As filed with the Securities and Exchange Commission on September 26, 2005
Commission File No. 333-
-------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
RUBY MINING COMPANY
----------------------------------------------
(Name of small business issuer in its charter)
Colorado 1000 83-0214117
- ------------------------- ---------------------------- ----------------------
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Organization) Classification Code Number) Identification Number)
3318 Highway 5, No. 504
Douglasville, Georgia 30135-2308
(404) 348-4728
-------------------------------------------------------
(Address and telephone number of registrant's principal
executive offices and principal place of business)
Murray D. Bradley, Jr., Secretary-Treasurer and Chief Financial Officer
3318 Highway 5, No. 504
Douglasville, Georgia 30135-2308
(404) 348-4728
------------------------------------------------------------------------
(Name, address and telephone number of agent for service)
----------------------
Copies to:
Steven A. Cunningham, Esq.
Steven A. Cunningham, P.C.
11660 Alpharetta Hwy., Suite 155
Roswell, Georgia 30076
Telephone: (770) 442-2364
Approximate date of proposed sale to the public:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are being offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 (the "Securities Act"), check the following box. |X|
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement 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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
- ---------------------------
2
CALCULATION OF REGISTRATION FEE
Title of each Proposed Proposed
class of Amount maximum maximum Amount of
securities to be to be offering price aggregate registration
registered registered(1) per Share(2) offering price fee
Common Stock, $001 par value per share (3)........ 62,500,000 $ 0.18 $ 11,250,000 $ 1324.13
Common Stock, $.001 par value per share(4)........ 9,615,385 0.25 2,403,846 282.93
---------- ------ ------------ ---------
Total............................................. 72,115,385 $ 13,653,846 $ 1607.12
================================================== ========== ====== ============ =========
(1) Includes shares of our common stock, $.001 par value per share, which may be
offered pursuant to this registration statement, which shares are issuable upon
conversion of callable secured convertible notes and the exercise of warrants
held by the selling stockholders. In addition to the shares set forth in the
table, the amount to be registered includes an indeterminate amount of shares
issuable upon conversion of the callable secured convertible notes and exercise
of the warrants, as such number may be adjusted as a result of stock splits,
stock dividends and similar transactions in accordance with Rule 416. The number
of shares of common stock registered hereunder represents a good faith estimate
by us of the number of shares of common stock issuable upon conversion of the
callable secured convertible notes and upon exercise of the warrants.
For purposes of estimating the number of shares of common stock to be included
in this registration statement, we calculated a good faith estimate of the
number of shares of common stock that we believe will be issuable upon exercise
of the callable secured convertible notes, based upon the conversion formula set
forth in the notes as currently applied and upon exercise of the warrants.
Should the conversion ratio result in our having insufficient shares, we will
not rely upon Rule 416, but will file a new registration statement to cover the
resale of such additional shares should that become necessary. In addition,
should a decrease in the exercise price as a result of issuance or sale of
shares below the then current market price, result in our having insufficient
shares, we would not rely upon Rule 416, but will file a new registration
statement to cover the resale of such additional shares should that become
necessary.
(2) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(c) and Rule 457(g) under the Securities Act of 1933, as
amended, using the last reported sale price on the Over-the-Counter Bulletin
Board on September 22, 2005, which was $0.18 per share.
(3) Represents a good faith estimate of shares underlying callable secured
convertible notes, based upon the conversion formula set out in those notes as
currently applied.
(4) Represents shares underlying warrants exercisable at $0.25 per share.
3
PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION, DATED SEPTEMBER ___, 2005
RUBY MINING COMPANY
Up to 72,115,385 Shares of Common Stock
This prospectus relates to the resale by the selling stockholders of up to
72,115,385 shares of our common stock, including up to 62,500,000 shares of
common stock underlying the callable secured convertible notes in a principal
amount of $2,500,000 and up to 9,615,385 shares issuable upon the exercise of
common stock purchase warrants. The callable secured convertible notes are
convertible into our common stock at the lower of $0.15 or 50% of the average of
the three lowest intraday trading prices for the common stock on the OTC
Bulletin Board for the 20 trading days before but not including the conversion
date. The selling stockholders may sell common stock from time to time in the
principal market on which the stock is traded at the prevailing market price or
in negotiated transactions. The selling stockholders may be deemed underwriters
of the shares of common stock that they are offering. We will pay the expenses
of registering these shares.
We are not selling any shares of common stock in this offering and therefore
will not receive any proceeds from this offering. We may, however, receive
proceeds from the exercise of warrants, if exercised. The proceeds from the
exercise of warrants, if any, will be used for working capital. All costs
associated with this registration will be borne by us.
Our common stock is registered under Section 12(g) of the Securities Exchange
Act of 1934, as amended, and is quoted on the Over-the-Counter Bulletin Board
under the symbol RUBM.OB. On September 22, 2005 the last reported sale price
from our common stock was $0.18 per share.
Investing in the common stock involves substantial risks that are described in
the "risk factors" section beginning on page ___ of this prospectus.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The information in this prospectus is not complete and may be changed. This
prospectus is included in the registration statement that was filed by Ruby
Mining Company with the Securities and Exchange Commission. The selling
stockholders may not sell these securities until the registration statement
becomes effective. This prospectus is not an offer to sell these securities and
is not soliciting an offer to buy these securities in any state where the sale
is not permitted.
The date of this prospectus is September ___, 2005.
PROSPECTUS SUMMARY
This summary highlights some information from this prospectus. It may not
contain all of the information that is important to you. To understand this
offering fully, you should read the entire prospectus carefully, including the
risk factors and the financial statements.
The Company
Pursuant to a Plan and Agreement of Share Exchange completed in May 2001, the
shareholders of Admiralty Corporation, a Georgia corporation ("Admiralty"),
became the principal shareholders of the Registrant, Ruby Mining Company, a
Colorado corporation (the "Company"), and Admiralty then became and remains
today a wholly-owned subsidiary of the Company. Since that time, the Company has
conducted its operations through Admiralty. The Company was incorporated under
the laws of the State of Colorado in 1971. Admiralty was incorporated under the
laws of the State of Georgia in 1988. Unless the context otherwise requires, all
references to the Company shall include both Ruby Mining Company and Admiralty.
We are engaged principally in the business of testing and deploying proprietary
detection technology for use, in partnership with governments, marine
archaeologists and other nautical and maritime experts, in locating and
recovering valuable cargoes from historic shipwrecks, primarily those from the
16th, 17th, and 18th centuries. The Company also continues to evaluate the
potential application of its technology for assisting domestic governmental
agencies in locating and retrieving unexploded marine ordnance and weapons.
Our business activities are focused in 8 principal areas:
1. Finalizing development of a new, proprietary technology to detect gold,
silver and other precious metals in a salt-water environment, through layers of
sand, sediment and coral.
2. Conducting historical research on shipwrecks, principally those from the
16th, 17th, and 18th centuries.
3. Analyzing the principal issues related to the legalities associated with
historic (pre-1900) shipwreck search and recovery operations.
4. Negotiating agreements with countries for permits to search for and recover
valuable cargoes from historic shipwrecks in their territorial waters.
5. Finding synergistic and accretive joint venture, investment and acquisition
candidates with experience, expertise, and assets (such as vessels, equipment,
historical documentation, and projects) related to the business of shipwreck
exploration and excavation.
6. Conducting search efforts to locate and arrest historic shipwrecks situated
in international waters.
7. Acquiring and deploying marine vessels equipped with advanced conventional
search and recovery capabilities for use in historic shipwreck search and
recovery operations
8. Exploring, in association with domestic governmental agencies, the
possibility of deploying the ATLIS(TM) technology to locate and retrieve for
disposal unexploded ordnance and weapons in the territorial waters of the Untied
States.
2
The Company is a development stage company and has had only minimal revenues
from operations. We satisfied liquidity and capital requirements during the year
ended December 31, 2004 through the issuance of common stock, warrants, loans,
and short-term interest bearing advances. In addition, the Company benefited in
2004 by the deferral of compensation by the Company's executive staff in the
amount $229,800, of which $50,000 of accrued compensation was due to the
previous CEO.
We had no revenue from operations during the year ended December 31, 2004 and we
had no revenue from operations for the year ended December 31, 2003. For the
year ended December 31, 2004, we incurred a net loss of $2,960,451, compared to
a net loss of $1,130,857 for the year ended December 31, 2003. Our primary
activities consist of establishing and maintaining financing and funding sources
and opportunities, establishing and maintaining strategic and other business
relationships, and organizing the marine, archeological and logistical human and
physical assets that will enhance our ability to pursue the cargoes of historic
shipwrecks.
In April 2004, our Board of Directors appointed G. Howard Collingwood as its
Chairman of and the Company's Chief Executive Officer, replacing Herbert C.
Leeming in those positions. Mr. Leeming had served in those positions from May
2001 until his replacement by Mr. Collingwood. Mr. Collingwood has served as a
director of the Company since May 2001 and served as the Company's President and
Chief Operating Officer from November 2003 until his assumption of the positions
of Chairman, Chief Executive Officer and President in April 2004.
The Offering
Common stock offered by
selling stockholders ........... Up to 72,115,385 shares, based on current
market prices and assuming full conversion
of the callable secured convertible notes
and exercise of the warrants. This number
includes 62,500,000 shares of common stock
underlying callable secured convertible
notes in the principal amount of $2,500,000
(representing a good faith estimate of the
shares underlying the callable secured
convertible notes, based upon the
conversion formula as currently applied),
and 9,615,385 shares of common stock
issuable upon the exercise of common stock
purchase warrants at an exercise price of
$0.25 per share.
Common stock outstanding
prior to the offering(1) ........ 55,592,190 shares.
Common stock outstanding
after the offering(1)............ Up to 127,707,575 shares.
Use of proceeds We will not receive any proceeds from the
sale of the common stock hereunder. We will
receive the sale price of any common stock
we sell to the selling stockholders upon
exercise of warrants. We expect to use the
proceeds received from the exercise of
warrants, if any, for general working
capital purposes. However, the selling
stockholders are entitled to exercise the
warrants on a cashless basis if the shares
of common stock underlying the warrants are
not then registered pursuant to an
effective registration statement. In the
event that the selling stockholders
exercise the warrants on a cashless basis,
we will not receive any proceeds. In
addition, we received gross proceeds of
$850,000 from the
3
sale of the callable secured convertible
notes and the investors are obligated to
provide us with an additional $1,650,000 -
$800,000 within five days following the
filing of this prospectus and $850,000
within five days of this prospectus being
declared effective by the Securities and
Exchange Commission. The proceeds from the
sale of the callable secured convertible
notes have been used and will be used to
pay accounts payable, complete the first
ATLIS(TM) field unit, and support ongoing
operations, and for acquisition of capital
equipment and working capital.
Risk Factors/Dilution............ The offering involves a high degree of risk.
OTC Bulletin Board symbol
Common stock..................... RUBM.OB
- --------------
(1) Does not include the exercise of issued and outstanding options to purchase
a total of 477,500 shares of our common stock at exercise prices ranging from
$1.00 to $3.00 per share, or the exercise of issued and outstanding warrants to
purchase a total of 24,872,710 shares of our common stock at exercise prices
ranging from $0.05 to $2.25 per share.
Terms of Callable Secured Convertible Notes and Warrants
To obtain funding for our ongoing operations, we entered into a securities
purchase agreement with four accredited investors on June 27, 2005 for the sale
of (i) $2,500,000 in callable secured convertible notes and (ii) warrants to
purchase 9,615,385 shares of our common stock. The sale of the callable secured
convertible notes and warrants is to occur in three traunches and the investors
are obligated to provide us with an aggregate of $2,500,000 as follows:
o $850,000 was disbursed on June 28, 2005;
o $800,000 is to be disbursed within five days after filing this registration
statement covering the number of shares of common stock underlying the callable
secured convertible notes and the warrants; and
o $850,000 is to be disbursed within five days of the effectiveness of this
registration statement.
Each closing under the securities purchase agreement is subject to the following
conditions:
o We must have delivered to the investors duly executed callable secured
convertible notes and warrants;
o No litigation, statute, regulation or order shall have been commenced,
enacted or entered by or in any court, governmental authority or any self-
regulatory organization that prohibits consummation of the transactions
contemplated by the securities purchase agreement; and
o No event shall have occurred that could reasonably be expected to have a
material adverse effect on our business.
4
We also agreed that we will not, without the prior written consent of a
majority-in-interest of the investors, negotiate or contract with any party to
obtain additional equity financing (including debt financing with an equity
component) that involves (i) the issuance of common stock at a discount to the
market price of the common stock on the date of issuance (taking into account
the value of any warrants or options to acquire common stock in connection
therewith), (ii) the issuance of convertible securities that are convertible
into an indeterminate number of shares of common stock, or (iii) the issuance of
warrants during the lock-up period beginning June 27, 2005 and ending on the
later of (A) 270 days from June 27, 2005, and (B) 180 days from the date the
registration statement is declared effective.
In a addition, we agreed not to conduct any equity financing (including debt
financing with an equity component) during the period beginning June 27, 2005
and ending two years after the end of the above lock-up period unless we have
first provided each investor an option to purchase its pro-rata share (based on
the ratio of each investor's purchase under the Securities Purchase Agreement)
of the securities being offered in any proposed equity financing. Each investor
must be provided written notice describing any proposed equity financing at
least 20 business days prior to the closing of such proposed equity financing
and the option must be extended to each investor during the 15-day period
following delivery of such notice.
The callable secured convertible notes bear interest at 8% per annum from the
date of issuance. Interest is computed on the basis of a 365-day year and is
payable quarterly in cash, with six months of interest payable up front. The
interest rate resets to zero percent for any month in which the stock price is
greater than 125% of the initial market price, or $0.16 per share, for each
trading day during that month. Any amount of principal or interest on the
callable secured convertible notes that is not paid when due will bear interest
at the rate of 15% per annum from the date due thereof until such amount is
paid. The callable secured convertible notes mature in three years from the date
of issuance, and are convertible into our common stock at the selling
stockholders' option, at the lower of (i) $.15 or (ii) 50% of the average of the
three lowest intraday trading prices for the common stock on the OTC Bulletin
Board for the 20 trading days before but not including the conversion date..
As of September 22, 2005, the average of the three lowest intraday trading
prices of our common stock during the preceding 20 trading days, as reported on
the OTC Bulletin Board, was $0.08 and, therefore, the conversion price for the
callable secured convertible notes was $0.04. Based upon this conversion price,
the $2,500,000 callable secured convertible notes, excluding interest, were
convertible into 62,500,000 shares of our common stock. As of September 22,
2005, none of the callable secured convertible notes have been converted.
The callable secured convertible notes are secured by our assets, including our
inventory, accounts receivable and intellectual property. Moreover, we have a
call option under the terms of the notes. The call option provides us with the
right to prepay all of the outstanding callable secured convertible notes at any
time, provided; (i) there is no event of default by us; (ii) we have a
sufficient number of authorized shares of common stock reserved for issuance
upon conversion; and (iii) our stock is trading at or below $0.15 per share. An
event of default includes the failure by us to pay the principal or interest on
the callable secured convertible notes when due or to timely file a registration
statement as required by us or obtain effectiveness with the Securities and
Exchange Commission of the registration statement. Prepayment of the callable
Secured convertible notes is to be made in cash equal to either (i) 125% of the
outstanding principal and accrued interest for prepayments occurring within 30
days following the issue date of the notes; (ii) 130% of the outstanding
principal and accrued interest for prepayments occurring between 31 and 60 days
following the issue date of the notes; and (iii) 145% of the outstanding
principal and accrued interest for prepayments occurring after the 60th day
following the issue date of the notes.
5
The warrants are exercisable until five years from the date of issuance at a
purchase price of $0.25 per share. The investors may exercise the warrants on a
cashless basis if the shares of common stock underlying the warrants are not
then registered pursuant to an effective registration statement. In the event
the investors exercise the warrants on a cashless basis, then we will not
receive any proceeds therefrom. In addition, the exercise price of the warrants
will be adjusted in the event we issue common stock at a price below market,
with the exception of any securities issued as of the date of the warrants or
issued in connection with the callable secured convertible notes issued pursuant
to the Securities Purchase Agreement.
The selling stockholders have agreed to restrict their ability to convert their
callable secured convertible notes or exercise their warrants and receive shares
of our common stock such that the number of shares of common stock held by them
in the aggregate and their affiliates after such conversion or exercise does not
exceed 4.99% of the then issued and outstanding shares of common stock. However,
the selling stockholders may repeatedly sell shares of common stock in order to
reduce their ownership percentage, and subsequently convert additional callable
secured convertible notes.
We are required to register the shares of our common stock issuable upon the
conversion of the callable secured convertible notes and the exercise of the
warrants. The registration statement must be filed with the Securities and
Exchange Commission within 75 days of the June 27, 2005 closing date and the
effectiveness of the registration is to be within 135 days of such closing date.
However, the selling shareholders have agreed that we can have extra time to
file the registration statement beyond the 75 days. Penalties of 2% of the
outstanding principal balance of the callable secured convertible notes plus
accrued interest are to be applied for each month the registration is not
effective within the required time. The penalty may be paid in cash or stock, at
our option.
See the "Risk Factors" and "Selling Stockholders" sections for a complete
description of the callable secured convertible notes and warrants.
6
Summary Financial Information
For the year ended For the six months ended
December 31, June 30,
---------------------------- ---------------------------
Statement of Operations Data: 2003 2004 2004 2005
- -----------------------------
Net Sales ....................................... 0 0 0 0
Net cost of sales ............................... 0 0 0 0
Operating expenses .............................. 380,665 2,189,723 (1,061,831) (935,854)
Operating loss .................................. (380,665) (2,189,723) (1,061,831) (935,854)
Other income (expense) .......................... 114,658 127,682 103,409 6,311
Interest Expense ................................ (864,850) (898,410) (465,142) (672,438)
Net income (loss) ............................... (1,130,857) (2,960,451) (1,423,564) (1,601,981)
Net income (loss) applicable to common
shareholders .................................. (1,130,857) (2,960,451) (1,423,564) (1,601,981)
Net income (loss) per common share .............. (0.04) (0.06) (0.03) (0.03)
Shares used in computing net loss per share ..... 29,864,442 50,951,007 51,525,802 55,561,590
As of As of
Balance Sheet Data: December 31, 2004 June 30, 2005
- ------------------- ----------------- -------------
Current assets................................... 636,641 779,938
Current liabilities.............................. 1,172,463 976,295
Working capital (deficit)........................ (535,822) (196,357)
Total assets..................................... 1,750,196 2,102,597
Accumulated deficit.............................. (17,806,556) (19,408,537)
Stockholders' deficit ........................... (6,319,653) (7,089,664)
7
RISK FACTORS
Before you invest in our common stock, you should be aware of the risks
described below which constitute material risks to potential investors. You
should consider carefully these risk factors together with all of the other
information included in this prospectus before you decide to invest in our
common stock. If any of the following risks actually occurs, our business,
financial condition and results of operations could suffer, in which case the
trading price of our common stock could decline. No investment should be made by
any person who is not in a position to lose the entire amount of his investment.
Special Note Regarding Forward-Looking Statements
Some of the information in this prospectus may contain forward-looking
statements. Such statements can be identified by the use of forward-looking
terminology such as "may," "will," "expect," "anticipate," "estimate,"
"continue" or other similar words. These statements discuss future expectations,
contain projections of results of operations or of financial condition or state
other "forward-looking" information. When considering such forward-looking
statements, you should keep in mind the risk factors and other cautionary
statements in this Prospectus. The risk factors noted in this section and other
factors noted throughout this prospectus, including certain risks and
uncertainties, could cause our actual results to differ materially from those
contained in any forward-looking statement.
Our auditors have expressed substantial doubt about our ability to continue as a
going concern.
Due to our significant accumulated losses and our inability to
generate sufficient cash flows from operations to satisfy our liabilities and
sustain operations, our auditors have expressed substantial doubt about our
ability to continue as a going concern. Although we have had success in raising
working capital from the sale of our common stock in the past, the going concern
language in our auditors' report could negatively affect our ability to raise
such funds in the future. Some investors are unwilling to invest with companies
that have going concern language in the auditors' report and others demand
substantial discounts from the market price. Unless we are able to raise
additional working capital through the sale of our common stock, we will not be
able to continue the recovery operations nor will we be able to pay our existing
current liabilities, which could result in protection under bankruptcy laws.
Under certain conditions, including but not limited to having judgments rendered
against us in a court of law, a group of creditors could force us into
bankruptcy due to our inability to pay the liabilities arising out of such
judgments. At this time, we are unable to assess the likelihood that we would
seek bankruptcy protection in the near future. There can be no assurance that we
will be successful in raising working capital from the sale of our common stock.
We have limited working capital, have accumulated significant losses, and expect
our losses to continue.
As of December 31, 2004, we had a deficit working capital of
$(535,822). As of June 30, 2005, our deficit working capital was $(196,357). Our
accumulated deficit was $(17,806,556) as of December 31,2004, and
$(19,408,537)as of June 30, 2005. We had a net loss of $1,130,857 for the fiscal
year ended December 31, 2003, a net loss of $2,960,451 for the fiscal year ended
December 31, 2004, and a net loss of $1,1601,981 for the six months ended June
30, 2005. Our losses have resulted principally from a lack of revenue. We may
never achieve profitability. Furthermore, we may continue to encounter
substantial delays and unexpected expenses related to historical and scientific
research, production of the ATLIS(TM) field units, search and recovery
operations, regulatory matters or other unforeseen difficulties.
8
We have incurred substantial indebtedness which, if not repaid or refinanced
upon maturity, could result in severe adverse consequences for the Company.
We have outstanding Senior Nonconvertible and Junior Nonconvertible 6%
Debentures (the "Debentures") issued in 1996 and 1997 in the aggregate face
amount of $5 million. $2.5 million of the Debentures, plus interest in the
amount of $1,500,000, is due and payable on each of September 30, 2006 and
August 22, 2007, representing a total repayment obligation (including Interest)
in the amount of $8,000,000. The Company is not currently in a position to make
these payments. If we are unable to meet these obligations, we will be forced to
restructure or refinance them or to sell additional equity financing to satisfy
them, which we may be unable to do on satisfactory terms or at all. Such a
default on these obligations would also trigger a default and require immediate
repayment of the callable secured convertible notes, to the extent those notes
were to be outstanding at such time and not previously converted into shares of
our common stock. If we were then unable to repay those notes, the noteholders
could commence legal action against us and foreclose on all of our assets to
recover the amounts due. Any such action would require us to curtail or cease
operations. Furthermore, if those notes were not outstanding and we were unable
to repay or restructure the Debenture obligations, we would be forced to seek
bankruptcy dissolution or reorganization.
There are a large number of shares underlying our callable secured convertible
notes and outstanding warrants and options that may be available for future
sale, and the sale of these shares may depress the market price of our common
stock.
As of September 22, 2005, we had 55,592,190 shares of our common stock
issued and outstanding, callable secured convertible notes (the "Notes")
outstanding that may be converted into an estimated 21,250,000 shares of common
stock, at a price substantially less than the then current market price,
warrants issued to the holders of the Notes to purchase 3,269,228 shares of our
common stock at an exercise price of $.25 per share, additional outstanding
warrants to purchase 21,603,482 shares of our common stock at exercise prices
ranging from $0.05 to $2.25 per share, and options to purchase 477,500 shares of
our common stock at exercise prices ranging from $1.00 to $3.00. Furthermore, we
have an obligation to sell additional Notes that may be converted into an
estimated 41,250,000 shares of our common stock in the near future and to issue
warrants to the Noteholders to purchase an additional 6,346,157 shares of our
common stock. In addition, the number of shares of common stock issuable upon
conversion of the Notes may increase if the market price of our stock declines.
The sale of these shares is likely to adversely affect the market price of our
common stock.
The continuously adjustable conversion price feature of our callable secured
convertible notes could require us to issue a substantially greater number of
shares of our common stock, which will cause dilution to our existing
stockholders.
The callable secured convertible notes are convertible into shares of
our common stock at a 50% discount to the trading price of the common stock
prior to the conversion. The significant downward pressure on the price of the
common stock as the selling stockholders convert and sell material amounts of
common stock could in turn encourage short sales by other investors. This could
place additional downward pressure on the price of our common stock. In
addition, not only the actual sale of shares issued upon conversion or exercise
of notes, warrants and options, but also the mere perception that these sales
could occur, may adversely affect the market price of our common stock.
9
The issuance of shares upon conversion of the callable secured convertible notes
and exercise of outstanding warrants may cause immediate and substantial
dilution to our existing stockholders.
