco mining lease, consisting of Mining Lease dated
December 31, 1999.*
10.2 - Kimberly claims: Mining Lease Agreement (Fullmer-Engh), dated
June 19, 1993; Addendum to Fullmer-Engh Mining Lease, dated
March 15, 2000; Option (Engh-Kaolin of the West)to Enter Into
Mining Lease, dated September 30, 1996; Option (Kaolin of the
West-Utah Clay) to Enter Into Mining Lease, dated
September 30, 1996, to which is attached an unexecuted Mining
Lease; Addendum to Engh-Kaolin of the West Option to Enter
Into Mining Lease, dated March 27, 2000; and Addendum to
Kaolin of the West-Utah Clay Option to Enter Into Mining
Lease dated March 27, 2000.*
10.3 - Koosharem claims: Mining Lease Agreement (Fullmer-Engh),
dated June 19, 1993; Addendum to Fullmer-Engh Mining Lease,
dated March 15, 2000; Option (Engh-Kaolin of the West)to
Enter Into Mining Lease, dated September 30, 1996; Option
(Kaolin of the West-Utah Clay) to Enter Into Mining Lease,
dated September 30, 1996, to which is attached an unexecuted
Mining Lease; Addendum to Engh-Kaolin of the West Option to
Enter Into Mining Lease, dated March 27, 2000; and Addendum
to Kaolin of the West-Utah Clay Option to Enter Into Mining
Lease dated March 27, 2000.*
10.4 - Topaz claims: Mining Lease Agreement (Fullmer-Engh), dated
June 19, 1993; Addendum to Fullmer-Engh Mining Lease, dated
March 15, 2000; Option (Engh-Kaolin of the West)to Enter Into
39
Mining Lease, dated September 30, 1996; Option (Kaolin of the
West-Utah Clay) to Enter Into Mining Lease, dated
September 30, 1996, to which is attached an unexecuted Mining
Lease; Addendum to Engh-Kaolin of the West Option to Enter
Into Mining Lease, dated March 27, 2000; and Addendum to
Kaolin of the West-Utah Clay Option to Enter Into Mining
Lease dated March 27, 2000.*
10.5 - Agreement between Utah Clay Technology, Inc. and ISG
Resources, Inc. dated November 30, 1999 and extensions dated
February 10, 2000 and June 15, 2000.**
10.6 - Agreements between Utah Clay Technology, Inc. and Precision
System Engineering dated June 14, 1999 and
November 16, 1999.**
10.7 - Small Miner's Permit for White Mountain lease issued by
Bureau of Land Management and Utah State Division of Oil, Gas
and Mining.**
23 - Consent of Thomas J. Kenan, to the reference to him as an
attorney who has passed upon certain information contained in
the Registration Statement.
23.1 - Consent of Kabani & Company, Certified Public Accountants,
independent auditors of the Registrant. [Superseded by
Exhibit No. 23.2.]
23.2 - Consent of Kabani & Company, Certified Public Accountants,
independent auditors of the Registrant. [Superseded by
Exhibit No. 23.3.]
23.3 - Consent of Kabani & Company, Certified Public Accountants,
independent auditors of the Registrant.
27 - Financial Data Schedule.*
27.1 - Financial Data Schedule.
*Previously filed with Amendment No. 1 to Form SB-2 Commission file
number 333-34308; incorporated herein.
**Previously filed with Amendment No. 2 to Form SB-2 Commission file
number 333-34308; incorporated herein.
40
Item 28. Undertakings
The Registrant will -
(1) File, during any period in which it offers or sells
securities, a post-effective amendment to this
registration statement to:
(i) Include any prospectus required by section 10(a)(3) of
the Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental
change in the information in the registration
statement; and notwithstanding the foregoing, any
increase or decrease in volume of securities offered
(if the total dollar value of securities offered would
not exceed that which was registered) and any deviation
from the low or high end of the estimated maximum
offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in the volume
and price represent no more than a twenty percent
change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in
the effective registration statement; and
(iii) Include any additional or changed material information
on the plan of distribution.
