As filed with the Securities and Exchange Commission on November 12, 2004
An Exhibit List can be found on page II-6.
Registration No. 333-_____
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
----------------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------------------------
SUNBURST ACQUISITIONS IV, INC.
(Name of small business issuer in its charter)
COLORADO 1041 84-1431797
(State or other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Classification Code Number) Identification No.)
Organization)
541 HOWE STREET, SUITE 300
VANCOUVER, BRITISH COLUMBIA V6C 2C2
CANADA
(604) 684-1755
(Address and telephone number of principal executive offices and principal place
of business)
MARIO AYUB, CHIEF EXECUTIVE OFFICER
SUNBURST ACQUISITIONS IV, INC.
541 HOWE STREET, SUITE 300
VANCOUVER, BRITISH COLUMBIA V6C 2C2
CANADA
(604) 684-1755
(Name, address and telephone number of agent for service)
Copies to:
GREGORY SICHENZIA, ESQ.
STEPHEN M. FLEMING, ESQ.
SICHENZIA ROSS FRIEDMAN FERENCE LLP
1065 AVENUE OF THE AMERICAS, 21ST FLR.
NEW YORK, NEW YORK 10018
(212) 930-9700
(212) 930-9725 (FAX)
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
From time to time after this Registration Statement becomes effective.
If any securities being registered on this Form are to be offered on a delayed
or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other
than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. ________
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. _________
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. _________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. _________
2
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------------------------------------
TITLE OF EACH CLASS OF AMOUNT TO BE PROPOSED PROPOSED AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED (1) MAXIMUM MAXIMUM REGISTRATION FEE
OFFERING AGGREGATE
PRICE PER OFFERING PRICE
SHARE
- -------------------------------------------------------------------------------------------------------------
Common stock, no par value 92,372,190 $.10(2) $9,237,219.00 $1,170.36
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
Total 92,372,190 $9,237,219.00 $1,170.36
- -------------------------------------------------------------------------------------------------------------
(1) Includes shares of our common stock, no par value per share, which may be
offered pursuant to this registration statement, which shares are presently
outstanding or issuable upon conversion of a secured convertible debenture and
the exercise of warrants and an additional investment right held by the selling
stockholders. In addition to the shares set forth in the table, the amount to be
registered includes an indeterminate number of shares issuable upon conversion
of the secured convertible debentures and exercise of the warrants and
additional investment, as such number may be adjusted as a result of stock
splits, stock dividends and similar transactions in accordance with Rule 416.
The number of shares of common stock registered hereunder represents a good
faith estimate by us of the number of shares of common stock issuable upon
conversion of the secured convertible debentures and upon exercise of the
warrants and additional investment right. For purposes of estimating the number
of shares of common stock to be included in this registration statement, we
calculated a good faith estimate of the number of shares of our common stock
that we believe will be issuable upon conversion of the secured convertible
debentures and upon exercise of the warrants and additional investment right to
account for market fluctuations, and antidilution and price protection
adjustments, respectively. Should the conversion ratio result in our having
insufficient shares, we will not rely upon Rule 416, but will file a new
registration statement to cover the resale of such additional shares should that
become necessary. In addition, should a decrease in the exercise price as a
result of an issuance or sale of shares below the then current market price,
result in our having insufficient shares, we will not rely upon Rule 416, but
will file a new registration statement to cover the resale of such additional
shares should that become necessary.
(2) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(c) under the Securities Act of 1933, using the average
of the high and low price as reported on the Over-The-Counter Bulletin Board on
November 8, 2004, which was $.10 per share.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
3
PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION, DATED NOVEMBER 12, 2004
SUNBURST ACQUISITIONS IV, INC.
92,372,190 SHARES OF
COMMON STOCK
This prospectus relates to the resale by the selling stockholders of up to
92,372,190 shares of our common stock, including 3,511,095 shares presently
outstanding, 27,000,000 shares of common stock underlying secured convertible
debentures in a principal amount of $1,350,000, up to 34,861,095 shares issuable
upon the exercise of common stock purchase warrants and up to 27,000,000 shares
issuable upon the selling stockholders exercise of its additional investment
right. The secured convertible debentures are convertible into our common stock
at $.10; provided, however, in the event that our intraday trading price during
any 20 trading day period is less than $.10 for ten nonconsecutive or
consecutive days, then the conversion price will be the lesser of $.10 or 80% of
the average of the lowest three intraday trading prices during the 20 trading
days prior to such conversion. Of the warrants, 27,000,000 of the warrants are
exercisable at $.12 per share, 5,850,000 are exercisable at $.01 per share and
2,011,095 are exercisable at $.20 per share. The additional investment right is
exercisable at $.10 per share. The selling stockholders may sell common stock
from time to time in the principal market on which the stock is traded at the
prevailing market price or in negotiated transactions. The selling stockholders
may be deemed underwriters of the shares of common stock which they are
offering. We will pay the expenses of registering these shares.