The issuance of shares upon conversion of callable secured convertible
notes and exercise of warrants may result in substantial dilution to the
interests of other stockholders since the selling stockholders may ultimately
convert and sell the full amount issuable upon conversion. Although the selling
stockholders may not convert their callable secured convertible notes and/or
exercise their warrants if such conversion or exercise price would cause them to
own more than 4.99% of our outstanding common stock, this restriction does not
prevent the selling stockholders from converting and/or exercising some of their
holdings and then converting the rest of their holdings over time. In this way,
the selling stockholders could sell more than this limit while never holding
more than this limit. There is no upper limit on the number of shares that may
be issued over time (assuming there is a market to sell the conversion shares
and that we have a sufficient number of authorized but unissued shares of common
stock to effectuate the conversion) which could have the effect of further
diluting the proportionate equity interest and voting power of holders of our
common stock, including investors in this offering.
If we are required for any reason to repay our outstanding callable secured
convertible notes, we would be required to use our current cash, if available,
or raise additional funds. Our failure to repay the callable secured convertible
notes, if required, could result in legal action against us, which could in turn
require us to curtail or cease operations.
The callable secured convertible notes are due and payable, with 8%
interest three years from the date of issuance, unless sooner converted into
shares of our common stock. Although we currently have $850,000 callable secured
convertible notes outstanding, the investors are obligated to purchase
additional callable secured convertible notes in the aggregate amount of
$1,650,000, provided we meet obligations specified in the Security Purchase
Agreement. Any event of default, such as our failure to repay the principal or
interest when due, our failure to issue shares of common stock upon conversion
by the holder, our failure to timely file a registration statement or to have
such registration statement declared effective, breach of any covenant,
representation or warranty in the securities purchase agreement or related
convertible notes, the assignment or appointment of a receiver to control a
substantial part of our property or business, the filing of a money judgment,
writ or similar process against our company in excess of $50,000, the
commencement of a bankruptcy, insolvency, reorganization or liquidation
proceeding against our company, and the delisting of our common stock, could
require the early repayment of the callable secured convertible notes, including
a default interest rate of 15% on the outstanding principal balance of the notes
if the default is not cured within the specified grace period.
We anticipate that the full amount of callable secured convertible notes
will be converted into shares of our common stock, in accordance with the terms
of the callable secured convertible notes. If we are required to repay the
callable secured convertible notes, we would be required to use our limited
working capital and raise additional funds. If we were unable to repay the notes
when required, the noteholders could commence legal action against us and
foreclose on all of our assets to recover the amounts due. Any such action would
require us to curtail or cease operations.
Failure to obtain stockholder approval to increase the number of authorized
shares to two times the number of shares issuable upon full conversion of the
callable secured convertible notes and exercise of warrants could result in
legal action against us, which could require us to curtail or cease our
operations.
We have scheduled an annual meeting of our stockholders on October 31, 2005
to approve a proposed amendment to our Articles of Incorporation to increase the
number of authorized shares of common stock from 100,000,000 shares to
350,000,000 shares. The terms of the callable secured convertible notes and the
securities purchase agreement that we
10
entered into on June 27, 2005 with four accredited investors requires us to have
authorized, and reserved for the purpose of issuance, two times the number of
shares actually issuable upon full conversion of the callable secured
convertible notes and exercise of the warrants based on the conversion price of
the notes or the exercise price of the warrants in effect from time to time. We
intend to honor this commitment.
In the event we are unable to obtain stockholder approval at the October
31, 2005 annual stockholders meeting to amend our Articles of Incorporation to
increase the number of authorized shares of common stock to 350,000,000 shares,
we would be required to pay to the noteholders standard liquidated damages of 3%
of the outstanding amount of the callable secured convertible notes per month
plus accrued interest on the notes, in cash or shares of our common stock at our
option. If we elect to pay the noteholders the standard liquidated damages
amount in share of our common stock, such shares will be issued at the
conversion price at the time of payment. In addition, failure to obtain
stockholder approval to increase the number of authorized shares to two times
the number of shares issuable upon full conversion of the notes and exercise of
the warrants would constitute an event of default under the Securities Purchase
Agreement. If we were unable to obtain stockholder approval to increase the
number of authorized shares, as required in the Securities Purchase Agreement,
the noteholders could commence legal action against us and foreclose on all of
our assets to recover damages. Any such action would require us to curtail or
cease operations.
Because our securities trade on the Over-the-Counter Bulletin Board, investors'
ability to sell their shares in the secondary market may be limited.
Since May 25, 2001, our shares have traded on the Over-the-Counter Bulletin
Board. As a result, it may be more difficult for an investor to dispose of our
securities, or to obtain accurate quotations on their market value. Furthermore,
the prices for our securities may be lower than might otherwise be obtained.
Moreover, because our securities currently trade on the Over-the-Counter
Bulletin Board, they are subject to the rules promulgated under the Securities
Exchange Act of 1934, as amended, which impose additional sales practice
requirements on broker-dealers that sell securities governed by these rules to
persons other than established customers and "accredited investors" (generally,
individuals with a net worth in excess of $1,000,000 or annual individual income
exceeding $200,000 or $300,000 jointly with their spouses). For such
transactions, the broker-dealer must determine whether persons that are not
established customers or accredited investors qualify under the rule for
purchasing such securities and must receive that person's written consent to the
transaction prior to sale. Consequently, these rules may adversely affect the
ability of purchasers to sell our securities and otherwise affect the trading
market in our securities.
Because our shares may be deemed "penny stocks," investors may have difficulty
selling them in the secondary trading market.
The Securities and Exchange Commission has adopted regulations which
generally define a "penny stock" to be any non-Nasdaq equity security that has a
market price (as therein defined) less than $5.00 per share or with an exercise
price of less than $5.00 per share, subject to certain exceptions. For any
transactions by broker-dealers involving a penny stock (unless exempt), rules
promulgated under the Securities Exchange Act of 1934 require delivery, prior to
a transaction in a penny stock, of a risk disclosure document relating to the
penny stock market. Disclosure is also required to be made about compensation
payable to both the broker-dealer and the registered representative and current
quotations for the securities. Furthermore, monthly statements are required to
be sent disclosing recent price information for the penny stocks.
11
There are special risk associated with the business of historic shipwreck search
and recovery of which investors should take note.
Historic shipwreck search and recovery, even with the ATLISI technology
developed by Admiralty, is extremely speculative and involves a high degree of
risk. Certain shipwrecks thought to contain valuable cargoes and artifacts
already may have been partially or fully excavated or may not have had any items
of value on board at the time of sinking. Furthermore, even if objects of
believed value are located and recovered, there is the possibility that others,
including both private parties and governmental entities, asserting conflicting
claims, may challenge the Company's rights to the recovered objects.
Additionally, natural hazards may render historic shipwreck search and recovery
difficult or impossible. Conditions such as bad weather, strong currents, deep
water, dangerous reefs and other unanticipated conditions may severely hinder
the Company's operations. Moreover, recovery operations are typically very
expensive. Finally, even if the Company is successful in locating and retrieving
objects from a shipwreck and establishing good title thereto, there can be no
assurance as to the value that such objects will bring at their sale, as the
market for such objects is uncertain.
Our ATLIS (TM) technology has not been completed and the development and testing
have experienced substantial delays.
Admiralty has conducted only one ocean test of its ATLIS(TM) technology,
which, although successful, was quite rudimentary in nature. There is no
assurance that the Company will successfully produce a detection device which
will function satisfactorily in actual historic shipwreck exploration and
excavation operations so as to permit the Company to become commercially viable
in such operations. The Company has previously encountered difficulties, largely
brought about by insufficient funding, in its ATLIS(TM) technology development
and production programs and there is no assurance that the Company will not
encounter similar or other difficulties in its future technology development and
production programs that could delay or even preclude the successful deployment
of its detection technology in historic shipwreck search and recovery
operations.
It is possible that technological advances by competing parties could render our
Technology inferior or even obsolete before it is deployed.
In the future, innovation and technological advances in the historic
shipwreck search and recovery industry could result in technology with detection
capabilities equal or superior to the detection technology developed by the
Company. Such developments could make the Company's technology less attractive
and less competitive or even obsolete.
We face potentially strong competition which is likely to increase as the
industry matures And expands.
The Company operates in a competitive and rapidly changing environment and
will compete against a variety of companies, some of which may have superior
experience and financial resources. There can be no assurance that the Company
will be able to compete successfully against its competitors for exclusive
permits to engage in historic shipwreck search and recovery operations in every
offshore area identified as prime historic shipwreck prospects.
We face a complex set of regulatory hurdles which could prove expensive and even
prohibitive.
Historic shipwreck sites and recoveries from such sites may be subject to
the competing claims of other shipwreck recovery companies and state, federal
and foreign governments. Lengthy and costly legal proceedings may be required to
protect or establish any ownership or recovery rights. The Company intends to
attempt to mitigate these risks by following established nautical archaeological
protocols and strictly adhering to the requisite legal dictates in securing and
operating under marine exploration and recovery permits and licenses. However,
there can be no assurance that the Company's efforts to reduce these risks will
be successful.
12
We face risks associated with marine search and recovery contracts with
governments, International opposition to commercial historic shipwreck recovery,
and claims by sovereignties.
The Company intends to engage primarily in operations in areas that require
permits or licenses from domestic and foreign governments. Admiralty has applied
for several marine search and recovery permits, but to date its only license has
been issued by the Government of Jamaica. Permits are necessary to implement the
Company's plan of operations. Additionally, marine exploration and recovery
permits typically require the permit holder to follow certain specified
procedures in connection with its search and recovery operations. In the event
the Company receives a permit, but fails to follow such procedures and adhere to
such restrictions, the permit can be terminated or revoked.
Furthermore, the Company may be subject to expropriation of valuable
historic shipwreck sites located by it, although the Company intends to use its
best efforts to protect itself against potential losses which could result from
expropriation activities, such efforts to include the acquisition of political
risk and expropriation insurance (as conditions dictate).
A number of international organizations, such as the United Nations
Educational, Scientific & Cultural Organization ("UNESCO") and certain
environmental and historic preservation groups, are opposed to fundamental
aspects of the commercial recovery of historic shipwrecks (those 100 years old
or older) and are encouraging the nations of the world to place severe
restrictions on or prohibit outright the commercial exploitation of historic
shipwreck sites. In particular, UNESCO has adopted a treaty known as the
Convention on the Protection of Underwater Cultural Heritage. If adopted, it
would restrict access to historical shipwrecks around the world to the extent it
would require compliance with certain guidelines. These guidelines require
adherence to strict archaeological practices, and the Company intends to follow
these guidelines, for the most part, in projects to which they are applicable.
Nevertheless, the Company believes that the convention, if widely ratified and
adopted, could increase regulation of shipwreck recovery operations and could
result in higher costs.
Management does not believe that the Convention will be widely adopted as
presented. Indeed, the Convention has not even entered into force on its own
terms. The United States, Great Britain, and several other critical nations have
voiced their opposition to any Convention that would prevent legitimate private
sector access to shipwrecks. In addition, several organizations, including the
Maritime Law Association, Historic Shipwreck Salvors Professional Association
and the Professional Shipwreck Explorers Association are actively engaged in
promoting the role of legitimate commercial access to shipwrecks.
Another development which may pose a risk to the Company's planned business
activities is the claim by certain maritime nations that they have not abandoned
and therefore still hold possessory rights to their sovereign shipwrecks,
including warships and vessels carrying government cargoes.
We may suffer delays or losses from equipment failure.
Underwater recovery operations are inherently difficult and dangerous and
may be delayed or adversely affected by equipment failures. Search and/or
recovery activities in most permitted or licensed territories can only be
conducted (due to weather and other seasonal factors) during a limited time each
year. In the event search and/or recovery efforts are delayed by equipment
failures, they may be postponed until equipment is repaired. Such delays would
reduce the time available to locate and/or recover the wrecks and thus reduce
the opportunity to locate and recover valuable artifacts.
13
We may encounter extreme uncertainty in connection with efforts to market
recovered cargoes.
The Company intends to locate and recover precious metals (gold and
silver), coins and bars, gemstones and items of historical and archaeological
value in a marine environment. The precious metals market is subject to
significant fluctuations in value and, although the market price has been
rapidly increasing, there is no assurance that recoveries of precious metals by
the Company, if any, will occur at a time when the market is favorable to
sellers numismatic and investment values as well. Additionally, there is no
assurance that numismatic or investment values can be obtained at significantly
higher rates than bullion values for gold and silver, and the market for
historical or numismatic objects may be adversely affected if an inordinately
large supply of such items is offered for sale at or about the same time. There
is no assurance that such a market will exist at the time the Company recovers
such items, if ever, or that then existing prices will be sufficient for the
Company to realize any significant profit from such objects. It may require an
extended period of time before adequate profit, if any, is realized, on any
artifacts which the Company may recover in the future.
Our operations are subject to inherent environmental and archaeological risks.
The effect of the Company's underwater search and recovery operations on
the surrounding environment cannot currently be fully assessed. Due to the
recent increased opposition to commercial historic shipwreck salvage by certain
environmental and historic preservation groups and international organizations,
such as UNESCO, it is possible that such groups and organizations may, in
certain areas, attempt to adversely influence a government with regard to the
Company's search and recovery operations on the grounds that they are harmful to
the environment or historic preservation policies. In such event, the Company's
search and recovery operations could be delayed or even prohibited, and the
Company could be required to expend funds to contest such claims, which funds
would normally be applied to the Company's operations.
Management does not believe the Company's operations will be harmful to the
environment or will compromise historic preservation values and will vigorously
defend any such claims should an action be instituted. Moreover, Management
intends to conduct its recovery operations in accordance with the standards of
established nautical archaeology. No assurance can be given, however, that
operations of the Company will not, on occasion, be later found to violate
applicable environmental regulations or elements of nautical archaeological
protocols.
We may be subjected to unauthorized incursions into our salvage sites.
Although the Company anticipates having exclusive contracts to search for
and recover historic shipwreck shipwrecks in permitted or licensed territories,
it is possible that unauthorized persons may attempt to search for artifacts in
such areas or to take artifacts recovered by the Company from the Company. The
Company will be partially dependent upon the appropriate government with
jurisdiction to bar unauthorized divers from such areas and to protect the
Company from pirating. Additionally, the Company will utilize an expert security
force on each recovery site to help the Company maintain the security of the
sites and operations on such sites. However, no assurance can be given that such
efforts will be successful and that unauthorized divers will engage in recovery
activities in the Company's licensed domain.
We could have insufficient insurance coverage for our operations.
The Company has secured general insurance against liabilities that could
occur. Such liabilities, common to the marine salvage industry, could include
loss of life, accidents, loss of ships and equipment, and other similar dangers.
The Company cannot guarantee that its insurance coverage is adequate.
Accordingly, if one or more substantial claims in excess of insurance coverage
against the Company were to be successfully sustained, the Company's
14
financial condition and future prospects could be materially adversely affected.
Any historic ship wreck which the Company may recover will be insured when, in
management's judgment, it is necessary to do so. No assurance can be given that
an affordable premium will be sufficient to obtain coverage for the full value
of any historic shipwreck items.
Our operations are subject to extensive government regulation which are subject
to change from time to time, and some of the changes could be adverse to us.
The Company is subject to a wide range of governmental regulations
promulgated by various local, state, federal and foreign government agencies
with respect to the Company's proposed business, including regulations that
govern the search for and ownership of abandoned shipwrecks, as well as
environmental and ecological regulations. The regulations controlling the
Company's activities will depend upon the location of any particular search and
recovery venture in which it may engage. Accordingly, the Company may be
prevented from operating in a particular area in which it seeks to conduct
activities because of its inability to comply with the applicable regulations
imposed by the governing body of such area. Additionally, domestic and
international laws governing the recovery and disposition of historic shipwrecks
(those more than 100 years old) are somewhat indefinite and are the subject of
ongoing legal clarification.
There are substantial risks inherent in government contracts relating to
searching for unexploded marine ordnance and weapons.
There is no assurance that we will be granted any government contracts to
assist in locating and retrieving unexploded marine ordnance and weapons, or
that, if such contracts are granted, that the Company will perform successfully.
Fees and compensation arrangements under any such contracts are likely to be
partially or wholly contingent upon success of the Company in locating
designated targets. Our ATLIS(TM) technology was not specifically designed for
such activities and may not perform this function effectively or all.
Additionally, the targets, by their very nature, will pose significant hazards
and dangers to all search and retrieval personnel, some or all of which hazards
and dangers may be uninsurable through private insurers.
There are risks associated with our efforts to protect and defend our
intellectual property rights.
We intend to continue to develop, protect and preserve our intellectual
property. As for detection technology specifically, we received United States
Patent No.: US 6,724,191 B1 from the U.S. Patent Office entitled: SYSTEMS AND
METODS USEFUL FOR DETECTING PRESENCE AND/OR LOCATION OF VARIOUS MATERIALS on
April 20, 2004. In addition, we have two other patent applications pending under
U.S. Patent Application Serial Numbers 10/899,391 and 60/490,315. Information
Disclosure Statements and Forms PTO/SB/08 were filed on both of these patents
with the U.S. Patent Office subsequent to the year ended 2004, on February 25,
2005 by our intellectual property law firm, Kilpatrick Stockton LLP. One is
entitled SYSTEMS AND METHODS FOR SYNCHRONOUS DETECTION OF SIGNALS and the other
is entitled METHODS AND SYSTEMS FOR ENCHANCING DETECTION IN DETECTION SYSTEMS.
James Wagner Larsen is the inventor and Admiralty is the assignee of these
patents. In addition, we intend to preserve and protect the secrecy of our
technology by: (i) building into ATLISI equipment tamper-proof elements, (ii)
permitting the actual operation of Admiralty's equipment units utilizing
ATLIS(TM) technology only by certain trusted individuals of the Company, (iii)
revealing the critical information necessary to construct and operate ATLIS(TM)
equipment only to a few key employees of Admiralty, and (iv) engaging a seasoned
security force to handle all security matters. However, we can give no assurance
that other companies will not be successful in developing technology-using
processes similar to those developed by the Company.
15
We may issue preferred shares in the future with preferences over our common
stock.
We are asking our shareholders at our October 31, 2005 Annual Meeting to
approve our proposal to amend our Certificate of Incorporation to authorize the
issuance of up to 50,000,000 shares of "blank check" preferred stock, which will
have such designations, rights and preferences as our Board of Directors may
determine from time to time. Accordingly, if this proposal is approved by our
stockholders, our Board of Directors will be empowered, without stockholder
approval (but subject to applicable government regulatory restrictions), to
issue preferred stock with dividend, liquidation, conversion, voting or other
rights that could adversely affect the voting power or other rights of the
holders of our common stock. Those shares may be issued on such terms and for
such consideration as our Board then deems reasonable and such stock shall then
rank equally in all aspects of the series and on the preferences and conditions
so provided, regardless of when issued. In the event of such issuance, the
preferred stock could be utilized, under certain circumstances, as a method of
discouraging, delaying or preventing a change in control of our company.
Our Board of Directors will have the right to issue additional shares of common
stock that could dilute holders of our common stock.
Our Board of Directors has the inherent right under applicable Colorado
law, for whatever value the board deems adequate, to issue additional common
shares up to the limit of shares authorized by the certificate of incorporation,
and, upon such issuance, all holders of shares of common stock, regardless of
when they are issued, thereafter generally rank equally in all aspects of that
class of stock, regardless of when issued. Any such issuance would necessarily
dilute the holders of common shares. Current stockholders have no rights to
prohibit such issuances nor inherent "preemptive" rights to purchase any such
stock when offered.
USE OF PROCEEDS
This prospectus relates to shares of our common stock that may be offered and
sold from time to time by the selling stockholders. We will not receive any
proceeds from the sale of shares of common stock in this offering. However, we
will receive the sale price of any common stock we sell to the selling
stockholders upon exercise of the warrants. We expect to use the proceeds
received from the exercise of the warrants, if any, for general working capital
purposes. However, the selling stockholders are entitled to exercise the
warrants on a cashless basis if the shares of common stock underlying the
warrants are not then registered pursuant to an effective registration
statement. In the event that the selling stockholders exercise the warrants on a
cashless basis, then we will not receive any proceeds.
In addition, we have received gross proceeds of $850,000 from the sale of the
callable secured convertible notes and the investors are obligated to provide us
with an additional $800,000 within five days of the filing of a registration
statement and an additional $850,000 within five days of the registration
statement being declared effective. The proceeds received from the sale of the
callable secured convertible notes will be used to pay accounts payable,
complete the first ATLIS(TM) field unit, support ongoing operations, and for
acquisition of capital equipment and working capital.
DIVIDEND POLICY
We have never paid any cash dividends on our common stock and do not anticipate
paying any cash dividends on our common stock in the foreseeable future. We
currently intend to retain future earnings, if any, to fund the development and
growth of our proposed business and operations. Any payment of cash dividends in
the future on the common stock will be dependent upon our financial condition,
results of operations, current and anticipated cash requirements, plans for
expansion, restrictions, if any, under any debt obligations, as well as other
factors that our board of directors deems relevant.
16
MARKET FOR COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
Our authorized capital stock consists of 100,000,000 shares of common stock,
$.001 par value per share. Our Board of Directors have approved an amendment to
our Articles of Incorporation which we anticipate will be approved by our
stockholders at our 2005 Annual Meeting which will increase the number of shares
of authorized common stock to 350,000,000 shares and will authorize the issuance
of up to 50,000,000 shares of "blank check" preferred stock.
Our common stock trades on the Over-the-Counter Bulletin Board under the symbol
"RUBM.OB." As of September 16, 2005, the closing sale prices of the common stock
was $0.18 per share. The following are the high and low sale prices for the
common stock by quarter as reported by the Over-the-Counter Bulletin Board from
January 1, 2002 through September 22, 2005.
Common Stock
Price Range
- --------------------------------------------------------------------------------
Period (Calendar Year) High Low
---- ---
2002
First Quarter.................................. $0.56 $0.10
Second Quarter................................. $0.29 $0.10
Third Quarter.................................. $0.19 $0.06
Fourth Quarter................................. $0.10 $0.04
2003
First Quarter.................................. $0.10 $0.02
Second Quarter................................. $0.12 $0.04
Third Quarter.................................. $0.39 $0.10
Fourth Quarter ................................ $0.61 $0.23
2004
First Quarter ................................. $0.98 $0.41
Second Quarter ................................ $0.86 $0.43
Third Quarter ................................. $0.60 $0.45
Fourth Quarter ................................ $0.56 $0.25
2005
First Quarter ................................. $0.55 $0.17
Second Quarter................................. $0.38 $0.10
Third Quarter (through September 22, 2005) .... $0.29 $0.05
As of August 31, 2005 there were approximately 2,726 record holders of our
common stock, not including shareholders who hold their stock in street name
with broker-dealers.
We have never paid any cash dividends on our common stock and we do not
anticipate paying any cash dividends on our common stock in the foreseeable
future.
We currently intend to retain future earnings, if any, to fund the development
and growth of our proposed business and operations. Any payment of cash
dividends in the future on the common stock will be dependent upon our financial
condition, results of operations, current and anticipated cash requirements,
plans for expansion, restrictions, if any, under any debt obligations, as well
as other factors that our board of directors deems relevant.
17
MANAGEMENT'S DISCUSSION AND
ANALYSIS OR PLAN OF OPERATION
This report contains forward-looking statements and information relating to us
that is based on beliefs of management as well as assumptions made by, and
information currently available to management. These statements reflect
management's current view respecting future events and are subject to risks,
uncertainties and assumptions, including the risks and uncertainties noted
throughout the document. Although we have attempted to identify important
factors that could cause the actual results to differ materially, there may be
other factors that cause the forward-looking statements not to come true as
anticipated, believed, projected, expected or intended. Should one or more of
these risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may differ materially from those described herein as
anticipated, believed, projected, estimated, expected or intended.
Plan of Operation
As the Company has continued operations on the Pedro Bank in Jamaican waters and
on a site in international waters off Honduras (designated by the Company as
"Project Orange"), management believes that the Company has enhanced access to
investments of capital. Management has utilized the expertise of Laidlaw &
Company, Ltd. to seek additional opportunities for capital investments.
Currently, Management has entered into an agreement for three year, 8% callable
secured convertible notes, as described above. These notes, issued in three
traunches, total $2,500,000 and interest is being prepaid eight months in
advance. With the Company's current cash levels, operations of the Company are
expected to be able to be carried over the next nine months (assuming all three
traunches of the NIR Group notes are funded) without an additional capital
investment to satisfy existing liabilities and to fund future operations.
During the three months ended June 30, 2005, we satisfied liquidity needs
through short-term note borrowings, deferral of some salaries and expenses, and,
the sale of warrant securities.
Our permit with Jamaica to search and recover artifacts within our permitted
area expires at the end of November 2005. Discussions have already begun toward
the renewal of this permit. We anticipate that the permit will be renewed such
that continuity occurs and we feel that both Jamaica and Ruby Mining Company
wish for the permit to be renewed.
