UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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Form 10-SB/A
(Amendment No. 3)
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL
BUSINESS ISSUERS Under Section 12(b) or (g) of the
Securities Exchange Act of 1934
CLIFTON MINING COMPANY
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(Exact Name of Registrant as Specified in Its Charter
Utah 87-0511836
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
80 West Canyon Crest Road, Alpine, Utah 84004
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(Address of Principal Executive Offices) (Zip Code)
(801) 756-1414
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(Registrant's Telephone Number, Including Area Code)
Securities to be registered under section 12(b) of the Act: None
Securities to be registered under section 12(g) of the Act: Common Stock
CLIFTON MINING COMPANY
TABLE OF CONTENTS TO FORM 10-SB
Part I.......................................................................3
Item 1. Description of Business..........................................3
Item 2. Management's Discussion and Analysis or Plan of Operation........7
Item 3. Description of Property.........................................10
Item 4. Security Ownership of Certain Beneficial Owners
and Management................................................14
Item 5. Directors and Executive Officers, Promoters and
Control Persons...............................................16
Item 6. Executive Compensation..........................................17
Item 7. Certain Relationships and Related Transactions..................19
Item 8. Description of Securities.......................................20
Part II.....................................................................23
Item 1. Market Price of and Dividends on the Registrant's Common
Equity and Other Shareholder Matters..........................23
Item 2. Legal Proceedings...............................................24
Item 3. Changes in and Disagreements with Accountants...................24
Item 4. Recent Sale of Unregistered Securities..........................24
Item 5. Indemnification of Directors and Officers.......................24
Part F/S....................................................................27
Part III....................................................................27
Item 1. Index to Exhibits................................................27
Item 2. Description of Exhibits..........................................27
2
Forward Looking Statements
Some of the statements contained in this Form 10-SB that are not historical
facts are "forward-looking statements" which can be identified by the use of
terminology such as "estimates," "projects," "plans," "believes," "expects,"
"anticipates," "intends," or the negative or other variations, or by discussions
of strategy that involve risks and uncertainties. We urge you to be cautious of
the forward-looking statements, that such statements, which are contained in
this Form 10-SB, reflect our current beliefs with respect to future events and
involve known and unknown risks, uncertainties and other factors affecting our
operations, market growth, services, products and licenses. No assurances can be
given regarding the achievement of future results, as actual results may differ
materially as a result of the risks we face, and actual events may differ from
the assumptions underlying the statements that have been made regarding
anticipated events.
All written forward-looking statements made in connection with this Form
10-SB that are attributable to us or persons acting on our behalf are expressly
qualified in their entirety by these cautionary statements. Given the
uncertainties that surround such statements, you are cautioned not to place
undue reliance on such forward-looking statements.
The safe harbors of forward-looking statements provided by the Securities
Litigation Reform Act of 1995 are unavailable to issuers not subject to the
reporting requirements set forth under Section 13(a) or 15(d) of the Securities
Exchange Act of 1934, as amended. As we have not registered our securities
pursuant to Section 12 of the Exchange Act, such safe harbors set forth under
the Reform Act are unavailable to us.
Part I
Item 1. Description of Business
Background
The Company was incorporated in the State of Utah on June 8, 1993, under
the name Megaton Gold Corporation. On or about February 24, 1994, we filed a
certificate of amendment to change our name to Clifton Mining Company
("Clifton"). Our Articles of Incorporation authorize us to issue up to
70,000,000 shares of common stock at a par value of $0.001 per share and
10,000,000 shares of preferred stock at a par value of $0.001 per share. We are
filing this Form 10-SB voluntarily with the intention of establishing a fully
reporting status with the SEC. Consequently, we will continue to voluntarily
file all necessary reports and forms as required by existing legislation and SEC
rules.
We have never been party to any bankruptcy, receivership or similar
proceeding, nor have we undergone any material reclassification, merger,
consolidation, or purchase or sale of a significant amount of assets not in the
ordinary course of business.
Between February and May, 1998, the Company acquired a 58% interest in
Woodman Mining Company ("WMC") through the purchase of stock for cash of
$49,716. WMC owns mining claims and is not otherwise engaged in any active
business activities.
In December 1998, the Company acquired 1,540,000 equity shares which is
currently equal to approximately 25% interest in American Biotech Labs ("ABL")
through the purchase of stock for $20,000. ABL manufactures an EPA approved
surface disinfectant product and distributes a silver supplement used as an
immune system support.
As used herein, the term "Company," "we," "us," "our" and similar terms
means Clifton and WMC on a consolidated basis, except where the context clearly
indicates otherwise.
3
Business of Issuer
Principal Products and Principal Markets
We are an exploration stage natural resource company that is seeking to
focus on the exploration of precious metals and polymetallic projects in the
historic Clifton Mining Area of Western Utah. We have limited assets and capital
resources. A study prepared by Behre Dolbear & Company, Inc. dated April 1996
and updated October 2000 by Robert Cameron, Consulting reported the following
potential resources for the Clifton shear zone:
Category Tons Ag (opt) Ag (ounces) Au (opt) Au (ounces) Pb(%)
-------- ---- -------- ----------- -------- ----------- -----
Measured (1) 107,178 8.41 901,597 0.045 4,802 5.09
Indicated (2) 474,122 8.15 3,905,133 0.051 21,824 5.22
------- ---- --------- ----- ------ ----
Total 581,300 8.05 4,806,730 0.050 26,626 5.20
Notes:
(1) Measured Resources are those materials for which tonnage is
computed from dimensions revealed in outcrops or mine workings and/or
drill holes and for which the grade is computed from the results of
adequate sampling. The sites for inspection, sampling and measurement
are so spaced and the geological character is so well defined that the
size, shape and mineral content are established.
(2) Indicated Resources are those materials for which tonnage and grade
are computed partly from specific measurements, samples, or production
data, and partly from projections for a reasonable distance on
geological evidence. The sites available for inspection, measurement,
and sampling are too widely or otherwise inappropriately spaced to
outline the material completely or to establish its grade throughout.
Our business plan is to acquire mining claims and engage in mineral
exploration, with the intent to prove mineable reserves and then either bring
the claims into operation or joint venture with other companies or sell the
claims at appreciated prices. At each stage of the exploration process we or our
joint venture partners will be required to make a decision whether to proceed
with each successive phase of the exploration program upon completion of the
previous phase and upon analysis of the results of that program. Each step in
the exploration process will require us or our joint venture partners to expend
substantial funds of drilling and engineering studies before we will know if we
have a commercially viable mineral deposit or reserve. We have no assurance that
a viable metals deposit exists on our property and further exploration will be
required before a final evaluation as to the economic and legal feasibility is
determined. Even if such a deposit exists, we do not have assurance that we, or
our joint venture partners, will find it. Even if we do find it, we do not have
the assurance that we, or our joint venture partners, will be able to fund the
drilling, engineering, and metallurgical work necessary to prove a mineral
reserve. Even if we could prove a mineral reserve, we have no assurance that we
or our joint venture partners could either obtain the funding necessary to mine
the project or find a satisfactory contract miner. Notwithstanding our limited
assets and capital resources, we currently hold 38 patented claims (includes ten
patented claims owed by WMC), 68 unpatented lode claims and two state mineral
leases covering a total of approximately 2,933 acres in the Golden Hill/Clifton
Mining District, Tooele County, Northwest Utah area (the "Clifton Property").
Due to our limited financial resources, there can be no assurance that minerals
will be extracted and processed at a profit or at all.
The Company has conducted no research and development activities in the
past two fiscal years. The Company recognizes that because of its limited
financial, managerial and other resources, the Company will not have the ability
to explore the Clifton Property until and unless it raises additional funds
and/or is able to partner with entities with greater financial resources than
those of the Company. There can be no assurance that the Company will be
successful in raising additional funds or joint venturing with a suitable
business partner.
4
Licenses, Franchises and Royalty Agreements, Including Duration
In furtherance of our business plan, in 1993, we obtained 18 patented and
54 unpatented claims from American Consolidated Management Group, Inc. ("ACMG")
(formerly known as American Consolidated Mining Co.). In consideration for the
claims, we issued to ACMG 100 shares of common stock and 3,100,000 shares of
1993 Series Preferred A Stock, subject to $250,000 in existing indebtedness. In
November 1994, we redeemed a portion of the shares held by ACMG in consideration
for a 2.5% net smelter royalty to be paid on our mineral production.
In 1995, we issued 250,000 shares of our 1993 Series Preferred A Stock to
The Sunday School Board of the Southern Baptist Convention in consideration for
an investment of $375,000. We also granted a royalty of 20% of our net profits
to The Sunday School Board, pursuant to a Stock Purchase and Net Profits
Interest Agreement with the Sunday School Board. In addition, we also entered
into a Net Profits Interest Agreement and Consent with Mr. K. Bruce Jones and
Mr. Matthew R. White. Pursuant to this agreement, we agreed to pay Mr. White 5%
of our net profits. The Stock Purchase and Net Profits Interest Agreement and
the Net Profits Interest Agreement and Consent with the Sunday School Board cap
the aggregate royalty payable thereunder at US$1,500,000 and do not have a
production commencement date requirement. On or about June 20, 1996 we were
provided notice that the Sunday School Board and Mr. White had assigned their
respective interests in the Stock Purchase and Net Profits Interest Agreement
and the Net Profits Interest Agreement and Consent to CPM Partners, L.L.C.
On December 9, 2002, we entered into a letter agreement with Dumont Nickel,
Inc. ("Dumont") whereby Dumont was given the option to explore the Clifton
Property in consideration for $10,000 and 100,000 shares of Dumont common stock.
In addition, Dumont is to perform certain data and feasibility studies with
respect to the Clifton Property and incur minimum annual expenditures toward
exploration work at the Clifton Property. If Dumont completes the feasibility
study, Dumont will be entitled to between 50% and 60% of the Clifton Property
that hosts a mineral deposit as per the feasibility study (the "Special Project
Area"). If Dumont earns a portion of the Clifton Property, then Dumont and
Clifton will enter into a Joint Venture arrangement to develop the Special
Project Area. Dumont has no obligation to complete any future work. Dumont has
exercised their option and is actively exploring the Clifton Property and has a
total of approximately 33 square miles of contiguous mineral properties under
active exploration, including approximately 4.5 square miles of Company
Property.
Competitive Business Conditions and the Issuer's Competitive Position
The silver exploration and mining industry is highly fragmented. We expect
to compete with many other exploration companies looking for gold, silver, and
other minerals. We are among the smallest exploration companies in existence and
are a very small participant in the precious metal industry. While we generally
expect to compete with other exploration companies, there is no competition for
the exploration or removal of minerals from our claims. Furthermore, if we are
able to successfully recover silver or the gold and lead by-products from our
claims, due to the relatively scarce nature of such minerals, it is likely that
we will be able to sell all minerals that we are able to recover. There can be
no assurance, however, that mineral exploration findings will be favorable or
that, if the result are favorable, we will be able to mine these minerals
profitably or at all.
Government Approval of Principal Activities
Our operations are subject to extensive federal and state laws and
regulations designed to conserve and prevent the degradation of the environment.
These laws and regulations require obtaining various permits before undertaking
certain exploration activities and may result in significant delays, substantial
costs and the alteration of proposed operating plans. These requirements also
necessitate significant capital outlays and may result in liability to the owner
and operator of the property for damages that may result from specific
operations or from contamination of the environment, all of which may prevent us
from continuing to operate.
Our operations are specifically subject to the statutes and related
regulations administered by the Utah Division of Oil, Gas & Mining and Tooele
County, Utah. We have obtained approval for reclamation, which will be needed
upon the conclusion of mining operations, if any, and have also posted a
reclamation bond. We have also obtained a conditional use permit from Tooele
County to allow open pit mining of our property and the use of extractive
chemicals on the property. Accordingly, in the future in conjunction with
Dumont, we intend to commence operations in the permitted area and may seek to
expand the permit as needed.