Our common stock is registered under Section 12(g) of the Securities
Exchange Act of 1934 and is listed on the Over-The-Counter Bulletin Board under
the symbol "SBAQ". The last reported sales price per share of our common stock
as reported by the Over-The-Counter Bulletin Board on November 8, 2004, was
$.10.
INVESTING IN THESE SECURITIES INVOLVES SIGNIFICANT RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 4.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
Prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this prospectus is _____________, 2004.
The information in this Prospectus is not complete and may be changed.
This Prospectus is included in the Registration Statement that was filed by
Sunburst Acquisitions IV, Inc. with the Securities and Exchange Commission. The
selling stockholders may not sell these securities until the registration
statement becomes effective. This Prospectus is not an offer to sell these
securities and is not soliciting an offer to buy these securities in any state
where the sale is not permitted.
4
PROSPECTUS SUMMARY
The following summary highlights selected information contained in this
prospectus. This summary does not contain all the information you should
consider before investing in the securities. Before making an investment
decision, you should read the entire prospectus carefully, including the "risk
factors" section, the financial statements and the secured convertible notes to
the financial statements.
SUNBURST ACQUISITIONS IV, INC.
We are engaged in the exploration and development of two gold mines
located in the State of Chihuahua, Mexico: the Cieneguita property and the
Guazapares property. For the six months ended August 31, 2004, we did not
generate revenues and incurred a net loss of $1,048,235. In addition, for the
year ended February 29, 2004, we generated revenue of $13,580 and a net loss of
$356,961, which relates to our discontinued operations. As a result of recurring
losses from operations and a net deficit in both working capital and
stockholders' equity, our auditors, in their report dated May 24, 2004, have
expressed substantial doubt about our ability to continue as going concern. In
addition, our auditors of the financial statements for Sierra Minerals and
Mining Inc., our wholly owned subsidiary, have also, in their report dated July
31, 2004, expressed substantial doubt about our wholly owned subsidiary's
ability to continue as going concern.
Our principal offices are located at 541 Howe Street, Suite 300,
Vancouver, British Columbia V6C 2C2, Canada, and our telephone number is (604)
684-1755. We are a Colorado corporation.
The Offering
Common stock offered by selling stockholders...................... Up to 92,372,190 shares, including the
following:
- 3,511,095 shares of common stock;
- up to 27,000,000 shares of common stock underlying
secured convertible debentures in the principal amount
of $1,350,000 (includes a good faith estimate of the
shares underlying the secured convertible debentures to
account for market fluctuations antidilution and price
protection adjustments),
- up to 27,000,000 shares of common stock issuable upon
the exercise of common stock purchase warrants at an
exercise price of $.12 per share (includes a good faith
estimate of the shares underlying warrants to account
for antidilution and price protection adjustments),
- up to 5,850,000 shares of common stock issuable upon
the exercise of common stock purchase warrants at an
exercise price of $.01 per share,
- up to 2,011,095 shares of common stock issuable upon
the exercise of common stock purchase warrants at an
exercise price of $.20 per share, and
5
- up to 27,000,000 shares of common stock issuable upon
the exercise of an additional investment right at an
exercise price of $.10 per share (includes a good faith
estimate of the shares underlying the additional
investment right to account for antidilution and price
protection adjustments)
This number represents 51.53% of our current outstanding
stock.
Common stock to be outstanding after the offering................. Up to 179,266,514 shares
Use of proceeds................................................... We will not receive any proceeds from the sale of the
common stock. However, we will receive the sale price of
any common stock we sell to the selling stockholder upon
exercise of the warrants and upon exercise of the
additional investment right. We expect to use the
proceeds received from the exercise of the warrants and
additional investment right, if any, for general working
capital purposes.
Over-The-Counter Bulletin Board Symbol............................ SBAQ
The above information regarding common stock to be outstanding after the
offering is based on 86,894,324 shares of common stock outstanding as of
November 8, 2004 and assumes the subsequent conversion of our issued secured
convertible notes and exercise of warrants by our selling stockholders.
In January 2004, we issued a secured convertible debenture in the amount
of $30,000 to Bristol Capital, LLC. The secured convertible debenture is due one
year from the date of issuance. The secured convertible debenture is convertible
at the option of the holder into our shares of common stock at a fixed
conversion price of $0.02 per share.