Critical Accounting Policies
The accounting and reporting policies of the Company are in accordance with
accounting principles generally accepted in the United States and conform to
general practices within its industry. Application of these principles requires
management to make estimates or judgments that affect the amounts reported in
the financial statements and the accompanying notes. These estimates are based
on information available as of the date of the financial statements;
accordingly, as this information changes, the financial statements could reflect
different estimates or judgments. Certain policies inherently have a greater
reliance on the use of estimates, and as such have a greater possibility of
producing results that could be materially different than originally reported.
Estimates or judgments are necessary when assets and liabilities are required to
be recorded at fair value, when a decline in the value of an asset not carried
on the financial statements at fair value warrants an impairment write-down or
valuation reserve to be established, or when an asset or liability needs to be
recorded contingent upon a future event. Carrying assets and liabilities at fair
value inherently results in more financial statement volatility. The fair values
and the information used to record the valuation adjustments for certain assets
and liabilities are based either on quoted market prices or are
18
provided by other third-party sources, when available. When third-party
information is not available, valuation adjustments are estimated in good faith
by management primarily through the use of internal cash flow modeling
techniques.
The most significant accounting policies for the Company are presented in Note 1
to the consolidated financial statements of the Company. These policies, along
with the disclosures presented in the other financial statement notes provide
information on how significant assets and liabilities are valued in the
financial statements and how those values are determined. Management views
critical accounting policies to be those that are highly dependent on subjective
or complex judgments, estimates and assumptions, and where changes in those
estimates and assumptions could have a significant impact on the financial
statements.
Management currently views the determination of the proper recording of equity
and related instruments used in financing the Company's current operations and
exploration activities a critical accounting policy. The Company evaluates each
issuance of equity and related instruments on an individual basis to determine
that they are recorded in accordance with accounting principles generally
accepted in the United States.
Management also currently views the determination of when the Company ceases to
be a Development Stage Enterprise a critical accounting policy. A company is
considered to be a Development Stage Enterprise if it is devoting substantially
all of its efforts to establishing a new business and either (1) planned
principal operations have not commenced or (2) planned principal operations have
commenced, but there has been no significant revenues there from. Currently, the
Company has determined that it remains a Development Stage Enterprise.
General
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations, contains forward-looking statements, which involve risks
and uncertainty. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors
discussed in this section. Our fiscal year is from January 1 through December
31.
Ruby Mining Company (the "Company"), together with its wholly owned
subsidiaries, Admiralty Corporation ("Admiralty") and Admiralty Marine
Operations, Ltd. ("AMO"), is a development stage company and has had only
minimal revenues from operations. The consolidated Company satisfied liquidity
and capital requirements during the year ended December 31, 2004 through the
issuance of common stock, warrants, loans, and short-term interest bearing
advances. In addition, the Company benefited in 2004 by the deferral of
compensation by the company's executive staff in the amount $229,800 of which
$50,000 of accrued compensation was due to the previous CEO.
Additionally, with the reorganization of our debts in 2003 and 2004 and
continuing into 2005, management believes that the Company has developed
enhanced access to investments of capital in the capital markets. Management is
utilizing existing relationships and business advisors to seek future and
further opportunities for capital investments. With the Company's current cash
level, operations of the Company will be limited over the next twelve months
without an additional capital investment to satisfy existing and future
operations.
Continuing from 2003, we sold the remainder of our $1,200,000 private placement
offering to accredited investors at $0.25 a share for restricted shares. A total
of $897,500 was sold during 2004. In May 2004, the Company commenced a second
private placement of a $0.70 unit offering to accredited investors. Each unit
consisted of one share of restricted common stock, one two (2) year warrant
exercisable for $1.35 a share, and, one four (4) year warrant exercisable for
$2.25. The units were in minimum amounts of $10,500 per unit, and $616,485 of
this offering was purchased by 31 individuals and entities. In addition,
beginning December 2004, $335,000 of a private placement of three (3) year
warrants
19
exercisable into restricted shares of common stock at an exercise price of $
0.35 per share. The units were placed with accredited investors at a minimum
purchase of $15,000 per unit, with each unit consisting of 150,000 warrants at a
purchase price of $0.10 per warrant. This private placement was purchased by
eight (8) accredited individuals and entities.
Results of Operations
Six Months Ended June 30, 2005, Compared to Six Months Ended June 30, 2004
We had no revenue from operations during the three months ended June 30, 2005.
For the three months ended June 30, 2005, we incurred a net loss of $931,809
compared to a net loss of $673,790 for the three months ended June 30, 2004. The
increase was primarily the result of increased professional fees and increased
interest expense related to the recording of a beneficial conversion feature on
the Company's secured convertible notes issued during the second quarter of
2005. The amount of the beneficial conversions feature was $202,417. The
professional fee increase is associated with the our marine expedition to a site
designated by the company as "Project Orange", an international site off
Honduras. The Company choose this site after having been granted "salver in
possession rights" to this area by a federal district court's ruling in
admiralty for the Company. We also incurred increased professional fees for
settlement of certain legal disputes.
Our present activities consist of establishing and maintaining financing and
funding sources and opportunities. Additionally, the Company intends to continue
establishing and maintaining strategic relationships and arrangements that will
enhance the Company's ability to pursue historic shipwrecks.
We acquired a search and recovery ship in 2004, the New World Legacy (the
"Ship"), which we have deployed on Project Orange and the Pedro Bank, Jamaica,
as well as other projects during the proceeding twelve months. We continue to
finalize the building of the first ATLISTM field units to be used in the search
efforts on the Pedro Bank, and at other sites at which the Company has been
involved. We expended $33,562 during the quarter ended June 30, 2005 for
construction of the ATLISTM field units.
For the three months ended June 30, 2005 depreciation and amortization have
increased from the three months ending June 30, 2004 due to the New World Legacy
acquisition. General and administrative costs for the three months ended June
30, 2005 have decreased to $41,689 from $84,968 for the three months ended June
30, 2004 due to less expense associated with a reduced office space and
limitation of available cash.
For the six month period ending June 30, 2005, we incurred a loss of $1,601,981
compared to a loss $1,423,564 in the same period ending June 30, 2004. The
increased loss is due principally to expenses and costs associated with the
Company's survey operations at Project Orange, the expenses and costs associated
with restructuring Company debt, and the recording of a beneficial conversion
feature of $202,471 related to the issuance of the Company's callable secured
convertible notes.
Fiscal Year Ended December 31, 2004 Compared to
Fiscal Year Ended December 31, 2003
We had $0 of revenue from operations during the year ended December 31, 2004 as
compared to $0 for the year ended December 31, 2003. During the quarter ended
June 30, 2001, the Company completed a reorganization in which we acquired all
the outstanding shares of stock of Admiralty Corporation in exchange for common
stock of the Company. The transaction is more fully explained in a Form 8-K
filed by the Company on June 11, 2001. The reorganization was accounted for as a
reverse-merger with Admiralty being the accounting acquirer. Admiralty is now a
wholly-owned subsidiary of the Company. The primary business of Admiralty and
the Company is the business of finding and recovering historic shipwrecks,
primarily those from the 1500s, 1600s, and 1700s.
20
For the year ended December 31, 2004, we incurred a net loss of $2,960,451,
compared to a net loss of $1,130,857 for the year ended December 31, 2003. Our
present activities consist of establishing and maintaining financing and funding
sources and opportunities, establishing and maintaining relationships, and,
organizing the marine, archeological and logistical human and physical assets
that will enhance our ability to pursue the cargoes of historic shipwrecks.
For the year ended December 31, 2004, compensation costs were $379,675, an
increase of $173,706, from $205,696 for the year ended December 31, 2004. This
increase is primarily attributable to the executive officer forgiveness of
accrued salaries in the prior year. Depreciation and amortization increased
$26,934 from $11,204 in 2003 to $38,138 in 2004, which was the result of the
addition of the Company's ship, the New World Legacy. Professional fees were
$754,713 for the year ended December 31, 2004, an increase of $478,426 from
$276,287 for the year ended December 31, 2003. This increase is the result of
our increase in the number of consultants utilized necessitated by our project
operations in Jamaica and other waters off the United States coast.
General and administrative costs for the year ended December 31, 2004 were
$332,523, a decrease of $68,307 from the year ended December 31, 2003. This
decrease was primarily the result of decreased costs related to our obtaining
financing and logistical and project operations costs. We had $250,000 of
research and development expenses in 2004, resulting from a payment to Larsen
Laboratories for the production of the ATLIS(TM) field unit to be used on the
Pedro Bank project in Jamaica. Exploration costs were $434,674 during the year
ended December 31, 2004 and $0 during the year ended December 31, 2003. This
increase was the direct result of the addition of our ship, the New World
Legacy, and the operations and activities of the ship during 2004.
Liquidity and Capital Resources
We satisfied liquidity and capital requirements during the three months ended
June 30, 2005 through the issuance of 3,121,156 three-year, $0.35 warrants
exercisable into our common stock for a consideration of $315,153 from 20
individuals. The warrant agreements representing these warrants were issued on
or about June 30, 2004. In addition, employees of the Company continued to
partially deferred payments of compensation to help provide liquidity for us.
On June 28, 2005, we completed a financing arrangement involving the sale of
$2,500,000 in callable secured convertible notes. The notes are to be purchased
in three traunches: the first traunch is in the amount of $850,000, which the
company received upon signing the definitive agreements on June 23, 2005; the
second traunch in the amount of $800,000 upon the filing of a registration
statement with the Securities and Exchange Commission; and the third traunch in
the amount $850,000 upon the effective declaration of the registration
statement.
As of December 31, 2004, we had net operating loss carryforwards (NOLs) of
approximately $17.8 million. These loss carryforwards are available to offset
future taxable income, if any, and have begun to expire in 2005 and extend for
twenty years. The Tax Reform Act of 1986 significantly limits the annual amount
that can be utilized for certain of these carryforwards as a result of change of
ownership.
1. We have taken numerous steps to reduce costs and increase operating
efficiencies. These steps consist of the following:
2. We closed our corporate offices and are now working as a virtual corpor-
ation. Such measures have resulted in savings in rent and other overhead costs.
3. We have significantly reduced the use of consultants, which has resulted in
a large decrease to these expenses.
21
BUSINESS
Background
Pursuant to a Plan and Agreement of Share Exchange implemented in 2001 (the
"Share Exchange Agreement"), the shareholders of Admiralty Corporation, a
Georgia corporation ("Admiralty"), then became the principal shareholders of the
Registrant, Ruby Mining Company, a Colorado corporation (the "Company"), and
Admiralty then became and remains today a wholly-owned subsidiary of the
Company. Since that time, the Company has conducted its operations through
Admiralty. The Company was incorporated under the laws of the State of Colorado
in 1971. Admiralty was incorporated under the laws of the State of Georgia in
1988. Unless the context otherwise requires, all references to the Company shall
include both Ruby Mining Company and Admiralty.
General
We are engaged principally in the business of testing and deploying proprietary
detection technology for use, in partnership with governments, marine
archaeologists and other nautical and maritime experts, in locating and
recovering valuable cargoes from historic shipwrecks, primarily those from the
16th, 17th, and 18th centuries. We also continue to evaluate the potential
application of its technology for assisting domestic governmental agencies in
locating and retrieving unexploded marine ordnance and weapons.
Our business activities are focused in 8 principal areas:
1. Finalizing development of a new, proprietary technology to detect gold,
silver and other precious metals in a salt-water environment, through layers of
sand, sediment and coral.
2. Conducting historical research on shipwrecks, principally those from the
16th, 17th, and 18th centuries.
3. Analyzing the principal issues related to the legalities associated with
historic (pre-1900) shipwreck search and recovery operations.
4. Negotiating agreements with countries for permits to search for and recover
valuable cargoes from historic shipwrecks in their territorial waters.
5. Finding synergistic and accretive joint venture, investment and acquisition
candidates with experience, expertise, and assets (such as vessels, equipment,
historical documentation, and projects) related to the business of shipwreck
exploration and excavation.
6. Conducting search efforts to locate and arrest historic shipwrecks situated
in international waters.
7. Acquiring and deploying marine vessels equipped with advanced conventional
search and recovery capabilities for use in historic shipwreck search and
recovery operations
8. Exploring, in association with domestic governmental agencies, the
possibility of deploying the ATLISI technology to locate and retrieve for
disposal unexploded ordnance and weapons in the territorial waters of the Untied
States.
Shipwreck Search and Recovery Technology
We have designed and developed a proprietary detection technology, which we call
ATLIS(TM), to locate, quantify and differentiate among precious metals in a
~ledge environment. To assist us in enhancing the functionality of the ATLISI
technology, we have associated a university-affiliated scientific expert in the
field of remote-sensing. We have completed the initial testing phase of our
technology (in the laboratory and in the ocean) and are now building the first
ATLIS(TM) field units for use in shipwreck search and
22
recovery operations on the Pedro Bank in the territorial waters of Jamaica and
other areas. On April 20, 2004, Admiralty received United States Patent U.S.
6,724,191 B1 from the U.S. Patent Office entitled: SYSTEMS AND METODS USEFUL FOR
DETECTING PRESENCE AND/OR LOCATION OF VARIOUS MATERIALS. Additionally, we now
have two other patent applications pending under U.S. Patent Application Serial
Numbers 10/899,391 and 60/490,315. Information Disclosure Statements and Forms
PTO/SB/08 were filed on both these patents with the U.S. Patent Office
subsequent to the year ended 2004, on February 25, 2005 by our intellectual
property law firm, Kilpatrick Stockton LLP. One is entitled SYSTEMS AND METHODS
FOR SYNCHRONOUS DETECTION OF SIGNALS and the other is entitled METHODS AND
SYSTEMS FOR ENCHANCING DETECTION IN DETECTION SYSTEMS. James Wagner Larsen, a
former Vice President and director of the Company and currently a technology
consultant to the Company, is the inventor, and Admiralty is the assignee of
these patents. Barring unforeseen circumstances, we expect the two additional
U.S. patents to be issued by the end of the first quarter of 2006. We intend to
maintain an active research and development program for the design and
development of additional proprietary marine detection technologies and devices
for use in historic shipwreck search and recovery operations.
We have also enhanced the marine search capabilities associated with our
ATLIS(TM) technology by positioning the Company to acquire an advanced "Remotely
Operated Vehicle" ("ROV") to be integrated with the ATLIS(TM) technology. This
capability is being developed through our contractual association with Nova
Marine Exploration, Inc. and its subsidiary NovaRay(R), Inc. ("NRI"), developers
of the Nova Ray(R) ROV. The Nova Ray(R) uses the hydrodynamic features of its
proven "arcuate" wing to work with the current - not against it. The "arcuate'"
wing (used to describe objects that are bent or curved in the form of a bow)
provides stability in strong tidal and river currents and counters destabilizing
effects of cable drag. It works effectively with an umbilical cable and the
current, as opposed to fighting against each factor. This ability works contrary
to nearly all other portable ROVs on the market today. The Nova Ray(R) operates
in up to 9 knot currents under tow (the industry standard being just 2 knots),
and has plenty of payload for cost effective results. The Nova Ray(R) goes
deeper with less cable than other underwater towable vehicles. Having the most
efficient design in nature, the portable, cost effective Nova Ray(R) is a
~ledges selection for underwater inspection and detection projects. Numerous
patents for the subsea system have been granted, allowed or are pending. The
United States Navy has referenced the Nova Ray(R) in certain of its own patent
applications.
The use of ROV surveys can substantially reduce the time required to locate
metal-bearing anomalies in deep or flowing current search areas. NRI has already
adopted a reticulated and pick-up arm for the Nova Ray ROV to retrieve objects
on deep-water wrecks, even in strong currents. Additionally, we expect to be
able to adapt the ATLIS(TM) technology to the Nova Ray(R) ROV and deploy the
adapted ROV to study in detail those anomalies which correlate with our historic
research in order to determine whether shipwreck recovery efforts are warranted,
thereby expanding our capabilities to deep water and areas of flowing currents.
Shipwreck Search and Recovery Permits
We currently hold an exclusive permit from the Government of Jamaica (the only
such permit from Jamaica) to conduct search and recovery operations on the Pedro
Bank, a 2000 square mile underwater "plateau" in the Caribbean Sea, southwest of
Kingston, Jamaica. This area is believed to be one of the richest in the world
for shipwrecks from the Spanish flotillas carrying gold and silver bars and
coins, gemstones and artifacts from Latin America (then known as the "New
World") to the Spanish Empire. Two of Admiralty's marine science consultants
have estimated that there are 300 or more historic shipwrecks in the vicinity of
the Pedro Bank.
The ATLIS(TM) technology, by enabling us to effectively pinpoint the location of
valuable cargoes of historic shipwrecks, will allow us to restrict our recovery
activities to a relatively confined area, thereby significantly mitigating the
severe and often irreparable environmental damage resulting from the widespread
excavation that is typically necessitated by conventional marine search and
recovery
23
operations. It was largely this serious environmental damage that led many
nations to cease issuing permits many years ago to commercial marine salvage
operators and often nefarious "treasure hunters". Mainly due to our ability to
conduct its search and recovery operations without wreaking havoc on the marine
environment, we were able to convince the Government of Jamaica to reconsider
its longstanding moratorium on marine permits and grant to Admiralty a license
to search for and recover valuable cargoes from historic shipwrecks situated on
the Pedro Bank.
We expect and anticipate that other countries will be similarly receptive to the
advantages and attributes of the ATLIS(TM) technology and therefore will
favorably entertain applications by Admiralty for shipwreck search and recovery
permits in their territorial waters. In this regard, we recently began
negotiating the key terms and conditions of a marine exploration and excavation
permit from another government within the Caribbean region that is expected to
be granted by the end of this year. We have also engaged in preliminary
discussions regarding shipwreck search and recovery projects and joint ventures
from several other permit holders and plans to continue to aggressively pursue
these discussions during the remainder of 2005 and during 2006.
Shipwreck Research
In addition to our efforts directed to the acquisition of permits, We have
identified and continue to identify potential search sites through our research
into historical records which document the existence and often general location
of wrecks in the target search areas. In some instances, the research materials
describe the salvage efforts, if any, that may have been undertaken after the
wreck occurred. Such research typically provides an indication of the value of
the shipwreck since a detailed manifest (i.e., list and description of the items
being transported) was prepared for each ship.
Strategic Alliances and Joint Ventures
In addition to our past contractual relationships with governmental agencies
such as NASA and Sandia, we have also developed new strategic contractual
alliances with academic and other marine and maritime institutions, including
(i) the Center for Maritime & Underwater Resource Management ("CMURM"), a
non-profit organization originally affiliated with Michigan State University
which assists and advises businesses, communities, and governments on projects
involving the management and development of maritime and underwater resources,
and (ii) Mount McGovern Co., Ltd. ("Mount McGovern"), a Canadian firm with
expertise in nautical and terrestrial archaeology and heritage resource
management. Areas of expertise of CMURM and Mount McGovern include historic
shipwrecks and other maritime heritage, marine parks and protected areas,
water-based recreation, coastal and heritage tourism, and scientific diving.
Under contract with the Company, the principals of CMURM and Mount McGovern
formed a company, Archeology & Maritime Heritage International, LLC, a for
profit company, which in collaboration with representatives of the Government of
Jamaica and the Jamaica Heritage Resource Management, produced the written
archaeological recovery plan for Jamaica which has been accepted by Jamaica as
the definitive guide for the conduct of the Pedro Bank operations.
In September 2004, we entered into an Enterprise Venture Agreement ("EVA")
between (a) John Doering, and his associates ("Doering"), and (b) Admiralty and
NRI, to arrest and (b) recover four ships whose general description and location
were supplied by "Doering". The EVA allows for the assignment of the arrest and
recovery rights, in whole or in part, to funding sources. The four sites are
respectively referred to as "Project Green", "Project Red", "Project White", and
"Project Yellow." The wrecks in question are believed to be situated in
locations not subject to state, federal, or foreign jurisdiction.
Also, during the spring, summer and fall of 2004, we entered into several
agreements to survey sites using the Company research vessel, the R/V New World
Legacy. Using this vessel, we have completed survey work for GCS Technologies,
LLC in its permit area off Key West, Florida and for Underwater
24
Treasure Associates, L.L.P. in its permitted area southwest of Galveston, Texas.
While the Company has not benefited by locating any significant treasure during
these activities the projects met a goal of providing additional work and
opportunities for both the Company and its major capital asset, the R/V New
World Legacy.
In 2003, we entered into an agreement with Georgia Tech Research Corporation,
which serves as the contracting arm for the Georgia Institute of Technology
(collectively, "Georgia Tech"). This agreement grants to Georgia Tech a
non-exclusive license of the Company's ATLISI technology for conducting research
and development activities towards the development of that technology for use in
locating unexploded land-based ordnance. All other rights pertaining to the
ATLIS(TM) technology, including, but not limited to, use in locating unexploded
marine ordnance and in locating and recovering historic shipwrecks, are
expressly reserved to the Company.
The agreement does not grant to Georgia Tech any rights to commercialize the
subject matter of the license. Moreover, we will own all rights to any
improvements to the ATLIS(TM) technology resulting from the license, including
any and all patent rights ~ledges~n from any such improvements, provided,
however, a customary royalty will be paid to Georgia Tech in the event any such
improvements become the subject of a U.S. patent application.
In the spring of 2005, we entered into a joint venture agreement with Corazon &
Corazon, a company engaged in providing charitable services in Caribbean
countries and elsewhere, to arrest and potentially recover valuable artifacts
from a shipwreck believed to be either from the 16th or 17th century, the site
for which wreck is situated in international waters in the Caribbean. In March
2005, the Company, pursuant to the joint venture, arrested, through an order
from a federal district court, a 30 square mile area which is believed to
contain the shipwreck site. The joint venture agreement provides for a division
of revenues, after reimbursement for all project expenses, of 60% to us and 40%
to Corazon & Corazon.
Shipwreck Search and Recovery Vessels
We completed our acquisition of the R/V New World Legacy, a 110-foot, 169-ton
ship (the "Ship") built specifically for historic shipwreck search and recovery
operations in the Caribbean during 2004. The terms of the acquisition included
the issuance of 1,000,000 shares of the Company's common stock to the
corporation that owned the Ship and the assumption of certain liens and
obligations encumbering the Ship.
The Ship accommodates 21 persons, including a crew of 4. It has been outfitted
with sophisticated dive-support equipment and special marine survey and recovery
equipment, including a "fish tow" cesium magnetometer (currently unavailable for
use), two hand-held cesium magnetometers, sub-bottom mapping electronic
equipment and software, world wide nautical chart software, two 18-foot Boston
Whalers, a heavy-duty crane, air compressors for diving tanks, and a full dive
air Nitrox system.
The Company is utilizing the Ship for its Pedro Bank operations and certain
other survey and recovery projects, including in particular Project Orange. The
Ship is well suited for such operations because many of the historic shipwreck
targets are believed to be in shallow waters and the Ship only drafts 8 feet
(2.77 meters).
Potential Revenue Sources
We intend to generate future revenues from six principal sources: sale of cargo
and trade items, sale of merchandise, income from exhibitions, corporate
sponsorship fees and sale and licensing of intellectual property rights, and
contracts with domestic governmental agencies to help locate and retrieve for
disposal unexploded marine ordnance and weapons. Should the contract with
Georgia Tech produce a technology useful in locating land mines and other
terrestrial ordnance, there would be a seventh source of revenue for the
Company.
25
Cargo and trade items or goods refer to those found on a shipwreck that do not
have cultural significance. A primary example is gold and silver bullion, which
Admiralty should be able to sell relatively quickly on the world market. Certain
items, such as coins, may be sold at public auction or through private sale to
collectors.
Merchandise sales may come from items such as artifact replicas (some of which
may be items of jewelry), trademarked or logo items, videotapes, books and other
products. Merchandise may be sold through retail outlets, over the Internet, in
association with exhibits, and through direct marketing, including catalogues,
home shopping and infomercials.
Income may also be generated from exhibiting artifacts and selling merchandise
to those who attend the exhibitions. Exhibitions could range from exhibits
located in major tourist centers to traveling exhibits, such as the touring
exhibit of items recovered from the RMS Titanic.
Corporate or institutional sponsorships, some of which have already been
discussed between the Company and interested parties, will generate fees and
expense-sharing arrangements by allowing certain companies or products to
participate in the media exposure and promotional opportunities resulting from
Admiralty projects, from search and recovery through exhibit or sale of
artifacts.
Revenues from intellectual property rights are anticipated to consist primarily
of fees and payments to Admiralty from the sale and licensing of media rights
(television, film, book, video, and photography) associated with its projects.