5
As indicated above, we are required to reclaim the land upon completion of
mining activities should we become involved in mining activities. Certain of our
property is located on federal land, which also requires compliance with
applicable requirements administered by the U.S. Department of the Interior,
Bureau of Land Management. The foregoing regulations impose specific conditions
on the nature and extent of surface disturbance, the manner in which exploration
and mining can be conducted, the disposition of spent ore, the use and
containment of chemical leachate and other solutions, spill prevention, liquid
and solid waste disposition, ground water monitoring, and a number of other
matters which if violated could result in fines, penalties or attendant adverse
publicity.
We believe that we are currently in compliance with all applicable federal
or state environmental regulations. Mining and exploration operations are also
subject to both federal and state laws and regulations pertaining to employee
health and safety. We have posted $64,245 in reclamation bonds to comply with
applicable federal and state environmental laws. We anticipate that if product
commences this amount will increase substantially.
Effect of Existing or Probable Government Regulations
Mineral exploration, including mining operations should we become involved
in such operations at some future date, are subject to governmental regulation.
Our operations may be affected in varying degrees by government regulation such
as restrictions on production, price controls, tax increases, expropriation of
property, environmental and pollution controls or changes in conditions under
which minerals may be marketed. An excess supply of certain minerals may exist
from time to time due to lack of markets and restrictions on exports. The
marketability of metals such as gold will be affected by numerous factors beyond
our control. These factors include market fluctuations and government
regulations relating to prices, taxes, royalties, allowable production and
importing and exporting minerals. The effect of these factors cannot be
accurately determined.
Employees
Other than our officers and our Chairman, we have no employees. We have
five officers who are employed by the Company. We also rely on the efforts of
our directors. Messrs. Kenneth S. Friedman, President; William D. Moeller,
Chairman of our Board of Directors (the "Board"); Keith W. Moeller, Director;
Scott S. Moeller, Secretary, Treasurer and Director; Murray Nye, a Director;
Harold Gunsinger, Director; and Robert J. Holladay, Vice-President of Operations
each provide services to us on an as needed basis, which, on average, amounts to
approximately ten to one hundred twenty hours per month per person. We do not
anticipate hiring additional employees during the next twelve months.
Reports to Security Holders
Annual Reports
We intend to make available our annual reports to security holders and the
United States Securities and Exchange Commission on Form 10-KSB in accordance
with the provisions of Section 12 of the Securities Exchange Act of 1934, as
amended. Such annual reports will include audited financial statements.
Periodic Reports with the SEC
As of the date of this registration statement, we have not been filing
periodic reports with the SEC. However, the purpose of this registration
statement is to become a fully reporting company on a voluntary basis. Hence, we
will file periodic reports with the SEC as required by laws and regulations
applicable to fully reporting companies.
Availability of Filings
You may read and copy any materials we file with the SEC at the SEC's
Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. You may
obtain information on the operation of the Public Reference Room by calling the
SEC at 1-800-SEC-0330. Additionally, the SEC maintains an Internet site
(http://www.sec.gov) that contains reports, proxy and information statements and
other information regarding issuers that file electronically with the SEC.
6
Item 2. Management's Discussion and Analysis or Plan of Operation
The following discussion and analysis or plan of operation provides
information which management believes is relevant to an assessment and
understanding of the Company's consolidated results of operations and financial
condition. The discussion should be read in conjunction with the consolidated
financial statements and notes thereto.
General
The Company has only limited business operations. The Company has had no
revenue from operations during the past two fiscal years. We had net losses of
$600,354 for the year ended December 31, 2004 compared to net losses of $827,456
from the prior year. The Company had $442,063 in cash, $562,872 in current
assets and working capital of $550,413 at December 31, 2004. As of December 31,
2004, we had a stockholders equity of $2,565,868. Our efforts to date have
focused primarily on acquisition and exploration of the mining properties.
During the past two fiscal years we have financed our operations primarily
through the sale of equity securities. We received $2,845,694 in cash from
financing activities during 2003 and 2004.
Plan of Operation
We are a natural resource company that is seeking to focus its resources on
the exploration of precious metals and polymetallic projects in the historic
Clifton Mining Area of Western Utah We have limited business operations, assets
and capital resources. We currently have no reserves. Our business plan is to
acquire and explore mining claims either by ourselves or in joint venture
partnership with others. Should our exploration efforts be successful in
establishing minable reserves, we intend to bring these claims into operations
either through contract mining or joint ventures with other companies or sell
the claims at appreciated prices. Notwithstanding our limited assets and capital
resources, we currently hold 38 patented claims, 68 unpatented lode claims and
two state mineral leases covering a total of approximately 2,933 acres in the
Golden Hill/Clifton Mining District, Tooele County, Northwest Utah area (the
"Clifton Property"). Due to our limited financial resources there can be no
assurance as to the level of any future mineral exploration activities or the
findings of any future mineral exploration activities.
In furtherance of our business plan, on December 9, 2002, we entered into a
letter agreement with Dumont Nickel, Inc. ("Dumont") whereby Dumont was given
the option to explore the Clifton Property in consideration for $10,000 in cash
and 100,000 shares of Dumont common stock. In addition, Dumont is to perform
certain data and feasibility studies with respect to the Clifton Property and
incur minimum annual expenditures toward exploration work at the Clifton
Property. If Dumont completes the feasibility study, Dumont will be entitled to
between 50% and 60% of the Clifton Property that hosts a mineral deposit as per
the feasibility study (the "Special Project Area"). If Dumont earns a portion of
the Clifton Property, then Dumont and Clifton will enter into a Joint Venture
arrangement to develop the Special Project Area. Dumont has no obligation to
complete any future work. Dumont has exercised their option and is actively
exploring the Clifton Property and has a total of approximately 33 square miles
of contiguous mineral properties under active exploration, including
approximately 4.5 square miles of Company Property.
We do not have a detailed and budgeted plan for the exploration of the
Clifton Property, but are relying on Dumont to conduct necessary and proper
exploration activities. While Dumont is not obligated to perform any future
exploration activities on the Clifton Property, Dumont has conducted several
programs involving detailed soil sampling, mapping, and drilling. The most
recent program was conducted on the Kiewit zone. Each of the initial five holes
intersected the same formation with similar thickness and grades. According to
Dumont's July 12, 2004 press release, this program "suggesting the overall
presence of a substantially continuous 400 m x 2,000 m horizon of gold
mineralization which dips westerly beyond its 400 m in estimated width" and "the
holes collectively depict a 50 m thick section." Grades over this section
averaged 0.7 grams per ton with a higher grade core. This press release further
indicated that surface sampling suggested several stacked sections or, in other
words, indications of layered zones of mineralization with non-mineralized
layers between the mineralized layers. The existence of such sections is not
assured. If they exist, their thicknesses and their grades would have to be
established through further drilling.
7
Dumont intends to focus on this area and to begin a program this fall
consisting of drilling an additional 50 to 100 holes. They presently have the
funds to conduct such a program. However, there is no assurance that this
program will be successful in delineating additional mineralization. Moreover,
even if the program does delineate additional mineralization, additional
drilling, engineering and metallurgic studies will be required before we will
know if we have a commercially viable mineral deposit or reserve. There is no
assurance that Dumont or we will have the financial capability to conduct such
drilling, engineering and metallurgic studies necessary to prove a gold reserve,
if such a reserve exists. Even if Dumont funded feasibility studies proved a
gold reserve, there is no assurance that Dumont or we would be able to fund a
mining operation. Even if we funded a mining operation, there is no assurance
metals prices would remain at levels at which such a mining operation would be
profitable.
Whether or not the drill program at Kiewit produces acceptable results,
Dumont has identified six other areas of interest lying within the boundaries of
the joint venture. Dumont is expected to then proceed with programs involving
surface sampling and drilling to assess the viability of these targets.
Liquidity
As of December 31, 2004, we had $442,063 in cash and current liabilities of
$12,459. We have not committed to spend any amounts on capital expenditures
during the next twelve months. As a result, we believe that our cash on hand is
sufficient to continue our business for at least the next 12 months. We will
need to raise additional funding thereafter to execute our business plan. Until
we have obtained additional information relating to the minerals contained in
the Clifton Properties, we cannot forecast the amount of long term funding that
we will require to execute our business plan. When additional cash needs arise,
we anticipate raising additional funds by issuing equity or debt securities in
exchange for cash. There can be no assurance, however, that we will be able to
secure additional funds by the issuance of equity or debt securities or that
such funding, if it can be obtained, will be available on favorable terms.
We have not spent any funds on research and development during the past two
fiscal years. We do not anticipate purchasing or selling any plant or other
significant equipment. We do not anticipate the need to hire additional full- or
part- time employees over the next 12 months, as the services provided by our
officers and directors appear sufficient at this time. We believe that our
operations are currently manageable by a few individuals.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are
reasonably likely to have a current or future effect on our financial condition,
changes in financial condition, revenues or expenses, results of operations,
liquidity, capital expenditures or capital resources that is material to
investors.
Risk Factors
The Company is subject to certain other risk factors due to its exploration
stage status, the industry in which it competes and the nature of its
operations. These risk factors include the following.
We have a history of losses and may not be profitable in the future.
We have limited operations and have incurred a net loss of $600,354 for the
year ended December 31, 2004. We will not be profitable until and unless we
begin mining and processing minerals from our properties and derive substantial
revenues from sales of such processed minerals. We expect to continue to lose
money until we are able to generate significant revenues. There is no assurance
that we will be able to generate revenues in the future.
We do not have sufficient funds to execute our business plan.
We believe that our current cash reserves will be sufficient to support a
planned level of activity for the next twelve months. Thereafter, we will need
to raise additional funding to execute our business plan. Until we have obtained
additional information relating to the minerals contained in the Clifton
Properties, we cannot forecast the amount of long term funding that we will
8
require to execute our business plan. When additional cash needs arise, we
anticipate raising additional funds by issuing equity or debt securities in
exchange for cash. There can be no assurance, however, that we will be able to
secure additional funds by the issuance of equity or debt securities or that
such funding, if it can be obtained, will be available on favorable terms.
Moreover, the Company's business plans may change or unforeseen events may occur
which affect the amount of additional funds required by the Company. If
additional funds are not obtained when required, the lack thereof may have a
material adverse effect on the Company.
Our management lacks technical training for starting and operating a mine.
Without training or experience in this area, our management may not be
fully aware of many of the specific requirements related to working within this
industry. Their decisions and choices may not take into account standard
engineering or managerial approaches mineral exploration companies commonly use.
Consequently, our operations, earnings, and ultimate financial success could
suffer irreparable harm due to management's lack of experience in this industry.
Our management is involved with other business activities, which could reduce
the time they allocate to our operations.
Our operations depend substantially on the skills and experience of our
officers and directors. We do not have employment agreements with any of our
officers. Any of our officers or directors can leave at any time. Moreover, our
officers and directors are each involved in other business activities and may,
in the future, become involved in other business opportunities. If a specific
business opportunity becomes available, one or more of these individuals may
face a conflict in selecting between Clifton Mining Company and other business
opportunities. Should the services of our present officers and directors become
unavailable for any reason, our business could be adversely affected. There is
no assurance that we will be able to retain the existing working team or attract
new officers and directors of the caliber and experience needed to achieve our
objectives.
Environmental permitting may deplete our capital resources.
Mining and/or processing activities on our property, should they occur, are
subject to numerous permitting and environmental laws and regulations
administered by active federal, state and local authorities, particularly the
Utah Division of Oil, Gas & Mining and Tooele County, Utah. Although we believe
that we have existing permits necessary to commence operations, we will be
required to expand such permits in order to mine all of our properties. In order
to obtain required expanded permits, it may be necessary to gather and analyze
baseline data, complete environmental assessment or environmental impact
statements with appropriate steps to mitigate potential adverse impacts and
modify the proposed plans in order to accommodate environmental impacts, all of
which may take an indeterminable amount of time and capital to complete. We may
be unable to continue our operations if these tasks cause us to expend a greater
amount of capital than we currently have and may be able to obtain.
Our business plan is dependent on silver and gold prices.
Our business plan is dependent on silver and gold prices, which may
fluctuate in the world commodity markets and are beyond our control or
influence. A substantial reduction in the prices of silver or gold on the world
commodity markets may impede our ability to execute on our business plan or to
raise additional capital.
The imposition of an uninsured loss could cause us to cease conducting business.