In April 2004, in connection with the acquisition of certain mineral
properties, we entered into a Transaction Fee Agreement with T.R. Winston &
Company LLC. Pursuant to this agreement, we issued a warrant to purchase
3,000,000 shares of common stock at $.01 per share. In connection the
acquisition of the mineral properties, we also entered into an agreement with
Liberty Management, LLC whereby we provided Liberty a common stock purchase
warrant to purchase 1,500,000 shares of common stock at $.01 per share.
In May 2004, we received subscriptions of $199,135 from a private
placement offering of units at $0.10 per unit. Each unit consists of one share
of common stock and one warrant to purchase an additional share of common stock
at $0.20 per share at any time during the twelve months following the date of
issuance of the warrants.
In August 2004, we entered into a Securities Purchase Agreement with Alpha
Capital Aktiengesellschaft, Bristol Investment Fund, Ltd. and Stonestreet
Limited Partnership, which are accredited institutional investors for the
issuance of an aggregate of $1,350,000 principal amount secured convertible
debentures with an original issue discount of 25%. On August 25, 2004, we closed
on an aggregate principal amount of $675,000 of secured convertible debentures
and received gross proceeds of $500,000. The second closing on an additional
$675,000 will be on or before the fifth day following the effective date of this
registration statement. The secured convertible debentures are due one year from
the date of issuance. The secured convertible debentures are convertible at the
option of the holders into our shares of common stock at a fixed conversion
price of $0.10 per share. However, in
6
the event that our intraday trading price during any 20 trading day period is
less than $.10 for ten nonconsecutive or consecutive days, then the conversion
price will be the lesser of $.10 or 80% of the average of the lowest three
intraday trading prices during the 20 trading days prior to such conversion. In
connection with the Securities Purchase Agreement, we also issued warrants to
purchase an aggregate of 13,500,000 shares of our common stock and an additional
investment right to purchase an aggregate of 13,500,000 shares to the investors.
The term of the warrants is five years and the exercise price is $0.12 per
share. The additional investment right provides each investor with the right to
purchase up to an aggregate of 13,500,000 shares of common stock at $.10 per
share for a period equal to the earlier of the six month anniversary of the
effective date of this registration statement or the 18 month anniversary of the
first closing date of this financing. Furthermore we entered into a Registration
Rights Agreement in order to register the above-referenced securities and a
Security Agreement that provides the investor with the first priority security
interest in certain of our assets. The investors have contractually agreed to
restrict their ability to convert the secured convertible debentures, exercise
the warrants and exercise the additional investment right and receive shares of
our common stock such that the number of shares of our common stock held by them
and their affiliates after such conversion or exercise does not exceed 4.99% of
our then issued and outstanding shares of our common stock.
In connection with this financing, we entered into a Transaction Fee
Agreement with T.R. Winston & Company LLC. Pursuant to this agreement, we issued
a warrant to purchase 1,350,000 shares of common stock at $.01 per share.
All of the above securities were issued pursuant to an exemption from
registration pursuant to Section 4 (2) of the Securities Act of 1933.
See the "Selling Stockholders" and "Risk Factors" sections for a complete
description of the above financings.
7
RISK FACTORS
This investment has a high degree of risk. Before you invest you should
carefully consider the risks and uncertainties described below and the other
information in this prospectus. If any of the following risks actually occur,
our business, operating results and financial condition could be harmed and the
value of our stock could go down. This means you could lose all or a part of
your investment.
RISKS RELATING TO OUR BUSINESS:
WE HAVE A HISTORY OF INCURRING NET LOSSES; WE EXPECT OUR NET LOSSES TO CONTINUE
AS A RESULT OF PLANNED INCREASES IN OPERATING EXPENSES; AND, THEREFORE, WE MAY
NEVER ACHIEVE PROFITABILITY WHICH MAY CAUSE US TO SEEK ADDITIONAL FINANCING OR
TO CEASE OPERATIONS.
We have a history of operating losses and have incurred significant net
losses in each fiscal quarter since our inception. We had a net loss of
$1,048,235 for the six months ended August 31, 2004, which is the quarter in
which we commenced our mining operations. We expect to continue to incur net
losses and negative cash flows for the foreseeable future. We will need to
generate significant additional revenue to achieve profitability. Our ability to
generate and sustain significant additional revenues or achieve profitability
will depend upon numerous factors outside of our control, including the gold
market in general and the economy.