(2) For determining liability under the Securities Act, treat
each post-effective amendment as a new registration statement
of the securities offered, and the offering of the securities
at that time to be the initial bona fide offering.
(3) File a post-effective amendment to remove from registration
any of the securities that remain unsold at the end of the
offering.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors, officers
and controlling persons of the company pursuant to the foregoing provisions,
or otherwise, the company has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the company of expenses incurred or paid by a
41
director, officer or controlling person of the company in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final
adjudication of such issue.
42
SIGNATURES
In accordance with the requirements of the Securities Act of 1933,
the Registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements of filing on Form SB-2 and authorized this
registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in Salt Lake City, Utah.
Date: September 28, 2000 UTAH CLAY TECHNOLOGY, INC.
By /s/ Dennis S. Engh
-------------------
Dennis S. Engh, President, and
individually as a Director
In accordance with the requirements of the Securities Act of 1933,
this registration statement was signed by the following persons in the
capacities and on the dates indicated.
Date: September 28, 2000 /s/ Darin D. Engh
------------------
Darin D. Engh, Treasurer,
Secretary and Director
Date: September 28, 2000 /s/ Thomas F. Harrison
----------------------
Thomas F. Harrison, Vice
President, Chief Financial
Officer, Principal Accounting
Officer and Director
Date: September 28, 2000 /s/ Daniel H. Engh
------------------
Daniel H. Engh, Vice President
and Director
Date: September 28, 2000 /s/ Carmen J. (Tony) Lotito
---------------------------
Carmen J. (Tony) Lotito,
Director of Marketing and
Director
43
PROSPECTUS DELIVERY OBLIGATION. All dealers or brokers that effect
transactions in these securities for the selling security holders are
required to deliver a Prospectus.
44
Utah Clay Technology, Inc.
Exhibits to Amendment No. 3 to
Form SB-2 Registration Statement
Exhibit
Number Description of Exhibit
- ------- -----------------------
3(i) - Articles of Incorporation of Utah Clay Technology, Inc. and
amendments thereto.*
3(ii) - Bylaws of Utah Clay Technology, Inc.*
5 - Opinion of Thomas J. Kenan on the legality of the securities
being registered. [Superseded by Exhibit No. 5.1.]
5.1 - Opinion of Thomas J. Kenan on the legality of the securities
being registered.**
9 - 2000 Stock Option Plan.*
10 - White Mountain mining lease, consisting of Amendment Agreement
of November 9, 1992; Mining Lease dated March 1, 1994;
Addendum to Mining Lease dated March 15, 2000; and Addendum to
Mining Lease dated March 27, 2000.*
10.1 - Oro Blanco mining lease, consisting of Mining Lease dated
December 31, 1999.*
10.2 - Kimberly claims: Mining Lease Agreement (Fullmer-Engh), dated
June 19, 1993; Addendum to Fullmer-Engh Mining Lease, dated
March 15, 2000; Option (Engh-Kaolin of the West)to Enter Into
Mining Lease, dated September 30, 1996; Option (Kaolin of the
West-Utah Clay) to Enter Into Mining Lease, dated September
30, 1996, to which is attached an unexecuted Mining Lease;
Addendum to Engh-Kaolin of the West Option to Enter Into
Mining Lease, dated March 27, 2000; and Addendum to Kaolin of
the West-Utah Clay Option to Enter Into Mining Lease dated
March 27, 2000.*
10.3 - Koosharem claims: Mining Lease Agreement (Fullmer-Engh), dated
June 19, 1993; Addendum to Fullmer-Engh Mining Lease, dated
March 15, 2000; Option (Engh-Kaolin of the West)to Enter Into
Mining Lease, dated September 30, 1996; Option (Kaolin of the
West-Utah Clay) to Enter Into Mining Lease, dated September
30, 1996, to which is attached an unexecuted Mining Lease;
Addendum to Engh-Kaolin of the West Option to Enter Into
Mining Lease, dated March 27, 2000; and Addendum to Kaolin of
the West-Utah Clay Option to Enter Into Mining Lease dated
March 27, 2000.*
10.4 - Topaz claims: Mining Lease Agreement (Fullmer-Engh), dated
June 19, 1993; Addendum to Fullmer-Engh Mining Lease, dated
March 15, 2000; Option (Engh-Kaolin of the West)to Enter Into
Mining Lease, dated September 30, 1996; Option (Kaolin of the
West-Utah Clay) to Enter Into Mining Lease, dated September
30, 1996, to which is attached an unexecuted Mining Lease;
Addendum to Engh-Kaolin of the West Option to Enter Into
Mining Lease, dated March 27, 2000; and Addendum to Kaolin of
the West-Utah Clay Option to Enter Into Mining Lease dated
March 27, 2000.*
10.5 - Agreement between Utah Clay Technology, Inc. and ISG
Resources, Inc. dated November 30, 1999 and extensions dated
February 10, 2000 and June 15, 2000.**
10.6 - Agreements between Utah Clay Technology, Inc. and Precision
System Engineering dated June 14, 1999 and November 16, 1999.**
10.7 - Small Minerals Permit for White Mountain lease issued by Bureau
of Land Management and Utah State Division of Oil, Gas and
Mining.**
23 - Consent of Thomas J. Kenan, to the reference to him as an
attorney who has passed upon certain information contained in
the Registration Statement.