Precious metals exploration and mining (should that occur at some future
date) involves hazards which include environmental damage and personal injury
due to mining and the use of heavy equipment. These injuries could result in
substantial losses and liabilities to third parties. We may not be able to
insure against all losses and liabilities which may arise from all hazards
because such insurance is unavailable, or if available, is at a price
prohibitive to us for obtaining such insurance. The imposition of an uninsured
loss could force us out of business. Because we have not been mining, we
currently carry no insurance coverage relating to environmental or personal
injury claims.
9
There can be no assurance of a liquid public market for our common stock.
There can be no assurance as to the depth or liquidity of any market for
our common stock or the prices at which holders may be able to sell their
shares. As a result, an investment in our common stock may not be totally
liquid, and investors may not be able to liquidate their investment readily or
at all when they need or desire to sell.
Applicability of low priced stock risk disclosure requirements may adversely
affect the prices at which our common stock trades.
Our common stock may be considered a low priced security under rules
promulgated under the Securities Exchange Act of 1934 (the "Exchange Act").
Under these rules, broker-dealers participating in transactions in low priced
securities must first deliver a risk disclosure document which describes the
risks associated with such stocks, the broker-dealer's duties, the customer's
rights and remedies, and certain market and other information, and make a
suitability determination approving the customer for low priced stock
transactions based on the customer's financial situation, investment experience
and objectives. Broker-dealers must also disclose these restrictions in writing
to the customer, obtain specific written consent of the customer, and provide
monthly account statements to the customer. With these restrictions, the likely
effect of the designation as a low priced stock will be to decrease the
willingness of broker-dealers to make a market for the stock, to decrease the
liquidity of the stock and to increase the transaction cost of sales and
purchases of such stock compared to other securities.
Item 3. Description of Property
Description of Property
General
Our business offices are located at 80 West Canyon Crest Road, Alpine, Utah
84004. We rent our office space from American Silver LLC, a related party, on a
month-to-month basis for approximately $1,500.00 per month. There are currently
no proposed programs for the renovation, improvement or development of the
leased space. We believe that this arrangement is suitable given the nature of
our current operations, and believe that we will not need to lease additional
administrative offices for at least the next 12 months.
Clifton Property
Location and Means of Access. The Clifton-Gold Hill Property lies within
the Gold Hill Mining District in Tooele County, northwest Utah within the Deep
Creek Mountains, approximately 190 miles (304 kilometers) west-southwest of Salt
Lake City and 30 miles (48 kilometers) south of the town of Wendover on the
Utah-Nevada border.
The Clifton Property is best reached by taking Alternate 93A south from
Wendover to the Ibapah Road, a distance of approximately 24.5 miles (39
kilometers). The Ibapah Road is a paved two-lane road that services the
settlements of Ibapah and Goshute situated southwest of the property.
Approximately 17 miles and 25 miles from the 93A-Ibapah intersection, two roads-
the Gold Hill and Pony Express Canyon roads-turn off the Ibapah Road towards the
settlements of Gold Hill and Callao. Both are well-groomed, all-weather gravel
roads that provide good access to the Clifton Property from the north and south
respectively.
Numerous service roads and trails exist throughout the property area as a
result of the many old mines and workings. All can be reached from the Gold Hill
and Pony Express Canyon roads. Though unmaintained, the condition of the service
roads and trails are generally good and negotiable by 4-wheel drive vehicle,
providing year round access throughout the property area. Very few facilities
are available at Gold Hill. The settlement has electrical power and water. A
nearby local water source once provided water for the historical mill operations
at Gold Hill and is, reportedly, able to provide enough water for the current
250 ton per day mill.
10
Location of, and access to, the Clifton Property.
[GRAPHIC OMITTED]
11
Location of, and access to, the Clifton Property.
[GRAPHIC OMITTED]
12
Description of Title. The Clifton Property consists of 38 patented and 68
unpatented (lode) mining claims and two State Mineral Leases totalling
approximately 2,933 acres. We own 100% fee title to 38 patented claims, we pay
an annual maintenance fee of $125 per claim to the Bureau of Land Management for
each of the 68 lode claims and we pay an annual lease fees to the State of Utah
on the State Mineral Leases. All of these mineral properties are subject to
Dumont's rights, discussed below. The lode claims are federal mineral claims
that are managed by the Bureau of Land Management and the State Mineral Leases
are state mineral claims. The $125 annual maintenance fee per lode claim has
been paid through the period ending on August 31, 2005. The lease arrangements
with respect to the State Mineral Leases relating to approximately 412 acres
expire in 2014 and the lease arrangements with respect to State Mineral Leases
relating to approximately 533 acres expires in 2005, but we anticipate renewing
this lease for an additional 10 year term beginning in 2005. There are no other
underlying agreements or interests in the Clifton Property. Our mineral
properties may be summarized as follows:
Property Breakdown
---------------------------------------------------------------------
Nature of Claim Approximate Area (Acres)
---------------------------------------------------------------------
Patented Claims 628
Lode Claims 1,360
State Lease Lands 945
-------
Total: 2,933
Previous Operations. Exploration and mining activities in the Gold Hill (of
which the Clifton Property is a part) began in the mid 1800's. Lead
mineralization in the form of galena (a common lead sulfide) first attracted the
attention travelers through the area prompting some to stay to prospect. Placer
gold was first discovered in Gold Hill in 1858. A lead smelter was constructed
in the old Clifton townsite in 1872 and 1,500 tons of high-grade lead-silver ore
was treated. The smelter was relocated to Gold Hill in 1874 and an additional
500 tons of lead-silver ore from the Western Utah Copper Company was treated
there. The mill was in operation for 23 months between 1892 and 1895. Some 3,000
residents lived in Gold Hill and Clifton at the time.
Tungsten production in the district began in 1912 with commencement of
operations at the Lucy L Mine. Approximately 500 tons of ore was produced from
the mine. Significant amounts of gold and bismuth were also reportedly
extracted. Tungsten was also produced from the Reaper and Yellow Hammer mines.
Production began at the two mines in 1914 and 1917. Net receipts from ore
production at the Reaper Mine indicate a total of $75,000 of tungsten was
produced, $70,000 of which was produced during World War I. Production at the
Yellow Hammer is estimated to have been $25,000 to $45,000. The district
remained largely dormant during the period following the Second World War to the
mid-1970's, primarily because the highly fragmented land tenure precluded any
serious regional-scale study or exploration.
Ongoing Work. The Company has not recently done any material exploration or
development work on the Clifton Property. Rather, on December 9, 2002, the
Company entered into a letter agreement with Dumont Nickel, Inc. ("Dumont")
whereby Dumont was given the option to explore the Clifton Property in
consideration for $10,000 and 100,000 shares of Dumont common stock. In
addition, Dumont is to perform certain data and feasibility studies with respect
to the Clifton Property and incur minimum annual expenditures toward exploration
work at the Clifton Property. If Dumont completes the feasibility study, Dumont
will be entitled to between 50% and 60% of the Clifton Property that hosts a
mineral deposit as per the feasibility study (the "Special Project Area"). If
Dumont earns a portion of the Clifton Property, then Dumont and Clifton will
enter into a Joint Venture arrangement to develop the Special Project Area.
Dumont has no obligation to complete any future work. Dumont has exercised their
option and is actively exploring the Clifton Property and has a total of
approximately 33 square miles of contiguous mineral properties under active
exploration, including approximately 4.5 square miles of Company Property.
The Company has a processing mill, rolling stock and other miscellaneous
equipment on the Clifton Property.
13
Nature of Mineralization. The Clifton Property is located within the Gold
Hill Mining District in Tooele County, Utah. The district is situated in the
east central part of the Great Basin section of the Basin and Range province
The Clifton Property area is underlain by Carboniferous limestone and shale
units of the Ochre Mountain Limestone, Manning Canyon and Oquirrh Formations.
Two large igneous plutons intrude the sediments: a Jurassic granodiorite and
Oligocene quartz-monzonite in the northern part of the property.
Economic mineralization exhibits a close spatial relation to the Jurassic
granodiorite intrusive body, with known mineralized areas localized in fracture
zones within the granodiorite or in the contact zone between the intrusive and
carbonate strata of the Ochre Mountain Limestone and Oquirrh Formation. The
close spatial relationships suggest the granodiorite was the source of
metal-bearing hydrothermal fluids and economic mineralization in the property
area is consequently purported to be Jurassic in age.
Economic mineralization in the property area is manifested as
contact-metasomatic deposits in and around limestone-granodiorite contacts
(skarns), as fissure quartz-carbonate-adularia veins within the intrusive body
itself, and as replacement deposits within both the limestone and intrusive.
Together, these styles of mineralization are indicative of epithermal and
related porphyry systems. The scarcity of volcanic material in the property area
however precludes a high-level epithermal mineralizing system existing in the
area but it is possible that a Cu-Au porphyry system formed in the area, at
depth, possibly as a deeper part of a larger Jurassic granodiorite intrusive
complex. Structurally, the Gold Hill area is well prepared. The deep-seated
underlying Ochre Mountain Thrust and numerous Mesozoic crosscutting lowangle and
high-angle faults would have allowed hydrothermal fluids emanating from the
intrusive to migrate far from the intrusive and deep into the surrounding wall
rock.
It is believed that the regional structural and lithological setting of the
area is favorable for a porphyry copper-gold system (and related skarns)
proximal to the Jurassic granodiorite, and for sediment-hosted disseminated gold
deposits distal to the granodiorite intrusive.
Several historic mines and workings dating back to the late 1800's and
early 1900's can be found within the Clifton Property and include the Cane
Springs, Alvarado, Frankie mines as well as numerous smaller workings. These old
mines and workings typically exploited mineralization that was readily
identifiable by structure (veins) and/or visible minerals such as visible gold,
sulphides (chalcopyrite, galena, sphalerite) and staining (malachite). The
mining activities at the time were likely restricted to the higher-grade
portions of mineralized zones and to relatively shallow depths (200-300 feet),
leaving the possibility that significant portions of mineralized zones still
exist.
Investment Policies
Our management does not currently have policies regarding the acquisition
or sale of real estate assets primarily for possible capital gain or primarily
for income. We do not presently hold any investments in real estate, investments
in real estate mortgages or securities of or interests in persons primarily
engaged in real estate activities.
Item 4. Security Ownership of Certain Beneficial Owners and Management
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information with respect to the
beneficial ownership of our common stock as of March 10, 2005, for: (i) each
person who is known by us to beneficially own more than five percent of our
common stock, (ii) each of our directors, (iii) each of our Named Executive
Officers, and (iv) all directors and executive officers as a group. On March 10,
2005 the Company had 46,288,558 shares of common stock outstanding. To the
knowledge of the Company, no individual shareholder beneficially owns 5% or more
of the capital stock.
14
Name and Address Amount and Nature of
Title of Class of Beneficial Owner(1) Beneficial Owner(2) % of Class
- -----------------------------------------------------------------------------------------------------------------------
Common Stock William D. Moeller, Director(3) 532,225 1.1%
Common Stock Kenneth S. Friedman, President and Director(4) 919,000 2.0%
Common Stock Keith W. Moeller, Vice-President and Director(5) 1,765,775 3.8%
Common Stock Scott S. Moeller, Vice-President, Secretary, Treasurer and 1,050,000 2.2%
Director(6)
Common Stock Murray Nye, Director(7) 525,000 1.1%
Common Stock Harold Gunsinger, Director(8) 575,000 1.2%
- -----------------------------------------------------------------------------------------------------------------------
Officers and Directors as a Group 5,367,000 11.5%
-----------------------------------
Footnotes:
(1) Except where otherwise indicated, the address of the beneficial owner is
deemed to be the same address as the company.
(2) Beneficial ownership is determined in accordance with SEC rules and
generally includes holding voting and investment power with respect to the
securities. Shares of common stock subject to options or warrants currently
exercisable, or exercisable within 60 days, are deemed outstanding for
computing the percentage of the total number of shares beneficially owned
by the designated person, but are not deemed outstanding for computing the
percentage for any other person.
(3) Includes 79,950 shares of common stock and 2,275 common shares held by
spouse and options that are immediately exercisable for 450,000 shares of
common stock.