It is possible that we may never achieve profitability and, even if we do
achieve profitability, we may not sustain or increase profitability in the
future. If we do not achieve sustained profitability, we may be unable to
continue our operations.
WE HAVE A LIMITED OPERATING HISTORY, THEREFORE IT IS DIFFICULT TO EVALUATE OUR
FINANCIAL PERFORMANCE AND PROSPECTS.
We only recently acquired our current business operations in May 2004. We
are, therefore, subject to all of the risks inherent in a new business
enterprise. Our limited operating history makes it difficult to evaluate our
financial performance and prospects. We cannot assure you that in the future we
will operate profitably or that we will have adequate working capital to meet
our obligations as they become due. Because of our limited financial history, we
believe that period-to-period comparisons of our results of operations will not
be meaningful in the short term and should not be relied upon as indicators of
future performance.
BECAUSE OF OUR RECURRING OPERATING LOSSES, STOCKHOLDERS' DEFICIT, WORKING
CAPITAL DEFICIT AND NEGATIVE CASH FLOW FROM OPERATIONS OUR AUDITOR HAS RAISED
SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO CONTINUE OUR BUSINESS
We have received a report from our independent auditors on our financial
statements for fiscal years ended February 29, 2004 and 2003, in which our
auditors have included explanatory paragraphs indicating that our recurring net
losses, stockholders' deficit, working capital deficit, and negative cash flow
from operations cause substantial doubt about our ability to continue as a going
concern. By issuing an opinion stating that there is substantial doubt about our
ability to continue as a going concern, our auditors have indicated that they
are uncertain as to whether we have the capability to continue our operations
and, further, in order to avoid ceasing our operations, we must either generate
additional revenue and/or raise additional funding. If our recurring operating
losses, stockholders' deficit, working capital deficit and negative cash flow
from operations continue, our business could be materially adversely affected.
OUR INTEREST IN THE JOINT VENTURE ENTERED WITH MINERA RIO TINTO S.A. DE C.V., A
MEXICAN COMPANY ("MRT"), WHICH GOVERNS THE USE OF OUR PROPERTIES IN MEXICO WILL
BE REDUCED IF WE ARE UNABLE TO RAISE THE REQUIRED FUNDING FOR THE JOINT VENTURE.
The joint venture agreement between us and MRT requires we invest cash
totaling $1,000,000 by June 30, 2004, and secure a $2,000,000 line of credit for
the joint venture within sixty days of signing the joint venture agreement. The
$1,000,000 investment will be reduced by $57,500 and $170,000 previously
advanced, plus accrued interest, upon commencement of the joint venture. MRT
will contribute the properties. The joint venture is to be owned 60% by our
wholly owned subsidiary and 40% by MRT, however, should we fail to secure the
line of credit,
8
our interest shall be reduced to 30% and the interest of MRT shall be increased
to 70%. We were in default of the agreement, as we did not fulfill our required
investment of $1,000,000 by June 30, 2004 and did not secure a line of credit
for $2,000,000. The date for obtaining the $1,000,000 investment has been
extended to November 10, 2004 and the date for obtaining the $2,000,000 line of
credit has been extended until November 30, 2004.
OUR JOINT VENTURE PARTNER, MRT, HAS ENTERED INTO AGREEMENT WITH THE OWNER OF THE
MEXICAN PROPERTIES THAT WE ARE EXPLORING AND IF SUCH AGREEMENT IS TERMINATED, WE
WOULD BE REQUIRED TO CEASE OUR OPERATIONS
MRT entered an agreement with Corporative Minero, S.A. DE C.V. on January
12, 2004 by which it acquired the right to explore and exploit the Cieneguita
mines and purchase the mines for $2,000,000. MRT also agreed to pay the owner a
royalty of $20 per ounce of gold produced and sold from the sale of gold.
However, in the event that the price of gold is in excess of $400, then MRT is
required to pay an additional $.10 per each ounce for every dollar over $400. If
this agreement is terminated for any reason, our results of operations may be
negatively impacted and we may be forced to cease operations.
IF WE DO NOT OBTAIN FINANCING WHEN NEEDED, OUR BUSINESS WILL FAIL
Our current operating funds will cover our exploration program. In order
for us to perform any further exploration or extensive testing we will need to
obtain additional financing. As of August 31, 2004, we had cash in the amount of
approximately $365,955. We currently do not have any income. Our business plan
calls for significant expenses in connection with the exploration of our mineral
claims. We will also require additional financing if the costs of the
exploration of our mineral claim are greater than anticipated. We will require
additional financing to sustain our business operations if we are not successful
in earning revenues once exploration is complete. If our exploration programs
are successful in discovering ore of commercial tonnage and grade, we will
require additional funds in order to place our mineral claims into commercial
production. We currently do not have any arrangements for additional financing
and we may not be able to obtain financing when required. Obtaining additional
financing would be subject to a number of factors, including the market prices
for minerals and the costs of exploring for or mining these materials. These
factors may make the timing, amount, terms or conditions of additional financing
unavailable to us.