There is a significant and growing demand for content (programming), a result in
part of the large number of digital television channels.
There is an enormous amount of unexploded ordnance in the territorial waters of
the United States and a number of lost weapons, including hydrogen bombs. This
problem poses a major hazard to the safety and well-being of many thousands of
our citizens. Current marine technology has proven incapable of determining the
precise location of much of this dangerous material. Our government spends many
millions of dollars each year in location and remediation activities for this
material. We believe we can successfully negotiate search contracts with the
United States Government which management believes could produce a significant
source of future revenue.
Our Mission and Immediate Goal
Our mission is to use our proprietary detection technology, in partnership or
strategic alliance with governments, nautical archaeologists, marine scientists,
"New World" historians, maritime attorneys, and other shipwreck specialists, to
become the world leader in the location and recovery of historic shipwrecks. Our
immediate goal is to transform the pursuit of valuable cargoes lost at sea from
today's and yesterday's generally unpredictable, frequently unprofitable and far
too often environmentally destructive operation into a business that tomorrow
will be consistently predictable, profitable and environmentally acceptable. A
secondary mission and goal is to utilize the ATLISI technology, under contract
with governmental agencies, to locate for safe retrieval and disposal,
unexploded marine ordnance and weapons.
Competition
There are many companies that are engaged in the pursuit of historic shipwrecks
and thus could be considered our competitors. Most, however, are single-project
entities and many engage in the business only on a part-time basis or consider
it more of a hobby than a profession. Furthermore, search and recovery licenses
and permits like the one Admiralty holds from the Government of Jamaica,
typically grant exclusive rights to the permit-holder for operations in the
permitted area. Such agreements should effectively preclude competitors from
conducting competing activities in the licensed or permitted territory.
26
Governmental Regulation
We intend to engage in operations in areas which require permits or licenses
from domestic and foreign governments. Permits are necessary to implement the
Company's plan of operations. Additionally, marine exploration and recovery
permits typically require the permit holder to follow certain specified
procedures in connection with its search and recovery operations. In the event
the Company receives a permit, but fails to follow such procedures and adhere to
such restrictions, the permit can be terminated or revoked.
Furthermore, we may be subject to expropriation of valuable historic shipwreck
sites located by us, although we intend to use our best efforts to protect the
Company against potential losses which could result from expropriation
activities, such efforts to include the acquisition of political risk and
expropriation insurance (as conditions dictate).
A number of international organizations, such as the United Nations Educational,
Scientific & Cultural Organization ("UNESCO") and certain environmental and
historic preservation groups, are opposed to fundamental aspects of the
commercial recovery of historic shipwrecks (those 100 years old or older) and
are encouraging the nations of the world to place severe restrictions on or
prohibit outright the commercial exploitation of historic shipwreck sites. In
particular, UNESCO has adopted a treaty known as the Convention on the
Protection of Underwater Cultural Heritage. If adopted, it would restrict access
to historical shipwrecks around the world to the extent it would require
compliance with certain guidelines. These guidelines require adherence to strict
archaeological practices, and we intend to follow these guidelines, for the most
part, in projects to which they are applicable. Nevertheless, we believe that
the convention, if widely ratified and adopted, could increase regulation of
shipwreck recovery operations and could result in higher costs.
We do not believe that the Convention will be widely adopted as presented.
Indeed, the Convention has not even entered into force on its own terms. The
United States, Great Britain, and several other critical nations have voiced
their opposition to any Convention which would prevent legitimate private sector
access to shipwrecks. In addition, several organizations, including the Maritime
Law Association, Historic Shipwreck Salvors Professional Association and the
Professional Shipwreck Explorers Association are actively engaged in promoting
the role of legitimate commercial access to shipwrecks.
Another development which may also pose a risk to our planned business
activities is the claim by certain maritime nations - most notably the
Government of the Kingdom of Spain - that they have not abandoned and therefore
still hold possessor rights to their sovereign shipwrecks, including warships
and vessels carrying government cargoes. Certain other countries whose waters
contain Spanish shipwrecks have indicated they do not and will not accept such a
claim by the Spanish Government and will contest any such claim vigorously.
Insofar as the Company negotiates permits and agreements with host coastal
States for access to their underwater cultural heritage resources, the impact of
this development will be lessened.
Our Employees
We have 3 full-time employees. In addition, we have several consultants who
perform scientific, legal, archaeological, shipwreck research, permitting and
licensing, public and investor relations, financial and business, and other
services.
Our Property
We are currently operating as a "virtual company" with no physical corporate
offices as such. Since all of our operations are currently conducted at
locations outside the United States, we do not feel that the Company should be
saddled with the cost and expense associated with traditional corporate offices.
27
Legal Proceedings
A Complaint for Turnover was filed in the United States Bankruptcy Court for the
Northern District of Georgia, Atlanta Division, against Admiralty by Dale R. F.
Goodman, Trustee for the Bankruptcy Estate of Ralph Franklin Ketchum, Jr. and
Patsy Sue Ketchum on April 19, 2002. The Trustee obtained a judgment against
Admiralty in the amount of $66,000 for back salary allegedly due to the Debtor
Ralph Franklin Ketchum, Jr. for the years 1999 and 2000. Admiralty is attempting
to settle the judgment for a lesser amount.
A Complaint was filed by the Company against Herbert Leeming, the former CEO and
Chairman of the Company, in the State Court of Fulton County, Georgia on July
22, 2004, alleging monies owed to the Company in the amount of approximately
$197,000, reduced by set-off to approximately $147,000. Leeming answered,
alleging that he did not owe the Company the sum claimed and counterclaimed
against the Company for monies allegedly owed him for accrued and unpaid
compensation and further alleging that he disavowed his two previous signed
forgiveness of debt instruments forgiving accrued salary in the amount of
$660,534 through December 31, 2003 and an additional sum of $54,098.36 through
April 20, 2004. The Company has denied all counterclaims of Leeming. The matter
is currently in discovery which is anticipated to take several months. The
Company believes that its claims are meritorious and that it will prevail in its
claims and against Leeming's counterclaims and the Company intends to vigorously
prosecute its claims and vigorously defend against Leeming's counterclaims.
We are not a party to any other material legal proceedings outside the ordinary
course of our business or to any other legal proceedings which, if adversely
determined, would have a material adverse effect on our financial condition or
results of operations. We may be engaged in various other litigation matters
from time to time in the ordinary course of business. The Company will
vigorously defend or prosecute its position, as the case may be, and believes
the outcome of any litigation will not have a material effect on the Company.
MANAGEMENT
Directors and Executive Officers
As of August 31, 2005, our executive officers and directors, their ages and
their positions are set forth below:
Name Age Position
- ---------------------- --- ----------------------------------------
G. Howard Collingwood 62 Chief Executive Officer and Chairman
of the Board of Directors, President
Murray D. Bradley, Jr. 58 Chief Financial Officer,
Vice President of
Administration, Treasurer, Secretary and
Director
Bill Boone 53 Director
Marc Wallace 58 Director
Marc Geriene 51 Director
28
All directors will hold office until the next annual meeting of the
shareholders. Executive officers are elected annually by the Board of Directors
to hold office until the first meeting of the Board following the next annual
meeting of shareholders and until their successors have been elected and
qualified.
G. Howard Collingwood has been a director of the Company since may 2001. He has
been the Chairman, Chief Executive Officer and President since April 2004. From
November 2003 until April 2004, he served as the President and Chief Operating
Officer of the Company. Howard has been a director of our wholly-owned
subsidiary, Admiralty Corporation ("Admiralty"), since 1997. He is the sole
owner of Collingwood Associates and has over 30 years of management experience,
including extensive successful business management. Prior to joining Admiralty,
he was Vice President of International Operations for CTB, Inc., a
Berkshire-Hathaway company, from October 1997 until November 2003. For the 23
prior years, Howard was an employee of Honeywell (formerly Allied Signal) for
and was Vice President and General Manager of a business unit (SBU) at the time
of his retirement from Allied Signal, then a multi-billion dollar public
company. Additionally, Howard is sole owner of Virtual Intelligence
Applications, Inc. (VIA) a personnel and research contractor to certain U.S.
Government projects.
Murray D. Bradley, Jr., a co-founder of Admiralty, has served as an executive
officer and director of Admiralty since its inception in April 1988 and was an
employee of Admiralty from 1997 until present. Since May 2001, he has been an
executive officer, employee and director of the Company. Murray is also an
investment professional with a regional independent brokerage firm and executive
and administrative partner of the Bradley-Johnson Family Fund, a private
investment company. Murray is a graduate of Oxford College of Emory University
and of Georgia State University where he completed graduate courses in
Accounting and Business Administration. For the past 25 years Murray has worked
in the retail securities business as a retail broker and in various management
positions, prior to which he was the chief financial officer for a large health
care organization. In addition to being a registered representative with the
National Association of Securities Dealers, Inc. ("NASD"), he is a registered
principal with the NASD and has served and continues to serve on various
corporate and civic boards.
Captain Bill Boone became a director of the Company in march 2004. He is
currently a nautical consultant to the Company who advises and works with the
Company in operations on the Pedro Bank, Jamaica and elsewhere, principally on
matters of marine vessel deployment. For the past 12 years, he has served as the
Captain of the Highlander, the famed 151-foot motor yacht owned by Forbes
Magazine. Bill has captained the Highlander in the waters off the East and West
coasts of the United States and the Great Lakes, and has taken her on voyages as
far away as Russia. He is a North Carolina native and attended college at Elon
College in Burlington, N.C. and at North Carolina State University in Raleigh,
N.C.
Marc Wallace, a director of the Company since March 2004, was President of
Novations Strategic Alliances, which helps clients reduce enterprise-wide system
costs and increase organizational training effectiveness through a single
project approach or more complex company-wide strategic initiatives, a position
he had held since May, 1998 until his retirement in October, 2004. Prior to Jan,
2003, the company's names was Provant, Inc and prior to that it was known as J.
Howard & Associates. Marc served as Group President of the Performance Solutions
Group. Marc consults with corporate executives throughout the United States and
Great Britain, making frequent presentations to Fortune 500 companies covering a
range of industries, including retail, health care, banking and finance, and
telecommunications. He is also a certified motivation and performance trainer,
and currently serves on several corporate and academic boards, including Belmont
Hill School, Northeastern University and the Berkley School of Music. Marc also
sits on the Board of Advisors for the National Black MBA Association and the
Board of Advisors for First Community Bank in Boston. He earned his M.B.A. with
a concentration in Finance at Central Michigan University, and his B.A. in
Mathematics at Adams State College.
Marc Geriene became a director of the Company in march 2004. He is co-inventor
of the Nova Ray(R) remotely operated vehicle (ROV), and President of Nova
Ray(R), Inc. Since the founding of Nova Marine Exploration, Inc. ("Nova Marine")
in January of 1992, Marc has served as Chairman and Director of Nova
29
Marine, and as a Director and President of Nova Ray, Inc., which was founded in
January 2003. Marc attended Morris County College in Morris County, New Jersey,
graduating with an AA degree in Social Studies. He next attended Seton Hall
University in South Orange, New Jersey with a study concentration in Chinese
Culture and Language. He continued his studies of Chinese Culture and Language
at the University of Washington. In 1978, Marc became a commercial diver with a
company under the direction of John Doering, one of the original partners of the
USS Central America group that eventually recovered the gold on the USS Central
America. As President of Nova Ray, Inc., his duties have included pursuing
acquisition of a significant portion of the existing ROV market while working to
make the Nova Ray(R) the ROV of choice in the lucrative emerging markets.
Through Marc's guidance Nova Ray(R) has been granted 7 patents and 1 trademark
registration, and 4 additional patent applications are pending.
Board Meetings and Committees
The size of our Board of Directors of the Company for the coming year is five
members. Three of the directors, or a majority of the Board of Directors, are
independent directors. The term of office of each director is for a period of
one year or until the election and qualification of his successor. The Board of
Directors met formally 5 times during 2004 and met informally on a number of
occasions, voting on corporate actions by written consent. All of the Company's
current directors attended all of the meetings of the Board of Directors either
in person or by telephone.
There are three committees of the Board of Directors, which meet periodically
during the year: the Compensation Committee, the Audit Committee, and the
Corporate Governance Committee.
The Compensation Committee is responsible for recommending to the Board of
Directors for approval the annual compensation of each executive officer of the
Company, developing policy in the areas of compensation and fringe benefits,
granting of options under the stock option plans, and creating other employee
compensation plans. The Compensation Committee consists of Messrs. Boone,
Geriene and Wallace, with Mr. Wallace being the Chairman of the Committee.
During 2004, the Compensation Committee met on one occasion.
The Audit Committee directs the auditing activities of the Company's internal
auditors and registered public independent accounting firm and reviews the
services performed by the registered public independent accounting firm and
evaluates the Company's accounting practices and procedures and its system of
internal accounting controls. The Audit Committee consists of Messrs. Boone,
Geriene and Wallace, with Mr. Wallace serving as Chairman of the Committee.
During 2004, the Audit Committee met on one occasion. The Company's Board of
Directors has determined that Marc Wallace, who currently serves as director of
the Company as well as a member of the Company's audit committee, is an
independent audit committee financial expert.
The Corporate Governance Committee is newly formed and will have its first
meeting later this year. It will develop and recommend to the Board of Directors
prior to the end of this calendar year a set of corporate governance principles.
The Corporate Governance Committee consists of Messrs. Boone, Geriene, and
Wallace, with Bill Boone serving as Chairman of the Committee.
Director Nominating Process
The Company believes that a standing nominating committee is not necessary or
cost efficient for a company its size. All directors participate in the
consideration of director nominees. The Company does not have a formal
nominating committee charter. For at least the past four years, the Board of
Directors has not received a recommendation from a stockholder as to a candidate
for nomination to the Board of Directors and therefore has not previously formed
a policy with respect to consideration of such a candidate. However, it is the
Board's intent to consider any stockholder nominees that may be put forth in the
future. The Board has not identified any specific minimum qualifications or
skills that it believes must be met by a nominee for director. It is the intent
of the Board to review from time to time the appropriate
30
skills and characteristics of directors in the context of the current make-up of
the Board and the requirements and needs of the Company at a given time. Given
the current composition, stability and size of the Board of Directors of the
Company, the fact that all director-nominees are standing for re-election and
that the Board has received no nominee candidates from stockholders, the Board
has not considered other candidates for election at the upcoming annual meeting
of stockholders.
Meetings of Non-Management Directors
Our non-management directors meet from time to time without management
participation. In addition, an executive session including only the independent
directors is held at least annually.
Code of Business Conduct
All of the Company's officers, employees and directors are required to comply
with the Company's Code of Business Conduct and Ethics to help insure that the
Company's business is conducted in accordance with appropriate standards of
ethical behavior. The Company's Code of Business Conduct and Ethics covers all
areas of professional conduct, including customer relationships, conflicts of
interest, insider trading, financial disclosures, intellectual property and
confidential information, as well as requiring adherence to all laws and
regulations applicable to the Company's business. A copy of the Code of Business
Conduct and Ethics may be obtained at no charge by written request to the
attention of Murray D. Bradley, Jr., Chief Financial Officer, Ruby Mining
Company.
Executive Compensation
The following table sets forth, for each of the last three fiscal years, the
compensation received by G. Howard Collingwood, President and Chief Executive
Officer of the Company, and other executive officers whose salary and bonus for
all services in all capacities exceeded $100,000 for the fiscal years ended
December 31, 2004, 2003 and 2002.
SUMMARY COMPENSATION TABLE
Name and Principal Position Annual Compensation
Year Salary Bonus
- ------------------------------------------------------------------ -------- -----
G. Howard Collingwood, Chairman and CEO* 2004 $150,000 -0-
2003 $ 25,000 -0-
Herbert C. Leeming (Former CEO)** 2003 $110,000 -0-
2002 $102,000 -0-
Murray D. Bradley, JR., Dir., Sec./Treasurer and CFO*** 2004 $138,000 -0-
2003 $ 92,000 -0-
*The CEO's entire compensation for 2003 and 2004 was deferred. Mr.
Collingwood was President & COO and began his employment with the Company on
November 1, 2003 for an annual salary of $150,000. On April 21, 2004, Mr.
Collingwood became Chairman and CEO for an annual salary of $150,000.
**Mr. Leeming was Chairman and CEO of the Company in 2002 and 2003. His
salary in 2002 and 2003 was accrued and subsequently forgiven at the end of
2003.
***In 2004, the Board also granted Mr. Bradley 1,050,000 restricted
five-year warrants, exercisable after six months, for retention of his
services.
31
Options
The following table sets forth information regarding stock options (and
warrants) during the fiscal year ended December 31, 2004, to each named
executive officer.
Percentage of
Total Options Exercise
Number of Granted to Price
Name Securities Underlying Employee in Per Share Expiration
Options Granted (#) Fiscal Year (%) ($/Sh.) Date
Murray D. Bradley, Jr. 1,050,000 (1) 24.9% $0.25 6/11/09
(1) Retention warrants granted on June 11, 2004 exercisable for 5 years into
restricted shares at $0.25 per share vesting in six months.
Director Compensation
All non-employee Directors receive $250 per meeting attended as compensation for
their services as Directors and are reimbursed for expenses incurred in
connection with the performance of their duties. All employee Directors receive
$150 per meeting attended as compensation for their services and are reimbursed
for expenses incurred in connection with the performance of their duties.
2002 Employee Stock Option Plan
The Company adopted the 2002 Stock Option Plan (the "Plan") on January 1, 2002
for officers, employees, directors and consultants. The Plan authorized the
granting of stock options to purchase an aggregate of not more than 4,500,000
shares of its common stock. On January 30, 2002, options for substantially all
4,500,000 shares were granted. Our Board of Directors has voted to increase the
number of shares available under the Plan by 5,000,000 shares and this proposed
increase is being submitted to our shareholders for approval at the 2005 Annual
Meeting to be held on October 31, 2005.
The Compensation Committee administers the 2002 Stock Option Plan. In general,
the Compensation Committee is empowered to select the persons to whom options
will be granted and to determine, subject to the terms of the Plan, the number,
exercise, and other provisions of such options. Options granted under the Plan
become exercisable at such times as may be determined by the Compensation
Committee. Options granted under the Plan may be either incentive (qualified)
stock options, as such term is defined in the Internal Revenue Code, or
non-incentive (non-qualified) stock options. Incentive stock options may only be
granted to persons who are employees. Non-incentive stock options may be granted
to any person, including, but not limited to, employees, independent agents, and
consultants, as the Compensation Committee believes has contributed, or will
contribute, to the Company's success. The Compensation Committee also determines
the exercise price of options granted under the Plan, provided that, in the case
of incentive stock options, such price is not less than 100% (110% in the case
of incentive stock options granted to holders of 10% of voting power of the
company's capital stock) of the fair market value (as defined in the Plan) of
the common stock on the date of grant. The aggregate fair market value
(determined at the time of option grant) of stock with respect to which
incentive stock options become exercisable for the first time in any year cannot
exceed $100,000.
The term of each option shall not be more than ten years (five years in the case
of incentive stock options granted to holders of 10% of the voting power of its
stock) from the date of grant. The Board of Directors has a right to amend,
suspend or terminate the 2002 Stock Option Plan at any time; provided, however,
that unless ratified by its shareholders, no amendment or change in the Plan
will be effective that would increase the total number of shares that may be
issued under the plan, materially increase the benefits
32
accruing to persons granted under the Plan or materially modify the requirements
as to eligibility and participation in the Plan. No amendment, supervision or
termination of the Plan shall, without the consent of an employee to whom an
option shall heretofore have been granted, affect the rights of such employee
under such option.
Employment Agreements
The Company has no written employment agreements with any of its executive
officers. The Company has agreed to pay G. Howard Collingwood, its President and
Chief Operating Officer, an annual salary of $ 150,000 for the fiscal year
ending December 31, 2005. The Company has agreed to pay Murray D. Bradley, Jr.,
its Chief Financial Officer and Secretary-Treasurer, an annual salary of
$138,000 for the fiscal year ending December 31, 2005.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires our executive
officers, directors and persons who own more than 10% of any class of our common
stock to file initial reports of ownership and reports of changes of ownership
of common stock. Such persons are also required to furnish us with all Section
16(a) reports they file.
Based solely on a review of Forms 3 and 4 and amendments thereto furnished to
the Company during its most recent fiscal year, and Forms 5 and amendments
thereto furnished to the Company with respect to its most recent fiscal year and
certain representations, no persons who were either a director, officer, or
beneficial owner of more than 10% of the Company's common stock, failed to file
on a timely basis reports required by Section 16(a) of the Securities Exchange
Act during the most recent fiscal year except the following. Mr. Marc Geriene,
who became a director in November 2004, through an oversight, filed a late
report on Form 3. Mr. Geriene does not own any shares of Ruby Mining Company
directly but sits on the Board and is an officer of Nova Marine Explorations,
Inc. which owns 1,050,000 shares of the Company's common stock.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth, as of August 31, 2005, the stock ownership of
each person known by the Company to be the beneficial owner of five percent or
more of the Company's Common Stock, each officer and director individually and
all officers and directors as a group.
OWNERSHIP AND PERCENT OWNERSHIP
NAME OF BENEFICIAL OWNER AND TITLE CLASS SHARES PERCENT
*G. Howard Collingwood, CEO (1) Common 5,431,916 9.78%
P. O. Box 550466
Atlanta, GA 3035 Fully Diluted 6,123,983 7.57%
*Murray D. Bradley, Jr., CFO (2) Common 814,000 1.46%
4893 Falling Leaf Court
Douglasville, GA 30135 Fully Diluted 2,078,074 2.57%
*Bill Boone Common 530,000 0.95%
60 Fifth Avenue
New York, NY 10011
Walter Cytacki (3) Common 7,867,043 14.15%
PO Box 18247
River Rouge, MI 48218
33
*Marc Geriene(4) Common 1,050,000 1.89%
13600 NE 126th Place, Suite B
Kirkland, WA 98034-8720
James W. Larsen, former officer (5) Common 2,915,520 5.24%
475 Oakleaf Trail
Suwanee, GA 30174 Fully Diluted 5,315,520 6.57%
Jay Swallen, former director (6) Common 1,012,500 1.82%
2349 Gulf Shore Blvd. N
Naples, FL 34103
*Marc Wallace Common 215,000 0.39%
611 Cliffgate Lane
Castle Rock, CA 80108
All directors & officers as a group Common 9,053,416 16.29%
(6 persons)
Fully Diluted (7) 11,009,557 13.60%
*Director
(1) Includes 1,444,100 shares in his IRA account, and 692,500 owned beneficially
in HGC Global and 40,000 shares held by Collingwood Assets Management Trust for
which Mr. Collingwood is beneficial owner. Does not include 100,000 options
exercisable at $1.00, and, 100,000and 80,000 options exercisable at $1.00
beneficially owned by HGC Global and Collingwood Asset Management Trust,
respectively, Also includes 412,067 three year warrants exercisable at $0.35 per
warrant into unregistered shares.
(2) 208,000 are owned directly by Mr. Bradley and 606,000 are held by the
Bradley-Johnson Family Fund, a partnership for which Mr. Bradley is
Administrative Partner. Does not include 1,050,000 options exercisable into
restricted shares at $0.25 each and 200,000 options exercisable into restricted
shares at $1.00, and also includes 14,074 three year warrants exercisable at
$0.35 per warrant into unregistered shares.
(3) Includes 7,488,043 shares in Walterwood, a partnership of which Mr. Cytacki
is the owner, and 379,000 shares in a brokerage account.
(4) Includes 1,050,000 shares owned by Nova Marine Exploration, Inc. of which
Marc Geriene is an officer and director.
(5) James W. Larsen was granted 2,400,000 options exercisable after six months
into restricted shares at $0.25. Mr. Larsen was formerly an executive officer
and a director.
(6) 1,002,500 shares in J. L. Swallen Flint Trust and 10,000 in IRA of Barbara
Swallen (wife).
(7) I ncludes all warrants and options outstanding at August 31, 2005 but not
shares contingently issuable upon conversion of convertible notes or warrants to
be issued upon future funding of traunches by the NIR Group.
At August 31, 2005 there were a total of 80,942,400 shares, warrants and options
outstanding.
34
CERTAIN TRANSACTIONS
The information set forth herein describes certain transactions between us and
certain affiliated parties. Future transactions, if any, will be approved by a
majority of the disinterested members and will be on terms no less favorable to
us than those that could be obtained from unaffiliated parties.
At December 31, 2004 and 2003 amounts payable by the Company to Larsen
Laboratories, a company owned entirely by James Larsen, a former executive
officer (CTO) and director of the Company and now a technology consultant to the
Company, were $185,000 and $85,000, respectively. Payment was begun in 2003 and
continued in early 2004 representing a total to Larsen Laboratories of $400,000
for production of the ATLISTM non-ferrous metal detection device to be used in
the field. Additionally, a significant increased cost for the production of the
ATLISI field units was encountered in 2004 and the company is attempting to
complete the construction of the ATLIS(TM) field units during the first and
second quarters of 2005 as funds are available.