(4) Includes 304,000 shares of common stock and 120,000 common shares held
jointly with spouse, warrants that are immediately exercisable for 45,000
shares of common stock, and options that are immediately exercisable for
450,000 shares of common stock.
(5) Includes 1,308,575 shares of common stock and 32,200 shares held by minor
children and options that are immediately exercisable for 425,000 shares of
common stock.
(6) Includes 600,000 shares of common stock and options that are immediately
exercisable for 450,000 shares of common stock.
(7) Includes 75,000 shares of common stock and options that are immediately
exercisable for 450,000 shares of common stock.
(8) Includes 50,000 shares of common stock and 75,000 common shares held by
spouse and options that are immediately exercisable for 450,000 shares of
common stock.
15
Change in Control
We are aware of no arrangements that may result in a change in control of
the Company.
Item 5. Directors and Executive Officers, Promoters and Control Persons
Set forth below is certain information concerning each of our directors and
executive officers as of March 10, 2005.
COMPANY
NAME AGE POSITION SINCE
- -------------------- -------- -------------------------------------- ----------
William D. Moeller 68 Chairman and Director 1993
Kenneth S. Friedman 62 President and Director 1994
Keith W. Moeller 44 Vice-President and Director 1993
Scott S. Moeller 41 Vice-President, Secretary, Treasurer
and Director 1993
Murray Nye 52 Director 1996
Harold Gunsinger 66 Director 1996
Robert J. Holladay 56 Vice-President of Operations 1993
Directors, Executive Officers and Significant Employees
Set forth below are summary descriptions containing the name of our
directors and officers, all positions and offices held with us, the period
during which such officer or director has served as such, and the business and
educational experience of each during at least the last five years:
William D. Moeller is Chairman of the Board and has been since 1993. His
term as director expires at the 2005 annual meeting of shareholders. Mr. Moeller
is currently principally employed as the President of American Silver LLC, doing
business as American Biotech Labs, and has been in that position since 1998. Mr.
Moeller spends a majority of his business time working for American Silver LLC.
During the past year Mr. Moeller spent approximately ten percent of his business
time working on Company related matters.
Kenneth S. Friedman is the President and a director. His term as a director
expires at the 2007 annual meeting of shareholders. Mr. Friedman was principally
employed as the CEO of Strathmore Minerals from 1996 to 2002. Since leaving
Strathmore Minerals, Mr. Friedman has been principally employed as the president
of the Company. In 1991 and 1992, Mr. Friedman served as director of research at
Dickinson & Co., a regional Midwestern broker-dealer, and earlier in 1991, as a
natural resources analyst for Kemper Financial. In 1990, he was a metals and
mining analyst for Boettcher & Co. From 1983 through 1990, Mr. Friedman served
as Vice President of Norstar Investment Advisory Services, Inc, which acted as a
money manager. Mr. Friedman also serves as a director of Northfield Minerals,
Inc., Eloro Minerals and Strathmore Resources. During the last year Mr. Friedman
spent approximately eighty percent of his business time working on Company
related matters.
Keith W. Moeller is a Vice-President and a director. His term as a director
expires at the 2006 annual meeting of shareholders. Mr. Moeller is currently and
for the past seven years has been principally employed as the Vice-President of
Marketing for American Silver LLC, doing business as American Biotech Labs. Mr.
Moeller spends approximately seventy percent of his business time working for
American Silver LLC. During the last year Mr. Moeller spent approximately thirty
percent of his business time working on Company related matters.
16
Scott S. Moeller is a Vice-President, Secretary, Treasurer and director.
His term as a director expires at the 2007 annual meeting of shareholders. Mr.
Moeller has been principally employed over the past seven years as the
Vice-President of Finance for American Silver LLC, doing business as American
Biotech Labs. Mr. Moeller spends approximately seventy percent of his business
time working for American Silver LLC. . During the last year Mr. Moeller spent
approximately thirty percent of his business time working on Company related
matters.
Murray Nye is a director. His term as a director expires at the 2005 annual
meeting of shareholders. Mr Nye has been principally employed since 1993 as a
consultant for Venbanc Investment & Management Group, Inc. Mr. Nye was the
president of Kirriemuir Oil & Gas Ltd., now W.W.B. Oil & Gas Ltd., from 1992 to
1994. Mr. Nye has also acted as Chairman of the Board and Chief Executive
Officer of American Telesource International Inc., from 1994 to present and as a
director of Penstar Wirecom Inc., from April, 1995 to June, 1996. Mr. Nye is a
director of American Telesource and ATSI Communications.
Harold Gunsinger is a director. His term as a director expires at the 2006
annual meeting of shareholders. Mr. Gunsinger has been retired and, as a result,
has not been employed on a full time basis during the past five years. Mr.
Gunsinger was the Projects Manager of Patrick Harrison Company Ltd. a private
mining company, from January 1985 to November 1993. Thereafter, Mr. Gunsinger
acted as the General Manager of Operations of Patrick Harrison Constructors
Inc., a private construction business involved in the mining industry from
January 1994 to February 1996, and then occupied the position of President of
that company.
Robert J. Holladay is the Vice-President, Operations. Mr. Holladay has a
B.S. in Chemistry and an MBA and has worked in the mining industry for over 27
years. For the past seven years Mr. Holladay has been principally employed as
the Vice-President of Quality Control for American Silver LLC, doing business as
American Biotech Labs and as a managing Partner of Resource Recycling, LC. Mr.
Holladay spends most of his business time working for American Silver LLC.
Our executive officers are elected by the Board and serve at the discretion
of the Board.
Family Relationships
William Moeller is the father to Keith Moeller and to Scott Moeller.
Legal Proceedings
The executive officers and directors of the Company have not been involved
in any legal proceedings which occurred within the last five years of any type
as described in Regulation S-B.
Audit Committee Financial Expert
The Company currently does not have an audit committee. The entire Board
functions as the audit committee. Mr. Scott Moeller serves as our financial
expert on the Board. Mr. Scott Moeller also services as an officer of the
Company and he is not independent.
Item 6. Executive Compensation
Remuneration of Directors, Executive Officers and Significant Employees
Summary Compensation Table. The following table provides certain
information regarding compensation paid by the company to the Named Executive
Officers. No officer or director of the Company received annual salary and bonus
in excess of $100,000 during any of the last three fiscal years.
17
Summary Compensation Table
- ----------------------------------------------------------------------------------------------------------------------
Annual Compensation Long-Term Compensation
---------------------------- -------------------------------------
Awards Payouts
Other -------------------------- ----------
Annual Restricted Securities LTIP All Other
Name and Salary Bonus Compensation Stock Underlying Payouts Compensation
Principal Position Year ($) ($) ($) Awards ($) Options (#) ($) ($)
------------------ ---- ------ ----- ------------ ----------- ----------- ------- ------------
Kenneth Friedman, 2002 42,500 0 0 0 100,000 0 0
President (1) 2003 65,000 0 0 0 150,000 0 0
2004 68,500 0 0 0 100,000 0 0
- -------------------
(1) Mr. Friedman began receiving a salary in May 2002.
Option Grants in Fiscal Year 2004
The following table sets forth certain information with respect to stock
options grants during the year ended December 31, 2004 to Named Executive
Officer.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
(Individual Grants)
Number of Percent of Total
Securities Options/SAR
Underlying Granted to
Options/SAR Employees in Exercise or Base
Name Granted (#) (1) Fiscal Year Price ($/Share) Expiration Date
---- --------------- ----------- --------------- ---------------
Kenneth Friedman 100,000 16.2% $0.74 12/2009
- ---------------
(1) These options were granted pursuant to our 2004 Stock Option Plan.
Option Exercises in Fiscal Year 2004
The following table sets forth certain information with respect to stock
options exercises during the year ended December 31, 2004 to Named Executive
Officer.
AGGREGATE OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR END OPTION/SAR VALUES
Value of Unexercised
Shares Number of Unexercised In-The-Money
Acquired On Value Options/SARS at Fiscal Options/SARs at Fiscal
Name Exercise (#) Realized ($) Year-End Year-End ($) (1)
---- ------------ ------------ ---------------------- ----------------------
Kenneth Friedman 75,000 $56,250(2) 450,000 $124,000
- ---------------
(1) The closing price of the Company's Common Stock on December 30, 2004, was
$.70 per share.
(2) Options exercisable for 75,000 shares of the Company's Common Stock at $0.10
per share were exercised on December 8, 2004, on which date the closing
price of the Common Stock was $0.85 per share.
18
Directors' Compensation
No cash fees were paid to our directors for service on the Board during
2004. In December 2004, we granted stock options to directors which vested on
January 2, 2005 and in 2003, we granted stock options that immediately vested to
our directors as compensation for service on the Board as compensation for
service on the Board during 2003 and 2004. We have made no other agreements
regarding compensation of directors. All directors are entitled to reimbursement
for reasonable out-of-pocket travel related expenses incurred in the performance
of their duties as Board members.
Employment Contracts and Officers' Compensation
We do not have employment agreements with any of our officers, directors of
employees. Mr. Friedman is paid an annual salary of $72,000. Mr. Friedman's
employment with the Company may be terminated by Mr. Friedman or the Company at
any time. The Company also compensates its other officers, who each work for the
Company on an at will basis.
Stock Option Plan and Other Long-term Incentive Plan
In December 2003, our shareholders approved the adoption of the Clifton
Mining Company 2004 Stock Option Plan (the "2004 Option Plan"). The 2004 Option
Plan permits us to grant "non-qualified stock options" and "incentive stock
options" to acquire our common stock. The total number of shares authorized for
the 2004 Option Plan may be allocated by the Board between the non-qualified
stock options and the incentive stock options from time to time, subject to
certain requirements of the Internal Revenue Code of 1986, as amended. The
option exercise price per share under the Option Plan may not be less than the
fair market value of a share of common stock on the date on which the option is
granted. A total of 7,000,000 shares are allocated to the 2004 Option Plan. As
of March 10, 2005, options to acquire an aggregate of 1,539,000 shares of common
stock at exercise prices ranging from $0.74 to $1.32 were outstanding under the
2004 Option Plan.
We have also issued stock options under stock options plans that preceded
the 2004 Option Plan ("Prior Plans"). As of March 10, 2005, options to acquire
an aggregate of 1,225,000 shares of common stock at exercise prices ranging from
$0.07 to $0.10 were outstanding under Prior Plans.
Item 7. Certain Relationships and Related Transactions
On December 9, 2002, Clifton and WMC (a majority owned subsidiary of
Clifton) entered into a letter agreement with Dumont Nickel, Inc. ("Dumont")
whereby Dumont was given the option to explore the Clifton Property in
consideration for $10,000 and 100,000 shares of Dumont common stock. In
addition, Dumont is to perform certain data and feasibility studies with respect
to the Clifton Property and incur minimum annual expenditures toward exploration
work at the Clifton Property. If Dumont completes the feasibility study, Dumont
will be entitled to between 50% and 60% of the Clifton Property that hosts a
mineral deposit as per the feasibility study (the "Special Project Area"). If
Dumont earns a portion of the Clifton Property, then Dumont and Clifton will
enter into a Joint Venture arrangement to develop the Special Project Area.
Dumont has no obligation to complete any future work.
In January 2003, Dumont issued 100,000 shares of its common stock to the
Company in connection with services provided to Dumont by the Company.
In December 2004, Dumont issued 500,000 shares of its common stock to the
Company in connection with the discharge of a promissory note secured by certain
claims on the Clifton Property.
19
Item 8. Description of Securities
Our authorized capital stock consists of 70,000,000 shares of common stock,
par value $.001 per share and 10,000,000 shares of preferred stock, par value
$0.001 per share, of which 251,918 have been designated as 1993 Series Preferred
A Stock. As of March 10, 2005, we had 46,288,558 shares of common stock
outstanding and 188,584 shares of 1993 Series Preferred A Stock (the "1993
Preferred") outstanding. The following description of the securities is a
summary and is qualified in its entirety by the provisions of the Company's
Articles of Incorporation and the provisions of the Utah Revised Business
Corporations Act, the Company's Stock Option Plan and the related stock option
grants and the Warrant Agreements.