23.1 - Consent of Kabani & Company, Certified Public Accountants,
independent auditors of the Registrant. [Superseded by
Exhibit No. 23.2.]
23.2 - Consent of Kabani & Company, Certified Public Accountants,
independent auditors of the Registrant. [Superseded by
Exhibit No. 23.3.]
23.3 - Consent of Kabani & Company, Certified Public Accountants,
independent auditors of the Registrant.
27 - Financial Data Schedule.*
2
27.1 - Financial Data Schedule.
*Previously filed with Amendment No. 1 to Form SB-2 Commission file
number 333-34308; incorporated herein.
**Previously filed with Amendment No. 2 to Form SB-2 Commission file
number 333-34308; incorporated herein.
3
FULLER, TUBB, POMEROY & STOKES
A PROFESSIONAL CORPORATION
ATTORNEYS AT LAW
201 ROBERT S. KERR AVENUE, SUITE 1000
OKLAHOMA CITY, OK 73102
G. M. FULLER (1920-1999) TELEPHONE 405-235-2575
JERRY TUBB FACSIMILE 405-232-8384
DAVID POMEROY
TERRY STOKES
- -------------
OF COUNSEL:
MICHAEL A. BICKFORD
THOMAS J. KENAN
ROLAND TAGUE
BRADLEY D. AVEY
September 29, 2000
Richard Wulff, Assistant Director
Mail Stop 0304
Division of Corporation Finance
Securities and Exchange Commission
450 Fifth Avenue, N.W.
Washington, DC 20549-0304
Attention: David J. Link
Re: Utah Clay Technology, Inc.
Form SB-2/A July 5, 2000
File No. 333-34308
Dear Mr. Wulff:
In response your letter dated September 8, 2000, Utah Clay Technology,
Inc. is filing its Amendment No. 3 to its Form SB-2 registration statement.
The numbers below correspond to the comment numbers in the September 8 letter.
Cover page
1. We have removed from the cover page the statement concerning
restoration to trading privileges on the Bulletin Board.
Risk Factors
2. We have deleted the risk factor concerning the loss of certain
executive officers. This information now appears on page 12 as the last
paragraph under "Description of Business - Business Development."
3. This risk factor has been eliminated. The specific risk to
investors is the same as that of the preceding risk factor and has been
incorporated in the preceding risk factor.
Description of Business
4. Information that earlier appeared on pages 22-24 of Amendment No. 2
to the Form SB-2 has been relocated to the "Description of Business" section
commencing on page 12. It has also been rearranged somewhat with subsection
headings added of "The Market for Kaolin" on page 12, "Competition" on page
13 and "Distribution Methods" on page 13. Additional language has been added
to elaborate the matters earlier stated.
5. The material provisions of these two agreements now appear under
"Plan of Operations for the Next Twelve Months" on page 23.