Additionally, our CEO, Howard Collingwood, and Walter Cytacki, a 5% or greater
shareholder, advanced funds on behalf of the Company for the acquisition of the
Company's research vessel, the R/V New World Legacy. As of December 31, 2004,
two advances totaling $50,000 were outstanding to Mr. Cytacki; they bear
interest at 6.75% and mature in 2005. The remaining advances were converted into
loans, which were negotiated independently of any request by Messrs. Collingwood
and Cytacki, which carry an interest rate of 6.75% and are amortized over a
period of 7 (seven) years. These two individuals have also agreed by letter to
an indefinite suspension of the monthly repayments until the Company is in
financial position to resume payments. These loans are more fully described in
the footnote to the financial statements contained herein.
Paul Collingwood, son of Howard Collingwood, the Company's CEO and Chairman,
provides consulting services to the Company as the Company's internet web
master. These services are provided at a rate of $75.00 per hour worked and he
is directed by the Company's CEO on an as needed basis.
Marc Geriene, who became a Director of the Company in November 2004, is also a
Director of Nova Marine Exploration, Inc. ("Nova Marine"). Nova Marine owns 100%
of Nova Ray, Inc., of which Marc Geriene is President and his brother Krist
Geriene is Vice President Technical Product and a co-founder. Both Messrs Marc
and Krist Geriene are assisting the Company and Larsen Laboratories on various
aspects of the ATLIS TM field unit construction. Howard Collingwood, CEO and
Chairman of the Company, is also a director of Nova Marine, of which the Company
owns a minority equity interest.
SELLING SECURITYHOLDERS
The following table sets forth information regarding the beneficial ownership of
our common stock being registered for resale as of September 22, 2005, by each
of the holders of callable secured notes and ancillary warrants (assuming each
of the holders elects to exercise the warrants to purchase shares of common
stock for resale); the number of shares of common stock to be registered and
offered by each selling securityholder; and the percentage of each selling
securityholder after the sale of the common stock included in this prospectus.
35
TABLE OF BENEFICIALLY OFFERED SHARES
SHARES BENEFICIALLY SHARES BEING SHARES BENEFICIALLY OWNED
OWNED PRIOR TO OFFERING (1)(2) REGISTERED AND OFFERED(3) AFTER OFFERING (4)
Shareholders Number Percent Number Offered Number Percent
- ------------------------- --------- ------- -------------- ------ -------
AJW Offshore Ltd. 2,916,983 4.99% 36,129,807 0 *
AJW Qualified Partners 2,916,983 4.99% 24,375,001 0 *
AJW Partners, LLC 2,916,983 4.99% 10,384,615 0 *
New Millennium Capital 2,916,983 4.99% 1,225,962 0 *
Partners II, LLC
Total 2,916,983 4.99% 72,115,385 0 *
- -------------------------------------------------------------------------------------------------------------------------
* less than 1%.
(1) Applicable percentage ownership is based on 55,592,190 shares of common
stock outstanding on September 22, 2005, together with securities exercisable or
convertible into shares of common stock within 60 days of September 22, 2005 for
each stockholder. Beneficial ownership is determined in accordance with the
rules of the Securities and Exchange Commission and generally include voting or
investment power with respect to securities. Shares of common stock that are
currently exercisable within 60 days of September 22, 2005 are deemed to be
beneficially owned by the person holding such securities for the purpose of
computing the percentage ownership of such person, but are not for the purpose
of computing the percentage ownership of any other person.
(2) Represents shares underlying callable secured convertible notes and
warrants, up to the maximum permitted ownership under the callable secured
convertible notes and warrants of 4.99% of our outstanding common stock. The
selling stockholders or affiliates of each other because they are under common
control. AJW Partners, LLC is a private investment fund that is owned by its
investors and managed by SMS Group, LLC. SMS Group, LLC, of which Corey S.
Ribotsky is the fund manager, has voting and investment control over the
securities owned by AJW Partners, LLC. AJW Offshore, Ltd. is a private
investment fund that is owned by its investors and managed by First Street
Manager II, LLC. First Street Manager II, LLC, of which Corey S. Ribotsky is the
fund manager, has voting and investment control over the securities owned by AJW
Offshore, Ltd. AJW Qualified Partners, LLC is a private investment fund that is
owned by its investors and managed by AJW Manager, LLC, of which Corey S.
Ribotsky and Lloyd A. Groveman are the fund managers, have voting and investment
control over the securities owned by AJW Qualified Partners, LLC. New Millennium
Capital Partners II, LLC is a private investment fund that is owned by its
investors and managed by First Street Manager II, LLC. First Street Manager II,
LLC, of which Corey S. Ribotsky is the fund manager, has voting and investment
control over the securities owned by New Millennium Capital Partners II, LLC. We
have been notified by the selling stockholders that they are not broker-dealers
or affiliates of broker-dealers.
(3) Assumes issuance of the entire $2,500,000 in aggregate amount of the
callable secured convertible notes and issuance of warrants to purchase
9,615,385 shares of common stock, and that all securities underlying the notes
and the warrants have been issued.
(4) Assumes that all securities registered will be sold and that all securities
of common stock underlying the callable secured convertible notes and warrants
will be issued.
36
Terms of Callable Secured Convertible Notes and Warrants
To obtain funding for our ongoing operations, we entered into a Securities
Purchase Agreement with four accredited investors on June 27, 2005 for the sale
of (i) $2,500,000 in callable secured convertible notes and (ii) warrants to
purchase 9,615,385 shares of our common stock. The sale of the callable secured
convertible notes and warrants is to occur in three traunches and the investors
are obligated to provide us with an aggregate of $2,500,000 as follows:
o $850,000 was disbursed on June 27, 2005;
o $800,000 will be disbursed within five days after filing a registration
statement covering the number of shares of common stock underlying the callable
secured convertible notes and the warrants; and
o $850,000 will be disbursed within five days of the effectiveness of the
registration statement.
Each closing under the Securities Purchase Agreement is subject to the following
conditions:
o We must have delivered to the investors duly executed callable secured
convertible notes and warrants;
o No litigation, statute, regulation or order shall have been commenced, enacted
or entered by or in any court, governmental authority or any self-regulatory
organization that prohibits consummation of the transactions contemplated by the
Securities Purchase Agreement; and
o No event shall have occurred that could reasonably be expected to have a
material adverse effect on our business.
We also agreed not to negotiate, without the prior written consent of a
majority-in-interest of the investors, with any party to obtain additional
equity financing (including debt financing with an equity component) that
involves (i) the issuance of common stock at a discount to the market price of
the common stock on the date of issuance (taking into account the value of any
warrants or options to acquire common stock in connection therewith), (ii) the
issuance of convertible securities that are convertible into an indeterminate
number of shares of common stock, or (iii) the issuance of warrants during the
lock-up period beginning June 27, 2005 and ending on the later of (A) 270 days
from June 27, 2005, and (B) 180 days from the date the registration statement is
declared effective.
In addition, we agreed not to conduct any equity financing (including debt
financing with an equity component) during the period beginning June 27, 2005
and ending two years after the end of the above lock-up period unless we have
first provided each investor an option to purchase its pro-rata share (based on
the ratio of each investor's purchase under the Securities Purchase Agreement)
of the securities being offered in any proposed equity financing. Each investor
must be provided written notice describing any proposed equity financing at
least 20 business days prior to the closing of such proposed equity financing
and the option must be extended to each investor during the 15-day period
following delivery of such notice.
The callable secured convertible notes bear interest at 8% per annum from the
date of issuance. Interest is computed on the basis of a 365-day year and is
payable quarterly in cash, with six months of interest payable up front. The
interest rate resets to zero percent for any month in which the stock price is
greater than 125% of the initial market price, or $.0945, for each trading day
during that month. Any amount of principal or interest on the callable secured
convertible notes that is not paid when due will bear interest at the rate of
15% per annum from the date due thereof until such amount is paid. The callable
secured convertible notes mature in three years from the date of issuance, and
are convertible into our common stock at the selling stockholders' option, at
the lower of (i) $.15 or (ii) 60% of the average of the three lowest intraday
trading prices for the common stock on the OTC Bulletin Board for the 20 trading
days before but not including the conversion date. Accordingly, there is no
limit on the number of shares into which the notes may be converted.
37
As of September 21, 2005, the average of the three lowest intraday trading
prices of our common stock during the preceding 20 trading days as reported on
the OTC Bulletin Board was $0.08 and, therefore, the conversion price for the
callable secured convertible notes was $0.04. Based on this conversion price,
the $2,500,000 callable secured convertible notes, excluding interest, were
convertible into 62,500,000 shares of our common stock. As of September 22,
2005, none of the callable secured convertible notes have been converted.
The callable secured convertible notes are secured by our assets, including our
inventory, accounts receivable and intellectual property. Moreover, we have a
call option under the terms of the notes. The call option provides us with the
right to prepay all of the outstanding callable secured convertible notes at any
time, provided there is no event of default by us and our stock is trading at or
below $0.15 per share. An event of default includes the failure by us to pay the
principal or interest on the callable secured convertible notes when due or to
timely file a registration statement as required by us or obtain effectiveness
with the Securities and Exchange Commission of the registration statement.
Prepayment of the callable secured convertible notes is to be made in cash equal
to either (i) 125% of the outstanding principal and accrued interest for
prepayments occurring within 30 days following the issue date of the notes; (ii)
130% of the outstanding principal and accrued interest for prepayments occurring
between 31 and 60 days following the issue date of the notes; and (iii) 145% of
the outstanding principal and accrued interest for prepayments occurring after
the 60th day following the issue date of the notes.
The warrants are exercisable until five years from the date of issuance at a
purchase price of $.25 per share. The investors may exercise the warrants on a
cashless basis if the shares of common stock underlying the warrants are not
then registered pursuant to an effective registration statement. In the event
the investors exercise the warrants on a cashless basis, then we will not
receive any proceeds therefrom. In addition, the exercise price of the warrants
will be adjusted in the event we issue common stock at a price below market,
with the exception of any securities issued as of the date of the warrants or
issued in connection with the callable secured convertible notes issued pursuant
to the Securities Purchase Agreement.
The selling stockholders have agreed to restrict their ability to convert their
callable secured convertible notes or exercise their warrants and receive shares
of our common stock such that the number of shares of common stock held by them
in the aggregate and their affiliates after such conversion or exercise does not
exceed 4.99% of the then issued and outstanding shares of common stock. However,
the selling stockholders may repeatedly sell shares of common stock in order to
reduce their ownership percentage, and subsequently convert additional callable
secured convertible notes.
We are required to register the shares of our common stock issuable upon the
conversion of the callable secured convertible notes and the exercise of the
warrants. The registration statement must be filed with the Securities and
Exchange Commission within 60 days of the June 27, 2005 closing date and the
effectiveness of the registration is to be within 135 days of such closing date.
Penalties of 2% of the outstanding principal balance of the callable secured
convertible notes plus accrued interest are to be applied for each month the
registration is not effective within the required time. The penalty may be paid
in cash or stock at our option.
Simple Conversion Calculation
The number of shares of common stock issuable upon conversion of the callable
secured convertible notes is determined by dividing that portion of the
principal of the notes to be converted and interest, if any, by the conversion
price. For example, assuming conversion of $2,500,000 of notes on September 22,
2005 and a conversion price of $0.04 per share, the number of shares issuable
upon conversion would be:
$2,500,000/$0.04 = 62,500,000 shares.
38
DESCRIPTION OF SECURITIES
Our authorized capital stock currently consists of 100,000,000 shares of Common
stock, $.001 par value per share, of which 55,592,190 shares were issued and
outstanding as of September 22, 2005. However, our Board of Directors has
approved an amendment to our Articles of Incorporation which would increase our
authorized common stock to 350,000,000 shares and add to our authorized capital
50,000,000 shares of "blank check" preferred stock. This proposed increase in
our authorized capital is being submitted for stockholder approval at our 2005
Annual Stockholders' Meeting which is scheduled for October 31, 2005. We fully
expect our stockholders to approve this proposal
Common Stock
Voting Rights. The holders of our common stock have one vote per share and are
not entitled to vote cumulatively for the election of directors. Generally, all
matters to be voted on by stockholders must be approved by a majority or, in the
case of election of directors, by plurality of the votes cast at a meeting at
which a quorum is present and voting together as single class, subject to any
voting rights granted to the holders of any then outstanding preferred stock.
Dividends. Holders of common stock are entitled to receive any dividends
declared by our board of directors, subject to the preferential rights of any
preferred stock then outstanding. Dividends consisting of shares of common stock
may be paid to holders of shares of common stock.
Other Rights. Upon our liquidation, dissolution or winding up, the holders of
common stock are entitled preferential to share ratably in any assets available
for distribution to holders of shares of common stock. No holders of shares are
subject to redemption or have preemptive rights to purchase additional shares of
common stock.
Preferred Stock
If the proposal to add "blank check" preferred stock to our authorized capital
is approved by a majority of our stockholders, which is expected to occur, our
Articles of Incorporation will be amended to provide for the issuance of up to
50,000,000 shares of preferred stock from time to time by our board of Directors
in one or more series, with the Board having the authority to fix the voting
rights, if any, designations, powers, preferences, qualifications, limitations
and restrictions, applicable to the shares of each series. Accordingly, if the
proposed addition of preferred stock to our authorized capital receives the
requisite stockholder approval, our Board of Directors will then be entitled,
without stockholder approval, to issue preferred stock with voting and other
rights that could adversely affect the voting power and other rights of the
holders of the common stock and could have anti-takeover effects, including
preferred stock or rights to acquire preferred stock in connection with
implementing a stockholder rights plan. The ability of our Board of Directors to
issue preferred stock without stockholder approval could have the effect of
delaying, deferring or preventing a change of control with respect to the
Company or the removal of existing management.
Warrants and Options
Between January 1, 1997, and June 30, 2005, we issued options and warrants to
individuals and entities that are currently outstanding to purchase a total of
25,350,210 shares of our common stock at exercise prices ranging from $.05 per
share to $7.00 per share, and with expiration dates ranging from December 28,
2005 to June 23, 2010. The options and warrants all contain provisions that
protect the holders against dilution by adjustment of the exercise price per
share and the number of shares issuable upon exercise thereof upon the
occurrence of certain events, including stock splits, stock dividends, mergers,
and the sale of substantially all of our assets. We are not required to issue
fractional shares of common stock, and in lieu thereof we will make a cash
payment based upon the current market value of such fractional shares. A holder
of these warrants will not possess any rights as a shareholder unless and until
the holder exercises the warrants.
39
Convertible Notes and Warrants
To obtain funding for our ongoing operations, we entered into a securities
purchase agreement with four accredited investors on April 27, 2005 for the sale
of (i) $2,500,000 in callable secured convertible notes and (ii) warrants to
purchase 9,615,385 shares of our common stock. The sale of the callable secured
convertible notes and warrants is to occur in three traunches and the investors
are obligated to provide us with an aggregate of $2,500,000 as follows:
o $850,000 was disbursed on June 28, 2005;
o $800,000 will be disbursed within five days after filing a registration
statement covering the number of shares of common stock underlying the callable
secured convertible notes and the warrants; and
o $850,000 will be disbursed within five days of the effectiveness of the
registration statement.
Each closing under the Securities Purchase Agreement is subject to the following
conditions:
o We must have delivered to the investors duly executed callable secured
convertible notes and warrants;
o No litigation, statute, regulation or order shall have been commenced,
enacted or entered by or in any court, governmental authority or any self-
regulatory organization that prohibits consummation of the transactions
contemplated by the Securities Purchase Agreement; and
o No event shall have occurred that could reasonably be expected to have a
material adverse effect on our business.
We also agreed not, without the prior written consent of a majority-in-interest
of the investors, to negotiate or contract with any party to obtain additional
equity financing (including debt financing with an equity component) that
involves (i) the issuance of common stock at a discount to the market price of
the common stock on the date of issuance (taking into account the value of any
warrants or options to acquire common stock in connection therewith), (ii) the
issuance of convertible securities that are convertible into an indeterminate
number of shares of common stock, or (iii) the issuance of warrants during the
lock-up period beginning June 27, 2005 and ending on the later of (A) 270 days
from June 27, 2005, and (B) 180 days from the date the registration statement is
declared effective.
In addition, we agreed not to conduct any equity financing (including debt
financing with an equity component) during the period beginning April 27, 2005
and ending two years after the end of the above lock-up period unless we have
first provided each investor an option to purchase its pro-rata share (based on
the ratio of each investor's purchase under the Securities Purchase Agreement)
of the securities being offered in any proposed equity financing. Each investor
must be provided written notice describing any proposed equity financing at
least 20 business days prior to the closing of such proposed equity financing
and the option must be extended to each investor during the 15-day period
following delivery of such notice.
The callable secured convertible notes bear interest at 8% per annum from the
date of issuance. Interest is computed on the basis of a 365-day year and is
payable quarterly in cash, with six months of interest payable up front. The
interest rate resets to zero percent for any month in which the stock price is
greater than 125% of the initial market price, or $0.16, for each trading day
during that month. Any amount of principal or interest on the callable secured
convertible notes that is not paid when due will bear interest at the rate of
15% per annum from the date due thereof until such amount is paid. The callable
secured convertible notes mature in three years from the date of issuance, and
are convertible into our common stock at the selling stockholders' option, at
the lower of (i) $.15 or (ii) 60% of the average of the three lowest intraday
trading prices for the common stock on the Over-the-Counter Bulletin Board for
the 20 trading days before but not including the conversion date. Accordingly,
there is no limit on the number of shares into which the notes may be converted.
40
As of September 22, 2005, the average of the three lowest intraday trading
prices of our common stock during the preceding 20 trading days as reported on
the Over-the-Counter Bulletin Board was $0.08 and, therefore, the conversion
price for the callable secured convertible notes was $0.04. Based on this
conversion price, the $2,500,000 callable secured convertible notes, excluding
interest, were convertible into 62,500,000 shares of our common stock. As of
September 22, 2005, none of the callable secured convertible notes have been
converted.
The callable secured convertible notes are secured by our assets, including our
inventory, accounts receivable and intellectual property. Moreover, we have a
call option under the terms of the notes. The call option provides us with the
right to prepay all of the outstanding callable secured convertible notes at any
time, provided there is no event of default by us and our stock is trading at or
below $.15 per share. An event of default includes the failure by us to pay the
principal or interest on the callable secured convertible notes when due or to
timely file a registration statement as required by us or obtain effectiveness
with the Securities and Exchange Commission of the registration statement.
Prepayment of the callable secured convertible notes is to be made in cash equal
to either (i) 125% of the outstanding principal and accrued interest for
prepayments occurring within 30 days following the issue date of the notes; (ii)
130% of the outstanding principal and accrued interest for prepayments occurring
between 31 and 60 days following the issue date of the notes; and (iii) 145% of
the outstanding principal and accrued interest for prepayments occurring after
the 60th day following the issue date of the notes.
The warrants are exercisable until five years from the date of issuance at a
purchase price of $.25 per share. The investors may exercise the warrants on a
cashless basis if the shares of common stock underlying the warrants are not
then registered pursuant to an effective registration statement. In the event
the investors exercise the warrants on a cashless basis, then we will not
receive any proceeds therefrom. In addition, the exercise price of the warrants
will be adjusted in the event we issue common stock at a price below market,
with the exception of any securities issued as of the date of the warrants or
issued in connection with the callable secured convertible notes issued pursuant
to the Securities Purchase Agreement.
The selling stockholders have agreed to restrict their ability to convert their
callable secured convertible notes or exercise their warrants and receive shares
of our common stock such that the number of shares of common stock held by them
in the aggregate and their affiliates after such conversion or exercise does not
exceed 4.99% of the then issued and outstanding shares of common stock. However,
the selling stockholders may repeatedly sell shares of common stock in order to
reduce their ownership percentage, and subsequently convert additional callable
secured convertible notes.
We are required to register the shares of our common stock issuable upon the
conversion of the callable secured convertible notes and the exercise of the
warrants. The registration statement must be filed with the Securities and
Exchange Commission within 75 days of the June 27, 2005 closing date and the
effectiveness of the registration is to be within 135 days of such closing date.
Penalties of 2% of the outstanding principal balance of the callable secured
convertible notes plus accrued interest are to be applied for each month the
registration is not effective within the required time. The penalty may be paid
in cash or stock at our option.
See the "Risk Factors" and "Selling Stockholders" sections for more detailed
descriptions of the callable secured convertible notes and associated warrants.
Certain Provisions of Articles of Incorporation. Our Articles of Incorporation
provides for indemnification of our officers and directors against actions by
the Company or its shareholders for breach of fiduciary duty, with certain
exceptions.
Transfer and Warrant Agent. Our transfer agent and registrar for our common
stock is Computershare Trust Company, Golden, Colorado.
41
PLAN OF DISTRIBUTION
The selling stockholders and any of their respective ~ledges, donees, assignees
and other successors-in-interest may, from time to time, sell any or all of
their shares of common stock on any stock exchange, market or trading facility
on which the shares are traded or in private transactions. These sales may be at
fixed or negotiated prices. The selling stockholders may use any one or more of
the following methods when selling shares:
o Ordinary brokerage transactions and transaction in which the broker-dealer
solicits the purchaser;
o Block trades in which the broker-dealer will attempt to sell the shares as
agent but may position and resell a portion of the block as principal to
facilitate the transaction;
o Purchases by a broker-dealer as principal and resale by a broker-dealer for
its account;
o An exchange distributions in accordance with the rules of the applicable
exchange;
o Privately-negotiated transactions;
o Short sales that are not violations of laws and regulations of any state or
the United States;
o Broker-dealers may agree with the selling stockholders to sell a specified
number of such shares at a stipulated price per share;
o Through the writing of options on the shares;
o A combination of any such method of sales; and
o Any other method permitted pursuant to applicable law.
The selling stockholders may also sell shares under Rule 144 under the
Securities Act of 1933, as amended, if available, rather than under this
prospectus. The selling stockholders shall have the sole and absolute discretion
not to accept any purchase order or make any sale of sales if they deem the
purchase price to be unsatisfactory at any particular time.
The selling stockholders or their respective pledges, donees, transferees or
other successors-in-interest, may also sell the shares directly to market makers
acting as principals and/or broker-dealers acting as agents for themselves or
the customers. Such broker-dealers may receive compensation in the form of
discounts, concessions or commissions from the selling stockholders and/or the
purchasers of shares for whom such broker-dealers may act as agents or to whom
they sell as principal or both, which compensation as to a particular broker-
dealer might be in excess of customary commissions. Market makers and block
purchasers purchasing the shares will do so for their own account and at their
risk. It is possible that a selling stockholder will attempt to sell shares of
common stock at block transaction to market makers or other purchasers at a
price per share which may be below the then market price.
The selling stockholders cannot assure that all or any of the shares offered in
this prospectus will be issued to, or sold by, the selling stockholders. The
selling stockholders and any brokers, dealers or agents, upon effecting the sale
of any of the shares offered in this prospectus, may be deemed to be
"underwriters" as that term is defined in the Securities Act of 1933, as
amended, or the Securities Exchange Act of 1934, as amended, or the rules and
regulations under such acts. In such event, any commissions received by any such
broker dealers or agents and any profit on the resale of the shares purchased by
them may be deemed to be underwriting commissions or discounts under the
Securities Act of 1933, as amended.
42
We are required to pay all fees and expenses incident to the registration of the
shares, including fees and disbursements of counsel to the selling stockholders,
but excluding brokerage commissions or underwriter discounts.
The selling stockholders, alternatively, may sell all or any part of the shares
offered in this prospectus through an underwriter. No selling stockholder has
entered into any agreement with a prospective underwriter and there is no
assurance that any such agreement will be entered into.
The selling stockholders may pledge their shares to the brokers under the margin
provisions of customer agreements. If a selling stockholder defaults on a margin
loan, the broker may, from time to time, offer and sell the pledged shares. The
selling stockholders and any other persons participating in the sale or
distribution of the shares will be subject to applicable provisions of the
Securities Exchange Act of 1934, as amended, and the rules and regulations under
such act, including without limitation, Regulation M. These provisions may
restrict certain activities of, and limit the timing of purchases and sales of
any of the shares by, the selling stockholders or any other such person. In the
event that the selling stockholders are deemed affiliated purchasers or
distribution participants within the meaning of Regulation M, then the selling
stockholders will not be permitted to engage in short sales of common stock.