Common Stock
At March 10, 2005, the Company had 46,288,558 shares of common stock
outstanding. Holders of common stock are entitled to one vote for each share
held of record on all matters submitted to a vote of stockholders. Accordingly,
holders of a majority of the shares of common stock entitled to vote in any
election of directors may elect all of the directors standing for election.
Subject to preferential dividend rights with respect to any outstanding
preferred stock, holders of common stock are entitled to receive ratably such
dividends, if any, as may be declared by the Board out of funds legally
available therefor. Upon liquidation, dissolution or winding up of the Company,
holders of common stock are entitled to share ratably in the assets of the
Company legally available, subject to the rights of any outstanding preferred
stock or other rights including any preemptive, subscription, redemption or
conversion rights. Holders of common stock have no cumulative voting rights and
no preemptive, subscription, redemption or conversion rights. The rights,
preferences and privileges of holders of common stock are subject to, and may be
adversely affected by, the rights of the holders of shares of the 1993 Preferred
and any series of preferred stock which the Company may designate and issue in
the future.
Blank Check Preferred Stock
The Company's Board is empowered, without further action by shareholders,
to issue from time to time one or more series of preferred stock, with such
designations, rights, preferences and limitations as the Board may determine by
resolution. The rights, preferences and limitations of separate series of
preferred stock may differ with respect to such matters among such series as may
be determined by the Board, including, without limitation, the rate of
dividends, method and nature of payment of dividends, terms of redemption,
amounts payable on liquidation, sinking fund provisions (if any), conversion
rights (if any) and voting rights. Certain issuances of preferred stock may have
the effect of delaying or preventing a change in control of the Company that
some stockholders may believe is not in their interest.
1993 Series Preferred A Stock
As of March 10, 2005, 251,918 shares of the Company's preferred stock had
been designated as 1993 Preferred and 188,584 shares were outstanding which were
held by twelve shareholders of record. A summary of the rights, privileges and
preferences of the 1993 Preferred are set forth below:
Liquidation. In the event of any voluntary or involuntary liquidation
(whether complete or partial), dissolution, or winding up of the Company, the
holders of the 1993 Preferred are entitled to be paid out of the assets of the
Company available for distribution to its shareholders, whether from capital,
surplus, or earnings, an amount in cash equal to $3.00 per share plus all unpaid
dividends, whether or not previously declared plus accrued thereon to the date
of final distribution. No distribution shall be made on any common stock or
other subsequent series of preferred stock of the Company by reason of any
voluntary or involuntary liquidation (whether complete or partial), dissolution,
or winding up of the Company unless each holder of any 1993 Preferred shall have
received all amounts to which such holder is entitled. If the Company does not
have sufficient funds to pay the liquidating distribution to which the 1993
Preferred are entitled, then the holders of the 1933 Preferred will share pro
rata in the funds available of distribution to the 1933 Preferred holders
determined on the basis of the number of shares of 1993 Preferred held by each
holder reflected on the stock records and the total number of shares of 1993
Preferred outstanding.
Voting Rights. The 1993 Preferred is voted with the common stock of the
Company as a single class and is not entitled to vote as a separate class,
20
except to the extent that the consent of the holders of the 1993 Preferred,
voting as a class, is specifically required by the provisions of the corporation
laws of the state of Utah, as now existing or as hereafter amended. Each holder
of 1993 Preferred is entitled to such number of votes in respect of each share
of such stock held by him or her that would be appurtenant to the common stock
issuable upon conversion in respect of such stock.
Dividends. Dividends may be paid on the outstanding shares of common and
1993 Preferred as and when declared by the Board, out of funds legally available
therefor. For purposes of the declaration and payment of dividends, the common
stock and the 1993 Preferred shall be treated together as a single class.
Conversion. Subject to adjustment upon the happening of certain events, the
1933 Preferred is convertible into common stock on a one-for-one basis. The 1993
Preferred may be converted at the option of the holder at any time. The 1993
Preferred is automatically convertible into common stock upon the happening of
any of the following events: (1) the date of effectiveness of a registration
statement under the Securities Act of 1933, as amended, (the "Securities Act")
or any successor statute, which covers the resale of common stock issuable on
the conversion of the 1993 Preferred, (2) the date of effectiveness of a
registration statement under the Securities Act, for a firmly underwritten
offering of common stock which will provide gross proceeds to the Company of
$5,000,000 or more, (3) the date on which the Company has received gross
proceeds of at least $5,000,000 pursuant to a best-efforts offering of common
stock which was registered pursuant to the Securities Act, or (4) the date on
which the Board causes a notice to be sent, by first class mail to the latest
known address as shown on the Company's records, to the holders of 1993
Preferred which accurately states that: (a) the Company has successfully
completed two consecutive fiscal years in which it has shown in each year a net
profit before taxes (excluding nonrecurring and extraordinary items), (b) such
net profit is shown on the Company's regular books and records of account and
(c) the aggregate amount of the two-year period net profit equals or exceeds
$5,000,000.
Redemption. Shares of 1993 Preferred is subject to redemption by the
Company at any time after July 31, 1996 pursuant to written notice of redemption
given to the holders of the 1993 Preferred specifying the date on which the 1993
Preferred shall be redeemed (the "Redemption Date"). Subsequent to notice of
redemption and prior to the Redemption Date, shares of 1993 Preferred may still
be converted to common stock as described above. The Company may redeem a
portion or all of the issued and outstanding shares of 1993 Preferred; provided,
that in the event that less than all of the outstanding shares of 1993 Preferred
is redeemed, such redemption shall be pro rata determined on the basis of the
number of shares of 1993 Preferred held by each holder reflected on the stock
records and the total number of shares of 1993 Preferred outstanding. The
redemption price for each share of 1993 Preferred is $5.00 plus any accrued but
unpaid dividends, if applicable, on such share as of the Redemption Date,
Warrants
The Company has outstanding Warrants that are exercisable for 800,000 and
745,000 shares of common stock at an exercise prices of $0.28 and $4.00 per
share respectively that expire in October 2005 and April 2006. The warrants are
exercised by surrendering to the Company a warrant certificate evidencing the
warrants to be exercised, with the exercise form included therein duly completed
and executed, and paying to the Company the exercise price per share in cash or
check payable to the Company. Stock certificates with respect to shares
purchased through the exercise of warrants will be issued as soon thereafter as
practicable.
The warrants do not confer voting, dividend, liquidation, or preemptive
rights, or any other rights of shareholders of the Company. The exercise price
of the warrants may be adjusted downward at any time in the sole discretion of
the Board.
Options
In December 2003, our Board approved the adoption of the 2004 Option Plan
and the Company's shareholders subsequently ratified the adoption of the plan.
The 2004 Option Plan permits us to grant "non-qualified stock options" and
"incentive stock options" to acquire our common stock. The total number of
shares authorized for the 2004 Option Plan may be allocated by the Board between
the non-qualified stock options and the incentive stock options from time to
time, subject to certain requirements of the Internal Revenue Code of 1986, as
amended. The option exercise price per share under the Option Plan may not be
less than the fair market value of a share of common stock on the date on which
the option is granted. A total of 7,000,000 shares are allocated to the 2004
Option Plan. As of March 10, 2005, options to acquire an aggregate of 1,539,000
21
shares of common stock at an exercise prices ranging from $0.74 to $1.32 were
outstanding under the 2004 Option Plan. In addition, options exercisable for an
additional 1,225,000 shares of common stock at exercise prices between $0.07 and
$0.10 under option plans that pre-dated the 2004 Option Plan were also
outstanding.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
22
Part II
Item 1. Market Price of and Dividends on the Registrant's Common Equity and
Other Shareholder Matters
Dividend Policy
To date, we have not paid dividends on our common stock. The payment of
dividends on the common stock, if any, is at the discretion of the Board and
will depend upon our earnings, if any, our capital requirements and financial
condition, and other relevant factors. We do not intend to declare any dividends
in the foreseeable future, but instead intend to retain all earnings, if any,
for use in our operations.
Share Price History
Our common stock is traded in the NASD Over-the-Counter market in what is
sometimes referred to as the "Pink Sheets" under the trading symbol "CFTN.PK"
The following table sets forth the high and low bid information of our common
stock for the periods indicated. The price information contained in the table
was obtained from Yahoo. Note that the over-the-counter market quotations
reflect inter-dealer prices, without retail mark-up, mark-down or commission,
and that the quotations may not necessarily represent actual transactions in the
common stock.
Quarter Ended High Low
------------- ---- ---
2003
----
March 31.............................. $0.41 $0.22
June 30............................... $0.37 $0.17
September 30.......................... $0.41 $0.24
December 31........................... $1.55 $0.34
2004
----
March 31.............................. $2.50 $1.41
June 30 .............................. $2.00 $0.85
September 30.......................... $1.24 $0.88
December 31........................... $1.16 $0.65
2005
----
March 31 (through March 9)............ $0.90 $0.60
Holders of Record
At March 10, 2005, there were approximately 222 holders of record of
our common stock. The number of holders of record was calculated by reference to
our stock transfer agent's books.
Securities Authorized for Issuance Under Equity Compensation Plans
The following table sets forth certain information with respect to
equity securities of the Company that are authorized for issuance as of March
10, 2005.
23
Equity Compensation Plan Information
Number of securities to Weighted average
be issued upon exercise exercise price of Number of securities
of outstanding options, outstanding options, remaining available for
warrants and rights (1) warrants and rights (1) future issuance (1)
----------------------- ----------------------- -------------------
Equity compensation plans
approved by security
holders 2,764,000 $0.64 5,461,000
Equity compensation plans
not approved by
security holders 1,545,000 $2.07 0
-------------------------- -------------------------- --------------------------
Total 4,309,000 $1.16 5,461,000
- -----------------
(1) All of the securities referenced in the table are shares of our common
stock. The table includes the Clifton Mining Company 2004 Stock Option
Plan which was approved by the Board prior to December 31, 2003, but
was not approved by shareholders until after that date.
Item 2. Legal Proceedings
We are not currently involved in any legal proceedings nor do we have any
knowledge of any threatened litigation.
Item 3. Changes in and Disagreements with Accountants
The Company is not aware, and has not been advised by its auditors, of any
disagreement on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure.
Item 4. Recent Sale of Unregistered Securities
In March 2001, the Company received gross proceeds of $174,950 through the
private offer and sale of 2,499,286 shares of common stock to a limited number
of investors in a private transaction. In connection therewith, the Company paid
a finder's fee to a non-affiliated finder in the amount of $300. The Company
claimed an exemption for the offer and sale of the securities under Sections
4(2) and 4(6) of the Securities Act of 1933 and pursuant to Rule 506 of
Regulations D as promulgated under the Securities Act of 1933.
From January through December of 2002, the Company received gross proceeds
of $999,939 through the offer and sale of 4,947,794 shares of common stock to a
limited number of investors in a number of transactions. In connection
therewith, the Company paid finders' fees to a non-affiliated finders in the
amount of $17,100. The Company claimed an exemption for offer and sale of the
securities pursuant to Rule 504 of Regulations D as promulgated under the
Securities Act of 1933.
In March and October of 2002, the Company paid employees and consultants
compensation for services rendered in the form of 3,420,000 shares of the
Company's common stock. The Company paid no finders' fees or commissions in
connection with these transactions. The Company claimed an exemption for offer
and sale of the securities pursuant to Rule 701 as promulgated under the
Securities Act of 1933.
In March and April 2002, the Company received gross proceeds of $27,000
through the private offer and sale of 297,102 shares of common stock to a
limited number of investors in a private transaction. In connection therewith,
the Company paid a finders' fee to a non-affiliated finder in the form of 27,750
shares of the Company's common stock. The Company claimed an exemption for the
offer and sale of the securities under Sections 4(2) and 4(6) of the Securities
Act of 1933 and pursuant to Rule 506 of Regulations D as promulgated under the
Securities Act of 1933.
In March, April and December of 2002, the Company received gross proceeds
of $163,045.75 in consideration for the issuance of 1,387,144 shares of common
stock issued in connection with the exercise of outstanding warrants. The
Company claimed an exemption for the offer and sale of the securities under
Sections 4(2) and 4(6) of the Securities Act of 1933 and pursuant to Rule 506 of
Regulations D as promulgated under the Securities Act of 1933.