Plan of Operations for the Next Twelve Months
6. This section has been revised to add information on the agreements
with ISG Resources, Inc. and Precision Systems Engineering and information on
the steps needed to make the company operational, the timing of the steps,
the cost and sources of the needed funds and the expected date of first
revenues.
Working Capital Requirements
7. A second paragraph has been added to this section on page 14 that
states how long the company can satisfy its cash requirements and the
source of funds for this cash.
Certain Relationships and Related Transactions
8. The distribution of 17,739,500 shares of common stock of the
registrant by Utah Kaolin Corporation to its shareholders was done pursuant
to the exemption from registration provided by the so-called Section
4(1-1/2) exemption. The shareholders of Utah Kaolin Corporation are
Dennis S. Engh, Daniel H. Engh, Thomas F. Harrison and Carmen J. (Tony)
Lotito - all of whom are directors and executive officers of the registrant;
Thomas J. Kenan, counsel to the registrant and an accredited investor; and
Dr. Kendrick O. Morrison, a Salt Lake City resident, long-time investor in
the registrant, close friend of the registrant's management and an accredited
investor. All other persons listed as persons who received distributions of
the 17,739,500 shares received them by way of gifts from the Utah Kaolin
shareholders. All of such donees have family relationships with one or more
of the Utah Kaolin shareholders with the exception of Sherie S. Adams, who
is Thomas Kenan's long-time certified legal assistant and who is familiar
with the material facts of the registrant's business through her work with
Thomas Kenan on the registrant's legal affairs since 1996.
All shareholders of Utah Kaolin were accredited investors and were
thoroughly familiar with the material facts of the registrant's business.
The so-called Section 4(1-1/2) exemption must be considered in connection
with the Regulation D, Rule 506 exemption under Section 4(2). In this
regard, no public solicitation or public advertising was involved.
No integration issue is involved, as the registrant had issued no
securities during the six-month period prior to the sale of the 17,739,500
shares of common stock to Utah Kaolin. Even if the gift by Thomas Kenan to
his legal assistant is considered a sale rather than a gift (by reason of
the IRS's inevitable characterization of the gift as additional compensation
for legal services), she would be the only non-accredited investor involved
to be integrated with the seven persons who were sold securities by the
registrant after the December 31, 1999 issuances of the 17,739,500 shares
to Utah Kaolin and its immediate distribution of these shares to its
shareholders and, upon the request of some of these shareholders, to their
donees.
Financial Statement Comments
9. There has been removed from the balance sheets the capitalized costs
of mining properties and deferred expenditures and the related valuation
allowances.
10. All references to "development stage" have been removed.
11. All references to "inventory" have been removed. Costs related to
the $21,568 that were capitalized as inventory are now charged as operating
expenses.
12. Notes 3 and 4 have been revised and indicate that the company
expenses all exploration costs as incurred. All references to develop and
operate have been removed.
Part II
Recent Sales of Registered Securities
13. The disclosure on page 34 has been revised to indicate the dates
the securities were sold.
14. New footnote (6) provides your requested information concerning the
number of accredited and non-accredited investors in this Rule 506 offering,
the sophistication of the non-accredited investors, and the access to
information required by Rule 502(b)(2). Footnotes (7) through (13) identify
whether each investor was accredited or non-accredited.
15. Utah Kaolin Corporation was not an accredited investor, and it is
not stated that it was. However, each shareholder of Utah Kaolin is an
accredited investor. See my above response to your Comment No. 8 in this
regard.
Exhibits
16. I apologize for failing to include my consent as Exhibit 23 with
Amendment No. 1 to the Form SB-2 filed on April 11, 2000. It is now included.
Undertakings
17. The complete undertakings required by Item 512(a) in Regulation S-B
are now provided.
If you have any questions concerning the responses to the comments,
please contact Thomas J. Kenan at telephone number 405-235-2575, fax number
405-232-8384 or e-mail at kenan@ftpslaw.com.
Sincerely,
/s/ Thomas J. Kenan
Thomas J. Kenan
e-mail: kenan@ftpslaw.com
TJK:sa
Enclosure
cc: Dennis S. Engh
Thomas F. Harrison
Hamid Kabani, C.P.A.