BECAUSE WE HAVE NOT COMMENCED BUSINESS OPERATIONS, WE FACE A HIGH RISK OF
BUSINESS FAILURE DUE TO OUR INABILITY TO PREDICT THE SUCCESS OF OUR BUSINESS.
We have just begun the initial stages of exploration of our mineral
claims, and thus have no way to evaluate the likelihood that we will be able to
operate the business successfully. We recently acquired our wholly owned
subsidiary in May 2004 and have only recently commenced our mining activities
but have been involved primarily in organizational activities, the acquisition
of the mineral claims and obtaining a preliminary summary report on our mineral
claims. We have not earned any revenues as of the date hereof from our mining
activities.
BECAUSE OF THE UNIQUE DIFFICULTIES AND UNCERTAINTIES INHERENT IN MINERAL
EXPLORATION BUSINESS, WE FACE A HIGH RISK OF BUSINESS FAILURE.
Potential investors should be aware of the difficulties normally
encountered by new mineral exploration companies and the high rate of failure of
such enterprises. The likelihood of success must be considered in light of the
problems, expenses, difficulties, complications and delays encountered in
connection with the exploration of the mineral properties that we plan to
undertake. These potential problems include, but are not limited to,
unanticipated problems relating to exploration, and additional costs and
expenses that may exceed current estimates.
BECAUSE WE ANTICIPATE OUR OPERATING EXPENSES WILL INCREASE PRIOR TO OUR EARNING
REVENUES, WE MAY NEVER ACHIEVE PROFITABILITY
Prior to completion of our exploration stage, we anticipate that we will
incur increased operating expenses without realizing any revenues. We therefore
expect to incur significant losses into the foreseeable future. We recognize
that if we are unable to generate significant revenues from the exploration of
our mineral claims and the production of minerals thereon, if any, we will not
be able to earn profits or continue operations. There is no history upon which
to base any assumption as to the likelihood that we will prove successful, and
we may not be able to
9
generate any operating revenues or ever achieve profitable operations. If we are
unsuccessful in addressing these risks, our business will most likely fail.
BECAUSE OF THE SPECULATIVE NATURE OF EXPLORATION OF MINERAL CLAIMS, THERE IS
SUBSTANTIAL RISK THAT NO COMMERCIALLY EXPLOITABLE MINERALS WILL BE FOUND AND
THIS BUSINESS WILL FAIL
The search for valuable minerals as a business is extremely risky. Our
mineral claims may not contain commercially exploitable deposits of gold and
silver. Exploration for minerals is a speculative venture necessarily involving
substantial risk. The expenditures to be made by us in the exploration of the
mineral claims may not result in the discovery of commercial quantities of ore.
Problems such as unusual or unexpected formations and other conditions are
involved in mineral exploration and often result in unsuccessful exploration
efforts. In such a case, we would be unable to complete our business plan.
BECAUSE OF THE INHERENT DANGERS INVOLVED IN MINERAL EXPLORATION, THERE IS A RISK
THAT WE MAY INCUR LIABILITY OR DAMAGES AS WE CONDUCT OUR BUSINESS
The search for valuable minerals involves numerous hazards. As a result,
we may become subject to liability for such hazards, including pollution,
cave-ins and other hazards against which we cannot insure or against which we
may elect not to insure. The payment of such liabilities may have a material
adverse effect on our financial position.
AS WE UNDERTAKE EXPLORATION OF OUR MINERAL CLAIMS, WE WILL BE SUBJECT TO
COMPLIANCE WITH GOVERNMENT REGULATION THAT MAY INCREASE THE ANTICIPATED COST OF
OUR EXPLORATION PROGRAM
There are several governmental regulations that materially restrict
mineral exploration or exploitation. We will be subject to local mining laws in
Mexico as we carry out our exploration program. We may be required to obtain
work permits, post bonds and perform remediation work for any physical
disturbance to the land in order to comply with these regulations. While our
planned exploration program budgets for regulatory compliance, there is a risk
that new regulations could increase our costs of doing business and prevent us
from carrying our exploration program.