24
In December 2002, the Company issued 50,000 shares of common stock in
consideration for $5,000 that was paid in connection with the exercise of
incentive stock options by an employee. The Company claimed an exemption for the
offer and sale of the securities pursuant to Rule 701 as promulgated under the
Securities Act of 1933.
From February through November of 2003, the Company received gross proceeds
of $955,685 through the offer and sale of 2,810,612 shares of common stock to a
limited number of investors in a number of transactions. The Company claimed an
exemption for the offer and sale of the securities pursuant to Rule 504 of
Regulations D as promulgated under the Securities Act of 1933.
In February, April, May and June of 2003, the Company received gross
proceeds of $31,125 through the private offer and sale of 190,606 shares of
common stock to a limited number of investors in a private transaction. The
Company claimed an exemption for the offer and sale of the securities under
Sections 4(2) and 4(6) of the Securities Act of 1933 and pursuant to Rule 506 of
Regulations D as promulgated under the Securities Act of 1933.
In March and December of 2003, the Company received gross proceeds of
$414,935.74 in consideration for the issuance of 2,499,286 shares of common
stock issued in connection with the exercise of outstanding warrants. The
Company claimed an exemption for the offer and sale of the securities under
Sections 4(2) and 4(6) of the Securities Act of 1933 and pursuant to Rule 506 of
Regulations D as promulgated under the Securities Act of 1933.
In November and December of 2003, the Company issued 295,000 shares of
common stock in consideration for $57,500 that was paid connection with the
exercise of incentive stock options by employees. The Company claimed an
exemption for the offer and sale of the securities pursuant to Rule 701 as
promulgated under the Securities Act of 1933.
In January 2004, the Company received gross proceeds of $43,750 through the
offer and sale of 25,000 shares of common stock to a limited number of investors
in a number of transactions. The Company claimed an exemption for the offer and
sale of the securities pursuant to Rule 504 of Regulations D as promulgated
under the Securities Act of 1933.
In February and April of 2004, the Company received gross proceeds of
$1,345,950 through the private offer and sale of 935,041 shares of common stock
to a limited number of investors in a private transaction. The Company claimed
an exemption for the offer and sale of the securities under Sections 4(2) and
4(6) of the Securities Act of 1933 and pursuant to Rule 506 of Regulations D as
promulgated under the Securities Act of 1933.
In October 2004, the Company issued 17,000 shares of common stock in
consideration for $15,300 that was paid in connection with services performed by
an consultant for the Company. The Company claimed an exemption for the offer
and sale of the securities pursuant to Section 4(2) of the Securities Act of
1933 and under Rule 701 as promulgated under the Securities Act of 1933.
In December 2004, the Company issued 275,000 shares of common stock in
consideration for $27,500 that was paid in connection with the exercise of stock
options by employees and directors. The Company claimed an exemption for the
offer and sale of the securities pursuant to Section 4(2) of the Securities Act
of 1933 and under Rule 701 as promulgated under the Securities Act of 1933.
In January 2005, the Company issued 150,000 shares of common stock in
consideration for $15,000 that was paid in connection with the exercise of stock
options by employees and directors. The Company claimed an exemption for the
offer and sale of the securities pursuant to Section 4(2) of the Securities Act
of 1933 and under Rule 701 as promulgated under the Securities Act of 1933.
Item 5. Indemnification of Directors and Officers
As permitted by the provisions of the Utah Revised Business Corporation
Act, we have the power to indemnify an individual made a party to a proceeding
because they are or were a director, against liability incurred in the
25
proceeding, if such individual acted in good faith and in a manner reasonably
believed to be in, or not opposed to, our best interest and, in a criminal
proceeding, they had no reasonable cause to believe their conduct was unlawful.
Indemnification under this provision is limited to reasonable expenses incurred
in connection with the proceeding. We must indemnify a director or officer who
is successful, on the merits or otherwise, in the defense of any proceeding or
in defense of any claim, issue, or matter in the proceeding, to which they are a
party to because they are or were a director or officer of our company, against
reasonable expenses incurred by them in connection with the proceeding or claim
with respect to which they have been successful. Pursuant to the Utah Act, our
Board may indemnify our officers, directors, agents, or employees against any
loss or damage sustained when acting in good faith in the performance of their
corporate duties.
We may pay for or reimburse reasonable expenses incurred by a director,
officer employee, fiduciary or agent who is a party to a proceeding in advance
of final disposition of the proceeding provided the individual furnishes us with
a written affirmation that their conduct was in good faith and in a manner
reasonably believed to be in, or not opposed to, our best interest, and
undertake to pay the advance if it is ultimately determined that they did not
meet such standard of conduct.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
26
Part F/S
See page F-1 hereto.
Part III
Item 1. Index to Exhibits
2.1 Articles of Restatement of the Articles of Incorporation
2.2 Bylaws
3.1 Form of Common Stock Certificate
3.2 Clifton Mining Company 2004 Stock Option Plan
6.1 Letter Agreement by and between Dumont Nickel Inc. and the
Company, dated December 6, 2002
6.2 Contract by and between the Company and Compania Minera La
Trinidad, S.A., dated February 20, 2004
6.3 Contract by and between the Company, Transworld Exploration,
S.A. and Banco Panamericano, S.A., dated February 20, 2004
6.4 Stock Purchase and Net Profits Interest Agreement, dated
November 20, 1995
6.5 Net Profits Interest Agreement and Consent, dated November 20,
1995
10.1 Consent of Robert Cameron
15.1 Behre Dolbear Report, dated October 2000
15.2 Report on the Clifton-Gold Hill Property, dated June 1, 2004
Item 2. Description of Exhibits
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
2.1 Articles of Restatement of the Articles of Incorporation
(Incorporated by reference to Exhibit 2.1 to the Company's
Form 10-SB, filed on June 28, 2004).
2.2 Bylaws (Incorporated by reference to Exhibit 2.2 to the
Company's Form 10-SB, filed on June 28, 2004).
3.1 Form of Common Stock Certificate (Incorporated by reference to
Exhibit 3.1 to the Company's Form 10-SB, filed on June 28,
2004).
3.2 Clifton Mining Company 2004 Stock Option Plan (Incorporated by
reference to Exhibit 3.2 to the Company's Form 10-SB, filed on
June 28, 2004).
6.1 Letter Agreement by and between Dumont Nickel Inc. and the
Company, dated December 6, 2002 (Incorporated by reference to
Exhibit 6.1 to the Company's Form 10-SB, filed on June 28,
2004).
6.2 Contract by and between the Company and Compania Minera La
Trinidad, S.A., dated February 20, 2004 (Incorporated by
reference to Exhibit 6.2 to the Company's Form 10-SB, filed on
June 28, 2004).
6.3 Contract by and between the Company, Transworld Exploration,
S.A. and Banco Panamericano, S.A., dated February 20, 2004
(Incorporated by reference to Exhibit 6.3 to the Company's
Form 10-SB, filed on June 28, 2004).
6.4 Stock Purchase and Net Profits Interest Agreement, dated
November 20, 1995 (Incorporated by reference to Exhibit 6.4 to
the Company's Form 10-SB, filed on June 28, 2004).
27
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
6.5 Net Profits Interest Agreement and Consent, dated November 20,
1995 (Incorporated by reference to Exhibit 6.5 to the
Company's Form 10-SB, filed on June 28, 2004).
10.1 Consent of Robert Cameron
15.1 Behre Dolbear Report, dated October 2000
15.2 Report on the Clifton-Gold Hill Property, dated June 1, 2004
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
CLIFTON MINING COMPANY
(Registrant)
Date: March 22, 2005 By /s/ Kenneth S. Friedman
-----------------------
Kenneth S. Friedman
President
28
Clifton Mining Company
Index to the Financial Statements
December 31, 2004 and 2003
Page
Independent Auditors' Report F-1
Financial Statements
Consolidated Balance Sheet F-2
Consolidated Statements of Operations and Retained Deficit F-3
Consolidated Statements of Cash Flows F-4
Notes to the Consolidated Financial Statements F-6
To the Board of Directors and Shareholders of
Clifton Mining Company
We have audited the accompanying consolidated balance sheet of Clifton Mining
Company as of December 31, 2004 and the related consolidated statements of
operations and retained deficit and other comprehensive income, and cash flows
for the years ended December 31, 2004 and 2003. 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Clifton
Mining Company as of December 31, 2004 and the consolidated results of their
operations and cash flows for the years ended December 31, 2004 and 2003 in
conformity with U. S. generally accepted accounting principles.
/s/ Rosenberg Rich Baker Berman & Company
Bridgewater, New Jersey
January 21, 2005
F-1
Clifton Mining Company
Consolidated Balance Sheet
Assets
Current Assets
Cash $ 442,063
Marketable securities (Note 13) 110,428
Prepaid consulting fees 10,381
-----------------
Total Current Assets 562,872
Other Assets 65,470
Mining Properties (Note 4) 587,967
Buildings 347,886
Milling equipment 983,921
Equipment, net of accumulated depreciation (Note 5) 63,174
-----------------
Total Assets $ 2,611,290
=================
- --------------------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable and accrued liabilities $ 12,459
Minority Interest 32,963
Stockholders' Equity
Capital Stock (Note 6) 10,657,685
Retained Deficit (8,063,632)
Accumulated Other Comprehensive (Loss)- Unrealized loss on securities (28,185)
-----------------
Total Stockholders' Equity 2,565,868
-----------------
Total Liabilities and Stockholders' Equity $ 2,611,290
=================
See notes to consolidated financial statements. F-2
Clifton Mining Company
Consolidated Statements of Operations and Retained Deficit and Other Comprehensive Income
Year Ended December 31,
--------------------------------------
2004 2003
----------------- -----------------
Expenses
Bank charges $ 155 $ 330
Salaries and employee benefits 264,433 257,233
Depreciation 16,980 19,328
Professional fees 242,079 224,006
Property taxes and insurance 28,520 11,964
Claim taxes and filing fees 11,416 8,624
Transfer agent fees 46,665 10,081
Rent 17,500 -
Office 15,292 22,736
Advertising and promotion 1,172 5,751
Travel 25,128 18,256
----------------- -----------------
Loss From Operations (669,340) (578,309)
Other Income (Expense)
Recovery (loss) in equity of long term investment (Note 3) - -
Interest income 7,694 2,998
Interest expense (55,490) (256,926)
Other income 170,730 5,184
Realized gain (loss) on securities (15,470) -
Loss on sale of property and equipment (38,929) (861)
----------------- -----------------
Total Other Income (Expense) 68,535 (249,605)
Net Loss Before Minority Interest (600,805) (827,914)
Minority Interest 451 458
----------------- -----------------
Net Loss (600,354) (827,456)
Deficit, Beginning of Year as Restated for Prior Period Adjustment (Note 15) (7,463,278) (6,635,822)
----------------- -----------------
Deficit, End of Year $ (8,063,632) $ (7,463,278)
================= =================
Earnings per share - basic and fully diluted $ (0.01) $ (0.02)
================= =================
Weighted average number of common shares outstanding
during the year - basic and fully diluted $ 45,632,000 $ 41,585,000
================= =================
$ (600,354) $ (827,456)
Net Loss Per Above
Other comprehensive income(loss), net of tax
Unrealized loss on securities (28,185) -
----------------- -----------------
Comprehensive loss $ (628,539) $ (827,456)
================= =================
See notes to consolidated financial statements. F-3
Clifton Mining Company
Consolidated Statements of Cash Flows
Year Ended December 31,
--------------------------------------
2004 2003
---------------- ----------------
Cash Flows From Operating Activities:
Net Loss $ (600,354) $ (827,456)
Adjustments to reconcile net loss to net cash used by operating activities
Depreciation 16,980 19,328
Loss on sale of assets and investments 54,399 861
Minority interest (451) (458)
Marketable securities issued for consulting fees 15,122 -
Common stock issued for consulting fees 15,300 -
Marketable securities received pursuant to joint venture (169,206) -
---------------- ----------------
(668,210) (807,725)
Decreases in Assets
Prepaid and other assets 127,837 184,500
Decreases in Liabilities
Accounts payable and accrued expenses (493,175) (170,183)
---------------- ----------------
Net cash used in operating activities (1,033,548) (793,408)
---------------- ----------------
Cash Flows From Investing Activities:
Decrease in receivable from related party - 25,500
Purchase of plant, equipment, and land (58,140) (4,622)
Proceeds from sales of equipment 750 -
---------------- ----------------
Net Cash (Used) Provided by Investing Activities (57,390) 20,878
---------------- ----------------
Cash Flows From Financing Activities:
Issuance of capital stock 1,403,843 1,441,851
Repayment of notes payable (550,918) (20,000)
---------------- ----------------
Net Cash Provided by Financing Activities 852,925 1,421,851
---------------- ----------------
Net Increase (Decrease) in Cash (238,013) 649,321
Cash, Beginning of Year 680,076 30,755
---------------- ----------------
Cash, End of Year $ 442,063 $ 680,076
================ ================
- ---------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL INFORMATION
Interest paid $ 526,005 $ 330,627
================ ================
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
In 2003, the Company settled a related party debt in exchange for various
property and equipment.