Furthermore, under Regulation M, the persons engaged in a distribution of
securities are prohibited from simultaneously engaging in market making and
certain other activities with respect to such securities for a specified period
of time prior to the commencement of such distributions, subject to specified
exceptions or exemptions. In regards to short sales, the selling stockholder can
only cover its short position with the securities it receives from us upon
conversion. In addition, if such short sale is deemed to be a stabilizing
activity, then the selling stockholder will not be permitted to engage in a
short sale of our common stock. All of these limitations will affect the
marketability of the shares.
We agreed to indemnity the selling stockholders, or their transferees or
assignees, against certain liabilities, including liabilities under the
Securities Act of 1933, as amended, or to contribute to payments to selling
stockholders or their respective pledges, donees, transferees or other
successors-in-interest, may be required to make in respect to such liabilities.
If the selling stockholders notify us that they have a material arrangement with
a broker-dealer for the resale of the common stock, then we will be required to
amend the registration statement of which this prospectus is a part, and file a
prospectus supplement to describe the agreements between the selling
stockholders and the broker-dealer.
From time to time this prospectus will be supplemented and amended as required
by the Securities Act of 1933, as amended. During any time when a supplement or
amendment is so required, the Selling Securityholders are to cease sales until
the prospectus has been supplemented or amended. Pursuant to the registration
rights granted to certain of the Selling Securityholders, we have agreed to
update and maintain the effectiveness of this prospectus. Certain of the Selling
Securityholders also may be entitled to sell their shares without the use of
this prospectus, provided that they comply with the requirements of Rule 144
promulgated under the Securities Act.
EXPERTS
Our consolidated financial statements as of and for the years ended December 31,
2004 and 2003, and for the period from inception through December 31, 2004,
included in this prospectus have been audited by Cherry, Bekaert & Holland,
L.L.P., the registered independent public accounting firm, as stated in their
report appearing herein. We have included consolidated financial statements in
this prospectus in reliance on such report given upon their authority as experts
in auditing and accounting.
43
LEGAL MATTERS
The validity of the shares of common stock in this offering will be passed upon
for us by Steven A. Cunningham, Esq., Roswell, Georgia. Mr. Cunningham
beneficially owns 900,000 shares of our common stock.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission, or SEC, a
registration statement on Form SB-2 (including the exhibits and schedules
thereto) under the Securities Act of 1933 and the rules and regulations
promulgated thereunder, for the registration of the common stock offered hereby.
This prospectus is part of the registration statement. This prospectus does not
contain all the information included in the registration statement because we
have omitted certain parts of the registration statement as permitted by the SEC
rules and regulations. For further information about us and our common stock,
you should refer to the registration statement. Statements contained in this
prospectus as to any contract, agreement or other document referred to are not
necessarily complete. Where the contract or other document is an exhibit to the
registration statement, each statement is qualified by the provisions of that
exhibit.
You can inspect and copy the registration statement and the exhibits and
schedules thereto at the public reference facility maintained by the SEC at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's regional
offices at 233 Broadway, New York, New York 10279, and 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. You may call the SEC at 1-800-732-0330 for
further information about the operation of the public reference rooms. Copies of
all or any portion of the registration statement can be obtained from the Public
Reference Section of the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. In addition, the registration statement is publicly available
through the SEC's site on the Internet's World Wide Web, located at
http://www.sec.gov.
We also file annual, quarterly and current reports, proxy statements and other
information with the SEC. You can also request copies of these documents, for a
copying fee, by writing to the SEC. Our SEC filings are also available to the
public from the SEC's website at http://www.sec.gov. We furnish to our
stockholders annual reports containing audited financial statements for each
fiscal year.
44
RUBY MINING COMPANY
CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2005
INDEX
Page
----
Condensed Consolidated Balance Sheets.......................................F-2
Condensed Consolidated Statement of Operations..............................F-3
Condensed Consolidated Statement of Cash Flows..............................F-5
Notes to Condensed Consolidated Finanacial Statements.......................F-6
F-1
RUBY MINING COMPANY AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
JUNE 30, DECEMBER 31,
2004 2005
------------ ------------
ASSETS
CURRENT ASSETS
Cash in bank $ 391,812 $ 268,966
Expense and employee receivable 265,355 261,488
Other 122,771 106,157
------------ ------------
TOTAL CURRENT ASSETS 779,938 636,641
Fixed assets, net of accumulated depreciation 26,685 522
New World Legacy-vessel; net of accumulated depreciation 734,960 760,019
Investment 405,000 315,000
Other assets 38,014 38,014
Debt issuance costs 118,000 --
------------ ------------
TOTAL ASSETS $ 2,102,597 $ 1,750,196
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
LIABILITIES
Current liabilities
Accounts payable $ 165,031 $ 370,905
Accrued compensation and consulting fees 482,313 431,800
Short-term advances 328,951 369,758
------------ ------------
TOTAL CURRENT LIABILITIES 976,295 1,172,463
Long-term debt 850,000 --
Long-term Nonconvertible Debentures, net of discount 4,165,935 3,948,699
Interest payable 3,200,031 2,948,687
------------ ------------
TOTAL LIABILITIES 9,192,261 8,069,849
------------ ------------
Stockholders' deficit
Common stock 55,592 55,341
Paid-in capital 12,258,481 11,356,312
Subscribed shares 4,800 75,250
Development stage deficit (19,408,537) (17,806,556)
------------ ------------
Total stockholders' deficit (7,089,664) (6,319,653)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 2,102,597 $ 1,750,196
============ ============
See notes to condensed consolidated financial statements.
F-2
RUBY MINING COMPANY AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
From Inception June 30,
through --------------------------
June 30, 2005 2005 2004
------------- --------------------------
Revenues $ 199,927 $ -- $ --
------------ --------- ---------
Operating expenses
Compensation and employee benefits 3,610,162 124,505 98,687
Forgiveness of salaries (663,625) -- --
Research and development 1,890,557 22,964 --
General and administrative 4,090,502 41,689 84,968
Depreciation and amortization 213,556 13,262 12,692
Professional fees 4,372,820 172,971 60,843
Exploration expense 752,173 121,408 222,861
------------ --------- ---------
14,266,145 496,799 480,051
------------ --------- ---------
Operating (loss) (14,066,218) (496,799) (480,051)
Other income (expense) 755,206 4,980 53,183
Interest (expense) (6,097,525) (439,990) (246,922)
------------ --------- ---------
Net (loss) $(19,408,537) $(931,809) $(673,790)
============ ========= =========
Net (loss) per common share:
Basic and diluted $ (0.02) $ (0.01)
========= =========
See notes to condensed consolidated financial statements.
F-3
RUBY MINING COMPANY AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Six Months Ended
June 30,
-----------------------------
2005 2004
------------ ------------
Revenues $ -- $ --
------------ ------------
Operating expenses
Compensation and employee benefits 208,637 207,433
Research and development 50,134 250,000
General and administrative 104,876 173,886
Depreciation and amortization 25,781 12,751
Professional fees 228,927 194,900
Exploration expense 317,499 222,861
------------ ------------
935,854 1,061,831
------------ ------------
Operating (loss) (935,854) (1,061,831)
Other income (expense) 6,311 103,409
Interest (expense) (672,438) (465,142)
------------ ------------
Net (loss) $(1,601,981) $ 1,423,564)
============ ============
Net (loss) per common share:
Basic and diluted $ (0.03) $ (0.03)
============ ============
See notes to condensed consolidated financial statements.
F-4
RUBY MINING COMPANY AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
From Inception
Six Months Ended Through
June 30, June 30,2005
----------------------------- --------------
2005 2004
------------- -----------
Operating activities
Net loss $(1,601,981) $(1,423,564) $(19,408,537)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 25,781 12,751 212,338
Discount amortization 217,236 196,686 2,261,793
Equity-based professional services 63,850 177,000 1,172,810
Increase (decrease) in accounts payable
and accruals (155,361) (66,090) 1,002,860
Increase in interest payable 251,344 205,168 3,222,900
Deferred charges (163,000) -- (163,000)
Beneficial conversion feature 202,417 -- 202,417
Other, net 26,256 5,700 340,187
----------- ----------- ------------
Net cash used in operating activities (1,133,458) (892,349) (11,156,232)
----------- ----------- ------------
Investing activities
Advances under expense receivable (1,501) (42,290) (149,979)
Investment purchase (90,000) -- (110,000)
Purchase of fixed assets (27,090) -- (176,297)
Purchase of vessel -- (448,019) (447,921)
----------- ----------- ------------
Net cash used in investing activities (118,591) (490,309) (884,197)
----------- ----------- ------------
Financing activities
Issuance of common stock and warrants 636,153 924,486 8,869,549
Short-term advances (40,808) 148,262 803,750
Stock subscription (70,450) -- 4,800
Issuance of callable, secured convertible 850,000 -- 850,000
Notes
Issuance of debentures -- -- 1,904,142
----------- ----------- ------------
Net cash provided by financing activities 1,374,895 1,072,748 12,432,241
----------- ----------- ------------
Net increase (decrease) in cash 122,846 (309,910) 391,812
Cash at beginning of period 268,966 352,037 --
----------- ----------- ------------
Cash at end of period $ 391,812 $ 42,127 $ 391,812
=========== =========== ============
See notes to condensed consolidated financial statements.
F-5
RUBY MINING COMPANY AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2005
(UNAUDITED)
NOTE 1 - NATURE OF OPERATIONS AND BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements include the
accounts of Ruby Mining Company (the "Company") and its wholly-owned
subsidiaries, Admiralty Corporation ("Admiralty"), and Admiralty Marine
Operations, LTD. ("AMO"). Significant inter-company transactions and accounts
are eliminated in consolidation.
The financial statements as of June 30, 2005 and for the three and six months
ended June 30, 2005 and 2004 are unaudited and have been prepared pursuant to
the rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States have been condensed or omitted pursuant to such rules and
regulations. These condensed consolidated financial statements should be read in
conjunction with the audited financial statements and notes thereto included in
the Company's annual report. The financial information included herein reflects
all adjustments (consisting of normal recurring adjustments) which are, in the
opinion of management, necessary to a fair presentation of the financial
position and results of operations for interim periods.
The preparation of financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities and
income and expense amounts. Actual results could differ from those estimates.
The Company and its subsidiaries are a development stage company and have had
only minimal revenues. The consolidated development stage deficit of the
entities is $19,408,537. These matters indicate substantial doubt about the
ability of the Company to continue as a going concern. Management of the Company
recognizes that additional capital will be needed to continue operations and is
seeking to establish arrangements for capital or financing. The success of the
Company is dependent upon management's ability to implement plans for capital
and financing.
During the quarter ending March 31, 2004, the Company organized AMO as a
wholly-owned subsidiary. AMO, through capitalization from the Company, acquired
the New World Legacy, a research vessel for cash consideration of $447,921, and
for equity instruments of the Company valued at $350,000.
During the quarter ending June 30, 2005, the Company issued 40,800 shares of
common stock for forgiveness of liabilities of $10,200. In addition the Company
issued 6,420,754 warrants on the Company's common stock during the quarter
ending June 30, 2005. Each warrant is for one share of the Company's common
stock. Of these warrants issued, 3,151,826 were issued as part of the private
placement warrant offering being conducted by the Company during this time.
F-6
RUBY MINING COMPANY AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2005
(UNAUDITED)
NOTE 1 - NATURE OF OPERATIONS AND BASIS OF PRESENTATION (CONTINUED)
These warrants have an exercise price of $0.35, and have exercise periods
ranging from three to four years. The remaining 3,268,928 warrants were issued
by the Company to four funds comprising the NIR Group of Rosalyn, New York, who
provided a $2,500,000 financing arrangement to the Company in June 2005. Until a
registration occurs, these warrants are on restricted stock of the Company and
can be immediately exercised. The exercise price of these warrants is $0.25 per
share. The warrants have a five year exercise period.
NOTE 2 - STOCK BASED COMPENSATION
The Company accounts for stock-based compensation utilizing the intrinsic value
method. Presented below is certain financial information of the Company with
comparative proforma information determined as if the Company had accounted for
the stock-based compensation utilizing the fair-value method for the presented
six month periods.
June 30, 2004 June 30, 2005
------------- -------------
Net Loss as reported $ (1,423,564) $ (1,601,981)
Basic and diluted loss per share $ (0.03) $ (0.03)
as reported
Stock-based employee compensation $ -- $ --
cost included in net loss as reported
Stock based employee compensation $ -- $ --
cost based on fair-value method
Proforma net loss including stock-based $ (1,423,564) $ (1,601,981)
compensation cost based on fair-value method
Proforma basic and diluted loss per share $ (0.03) $ (0.03)
including stock-based compensation
cost based on fair-value method
F-7
RUBY MINING COMPANY AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2005
(UNAUDITED)
NOTE 3 - EARNINGS PER SHARE
Earnings per share are calculated on the basis of the weighted average number of
shares outstanding. As the Company has granted stock options and other equity
instruments to officers and others associated with the Company, earnings per
share may be diluted by these instruments. As these equity instruments would be
anti-dilutive, diluted earnings per share separate from basic earnings per share
has not been presented in the accompanying statements of operations. At June 30,
2005 the Company had outstanding 24,872,710 warrants and 400,000 options on
common stock, each convertible to one share of the Company's common stock. The
following presents the calculation of basic earnings per share:
For the Six Months Ended June 30, 2005
---------------------------------------------------------
Weighted
Average Shares Per-Share
(Numerator) (Denominator) Amount
----------------- ---------------- ----------------
BASIC EPS
Income (loss) available to
common shareholders' $ (1,601,981) $ 55,561,590 $ (0.03)
================= ================ ================
For the Six Months Ended June 30, 2004
---------------------------------------------------------
Weighted
Average Shares Per-Share
(Numerator) (Denominator) Amount
----------------- ---------------- ----------------
BASIC EPS
Income (loss) available to
common shareholders' $ (1,423,564) $ 51,525,802 $ (0.03)
shareholders'
================= ================ ================
NOTE 4 - LONG-TERM DEBT
During the quarter ended June 30, 2005, the Company executed an arrangement for
the issuance of $2,500,000 of debt. The debt will be issued in three traunches
as follows:
* $850,000 on execution of the arrangement
* $800,000 upon filing of a registration statement
* $850,000 upon the effective declaration of the registration statement
The Company received the first traunch of $850,000 during the quarter ending
June 30, 2005.
F-8
RUBY MINING COMPANY AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2005
(UNAUDITED)
NOTE 4 - LONG-TERM DEBT (CONTINUED)
The debt is secured by all assets of the Company, bears interest at 8%, with
interest payable quarterly. Upon execution of the arrangement the Company was
required to pay eight months interest in advance.
The debt is convertible into common stock of the company at any time at the
option of the holder. The debt is convertible at a per-share price of the lesser
of $0.15, or the average of the lowest intra-day trading prices of the Company's
common stock on the 20 days prior to the conversion. The Company has determined
that a beneficial conversion feature exists with respect to the conversion as
the conversion price at the commitment date (date the debt was issued) was less
than the market price of the stock. The Company recorded a charge to interest
expense of $202,417 for the beneficial conversion feature.
The debt also provides that the Company may exercise a call option. Certain
restrictions and financial penalties exist with respect to the exercise of the
call option.
F-9
RUBY MINING COMPANY
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
INDEX
Page
----
Report of Independent Registered Public Accounting Firm.....................F-11
Consolidated Balance Sheets.................................................F12
Consolidated Statements of Operations.......................................F-13
Consolidated Statements of Cash Flows.......................................F-14
Consolidated Statemetns of Charges in Stockholders' Deficit.................F-15
Schedule of Stock Issuances.................................................F-20
Notes to Financial Statements...............................................F-24
F-10
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Ruby Mining Company
Atlanta, Georgia
We have audited the accompanying consolidated balance sheets of Ruby Mining
Company and subsidiaries (A Development Stage Enterprise) as of December 31,
2004 and 2003, and the related consolidated statements of operations, changes in
stockholders' deficit and cash flows for the years then ended, and the inception
period from April 15, 1988 to December 31, 2004. 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 the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. 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 Ruby Mining Company and
subsidiaries as of December 31, 2004 and 2003, and the results of its operations
and its cash flows for the years ended December 31, 2004 and 2003, and for the
inception period from April 15, 1988 to December 31, 2004, in conformity with
accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company will require substantial additional funds to
sustain research and development and commence and continue operating activities
until such time as the Company can generate positive cash flows from operations.
This condition raises substantial doubt about the Company's ability to continue
as a going concern. Management's plans to raise additional funds and begin
operations are also described in Note 1. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
/S/ CHERRY, BEKAERT & HOLLAND, L.L.P.
Atlanta, Georgia
March 31, 2005
F-11
CONSOLIDATED BALANCE SHEETS
December 31, 2004 and 2003
Assets
2004 2003
------------- ------------
Current Assets
Cash in bank $ 268,996 $ 352,037
Expense and employee receivables 261,488 173,976
Other current assets 106,157 11,368
------------ ------------
TOTAL CURRENT ASSETS 636,641 537,381
Furniture, fixtures, computer equipment and leasehold
improvements, less accumulated depreciation of $137,010
and $136,774, respectively 522 758
New World Legacy-vessel, less accumulated
depreciation of $37,901 and $0, respectively 760,019 --
Investment 315,000 --
Other assets 38,014 47,714
------------ ------------
TOTAL ASSETS $ 1,750,196 $ 585,853
============ ============
Liabilities and Stockholders' Deficit
LIABILITIES
Current liabilities
Accounts payable $ 370,905 $ 640,326
Accrued compensation and consulting fees 431,800 202,000
Short-term advances 369,758 212,200
------------ ------------
TOTAL CURRENT LIABILITIES 1,172,463 1,054,526
Nonconvertible debentures, net of unamortized discount of
$1,051,301 and $1,442,807, respectively 3,948,699 3,557,193
Interest payable 2,948,687 2,513,441
------------ ------------
TOTAL LIABILITIES 8,069,849 7,125,160
------------ ------------
Stockholders' Deficit
Common stock; $.001 par value, 100,000,000 shares
authorized; 55,340,890 and 45,966,144 shares issued
and outstanding at December 31, 2004 and 2003,
respectively 55,341 45,966
Additional paid-in capital 11,356,312 8,223,032
Subscribed shares 75,250 274,975
Receivable for exercised options -- (237,175)
Development stage deficit (17,806,556) (14,846,105)
------------ ------------
Total stockholders' deficit (6,319,653) (6,539,307)
------------ ------------
Total liabilities and stockholders' deficit $ 1,750,196 $ 585,853
============ ============
The accompanying notes are an integral part of these financial statements
F-12
RUBY MINING COMPANY AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS
Since inception and for the years ended December 31, 2004, and 2003
INCEPTION TO
2004 2004 2003
------------ ------------ ------------
Revenues $ 199,927 $ -- $ --
------------ ------------ ------------
Operating expenses
Compensation and employee benefits 3,401,525 379,675 205,969
Forgiveness of salaries (663,625) -- (663,625)
Research and development 1,840,423 250,000 150,000
General and administrative 3,985,626 332,523 400,830
Depreciation and amortization 187,775 38,138 11,204
Professional fees 4,143,893 754,713 276,287
Exploration expense 434,674 434,674 --
------------ ------------ ------------
Total expenses 13,330,291 2,189,723 380,665
------------ ------------ ------------
Operating loss (13,130,364) (2,189,723) (380,665)
Other income (expenses) 748,895 127,682 114,658
Interest expense (5,425,087) (898,410) (864,850)
------------ ------------ ------------
Net (loss) $(17,806,556) $(2,960,451) $ (1,130,857)
============ ============ =============
(Loss) per basic and diluted share $ (0.06) $ (0.04)
============ =============
The accompanying notes are an integral part of these financial statements.
F-13
RUBY MINING COMPANY AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Since inception and for the years ended December 31, 2004 and 2003
INCEPTION TO
2004 2004 2003
------------- ------------ ------------
Operating activities
Net loss $(17,806,556) $(2,960,451) $(1,130,857)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization 186,557 38,138 11,204
Discount Amortization 2,044,557 391,506 324,028
Stock issued for professional services 1,108,960 230,000 --
Increase in accounts payable 1,158,221 67,438 204,812
Increase in interest payable 2,971,556 455,897 444,691
Increase in expense receivable 23,038 (40,069) (71,711)
Other, net 290,893 248,521 438,538
------------ ----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (10,022,774) (1,569,020) (656,371)
------------ ----------- -----------
Investing activities
Advances under expense receivable (148,478) (4,443) (4,174)
Investment in stock (20,000) (20,000) --
Purchases of furniture, fixtures and computer
Equipment (597,098) (447,921) --
------------ ----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (765,576) (472,364) (4,174)
------------ ----------- -----------
Financing activities
Issuance of common stock and warrants 8,233,396 1,805,710 615,701
Short-term advances 844,558 352,358 210,300
Stock subscription 75,250 (199,725) 184,975
Issuance of non-convertible debentures 1,904,142 -- --
------------ ----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 11,057,346 1,958,343 1,010,976
------------ ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 268,996 (83,041) 350,431
CASH AND CASH EQUIVALENTS AT THE BEGINNING
OF PERIOD -- 352,037 1,606
------------ ----------- -----------
CASH AND CASH EQUIVALENTS AT THE END OF PERIOD $ 268,996 $ 268,996 $ 352,037
============ =========== ===========
The accompanying notes are an integral part of these financial statements.