RISKS RELATING TO OUR CURRENT FINANCING ARRANGEMENT:
THERE ARE A LARGE NUMBER OF SHARES UNDERLYING OUR SECURED CONVERTIBLE
DEBENTURES, WARRANTS AND ADDITIONAL INVESTMENT RIGHTS THAT MAY BE AVAILABLE FOR
FUTURE SALE AND THE SALE OF THESE SHARES MAY DEPRESS THE MARKET PRICE OF OUR
COMMON STOCK.
As of November 8, 2004, we had 86,894,324 shares of common stock issued
and outstanding and secured convertible debentures outstanding or an obligation
to issue secured convertible debentures that may be converted into an estimated
13,500,000 shares of common stock at current market prices, 21,361,095
outstanding warrants and an additional investment right to purchase 13,500,000
shares of common stock. In addition, the number of shares of common stock
issuable upon conversion of the outstanding secured convertible debentures may
increase if the market price of our stock declines. All of the shares, including
all of the shares issuable upon conversion of the debentures and upon exercise
of our warrants and additional investment rights, may be sold without
restriction. The sale of these shares may adversely affect the market price of
our common stock.
THE CONTINUOUSLY ADJUSTABLE CONVERSION PRICE FEATURE OF OUR SECURED CONVERTIBLE
DEBENTURES COULD REQUIRE US TO ISSUE A SUBSTANTIALLY GREATER NUMBER OF SHARES,
WHICH WILL CAUSE DILUTION TO OUR EXISTING STOCKHOLDERS.
The conversion price for our secured convertible debentures is $.10 per
share. In the event that our intraday trading price during any 20 trading day
period is less than $.10 for ten nonconsecutive or consecutive days, then the
conversion price will be the lesser of $.10 or 80% of the average of the lowest
three intraday trading prices during the 20 trading days prior to such
conversion. If this were to occur, our obligation to issue shares upon
conversion of our secured convertible debentures is essentially limitless. The
following is an example of the amount of shares of our common stock that are
issuable, upon conversion of the debentures and assuming that our intraday
10
trading price during any 20 trading day period is less than $.10 for ten
nonconsecutive or consecutive days, based on market prices 25%, 50% and 75%
below $0.10.
Number % of
% Below Price Per With Discount of Shares Outstanding
Market Share at 20% Issuable Stock
- ------ ------ ------ ---------- -----------
25% $.0750 $.0600 22,500,000 20.57%
50% $.0500 $.0400 33,750,000 27.97%
75% $.0250 $.0200 67,500,000 43.72%
As illustrated, the number of shares of common stock issuable upon
conversion of our secured convertible debentures will increase if the market
price of our stock declines, which will cause dilution to our existing
stockholders.
THE CONTINUOUSLY ADJUSTABLE CONVERSION PRICE FEATURE OF OUR SECURED CONVERTIBLE
DEBENTURES MAY ENCOURAGE INVESTORS TO MAKE SHORT SALES IN OUR COMMON STOCK,
WHICH COULD HAVE A DEPRESSIVE EFFECT ON THE PRICE OF OUR COMMON STOCK.
In the event that our intraday trading price during any 20 trading day
period is less than $.10 for ten nonconsecutive or consecutive days, the secured
convertible debentures are convertible into shares of our common stock at a 20%
discount to the trading price of the common stock prior to the conversion. The
significant downward pressure on the price of the common stock as the selling
stockholder converts and sells material amounts of common stock could encourage
short sales by investors. This could place further downward pressure on the
price of the common stock. The selling stockholder could sell common stock into
the market in anticipation of covering the short sale by converting their
securities, which could cause the further downward pressure on the stock price.
In addition, not only the sale of shares issued upon conversion or exercise of
notes, warrants and options, but also the mere perception that these sales could
occur, may adversely affect the market price of the common stock.
THE ISSUANCE OF SHARES UPON CONVERSION OF THE SECURED CONVERTIBLE DEBENTURES AND
EXERCISE OF OUTSTANDING WARRANTS AND ADDITIONAL INVESTMENT RIGHTS MAY CAUSE
IMMEDIATE AND SUBSTANTIAL DILUTION TO OUR EXISTING STOCKHOLDERS.
The issuance of shares upon conversion of the secured convertible
debentures and exercise of warrants and additional investment right may result
in substantial dilution to the interests of other stockholders since the selling
stockholders may ultimately convert and sell the full amount issuable on
conversion. Although the selling stockholders may not convert their secured
convertible debentures and/or exercise their warrants if such conversion or
exercise would cause them to own more than 4.99% of our outstanding common
stock, this restriction does not prevent the selling stockholders from
converting and/or exercising some of their holdings and then converting the rest
of their holdings. In this way, the selling stockholders could sell more than
this limit while never holding more than this limit. There is no upper limit on
the number of shares that may be issued which will have the effect of further
diluting the proportionate equity interest and voting power of holders of our
common stock, including investors in this offering.