Fair market value of assets received $ 111,808
Related party debt released (93,808)
Liabilities assumed (18,000)
----------------
Net $ -
================
See notes to consolidated financial statements. F-4
Clifton Mining Company
Consolidated Statements of Cash Flows
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES (Continued)
In 2004, the Company issued 17,000 shares of common stock for consulting
services rendered. The consulting services were recorded at the fair market
value at the completion date of the services.
Fair market value of shares issued $ 15,300
=============
In 2004, the Company issued marketable securities for consulting services
rendered. The consulting services were recorded at the fair market value of
the marketable securities on the date the shares were issued.
Fair market value of marketable securities issued $ 15,122
=============
In 2004, the Company received marketable securities pursuant to the
attainment of certain benchmarks indicated in a joint venture agreement.
Fair market value of marketable securities received $ 169,206
=============
See notes to consolidated financial statements. F-5
Clifton Mining Company
Notes to the Consolidated Financial Statements
Note 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Organization
----------------------
Clifton Mining Company (the Company), was incorporated on June 8,
1993 under the laws of the State of Utah. The Company is primarily
engaged in acquiring and developing mining claims, with the intent
to either bring the claims into operations, joint venture with
other companies to bring the claims into operations, or sell the
claims at an appreciated value. The recoverability of amounts
shown for mineral properties are dependent upon the discovery of
economically recoverable reserves, the ability of the company to
obtain necessary financing to complete the development, and future
profitable production or proceeds from the disposition thereof.
Principles of Consolidation
---------------------------
The accompanying consolidated financial statements are prepared in
accordance with accounting principles generally accepted in the
United States and include the accounts of its 58% owned
subsidiary, Woodman Mining Company.
Cash Equivalents
----------------
For purposes of the statements of cash flows, cash includes all
cash and investments with original maturities to the Company of
three months or less.
Investments in Marketable Securities
------------------------------------
The Company has investments in equity securities. These securities
are classified at the date of acquisition as trading securities,
held-to-maturity securities or available-for-sale securities.
Trading securities, which represent securities purchased for the
purpose of resale in the near term, are reported at fair value and
unrealized gains and losses are included in earnings.
Held-to-maturity securities are reported at amortized cost, as the
Company has both the ability and intent to hold such securities
until maturity. Available-for-sale securities are reported at fair
value with unrealized gains and losses, net of the related tax
effect, reflected as an accumulated other comprehensive income
(loss) component of stockholders' equity until such gains or
losses are realized.
Realized gains and losses on investment securities are determined
using the specific identification method. Dividend and interest
income are recognized when earned.
Long Term Investments
---------------------
The Company accounts for its investments in companies subject to
significant influence using the equity method. Under the equity
method, the pro-rata share of the investee's earnings is recorded
as income and added to the carrying value of the investment shown
on the balance sheet. Dividends received are considered as a
return of capital and are accordingly deducted from the carrying
value of the investment.
Depreciation
------------
Equipment is recorded at cost. Depreciation is determined using
the straight-line method over the estimated useful lives of the
assets over periods ranging from three to twenty years.
Expenditures for maintenance and repairs which do not extend the
useful lives of the related assets are expensed as incurred.
F-6
Clifton Mining Company
Notes to the Consolidated Financial Statements
Note 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Securities Issued for Services
------------------------------
The Company accounts for stock issued for services under the
intrinsic value method. For stock issued for services, the fair
market value of the Company's stock on the date of stock issuance
is used. The Company has adopted Statement of Financial Accounting
Standard (SFAS) No. 123, "Accounting for Stock-Based
Compensation". The Statement generally suggests, but does not
require, stock-based compensation transactions to be accounted for
based on the fair value of the services rendered or the fair value
of the equity instruments issued, whichever is more reliably
measurable.
Mining Properties
-----------------
Acquisition costs of mining properties are deferred in the
accounts. When production is attained, these costs are depleted
using the unit of production method based upon estimated proven
recoverable reserves. When deferred expenditures on individual
properties exceed their estimated net realizable value, the
properties are written down to the estimated value. Costs relating
to properties abandoned are written-off when the decision to
abandon is made.
Costs include the cash consideration and the fair market value of
shares issued for the acquisition of mineral properties.
The Company is in the process of exploring and developing its
mineral properties and has determined the initial amount of
resources available. Senior management regularly reviews the
carrying amount of mineral properties to assess whether there has
been any impairment in value.
Future Site Restoration Costs
-----------------------------
Current expenditures relating to ongoing environmental regulatory
requirements and reclamation programs are charged against
operations as incurred. Estimated future reclamation costs,
including site restoration, will be charged against earnings using
the unit of production method over the estimated life of any
future producing mines. Accrued reclamation costs are subject to
review by management on a regular basis and are revised when
appropriate for changes in future estimated costs and/or
regulatory requirements.
As all properties are in the exploration stage and not the
development stage, no reclamation costs can be reasonably
estimated or provided at this time.
Advertising Costs
-----------------
Advertising costs are charged to general and administrative
expenses when incurred.
Income Taxes
------------
Income taxes are provided for the tax effects of transactions
reported in the financial statements and consist of taxes
currently due plus deferred taxes related primarily to differences
between the bases of assets and liabilities for financial and
income tax reporting. The deferred tax assets and liabilities
represent the future tax return consequences of those differences,
which will either be taxable or deductible when the assets and
liabilities are recovered or settled. Deferred taxes also are
recognized for operating losses that are available to offset
future federal income taxes.
F-7
Clifton Mining Company
Notes to the Consolidated Financial Statements
Note 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Use of Estimates
----------------
The preparation of financial statements in conformity with United
States generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. The most significant estimates used
by management in preparing the accompanying financial statements
include estimates of future mineral prices, exchange rates and
recoverable reserves for assessing the carrying value of mining
properties and fixed assets. Actual results could differ from
those estimates.
Earnings Per Share
------------------
Basic and diluted earnings per share are calculated in accordance
with FASB Statement No. 128, "Earnings Per Share". Basic earnings
per share is computed by dividing net income by the weighted
average number of common shares outstanding during the period.
Diluted earnings per share reflects the potential dilution that
could occur if stock options and other commitments to issue common
stock were exercised resulting in the issuance of common stock of
the Company. For all periods presented the common stock
equivalents were not included in computing diluted earnings per
share since their effects would be antidilutive.
NOTE 2 - CONCENTRATION OF CREDIT RISK
At times throughout the year, the Company may maintain certain bank
accounts in excess of FDIC insured limits.
NOTE 3 - LONG TERM INVESTMENT
The Company owns an approximately 25% interest in American Silver LLC,
a Utah limited liability company doing business as American Biotech
Labs. American Biotech Labs manufactures and distributes an EPA
approved surface disinfectant product and a silver supplement used as
an alternative to antibiotics. The investment is accounted for using
the equity method of accounting and had no recorded value at December
31, 2004 because the net investment is in a deficit position. The
Company's net investment is as follows:
2004
--------------
Capital stock acquisition $ 20,000
Recognized proportionate operating losses: (20,000)
--------------
Net investment -
==============
Unrecognized proportionate operating losses:
Prior years accumulated (203,793)
Current year (65,593)
--------------
Total $ (269,386)
==============
In the future event that American Silver should become profitable, the
Company would record its share of the profits only after its share of
the profits exceeds the unrecognized net investment loss.
F-8
Clifton Mining Company
Notes to the Consolidated Financial Statements
NOTE 4 - MINING PROPERTIES
Mining properties consist of the following:
Acquisition costs $ 585,467
Land 2,500
----------------
Total $ 587,967
================
At December 31, 2004, the Company's mining claims consist of 38
patented claims, 68 unpatented lode claims, and two state mineral
leases, in total covering approximately 2,933 acres. The properties are
located in the Gold Hill/Clifton Mining District, Tooele County,
Northwest Utah area. During 2004, the Company made a correction to its
accounting policies whereby exploration costs are expensed as incurred
until a full feasibility study can be completed on certified reserves.
Therefore, with this accounting policy change, a prior period
adjustment was made for exploration costs totaling $1,576,762.
A study prepared by Behre Dolbear & Company, Inc. dated April 1996 and
updated October 2000 by Robert Cameron, Consulting reported the
following potential resources for the Clifton shear zone:
Category Tons Ag (opt) Ag (ounces) Au (opt) Au (ounces) Pb(%)
------------------------------------------------------------------------------------------------------
Measured (1) 107,178 8.41 901,597 0.045 4,802 5.09
Indicated (2) 474,122 8.15 3,905,133 0.051 21,824 5.22
------- ---- --------- ----- -------- ----
Total 581,300 8.05 4,806,730 0.050 26,626 5.20
Notes:
(1) Measured Resources are those materials for which tonnage is
computed from dimensions revealed in outcrops or mine workings and/or
drill holes and for which the grade is computed from the results of
adequate sampling. The sites for inspection, sampling and measurement
are so spaced and the geological character is so well defined that the
size, shape and mineral content are established.
(2) Indicated Resources are those materials for which tonnage and grade
are computed partly from specific measurements, samples, or production
data, and partly from projections for a reasonable distance on
geological evidence. The sites available for inspection, measurement,
and sampling are too widely or otherwise inappropriately spaced to
outline the material completely or to establish its grade throughout.
NOTE 5 - EQUIPMENT
Equipment, less accumulated depreciation consists of the following:
Accumulated Net Book
Cost Depreciation Value
---------------- ---------------- ----------------
Machinery and equipment $ 183,120 $ 155,767 $ 27,353
Vehicles 21,016 3,521 17,495
Office equipment and fixtures 37,733 19,407 18,326
---------------- ---------------- ----------------
Total $ 241,869 $ 178,695 $ 63,174
================ ================ ================
F-9
Clifton Mining Company
Notes to the Consolidated Financial Statements
NOTE 6 - CAPITAL STOCK
a) Authorized
10,000,000 Preferred stock issued in series, $0.001 par value,
voting, convertible to one common share for each
Preferred share at the holders option, redeemable at
$5.00 per share at the Company's option.
70,000,000 Common stock, $0.001 par value, voting.
Series A preferred shares and common shares are treated as a single
class for the purposes of voting and dividend declaration.
b) Issued
Series A Preferred Shares Common Shares
-------------------------- ------------------------------
Additional
Paid in
Number Par Value Number Par Value Capital
----------- ----------- ----------- ----------- --------------
December 31, 2002 253,668 $ 254 39,025,929 $ 39,026 $ 7,757,411
Shares issued for cash - - 5,795,504 5,795 1,436,056
Shares converted (1,750) (2) 1,750 2 -
----------- ----------- ----------- ----------- --------------
December 31, 2003 251,918 $ 252 44,823,183 $ 44,823 9,193,467
Shares issued for cash - 1,235,041 1,235 1,402,608 -
Shares issued for services - - 17,000 17 15,283
Shares converted (63,334) (63) 63,334 63 -
----------- ----------- ----------- ----------- --------------
December 31, 2004 188,584 $ 189 46,138,558 $ 46,138 $ 10,611,358
========== =========== =========== =========== ==============
Summary of Capital Stock
Preferred shares $ 189
Common shares 46,138
Additional paid in capital 10,611,358
--------------
Total $ 10,657,685
==============
F-10
Clifton Mining Company
Notes to the Consolidated Financial Statements
NOTE 7 - STOCK OPTIONS AND WARRANTS
The Company has adopted a stock option plan. Under the plan, options or
stock awards may be granted to employees, including officers, of the
Company and to other individuals who are not employees of the Company
as may be deemed in the best interest of the Company by the board of
directors or duly authorized committee.