F-14
RUBY MINING COMPANY AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT Since
Inception and for the years ended December 31, 1988 through 2004
COMMON STOCK PAID-IN TREASURY NOTE
CAPITAL STOCK RECEIVABLE
FROM
STOCKHOLDERS
Shares Amount
------- ------ --------- --------- ------------
Balance as of April 15, 1988 -- $ -- $ -- $ -- $ --
Issuance of common stock 68,500 685 34,315 -- --
Net loss -- -- -- -- --
------ ------ --------- --------- ------------
Balance as of December 31, 1988 68,500 685 34,315 -- --
Stock repurchase (2,000) -- -- (15,000) --
Net loss -- -- -- -- --
------ ------ --------- --------- ------------
Balance as of December 31, 1989 66,500 685 34,315 (15,000) --
Issuance of common stock 5,000 50 59,950 -- --
Net loss -- -- -- -- --
------ ------ --------- --------- ------------
Balance as of December 31, 1990 71,500 735 94,265 (15,000) --
Issuance of common stock 1,750 18 37,482 -- --
Net loss -- -- -- -- --
------ ------ --------- --------- ------------
Balance as of December 31, 1991 73,250 $ 753 $ 131,747 $ (15,000) $ --
SUBSCRIBED DEVELOPMENT TOTAL
STOCK STAGE DEFICIT STOCKHOLDERS'
DEFICIT
---------- ------------- ------------
Balance as of April 15, 1988 $ -- $ -- $ --
Issuance of common stock -- -- 35,000
Net loss -- (49,132) (49,132)
---------- ------------ -----------
Balance as of December 31, 1988 -- (49,132) (14,132)
Stock repurchase -- -- (15,000)
Net loss -- (55,407) (55,407)
---------- ------------ -----------
Balance as of December 31, 1989 -- (104,539) (84,539)
Issuance of common stock -- -- 60,000
Net loss -- (109,666) (109,666)
---------- ------------ -----------
Balance as of December 31, 1990 -- (214,205) (134,205)
Issuance of common stock -- -- 37,500
Net loss -- (72,385) (72,385)
---------- ------------ -----------
Balance as of December 31, 1991 $ -- $ (286,590) $ (169,090)
F-15
RUBY MINING COMPANY AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT (CONTINUED)
Since Inception and for the years ended December 31, 1988 through 2004
COMMON STOCK PAID-IN TREASURY NOTE
CAPITAL STOCK RECEIVABLE
FROM
STOCKHOLDERS
Shares Amount
------- ------- ----------- --------- ------------
Balance as of December 31, 1991 73,250 $ 753 $ 131,747 $ (15,000) $ --
Issuance of common stock 538,950 5,390 138,585 -- --
Net loss -- -- -- -- --
Balance as of December 31, 1992 612,200 6,143 270,332 (15,000) --
Issuance of common stock 15,946 159 155,855 -- --
Stock repurchase (500) -- -- (5,000) --
Stock record adjustments 30 (25) 15,971 -- --
Adjusted loss - Expense R & D -- -- -- -- --
Net loss -- -- -- -- --
Balance as of December 31, 1993 627,676 6,277 442,158 (20,000) --
Issuance of common stock 11,869 119 262,261 -- --
Net loss -- -- -- -- --
Balance as of December 31, 1994 639,545 6,396 704,419 (20,000) --
Issuance of common stock 105,155 1,051 371,299 -- --
Net loss -- -- -- -- --
Balance as of December 31, 1995 744,700 7,447 1,075,718 (20,000) --
Issuance of common stock 36,660 367 619,902 -- --
Stock repurchase (7,500) (75) 75 (250,000) --
Net loss -- -- -- -- --
Balance as of December 31, 1996 773,860 $ 7,739 $ 1,695,695 $(270,000) $ --
SUBSCRIBED DEVELOPMENT TOTAL
STOCK STAGE DEFICIT STOCKHOLDERS'
DEFICIT
---------- ------------- -------------
Balance as of December 31, 1991 $ -- $ (286,590) $ (169,090)
Issuance of common stock -- -- 143,975
Net loss -- (93,747) (93,747)
Balance as of December 31, 1992 -- (380,337) (118,862)
Issuance of common stock -- -- 156,014
Stock repurchase -- -- (5,000)
Stock record adjustments -- -- 15,946
Adjusted loss - Expense R & D -- (380,641) (380,641)
Net loss -- (100,369) (100,369)
Balance as of December 31, 1993 -- (861,347) (432,912)
Issuance of common stock -- -- 262,380
Net loss -- (265,260) (265,260)
Balance as of December 31, 1994 -- (1,126,607) (435,792)
Issuance of common stock -- -- 372,350
Net loss -- (404,316) (404,316)
Balance as of December 31, 1995 -- (1,530,923) (467,758)
Issuance of common stock -- -- 620,269
Stock repurchase -- -- (250,000)
Net loss -- (742,022) (742,022)
Balance as of December 31, 1996 $ -- $ (2,272,945) $ (839,511)
F-16
RUBY MINING COMPANY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT (CONTINUED)
Since Inception and for the years ended December 31, 1988 through 2004
COMMON STOCK PAID-IN TREASURY NOTE
CAPITAL STOCK RECEIVABLE
FROM
STOCKHOLDERS
Shares Amount
---------- --------- ----------- ---------- -------------
Balance as of December 31, 1996 773,860 $ 7,739 $ 1,695,695 $ (270,000) $ --
Issuance of common stock 47,324 473 1,357,827 -- --
Stock split- 20 for 1, 5-25-97 15,648,396 156,484 (156,484) -- --
Stock repurchase (500) (5) 5 (10,000) --
Net loss -- -- -- -- --
---------- --------- ----------- ---------- -----------
Balance as of December 31, 1997 16,469,080 164,691 2,897,043 (280,000) --
Issuance of common stock 501,772 5,018 1,424,284 -- --
Loan to stockholder -- -- -- -- --
Net loss -- -- -- -- --
Gain from forgiveness of debt -- -- -- -- --
---------- --------- ----------- ---------- -----------
Balance as of December 31, 1998 16,970,852 169,709 4,321,327 (280,000) --
Issuance of common stock 310,428 3,104 542,397 -- --
Capital adjustment -- -- (67,941) -- --
Net loss -- -- -- -- --
---------- --------- ----------- ---------- -----------
Balance as of December 31, 1999 17,281,280 172,813 4,795,783 (280,000) --
Issuance of common stock 329,035 3,290 414,064 -- --
Net loss -- -- -- -- --
---------- --------- ----------- ---------- -----------
Balance as of December 31, 2000 17,610,315 $ 176,103 $ 5,209,847 $ (280,000) $ --
SUBSCRIBED DEVELOPMENT TOTAL
STOCK STAGE DEFICIT STOCKHOLDERS'
DEFICIT
---------- ------------- -------------
Balance as of December 31, 1996 $ -- $ (2,272,945) $ (839,511)
Issuance of common stock -- -- 1,358,300
Stock split- 20 for 1, 5-25-97 -- -- --
Stock repurchase -- -- (10,000)
Net loss -- (2,722,282) (2,722,282)
---------- ------------ ------------
Balance as of December 31, 1997 -- (4,995,227) (2,213,493)
Issuance of common stock -- -- 1,429,302
Loan to stockholder -- -- --
Net loss -- (2,257,981) (2,257,981)
Gain from forgiveness of debt -- 450,526 450,526
---------- ------------ ------------
Balance as of December 31, 1998 -- (6,802,682) (2,591,646)
Issuance of common stock -- -- 545,501
Capital adjustment -- -- (67,941)
Net loss -- (1,560,377) (1,560,377)
---------- ------------ ------------
Balance as of December 31, 1999 -- (8,363,059) (3,674,463)
Issuance of common stock -- -- 417,354
Net loss -- (1,300,940) (1,300,940)
---------- ------------ ------------
Balance as of December 31, 2000 $ -- $ (9,663,999) $ (4,558,049)
F-17
RUBY MINING COMPANY AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT (CONTINUED)
Since Inception and for the years ended December 31, 1988 through 2004
COMMON STOCK PAID-IN TREASURY NOTE RECEIVABLE
CAPITAL STOCK FROM
STOFKHOLDERS
Shares Amount
---------- ---------- ----------- ------------- ---------------
Balance as of December 31, 2000 17,610,315 $ 176,103 $ 5,209,847 $ (280,000) $ --
Stock effect of reverse merger 2,230,000 2,230 33,270 -- --
Retirement of treasury stock -- -- (280,000) 280,000 --
Issuance of common stock 2,225,933 2,226 860,672 -- --
Issuance of warrants -- -- 88,688 -- --
Capital effect of reverse merger -- (158,493) 158,493 -- --
Adj. Development state deficit -- -- -- -- --
Net loss -- -- -- -- --
---------- ---------- ----------- ------------- ----------
Balance as of December 31, 2001 22,066,248 22,066 6,070,970 -- --
Issuance of common stock 7,700,000 7,700 856,833 -- --
Subscribed stock -- -- -- -- --
Issuance of warrants -- -- 61,036 -- --
Stock record adjustment 53,921 54 -- -- --
Notes receivable for exercised options -- -- -- -- (302,896)
Net loss -- -- -- -- --
---------- ---------- ----------- ------------- ----------
Balance as of December 31, 2002 29,820,169 29,820 6,988,839 -- (302,896)
Issuance of common stock 16,145,975 16,146 1,234,193 -- --
Subscribed stock -- -- -- -- --
Notes receivable for exercised options -- -- -- -- 65,721
Net loss -- -- -- -- --
---------- ---------- ----------- ------------- ----------
Balance as of December 31, 2003 45,966,144 $ 45,966 $ 8,223,032 $ -- $ (237,175)
SUBSCRIBED DEVELOPMENT TOTAL
STOCK STAGE DEFICIT STOCKHOLDERS'
DEFICIT
-------- ------------- -------------
Balance as of December 31, 2000 $ -- $ (9,663,999) $ (4,558,049)
Stock effect of reverse merger -- -- 35,500
Retirement of treasury stock -- -- --
Issuance of common stock -- -- 862,898
Issuance of warrants -- -- 88,688
Capital effect of reverse merger -- -- --
Adj. Development state deficit -- (9,567) (9,567)
Net loss -- (2,172,985) (2,172,985)
--------- ------------- ------------
Balance as of December 31, 2001 -- (11,846,551) (5,753,515)
Issuance of common stock -- -- 864,533
Subscribed stock 90,000 -- 90,000
Issuance of warrants -- -- 61,036
Stock record adjustment -- -- 54
Notes receivable for exercised options -- -- (302,896)
Net loss -- (1,868,697) (1,868,697)
--------- ------------- ------------
Balance as of December 31, 2002 90,000 (13,715,248) (6,909,485)
Issuance of common stock (90,000) -- 1,160,339
Subscribed stock 274,975 -- 274,975
Notes receivable for exercised options -- -- 65,721
Net loss -- (1,130,857) (1,130,857)
--------- ------------- ------------
Balance as of December 31, 2003 $ 274,975 $ (14,846,105) $ (6,539,307)
F-18
RUBY MINING COMPANY AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT (CONTINUED)
Since Inception and for the years ended December 31, 1988 through 2004
COMMON STOCK PAID-IN TREASURY NOTE RECEIVABLE
CAPITAL STOCK FROM
STOFKHOLDERS
Shares Amount
---------- ---------- ------------ ------------- ---------------
Balance as of December 31, 2003 45,966,144 $ 45,966 $ 8,223,032 $ - $ (237,175)
Issuance of common stock 9,374,746 9,375 2,713,280 - -
Subscribed stock - - - - -
Issuance of warrants - - 420,000 - -
Notes receivable for exercised options - - - - 237,175
Net loss - - - - -
---------- ---------- ------------ ------------- -------------
Balance as of December 31, 2004 55,340,890 $ 55,341 $ 11,356,312 $ - $ -
========== ========== ============ ============= =============
SUBSCRIBED DEVELOPMENT TOTAL
STOCK STAGE DEFICIT STOCKHOLDERS'
DEFICIT
---------- ------------- -------------
Balance as of December 31, 2003 $ 274,975 $ (14,846,105) $ (6,539,307)
Issuance of common stock (274,975) - 2,447,680
Subscribed stock 5,250 - 5,250
Issuance of warrants 70,000 - 490,000
Notes receivable for exercised options - - 237,175
Net loss - (2,960,451) (2,960,451)
---------- ------------- ------------
Balance as of December 31, 2004 $ 75,250 $ (17,806,556) $ (6,319,653)
========== ============= ============
NOTE A - See Schedule of Stock Issuances below
F-19
NOTE A - Schedule of Stock Issuances
RUBY MINING COMPANY AND SUBSIDARY
(A DEVELOPMENT STAGE ENTERPRISE)
SCHEDULE OF STOCK ISSUANCES
Since Inception and for the years ended December 31, 1988 through 2004
DATE YEAR # OF SHARES CONSIDERATION RECEIVED
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE AS OF APRIL 15, 1988 0
Year 1988 68,500 Private placement, average issue price $0.51
BALANCE AS OF DECEMBER 31, 1988 68,500
Year 1989 (2,000) Shares repurchased at issue price, $7.50 per share
BALANCE AS OF DECEMBER 31, 1989 66,500
Year 1990 5,000 Private placement, average issue price $12 per share
BALANCE AS OF DECEMBER 31, 1990 71,500
Year 1991 1,750 Private placement, average issue price $21.429 per share
BALANCE AS OF DECEMBER 31, 1991 73,250
Year 1992 538,950 Rights offering exercised $0.15, average issue price for 1992 $0.27
BALANCE AS OF DECEMBER 31, 1992 612,200
Year 1993 15,946 Private placement, average issue price $10.78 per share
Year 1993 (500) Shares repurchased at issue price
Year 1993 30 Stock record adjustments
BALANCE AS OF DECEMBER 31, 1993 627,676
Year 1994 11,869 Private placement, average issue price $22.11 per share
BALANCE AS OF DECEMBER 31, 1994 39,545
F-20
RUBY MINING COMPANY AND SUBSIDARY
(A DEVELOPMENT STAGE ENTERPRISE)
SCHEDULE OF STOCK ISSUANCES - CONTINUED
Since Inception and for the years ended December 31, 1988 through 2004
DATE YEAR # OF SHARES CONSIDERATION RECEIVED
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE AS OF DECEMBER 31, 1994 639,545
Year 1995 105,155 Private placement, average issue price $3.54 per share
BALANCE AS OF DECEMBER 31, 1995 744,700
Year 1996 36,660 Private placement, average issue price $16.92 per share
Year 1996 (7,500) Stock repurchase from an officer, price of $33.33 per share
BALANCE AS OF DECEMBER 31, 1996 773,860
May 25, 1997 15,648,396 Stock split declared 20 for 1 in form of 19 shares
for 1 dividend, non-cash
Year 1997 47,324 Private placement, average issue price $28.70 per share
Year 1997 (500) Stock repurchased from shareholder
BALANCE AS OF DECEMBER 31, 1997 16,469,080
Year 1998 501,772 Private placement, average issue price $2.85 per share
BALANCE AS OF DECEMBER 31, 1998 16,970,852
Year 1999 310,428 Private placement, average issue price $1.76 per share
BALANCE AS OF DECEMBER 31, 1999 17,281,280
Year 2000 329,035 Private placement, average issue price $1.27 per share
BALANCE AS OF DECEMBER 31, 2000 17,610,315
F-21
RUBY MINING COMPANY AND SUBSIDARY
(A DEVELOPMENT STAGE ENTERPRISE)
SCHEDULE OF STOCK ISSUANCES
Since Inception and for the years ended December 31, 1988 through 2004
DATE YEAR # OF SHARES CONSIDERATION RECEIVED
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE AS OF DECEMBER 31, 2000 17,610,315
May 25, 2001 2,230,000 Note 1 - Beginning balance effects of merger
Various 360,500 Cash of $1 and $1.50 per share totaling $363,750
March 9, 2001 90,360 Non-cash, conversion of notes payable, equivalent to $.50/share
May 25, 2001 15,073 Non-cash, stock for invoice payment equivalent to $1.00/Share
August 21, 2001 445,000 Non-cash, payment of consulting fees, equivalent to $.245/Share
September 20, 2001 1,165,000 Non-cash, payment of consulting fees, equivalent to $.245/Share
November 20, 2001 150,000 Non-cash, payment of consulting fees, equivalent to $.20/Share
BALANCE AS OF DECEMBER 31, 2001 22,066,248
Various 4,500,000 Options exercised for cash and notes $.10 to $.36 per share
January 23, 2002 750,000 Non-cash, payment of consulting fees, $.36 per share
June 18, 2002 1,000,000 Non-cash, payment of consulting fees, $.09 per share
September 4, 2002 1,450,000 Non-cash, payment of consulting fees, $.07 per share
December 31, 2002 53,921 Stock record adjustment
BALANCE AS OF DECEMBER 31, 2002 29,820,169
F-22
RUBY MINING COMPANY AND SUBSIDARY
(A DEVELOPMENT STAGE ENTERPRISE)
SCHEDULE OF STOCK ISSUANCES
Since Inception and for the years ended December 31, 1988 through 2004
DATE YEAR # OF SHARES CONSIDERATION RECEIVED
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE AS OF DECEMBER 31, 2002 29,820,169
Various 1,400,000 Private Placement, Stock issued at $.25 per share
Various 504,708 Non-cash, conversion of debt, equivalent to $.05/share
Various 558,592 Non-cash, conversion of debt, equivalent to $.25/Share
February 26, 2003 600,000 Restricted Stock issued at $0.25 per share
October 2, 2003 1,821,250 Private Placement, Stock issued at $.08 per share
November 18, 2003 1,599,469 Non-cash conversion of debt, equivalent to $0.0325
per share
November 20, 2003 3,000,000 Restricted Stock issued at $0.03 per share
November 20, 2003 375,000 Restricted Stock issued at $0.04 per share
November 21, 2003 200,000 Non-cash, conversion of debt, equivalent to $.123/share
December 2, 2003 2,173,913 Non-cash, conversion of debt, equivalent to $.023/share
December 2, 2003 3,913,043 Non-cash, conversion of debt, equivalent to $.025/share
BALANCE AS OF DECEMBER 31, 2003 45,966,144
Various 3,590,000 Private Placement, Stock issued at $.25 per share
Various 722,858 Private Placement, Stock issued at $.70 per share
Various 1,843,188 Non-cash conversion of debt, equivalent to $0.25
per share
February 25, 2004 91,111 Non-cash conversion of debt, equivalent to $0.05
per share
March 23, 2004 319,732 Non-cash conversion of debt, equivalent to $0.02626
per share
April 2, 2004 150,000 Restricted Stock, Option exercise $0.09 per share
April 2, 2004 150,000 Restricted Stock, Option exercise $0.18 per share
July 16, 2004 500,000 S-8 Stock Issued on warrant exercise $0.12 per share
July 18, 2004 150,000 Restricted Stock, warrant exercise $0.10 per share
August 18, 2004 150,000 Restricted Stock, warrant exercise $0.20 per share
September 7, 2004 500,000 Non-cash, Restricted Stock issued for goods & services
$.46 per share
December 31, 2004 157,857 Non-cash, Restricted Stock issued for goods & services
$.70 per share
December 22, 2004 1,050,000 Restricted Stock, Non-cash investment, Nova Marine
Exploration $0.30
BALANCE AS OF DECEMBER 31, 2004 55,340,890
F-23
RUBY MINING COMPANY AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
Notes to Financial Statements
December 31, 2004 and 2003
NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Ruby Mining Company (the "Company"), and it's wholly owned
subsidiaries, Admiralty Corporation, and Admiralty Marine Operations,
Ltd., are a development stage enterprise. The Company's primary offices
are located in Atlanta, Georgia. During the second quarter of 2001, the
Company reorganized by entering into a stock purchase agreement with
Admiralty Corporation whereby the Company issued shares of its common
stock in exchange for all of the outstanding common stock of Admiralty
Corporation. The reorganization was accounted for as a recapitalization
of Admiralty because the shareholders of Admiralty controlled the
Company immediately after the acquisition. Accordingly, there was no
adjustment to the carrying value of the assets or liabilities of
Admiralty resulting from the recapitalization. Admiralty is now a
wholly owned subsidiary of the Company. The Company is the acquiring
entity for legal purposes and Admiralty is the surviving entity for
accounting purposes. The primary business of Admiralty is now that of
the Company.
Admiralty Corporation was incorporated in the State of Georgia in 1988.
Since inception, Admiralty has undertaken to fund and conduct research
to develop a remote sensing nonferrous metal detection device referred
to by Admiralty as ATLIS(TM). Upon completion of research, development
and testing, the Company intends to use the device to locate, identify,
and quantify gold and silver bullion, coins, and artifacts located on
and beneath the ocean floor. The Company believes that much of these
artifacts are located in waters governed by foreign countries.
Accordingly, the Company is developing relationships with these
countries to permit the Company to seek historical shipwreck sites in
these waters.
During the quarter ending March 31, 2004, the Company organized
Admiralty Marine Operations, Ltd., as a wholly owned subsidiary.
Admiralty Marine Operations, Ltd., through capitalization from the
Company, acquired the New World Legacy, a research vessel, for cash
consideration of $447,921, and for equity instruments of the Company
valued at $350,000.
The Company is a development stage enterprise and is primarily funding
and conducting research to develop ATLIS(TM). As of the Company's
current year-end, the Company does not have sufficient funds to
complete development of the ATLIS(TM) technology, fund administrative
expenses and conduct initial explorations, which may result in
revenues. Management believes that sufficient capital to continue
research, development and operating activities can be obtained through
private and public placements of equity and debt securities. Management
recognizes that additional capital will be needed to continue research,
development and operations and is working with various financial
advisors to facilitate private placements and a public offering of the
Company's common stock. In addition, the Company is considering
opportunities for partnering or forming alliances with other
exploration companies. The success of the Company is dependent upon
management's ability to implement this plan.
F-24
RUBY MINING COMPANY AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
Notes to Financial Statements - continued
December 31, 2004 and 2003
NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
-CONTINUED
NATURE OF BUSINESS -CONTINUED
During 2002, the Company jointly formed a limited liability company
("the LLC") with another exploration company, in which the companies
would jointly pursue certain identified exploration opportunities. As
part of the operating agreement of the LLC, the Company would receive
an initial license fee of $1.0 million for use of the ATLIS(TM)
technology by the LLC. As of December 31, 2002, the Company has
received approximately $200,000 of this license fee. Management of the
Company determined in 2002 that due to the uncertainty surrounding the
performance of the other company under the operating agreement, the
remaining receivable for the license fee is not collectible and had
reduced this receivable, and the related revenue deferral, to zero. On
November 10, 2003, the Company announced a nullification, cancellation,
and discontinuation of International Recovery Group, LLC (IRG) (the
"LLC").
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
METHOD OF ACCOUNTING
The accompanying financial statements include the accounts of Ruby
Mining Company, Admiralty Corporation, and Admiralty Marine Operations,
Ltd., and have been prepared on the accrual basis of accounting. Under
the accrual method, revenues are recognized when earned and expenses
are recognized when the related goods or services are received.
Significant intercompany accounts are eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual
results may differ from those estimates, and such differences may be
material to the financial statements.
CASH IN BANK
Cash in bank consists of demand deposits and cash equivalents. The
Company considers all highly liquid investments with maturities of
three months or less when purchased to be cash equivalents.
F-25
RUBY MINING COMPANY AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
Notes to Financial Statements - continued
December 31, 2004 and 2003
NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
-CONTINUED
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
FURNITURE, FIXTURES AND COMPUTER EQUIPMENT
Furniture, fixtures, and computer equipment are recorded at cost and
depreciated using the straight-line method over the estimated useful
lives of the assets, which range from five to seven years. Leasehold
improvements are amortized over the lesser of the estimated useful life
of the asset or the lease term
INCOME TAXES
The Company accounts for income taxes using the asset and liability
approach in accordance with Statement of Financial Accounting Standard
No. 109. Under the asset and liability approach deferred tax assets and
liabilities are recognized for the future tax benefit and expense which
is expected to arise from differences between asset and liability
amounts reported for financial statement and tax purposes. Tax assets
may also be recognized for net operating loss and tax credit
carryforwards. Deferred tax assets are reduced by a valuation allowance
when, in the opinion of management, it is more likely than not that
some portion or all of the deferred tax assets will not be realized.
RESEARCH AND DEVELOPMENT
The Company's research and development expenses represent payments and
amounts due to Larsen Laboratory for development of the ATLIS(TM)
nonferrous metal detection device. Larsen Laboratory (a related party)
is solely owned by a stockholder and former director of the Company. At
December 31, 2004 and 2003, amounts payable to Larsen Laboratory for
these services were $85,000 and $185,000, respectively. The company
paid to Larson Laboratories $350,000 and $50,000 in 2004 and 2003,
respectively, for production of the ATLIS(TM) field unit.
The Company expenses research and development costs, including the cost
of materials used in pre-operating prototypes, when incurred.
FINANCIAL INSTRUMENTS
Financial instruments include cash in bank, accounts payable, accrued
compensation and consulting fees, non-convertible debentures and
interest payable. These amounts are recorded at historical cost basis,
which approximates fair value. Cash balances in financial institutions
periodically exceed insured amounts. These balances are held by
national financial institutions and management believes any credit risk
of loss related to these amounts is remote.
F-26
RUBY MINING COMPANY AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
Notes to Financial Statements - continued
December 31, 2004 and 2003
NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
-CONTINUED
STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation utilizing the intrinsic value
method. See Note 4 for additional information regarding the Company's stock
based compensation. Presented below is certain financial information of the
Company with comparative proforma information determined as if the Company had
accounted for the stock-based compensation utilizing the fair-value method.
2004 2003
---- ----
Net Loss as reported $ (2,960,451) $ (1,130,857)
Basic and diluted loss per share
as reported $ (0.06) $ (0.04)
Stock-based employee compensation
cost included in net loss as reported $ -- % --
Stock based employee compensation
cost based on fair-value method $ -- $ --
Proforma net loss including stock-based
compensation cost based on fair-value
method $ (2,960,451) $ (1,130,857)
Proforma basic and diluted loss per share
including stock-based compensation cost
based on fair-value method $ (0.06) $ (0.04)
NEW ACCOUNTING PRONOUNCEMENTS
In December 2002, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 148, "Accounting for
Stock Based Compensation - Transition and Disclosure", which provides
alternative methods of transition for entities that voluntarily change to the
fair value based method of accounting for stock-based employee compensation. The
provisions of SFAS No. 148 as adopted by the Company did not have a significant
impact on the Company's financial reporting or operations.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities". This Statement amended and
clarified financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities under Statement 133. The Statement is effective for contracts
entered into after June 30, 2003. The adoption of this Statement did not have a
material effect on the Company's financial reporting or operations.
FASB Statement No. 150, "Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity", was issued in May 2003 and
establishes standards for how to classify and measure certain financial
instruments with characteristics of both liabilities and equity. This statement
is effective for financial instruments entered into or modified after May 31,
2003, and otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003. The adoption of the provision of this statement
did not have a material impact on the consolidated financial statements of the
Company.
F-27
RUBY MINING COMPANY AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
Notes to Financial Statements - continued
December 31, 2004 and 2003
NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
-CONTINUED
NEW ACCOUNTING PRONOUNCEMENTS-CONTINUED
FASB Interpretation No. 4, " Consolidation of Variable Interest Entities an
interpretation of ARB No. 51, as amended by FASB Interpretation No. 46R" was
issued in January 2003 and addresses consolidation by business enterprises of
variable interest entities. The Company does not have variable interest entities
as defined by this Interpretation and therefore, the adoption of the provisions
of this FASB Interpretation did not have a material impact on the consolidated
financial statements of the Company.
FASB Statement No. 123(R) "Share-Based Payment", was issued in December 2004 and
requires compensation costs related to share-based payment transactions be
recognized in the financial statements. This pronouncement is effective as of
the first interim or annual reporting period after June 15, 2005. The Company is
currently evaluating the requirements of SFAS No. 123(R), but expects that the
adoption of the Pronouncement will not have a material impact on the Company's
consolidated financial position and consolidated results of operations.