IN THE EVENT THAT OUR STOCK PRICE DECLINES, THE SHARES OF COMMON STOCK ALLOCATED
FOR CONVERSION OF THE SECURED CONVERTIBLE DEBENTURES AND REGISTERED PURSUANT TO
THIS PROSPECTUS MAY NOT BE ADEQUATE AND WE MAY BE REQUIRED TO FILE A SUBSEQUENT
REGISTRATION STATEMENT COVERING ADDITIONAL SHARES. IF THE SHARES WE HAVE
ALLOCATED AND ARE REGISTERING HEREWITH ARE NOT ADEQUATE AND WE ARE REQUIRED TO
FILE AN ADDITIONAL REGISTRATION STATEMENT, WE MAY INCUR SUBSTANTIAL COSTS IN
CONNECTION THEREWITH.
Based on our current market price and the potential decrease in our market
price as a result of the issuance of shares upon conversion of the secured
convertible debentures, we have made a good faith estimate as to the amount of
shares of common stock that we are required to register and allocate for
conversion of the convertible debentures. As we do not currently have the
required amount of shares available, we may be required to file an additional
registration statement after we have increased our authorized common stock.
Accordingly, we will allocate and register approximately 27,000,000 shares to
cover the conversion of the secured convertible debentures. In the event that
our stock price decreases, the shares of common stock we have allocated for
conversion of the
11
secured convertible debentures and are registering hereunder may not be
adequate. If the shares we have allocated to the registration statement are not
adequate and we are required to file an additional registration statement, we
may incur substantial costs in connection with the preparation and filing of
such registration statement.
IF WE ARE REQUIRED FOR ANY REASON TO REPAY OUR OUTSTANDING SECURED CONVERTIBLE
DEBENTURES, WE WOULD BE REQUIRED TO DEPLETE OUR WORKING CAPITAL, IF AVAILABLE,
OR RAISE ADDITIONAL FUNDS. OUR FAILURE TO REPAY THE SECURED CONVERTIBLE
DEBENTURES, IF REQUIRED, COULD RESULT IN LEGAL ACTION AGAINST US, WHICH COULD
REQUIRE THE SALE OF SUBSTANTIAL ASSETS.
In August 2004, we entered into a Securities Purchase Agreement for the
sale of an aggregate of $1,350,000 principal amount of secured convertible
debentures with an original issue discount of 25%. The secured convertible
debentures are due and payable one year from the date of issuance, unless sooner
converted into shares of our common stock. Although we currently have $675,000
secured convertible debentures outstanding, the investors are obligated to
purchase additional secured convertible debentures in the aggregate amount of
$675,000. In addition, any event of default could require the early repayment of
the secured convertible debentures, including a the accruing of interest on the
outstanding principal balance of the debentures if the default is not cured with
the specified grace period. We anticipate that the full amount of the secured
convertible debentures will be converted into shares of our common stock, in
accordance with the terms of the secured convertible debentures. If we are
required to repay the secured convertible debentures, we would be required to
use our limited working capital and raise additional funds. If we were unable to
repay the notes when required, the note holders could commence legal action
against us and foreclose on all of our assets to recover the amounts due. Any
such action would require us to curtail or cease operations.
RISKS RELATING TO OUR COMMON STOCK:
IF WE FAIL TO REMAIN CURRENT ON OUR REPORTING REQUIREMENTS, WE COULD BE REMOVED
FROM THE OTC BULLETIN BOARD WHICH WOULD LIMIT THE ABILITY OF BROKER-DEALERS TO
SELL OUR SECURITIES AND THE ABILITY OF STOCKHOLDERS TO SELL THEIR SECURITIES IN
THE SECONDARY MARKET.
Companies trading on the OTC Bulletin Board, such as us, must be reporting
issuers under Section 12 of the Securities Exchange Act of 1934, as amended, and
must be current in their reports under Section 13, in order to maintain price
quotation privileges on the OTC Bulletin Board. If we fail to remain current on
our reporting requirements, we could be removed from the OTC Bulletin Board. As
a result, the market liquidity for our securities could be severely adversely
affected by limiting the ability of broker-dealers to sell our securities and
the ability of stockholders to sell their securities in the secondary market.