As permitted by FASB Statement No. 123, "Accounting for Stock-Based
Compensation" (FASB 123), the Company has elected to follow Accounting
Principle Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB 25) and related interpretations in accounting for its
employee stock option plans. Under APB 25, no compensation expense is
recognized at the time of option grant when the exercise price of the
Company's employee stock options equals the fair market value of the
underlying common stock on the date of grant. Had compensation cost
been determined on the basis of fair market value pursuant to FASB
Statement No. 123, net income and earnings per share would have been
reduced as follows:
2004 2003
---------------- ----------------
Net Loss
As reported $ 600,354 $ 827,456
================ ================
Pro forma $ 1,052,379 $ 2,037,896
================ ================
Basic and diluted earnings per share
As reported $ (0.01) $ (0.02)
=============== ===============
Pro forma $ (0.02) $ (0.05)
=============== ===============
The fair value of each option and warrant granted is estimated on the
grant date using the Black-Scholes Model. The following assumptions
were made in estimating fair value for the options issued in 2004 and
2003. No compensation-related warrants were granted in 2004 and 2003.
Risk-free interest rate 4.34%
Expected life 5 years
Expected volatility 240
Professional fees related to previously issued warrants and charged to
operations was $135,682 in 2004 and $184,500 in 2003.
The plan makes available 10% of the outstanding shares for grants.
Options granted under this plan shall have a term established by the
board of directors, but in no event will the term exceed five years.
The exercise price of each option is to be determined by the board of
directors on the date of grant. All options granted to date are for a
stated term of five years or less.
F-11
Clifton Mining Company
Notes to the Consolidated Financial Statements
NOTE 7 - STOCK OPTIONS AND WARRANTS (continued)
Information regarding the option plan is summarized as follows:
Weighted Outstanding Outstanding
average at at
price December 31, Expired/ December 31,
Date granted per share 2002 Granted Exercised forfeited 2003
--------------------- -------------- --------------- -------------- -------------- -------------- ----------------
October 30, 1998 0.20 360,000 - (270,000) (90,000) -
January 6, 2000 0.10 425,000 - (25,000) - 400,000
April 3, 2001 0.07 625,000 - - - 625,000
January 18, 2002 0.09 625,000 - - - 625,000
December 23, 2003 1.32 - 924,000 - - 924,000
-------------- --------------- -------------- -------------- -------------- ----------------
Total options 2,035,000 924,000 (295,000) (90,000) 2,574,000
=============== ============== ============== ============== ================
Weighted Outstanding Outstanding
average at at
price December 31, Expired/ December 31,
Date granted per share 2003 Granted Exercised forfeited 2004
---------------------- -------------- --------------- ------------- --------------- -------------- ----------------
January 6, 2000 0.10 400,000 - (250,000) - 150,000
April 3, 2001 0.07 625,000 - (25,000) - 600,000
January 18, 2002 0.09 625,000 - - - 625,000
December 23, 2003 1.32 924,000 - - - 924,000
December 21, 2004 0.74 - 615,000 - - 615,000
-------------- --------------- ------------- --------------- -------------- ----------------
Total options 2,574,000 - (275,000) - 2,914,000
=============== ============= =============== ============== ================
Information regarding the warrants is summarized as follows:
Weighted Outstanding Outstanding
average at at
price December 31, Expired/ December 31,
Date granted per share 2002 Granted Exercised forfeited 2003
---------------------- --------------- --------------- ------------ --------------- --------------- ----------------
March 12, 2001 0.09 1,785,000 - (1,499,286) (285,714) -
October 16, 2002 0.28 1,800,000 - (1,000,000) - 800,000
--------------- --------------- ------------ --------------- --------------- -----------------
Total warrants 3,585,000 - (2,499,286) (285,714) 800,000
=============== ============ =============== =============== =================
Weighted Outstanding Outstanding
average at at
price December 31, Expired/ December 31,
Date granted per share 2003 Granted Exercised forfeited 2004
---------------------- --------------- ---------------- ------------- ----------------- -------------- ----------------
October 16, 2002 0.28 800,000 - - - 800,000
April 16, 2004 4.00 - 745,000 - - 745,000
--------------- ---------------- ------------- ----------------- -------------- ----------------
Total warrants 800,000 745,000 - - 1,545,000
================ ============= ================= ============== ================
The expiration dates of the outstanding warrants at December 31, 2004
are two to three years following the dates granted.
Each warrant entitles the holder to purchase one common share at the
above noted prices.
F-12
Clifton Mining Company
Notes to the Consolidated Financial Statements
NOTE 8 - COMMITMENTS AND CONTINGENT LIABILITIES
a) The Company entered into a net profits interest agreement with a
shareholder of the Company in 1995. Under the terms of the agreement,
the Company will pay 25% of the "net profits" from mining production up
to a maximum payout of $1,500,000. "Net profits" is defined as being
the remaining amount of income from the sale of ores and minerals after
all operating, reclamation, general and administrative, and development
expenses have been paid. To date there have been no payments made
pursuant to this agreement.
b) On December 9, 2002, the Company entered into a joint venture
agreement with Dumont Nickel, Inc. to perform exploration drilling on
the Company's property. The Company will make available all of its
mineral rights, property and equipment on site at no charge. Dumont
will finance and operate the joint venture and can obtain an ownership
interest in the Company's mining properties based on the provision of
full positive feasibility studies.
NOTE 9 - FINANCIAL INSTRUMENTS
Fair Values
-----------
The fair values for cash, accounts receivable, accounts payable
and accrued liabilities approximates their carrying values due to
the short maturity of those instruments.
NOTE 10 - INCOME TAXES
The income tax benefit reflects an effective tax rate that differs from
the expected U.S. Federal Statutory tax rate of 34% as summarized
below:
2004 2003
--------------- ---------------
Tax benefit at the U.S. Federal Statutory rate $ (203,753) $ (316,424)
Loss for which no benefit recognized 203,753 316,424
--------------- ---------------
Net Income Tax Benefit $ - $ -
=============== ===============
F-13
Clifton Mining Company
Notes to the Consolidated Financial Statements
NOTE 10 - INCOME TAXES (continued)
The Company has $8,155,410 in operating loss carry forwards which can
be used to reduce taxable income in future years. These losses expire
as follows:
2008 $ 154,642
2009 270,803
2010 451,563
2011 552,775
2012 554,779
Years 2013 through 2024 6,170,848
----------------
$ 8,155,410
================
The operating loss carry forwards give rise to a future tax asset in
the amount of $2,772,839. A full valuation allowance has been recorded
against this future tax asset, as the Company cannot demonstrate that
it is more likely than not that the asset will be realized.
NOTE 11 - SEGMENT INFORMATION
All of the company's operations and assets are in the mining industry
and are located in the United States.
NOTE 12 - NEW ACCOUNTING PRONOUNCEMENTS
In June 2003, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. This statement covers
restructuring type activities beginning with plans initiated after
December 31, 2002. Activities covered by this standard that are entered
into after that date will be recorded in accordance with provisions of
SFAS No. 146. The adoption of SFAS No. 146 did not have a significant
impact on the Company's results of operations or financial position.
In April 2003, the FASB issued SFAS Statement No. 149, "Amendment of
Statement 133 on Derivative Instruments and Hedging Activities", which
amends and clarifies financial accounting and reporting for derivative
instruments, including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives) and for hedging
activities under FASB Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities. This Statement is effective for
contracts entered into or modified after June 30, 2003, except for
certain hedging relationships designated after June 30, 2003. Most
provisions of this Statement should be applied prospectively. The
adoption of this statement is not expected to have a significant impact
on the Company's results of operations or financial position.
F-14
Clifton Mining Company
Notes to the Consolidated Financial Statements
NOTE 12 - NEW ACCOUNTING PRONOUNCEMENTS (continued)
In May 2003, the FASB issued SFAS Statement No. 150, "Accounting for
Certain Financial Instruments with Characteristics of both Liabilities
and Equity". This Statement establishes standards for how an issuer
classifies and measures certain financial instruments with
characteristics of both liabilities and equity. It requires that an
issuer classify a financial instrument that is within its scope as a
liability (or an asset in some circumstances). 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, except for mandatorily
redeemable financial instruments of nonpublic entities, if applicable.
It is to be implemented by reporting the cumulative effect of a change
in an accounting principle for financial instruments created before the
issuance date of the Statement and still existing at the beginning of
the interim period of adoption. The adoption of this statement is not
expected to have a significant impact on the Company's results of
operations or financial position.
In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"),
Consolidation of Variable Interest Entities, an Interpretation of ARB
No. 51. FIN 46 requires certain variable interest entities to be
consolidated by the primary beneficiary of the entity if the equity
investors in the entity do not have the characteristics of a
controlling financial interest or do not have sufficient equity at risk
for the entity to finance its activities without additional
subordinated financial support from other parties. FIN 46 is effective
for all new variable interest entities created or acquired after
January 31, 2003. For variable interest entities created or acquired
prior to February 1, 2003, the provisions of FIN 46 must be applied for
the first interim or annual period beginning after June 15, 2003. The
adoption of FIN 46 did not have a significant impact on the Company'
results of operations or financial position.
In 2004, the FASB issued SFAS Statement No. 151, "Inventory Costs, an
Amendment of ARB No. 43, Chapter 4". This Statement amends the guidance
in ARB No. 43, Chapter 4 "Inventory Pricing" to clarify the accounting
for abnormal amounts of idle facility expense, freight, handling costs
and wasted materials (spoilage). This Statement requires that those
items be recognized as current-period charges regardless of whether
they meet the criterion of "so abnormal". In addition, this Statement
requires the allocation of fixed production overheads to the costs of
conversion be based on the normal capacity of the production
facilities. The provisions of this Statement shall be effective for
inventory costs incurred during fiscal years beginning after June 15,
2005. Earlier application is permitted for inventory costs incurred
during fiscal years beginning after the date this Statement is issued.
The provisions of this Statement shall be applied prospectively. The
adoption of this Statement is not expected to have a significant impact
on the Company's results of operations or financial position.
NOTE 13 - MARKETABLE INVESTMENT SECURITIES
Cost and fair value of the Company's investments in equity securities
at December 31, 2004 is as follows:
Gross
Unrealized
Cost Losses Fair Value
--------------- ---------------- ---------------
Available-for-sale:
Equity securities $ 138,613 $ 28,185 $ 110,428
=============== ================ ===============
A portion of these securities carry a sale restriction through April
21, 2005, which in Management's opinion would not be enforced if the
securities were sold.
F-15
Clifton Mining Company
Notes to the Consolidated Financial Statements
NOTE 14 - RELATED PARTY TRANSACTIONS
The Company shares office space with American Silver, LLC and incurs
rent and ancillary charges in connection with this arrangement. The
Company incurred $17,500 and $0 of such costs which were charged to
operations in 2004 and 2003, respectively.
NOTE 15 - PRIOR PERIOD ADJUSTMENT
During the period of 1993 through 1998, the Company and its 58% owned
subsidiary capitalized exploration costs totaling $1,576,762.60. The
capitalization of exploration costs are likely to be insupportable
under FASB Statement No. 121 as such costs were incurred prior to
determining the existence of a commercially minable deposit. The
Company has determined to expense the exploration costs as incurred
until a commercially minable deposit is identified as contemplated by
FASB Industry Guide 7 and therefore has made a prior period adjustment
to the capitalized exploration costs which resulted in an overstatement
of net income totaling $1,506,618 (the amount net of consolidating
entries). There was no tax-effect since the Company already had net
operating losses during these periods.
F-16