FASB Statement No. 153, "Exchange of Nonmonetary Assets, an amendment of APB
Opinion No. 29", was issued in December 2004 and provides additional guidance on
the accounting for nonmonetary exchanges of assets. The provisions of this SFAS
are effective for nonmonetary asset exchanges occurring in fiscal periods ending
after June 15, 2005. The Company will adopt this SFAS effective January 1, 2006,
and the adoption of the statement is not expected to have a significant effect
on the Company's results of operations or financial position.
NOTE 2 - NONCONVERTIBLE DEBENTURES
In 1996, the Company issued a senior nonconvertible 6% debenture to an Austrian
bank in the amount of $2,000,000 and a substantially identical junior
nonconvertible 6% debenture in the amount of $500,000 to the financial
organization, which identified the Austrian Bank as a potential investor in the
Company. In 1997, the Company issued identical senior and junior debentures.
Total net proceeds from the issuance of the debentures were $1,760,000. The
excess of the $5,000,000 aggregate value of the debentures over the $1,760,000
of proceeds represents a discount on the debenture and fees charged by the
parties for the investment. This discount and the related fees are being
amortized over the life of the debentures. At December 31, 2004 and 2003 the
unamortized discount and fees were $1,051,301 and $1,442,807. The approximate
effective interest rate of the debentures is 12%.
F-28
RUBY MINING COMPANY AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
Notes to Financial Statements - continued
December 31, 2004 and 2003
NOTE 2 - NONCONVERTIBLE DEBENTURES-CONTINUED
The debentures and interest are due and payable on September 30, 2006 and August
22, 2007, with $2.5 million plus accrued interest due on each date to the extent
payment has not been made by the Company previously. The lender of the senior
subordinated debenture is entitled to receive 1% of the Company's reported net
income, payable quarterly, at such time net income is reported, for each
$100,000 of principal amount of the debt which is outstanding. In addition, 50%
of the outstanding principal amount is required to be repaid in the event the
Company completes an initial public offering. In the event and to the extent
that prepayments occur as required by the agreements, the unamortized discount
will be recalculated using the interest method and a pro rata portion of the
discount will be expensed at the time of the prepayment.
NOTE 3 - INVESTMENT IN NOVA RAY, INC.
In 2004, the Company entered into a Stock Purchase Agreement (the "Agreement")
with another entity, Nova Ray, Inc. (Nova), under which the Company would issue
1,050,000 shares of the Company's common stock in exchange for 140,000 shares of
Nova common stock. The transaction was executed in December 2004. The shares
issued by the Company were restricted shares. The Agreement also provides that
the Company may acquire an additional 210,000 shares of common stock of Nova for
additional consideration.
The 140,000 shares of Nova, non-voting common stock acquired by the Company
represents an approximate 10% interest in Nova. The Company is accounting for
this investment at cost, and based the initial cost valuation on the fair value
of the Company stock issued in exchange for the Nova stock at the transaction
date.
The Company believes that the investment relationship established by the
Agreement will create a synergistic relationship amongst the parties in which
they would cooperate going forward on exploration projects and would be able to
jointly utilize the technologies and capabilities of both companies.
NOTE 4 - SHORT-TERM ADVANCES AND NOTES PAYABLE
At December 31, 2004 and 2003, the Company had outstanding $369,758 and
$212,200, respectively, of short-term interest bearing advances and notes
payable, primarily from related parties. During 2004, the Company settled or
exchanged for stock all prior year notes payable, with the exception of $17,400
due to a related party who performs legal services for the Company. For the
amounts outstanding at December 31, 2004, $50,000 bears an interest rate of
6.75% and matures in 2005, which was loaned to the Company by a shareholder
during 2004. Additionally, during 2004 the same shareholder loaned the Company
$150,000, which was outstanding as of December 31, 2004, bears interest at 6.75%
and matures in 2011. An additional $128,950 of the amount outstanding at
December 31, 2004, was loaned to the Company by an executive officer and bears
interest at 6.75% and matures in 2011. The remaining $23,408 was advances to the
Company by a shareholder to pay for fuel for the Company Ship, New World Legacy.
F-29
RUBY MINING COMPANY AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
Notes to Financial Statements - continued
December 31, 2004 and 2003
NOTE 5 - STOCK OPTIONS AND WARRANTS
The Company may grant stock options to the Company's officers, directors, key
employees, and consultants to purchase the Company's common stock. Options are
granted to purchase common stock shares at a price not less than fair market
value of the stock at the date of grant as established by the Board of
Directors. The Company may grant either incentive or nonqualified stock options
to employees of the Company, but only nonqualified options may be granted to
non-employee directors or consultants. Options expire not later than 10 years
after the grant date, and have a maximum 10-year vesting term.
The Company made available 1,448,700 shares for issuance of stock options as of
December 31, 2001. During 2002, the Company made available an additional
4,500,000 stock options under its 2002 Stock Option Plan. The Board of Directors
of the Company establishes to whom options shall be granted and determines
exercise prices, vesting requirements and the number of shares covered by each
option. The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation,"
in October 1995. The Company has adopted SFAS No. 123 and as permitted by that
Statement has elected to present pro forma fair-value stock-based compensation
information as notes to the financial statements. The proforma presentation is
presented in Note 1 to the financial statements.
The following table summarizes stock option activity over the past two years for
options issued:
Weighted
-Average
Number of Price
Shares Exercise Price
Options outstanding at January 1, 2003 768,200 $ 1.46
Granted -- --
Exercised -- --
Canceled or Expired -- --
Options outstanding at December 31, 2003 768,200 1.46
Granted -- --
Exercised -- --
Canceled or Expired 290,700 2.03
Options outstanding at December 31, 2004 477,500 1.12
Options exercisable at December 31, 2003 768,200 1.46
Options exercisable at December 31, 2004 477,500 1.12
F-30
RUBY MINING COMPANY AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
Notes to Financial Statements - continued
December 31, 2004 and 2003
NOTE 5 - STOCK OPTIONS AND WARRANTS-CONTINUED
For options outstanding and exercisable at December 31, 2004, the exercise
prices and average remaining lives were:
Options Outstanding Optionsd Exercisable
- --------------------------------------------------------------------------- -----------------------------
Weighted-Average
Range of Number Remaining Weighted- Weighted-
Exercise Outstanding at Life in Average Number Average
Prices 12/31/04 Years Exercise Exercisable Exercise
Price at 12/31/04 Price
$ 1.00 450,000 1.42 $ 1.00 450,000 $ 1.00
$ 3.00 27,500 .64 $ 3.00 27,500 $ 3.00
------- --------
477,500 1.37 $ 1.12 477,500 $ 1.12
======= ========
At December 31, 2004, the Company had 14,222,580 outstanding warrants to
purchase one share of common stock per warrant at prices ranging $.05 per share
to $7.00 per share. The warrants were issued in connection with the Company
obtaining short-term notes payable, financing, and in connection with the 2001
reorganization of the Company.
NOTE 6 - LOSS PER SHARE
The computation of basic and diluted earnings (loss) per share is based on the
weighted average number of shares outstanding during the period presented, plus,
when their effect is dilutive, additional shares assuming the exercise of
certain vested stock options and warrants, in accordance with Statement of
Financial Accounting Standards No. 128, "Earnings Per Share." Diluted per share
amounts have not been presented in the accompanying statements of operations as
their effect is anti-dilutive. The Company's loss from operations as presented
on the Statement of Operations was used in the loss per share calculation. The
weighted average number of shares outstanding for 2004 was 50,951,007 and for
2003 was 29,864,442.
NOTE 7 - INCOME TAXES
The Company has available unused operating loss carryforwards of approximately
$17.8 million resulting in a deferred tax-asset of approximately $3.5 million
which may be applied against future taxable income and which expires in various
years from 2005 to 2019. The amount of and ultimate realization of the benefits
from the operating loss carryforwards for income tax purposes is dependent, in
part, upon the tax laws in effect, the future earnings of the Company, and other
future events, the effects of which cannot be determined. Because of the
uncertainty surrounding the realization of the loss carryforwards, the Company
has established a valuation allowance equal to the amount of the recognized
benefit for the loss carryforwards and, therefore, no deferred tax asset has
been recognized for the loss carryforwards.
F-31
RUBY MINING COMPANY AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
Notes to Financial Statements - continued
December 31, 2004 and 2003
NOTE 8 - RELATED PARTY TRANSACTIONS
At times the Company may enter into transactions with related parties. During
2004, these transactions included the issuance of 1,126,636 shares for the
cancellation of $214,586 in debt and accumulated interest at prices between
$0.026 to $0.25 a share, which included the issuance of 319,732 shares issued to
a former Director and CTO of the company for a debt of $12,789 including
interest. The Company also has a note receivable of approximately $73,000 from
an executive officer of the Company. At December 31, 2004 the note had matured
and was in default. In addition, the Company has an expense advance receivable
of approximately $155,000 from the same former executive officer of the Company.
During the year ended December 31, 2004, the Company issued 157,857 shares of
restricted unregistered common stock of the Company as retainer payment for
future services to be provided for the Company, valued at approximately
$110,500. Of these shares, 142,857 shares were issued to a related party for
legal work, and issuances were at $0.70 per share.
NOTE 9- LEASES
In June 2002, the Company entered into an operating lease for its current office
facility through July 31, 2005. In July 2003, this lease was amended to reduce
the square footage rented by the Company. Future minimum lease payment
obligations as of December 31, 2004 are as follows:
2005 $25,222
NOTE 10 - SUBSEQUENT EVENTS
In the first quarter of 2005, the Company received $302,100 of additional
capital as part of a $990,000 private placement to raise additional capital to
fund operations. Additionally, 100,000 shares were issued as a result of an
option exercise at $0.25 per share for a total consideration of $25,000.
F-32
No dealer, salesperson or other person
is authorized to give any information or
to represent anything not contained in
this prospectus. This prospectus is an
offer to sell only the shares offered ____________ Common Stock
hereby, but only under circumstances and
in jurisdictions where it is lawful to
do so. The information contained in this
prospectus is current only as of its
date.
---------------------- RUBY MINING COMPANY, INC.
TABLE OF CONTENTS
-----------------
Page
----
Prospectus Summary ...........................................................2
Summary Financial Data........................................................7
Risk Factors..................................................................8
Use of Proceeds..............................................................16
Dividend Policy..............................................................16
Market for Common Equity and
Related Shareholder Matters...............................................17
Management's Discussion and Analysis
or Plan of Operation......................................................18
Business.....................................................................20
Management...................................................................28
Security Ownership of Certain
Beneficial Owners and Management..........................................33
Certain Transactions.........................................................35
Selling Securityholders......................................................35
Description of Securities....................................................39
Plan of Distribution.........................................................42
Experts......................................................................43
Legal Matters................................................................44
Where You Can Find More Information..........................................44
Consolidated Financial Statements............................................F-1
45
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
The Colorado Business Corporation Act (the "Act") generally allows for the
indemnification of directors, officers, employees and agents of a corporation
against liabilities incurred in any proceeding in which an individual is made a
party because he was a director, officer, employee or agent of the corporation
if such person conducted himself in good faith and reasonably believed his
actions were in, or not opposed to, the best interests of the corporation, and
with respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful.
The Company's Articles of Incorporation provide that no director of the
Company shall be personally liable to the Company or its stockholders for
monetary damages for breach of fiduciary duty to the Company as a director or to
the Company's stockholders except for the following: (i) any breach of a
director's duty of loyalty to the Company or its stockholders; (ii) acts or
omissions which involve intentional misconduct or a knowing violation of law;
(iii) voting to or assenting to a distribution in violation of Section 7-016-401
of the Act or the Company's Articles of Incorporation, if it is established that
the director did not perform his duties in compliance with Section 7-106-401 of
the Act, provided that the personal liability of such director is limited to the
amount of the distribution which exceeds that which could have been distributed
without violation of Section 7-106-401 or the Articles of Incorporation; and
(iv) any transaction from which the director directly or indirectly derives an
improper personal benefit.
The Company's Bylaws provide for the indemnification of each of the
Company's officers and directors and their heirs, executors and administrators
from and against any and all costs and expenses incurred in connection with or
resulting from any claim, action, suit or proceeding by reason his having been
an officer or director; provided, however, that the right of indemnification
does not extend to matters as to which such officer or director shall be finally
adjudged to be liable for misconduct in the performance of his duties as an
officer or director.
The Company has not purchased liability insurance against costs which may
be incurred by it pursuant to the foregoing provisions of its Articles of
Incorporation and Bylaws, nor does it insure its officers and directors against
liabilities incurred by them in the discharge of their functions as such
officers and directors.
Item 25. Other Expenses of Issuance and Distribution
The following table sets forth the expenses payable by the Company in
connection with the issuance and distribution of the securities being registered
(all amounts except the Securities and Exchange Commission filing fee are
estimated):
Filing fee -- Securities and Exchange Commission..................... $ 1,600
Printing and engraving expenses...................................... 1,000
Legal fees and disbursements......................................... 20,000
Accounting fees and disbursements.................................... 5,000
Blue Sky fees and expenses (including legal fees).................... 1,000
Transfer agent and registrar fees and expense........................ 700
Miscellaneous........................................................ 700
...................................................................... ---------
Total expenses....................................................... $ 30,000
46
Item 26. Recent Sales of Unregistered Securities
The following sets forth the securities transactions that have occurred in the
last three fiscal years ending December 31, 2002, 2003, and 2004 and for the
eight months from January 1, 2005 through August 31, 2005. All of these were
effectuated pursuant to transactional exemptions from the registration
requirements of the Securities Act of 1933, as amended, under Sections 4(2) and
4(6) and under Regulation D. All sales of securities described below were made
to "accredited investors" as defined in Rule 501 of Regulation D.
2002
Securities issued during the fiscal year ending on December 31, 2002, were
4,500,000 shares of common stock to 3 individuals through the exercise of stock
options issued pursuant to the Company's 2002 Stock Option Plan. The shares were
registered pursuant to an S-8 registration statement. The exercise prices were
at fair market value (ranging from $0.08 to $0.15 per share) and were paid for
by promissory notes of one year or less with annual interest rates ranging from
6% to 9%.
A business partnership, of which one of the Company's directors was a partner,
advanced $90,000 in 2002 pursuant to an agreement to purchase 3,000,000
restricted shares of the Company's common stock. These shares are to be issued
in 2003. These shares will be issued in reliance on the transactional exemption
from registration provided by Section 4(2) of the Securities Act of 1933, as
amended.
The Company did not pay any commission in connection with the offer and sale of
any of the foregoing securities.
2003
Securities issued during the fiscal year ending on December 31, 2003, were
3,221,250 shares of common stock to 33 individuals and entities in two private
placements for a total consideration of $495,700.00 at prices ranging from $0.08
to $0.25 per share. These two private placements were done in reliance upon
Regulation D of the Securities Act of 1933, as amended. The second private
placement continued into 2004 for a total of $1,200,000.00 before offering
costs. Additionally, 12,924,725 unregistered shares were issued in consideration
fro $755,537.66 in note trade debts. The prices were fair market value at the
time of the transactions (ranging from $0.026 to $0.25 per share) and were
recorded on the books on the date of issuance.
A business partnership, of which one of the Company's directors was a partner (
this same director disclaims any direct or indirect interest or ownership of the
partnership's investment into Ruby Mining Company by action of the partnership's
agreement and amendments), advanced $90,000 in 2002 pursuant to an agreement to
purchase 3,000,000 restricted shares of the Company's common stock. These shares
were issued in 2003. Additionally, this same partnership invested $15,000.00
into restricted stock at $0.04 per share, and, loaned the Company $100,000.00 in
two equal notes of $50,000.00 each (the notes ranged from six months with 8% to
one month at 12%). These two notes were subsequently converted in to 3,913,043
shares at an average implied cost of $0.026 per share in December, 2003. This
same partnership also invested $25,000.00 into the private placement in
December, 2003 at the offering price of $0.25 per share.
In a related party transaction, prior to becoming an officer of the Company, the
Chairman of the Board and CEO of the Company, who is also a Company Director,
loaned $50,000.00 in June 2003. This loan was collateralized by 2,173,913 shares
of Company stock and was converted to the 2,173,913 shares to help the company's
cash flow at the beginning of December, 2003. In a subsequent related party
event, at the beginning of January 2004, this same individual invested
$25,000.00 into the latest private placement at $0.25 as was called for in the
subscription documents. In another related party transaction, 600,000 shares at
$0.25 were sold in a private placement during mid January 2003 and placed into a
trust for which the related party claims a beneficial interest.
47
During 2003, a total of 16,145,975 shares were issued for either cash, or, as
conversion of indebtedness, and as specified collateral for indebtedness
mentioned above. These shares were issued in reliance on the transactional
exemption from registration provided by Section 4(2) of the Securities Act of
1933, as amended.
The Company paid commissions and/or finder's fees in a combination of stock and
cash in connection with the offering and sale of the last private placement
which continued in to 2004, and one loan to the Company of $50,000.00 (which
loan was from an unrelated party) during the year 2003.
2004
Common Shares issue during the fiscal year ending on December 31, 2004, were
4,312,858 shares of common stock to 53 individuals and entities in two private
placements for a total consideration of $1,403,485 at prices ranging from $0.25
to $0.70 per share. These two private placements were done in reliance upon
Regulation D of the Securities Act of 1933, as amended. The first private
placement continued from 2003 for a total of $1,200,000.00 before costs. The
Company also issued $335,000 of $0.10 warrants exercisable at $0.35 for three
years to eight (8) accredited investors. As of December 31, 2004, $25,000.00 of
the warrants issued was held as a subscription, as the issue had not been
perfected. Additionally, 4,561,888 shares were issued in consideration for
$654,157.00 in exchange for notes, trade debts, investment ownership interest,
and restricted stock in 2004. The prices were at fair market value at the time
of the transactions (ranging from $0.25 to $0.70 per share) and were recorded on
the books on the date of issuance.
2005 through August 31
The Company satisfied liquidity and capital requirements during the three months
ended March 31, 2005 through the issuance of 219,500 shares of common stock for
a consideration of $32,450.00 from four individuals and entities. This includes
21,000 two-year warrants exercisable at $1.35 each and 21,000 four-year warrants
exercisable at $2.25 each. These warrants were issued as part of a Private
Placement offering of at $0.70 unit consisting of one share of restricted common
stock, a two-year warrant exercisable for $1.35, and a four-year warrant
exercisable for $2.25 a share (shares issued upon exercise of these options are
unregistered common stock of the Company). The certificates representing these
shares were issued on or about January 26, 2005. The Private Placement began in
2004 and continued through the quarter ending March 31, 2005. A total of
3,470,000 three year warrants exercisable at $0.35 into registered stock, were
placed for a total consideration of $347,000.00. A total of 17 individuals or
entities have participated in the before referenced Private Placement during the
first quarter of 2005.
Additionally, two entities, one an individual that provides services to the
Company and an entity, exercised a total of 200,000 warrants (100,000 at $0.001,
100,000 at $0.25) for a total consideration of $25,100.00 (this amount is
included in the reported total consideration of $379,450.00 reported in note 1
and the shares issued of 200,000 are part of the 210,500 total shares issued for
the quarter).
The Company satisfied liquidity and capital requirements during the three months
ended June 30, 2005 through the issuance of 3,121,156 three year, $0.35 warrants
exercisable into the common stock of the Company for a consideration of
$315,153.00 from 20 individuals. As part of the $315,153 consideration for these
warrants, the CEO and CFO of the Company exchanged debts owed to them by the
Company for a total consideration of $42,614 which resulted in the issuance of
412,067 and 14,074 three year, $0.35 warrants, respectively. The warrant
agreements representing these warrants were issued on or about June 30, 2005. In
addition, employees of the Company continued to partially defer payments of
compensation to help provide liquidity for the Company.
The Company satisfied $10,200 in professional service costs related to the New
World Legacy by issuing 40,800 shares of common stock at a price of $0.25 per
share to three individuals.
48
Item 27. Exhibits
Exhibit No. Description
2.1 Plan and Agreement of Share Exchange dated
as of March 2, 2001, by and among Admiralty
Corporation, Ruby Mining Company, and
U.S. Energy Corp. (1)
2.2 First Amendment to Plan and Agreement of Share Exchange (1)
2.3 Second Amendment to Plan and Agreement of Share Exchange (1)
2.4 Third Amendment to Plan and Agreement of Share Exchange (1)
2.5 Stock Purchase Agreement between Ruby Mining Company
and Nova Marine Exploration, Inc. (2)
3.1 Articles of Incorporation (3)
3.2 Amendment to Articles of Incorporation (3)
3.3 Bylaws (3)
4.1 Specimen Common Stock Certificate *
5.1 Opinion of Steven A. Cunningham, Esq. **
10.1 Securities Purchase Agreement between
Ruby Mining Company and AJW Partners, LLC,
AJW Offshore, Ltd., AJW Qualified Partners, LLC, and
New Millennium Capital Partners, LLP (the "Purchasers") *
10.2 Secured Convertible Note with each of the Purchasers *
10.3 Callable Stock Purchase Warrant with each of the Purchasers *
10.4 Security Agreement with the Purchasers *
10.5 Intellectual Property Security Agreement with the Purchasers *
10.6 Guaranty and Pledge Agreement with the Purchasers *
10.7 Registration Rights Agreement with the Purchasers *
10.8 Five Year Warrant No. WO61104-5 Issued to
Murray D. Bradley, Jr. (2)
10.9 Five Year Warrant No. WO61104-4 Issued to
James W. Larsen (2)
10.10 2002 Stock Option Plan (4)
49
10.11 Financial Advisory Agreement between
Ruby Mining Company and Laidlaw & Company (UK) Ltd. (5)
10.12 Joint Venture Agreement between Ruby Mining Company
and Corazon & Corazon (6)
10.13 Enterprise Venture Agreement among
Ruby Mining Company, Nova Marine
Explorations, Inc. and John Doering (7)
10.14 Consulting Agreement between Ruby Mining Company
and Diversified Financial Relations Consultants, LLC (8)
21.1 Subsidiaries of Registrant (2)
23.1 Consent of Cherry, Bekaert & Holland, L.L.P. *
- ------------------------
* Filed herewith.
** To be furnished by amendment or supplementally.
(1) Incorporated by reference from the Company's Current Report on Form
8-K filed on June 11, 2001.
(2) Incorporated by reference from the Company's Annual Report on Form
10-KSB for the year ended December 31, 2004.
(3) Incorporated by reference from the Company's Annual Report on Form
10-KSB for the year ended May 31, 1991.
(4) Incorporated by reference from the Company's Registration Statement
on Form S-8 filed on January 30, 2002.
(5) Incorporated by reference from the Company's Current Report on From
8-K filed on June 30, 2005
(6) Incorporated by reference from the Company's Current Report on Form
8-K filed on March 28, 2005
(7) Incorporated by reference fro the Company's Current Report on Form
8-K filed on September 21, 2004
(8) Incorporated by reference from the Company's Current Report on Form
8-K filed on September 7, 2004
Item 28. Undertakings
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which it offers or sells securities, a post
- -effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the Securities Act
of 1933, as amended (the "Securities Act");
50
(ii) To reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information in the registration
statement. 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 volume and price represent no more than 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement; and
(iii) To include any additional or changed material information on the plan of
distribution.
(2) That, 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) To file a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
(b) Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against policy
as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned registrant also undertakes that:
(1) For purposes of determining any liability under the Securities Act, treat
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1), or (4) or Rule
497(h) under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purposes of determining any liability under the Securities Act,
treat each post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and the offering of the securities at that time as the initial bona fide
offering of those securities.
51
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 has duly caused this registration
statement to be signed on its behalf by the undersigned, in Atlanta, State of
Georgia, this 20th day of September, 2005.
RUBY MINING COMPANY
By:/s/ G.. Howard Collingwood
- -------------------------------------------
G. Howard Collingwood
Its: President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officers or directors of
the Registrant, by virtue of their signatures to this Registration Statement
appearing below, hereby constitute and appoint G. Howard Collingwood as
attorney-in-fact in their names, place and stead to execute any and all
amendments to this Registration Statement in the capacities set forth opposite
their names and hereby ratify all that said attorney-in-fact may do by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
Signature Title Date
/s/ G. Howard Collingwood
- ---------------------------
G. Howard Collingwood Chairman, CEO and Director September 20, 2005
/s/ Murray D. Bradley, Jr.
- ---------------------------
Murray D. Bradley, Jr. CFO, Senior Vice President, September 20, 2005
Secretary and Treasurer
/s/ William Boone
- ---------------------------
William Boone Director September 20, 2005
/s/ Marc Geriene
- ---------------------------
Marc Geriene Director September 20, 2005
/s/ Marc Wallace
- ---------------------------
Marc Wallace Director September 20, 2005
52