OUR COMMON STOCK IS SUBJECT TO THE "PENNY STOCK" RULES OF THE SEC AND THE
TRADING MARKET IN OUR SECURITIES IS LIMITED, WHICH MAKES TRANSACTIONS IN OUR
STOCK CUMBERSOME AND MAY REDUCE THE VALUE OF AN INVESTMENT IN OUR STOCK.
The Securities and Exchange Commission has adopted Rule 15g-9 which
establishes the definition of a "penny stock," for the purposes relevant to us,
as any equity security that has a market price of less than $5.00 per share or
with an exercise price of less than $5.00 per share, subject to certain
exceptions. For any transaction involving a penny stock, unless exempt, the
rules require:
o that a broker or dealer approve a person's account for transactions
in penny stocks; and
o the broker or dealer receive from the investor a written agreement
to the transaction, setting forth the identity and quantity of the
penny stock to be purchased.
In order to approve a person's account for transactions in penny stocks, the
broker or dealer must:
o obtain financial information and investment experience objectives of
the person; and
o make a reasonable determination that the transactions in penny
stocks are suitable for that person and the person has sufficient
knowledge and experience in financial matters to be capable of
evaluating the risks of transactions in penny stocks.
12
The broker or dealer must also deliver, prior to any transaction in a penny
stock, a disclosure schedule prescribed by the Commission relating to the penny
stock market, which, in highlight form:
o sets forth the basis on which the broker or dealer made the
suitability determination; and
o that the broker or dealer received a signed, written agreement from
the investor prior to the transaction.
Generally, brokers may be less willing to execute transactions in securities
subject to the "penny stock" rules. This may make it more difficult for
investors to dispose of our common stock and cause a decline in the market value
of our stock.
Disclosure also has to be made about the risks of investing in penny
stocks in both public offerings and in secondary trading and about the
commissions payable to both the broker-dealer and the registered representative,
current quotations for the securities and the rights and remedies available to
an investor in cases of fraud in penny stock transactions. Finally, monthly
statements have to be sent disclosing recent price information for the penny
stock held in the account and information on the limited market in penny stocks.
13
USE OF PROCEEDS
This prospectus relates to shares of our common stock that may be offered
and sold from time to time by the selling stockholders. We will not receive any
proceeds from the sale of shares of common stock in this offering. However, we
will receive the sale price of any common stock we sell to the selling
stockholder upon exercise of the warrants or additional investment right. We
expect to use the proceeds received from the exercise of the warrants, if any,
for general working capital purposes.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our Common Stock is traded on the OTC Bulletin Board, referred to herein
as the OTCBB, under the symbol "SBAQ". The following table sets forth the high
and low bid prices of our Common Stock, as reported by the OTCBB for each
quarter since January 1, 2002. The quotations set forth below reflect
inter-dealer prices, without retail mark-up, markdown or commission and may not
represent actual transactions.
- ----------------------------------------------------------------------------------------------------------------------
Common Stock Fiscal 2004 Fiscal 2003 Fiscal 2002
- ----------------------------------------------------------------------------------------------------------------------
High Low High Low High Low
- ----------------------------------------------------------------------------------------------------------------------
1st Quarter .29 .18 .09 .04 .32 .08
- ----------------------------------------------------------------------------------------------------------------------
2nd Quarter .26 .06 .08 .05 .22 .04
- ----------------------------------------------------------------------------------------------------------------------
3rd Quarter* .19 .08 .11 .04 .09 .03
- ----------------------------------------------------------------------------------------------------------------------
4th Quarter N/A N/A .26 .05 .08 .04
- ----------------------------------------------------------------------------------------------------------------------
*Through November 8, 2004
As of November 8, 2004, there were approximately 194 holders of record of
our common stock.
We have appointed Corporate Stock Transfer, 3200 Cherry Creek Drive South,
Ste. 430, Denver, CO 80209, as transfer agent for our shares of common stock.
EQUITY COMPENSATION PLAN INFORMATION
As of February 29, 2004, we had the following securities authorized for
issuance under the equity compensation plans:
Number of securities
remaining available
Number of Securities Weighted-average for future issuance
to be issued upon exercise price under equity
exercise of of outstanding compensation plans
outstanding options, options, warrants (excluding securities
warrants and rights and rights reflected in column
Plan Category
Equity compensation plans approved by security holders -- -- --
Equity compensation plans not approved by security holders 4,900,000 $.027 -0-
Total 4,900,000 $.027 -0-
14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND PLAN OF OPERATIONS
Some of the information in this Form SB-2 contains forward-looking
statements that involve substantial risks and uncertainties. You can identify
these statements by forward-looking words such as "may," "will," "expect,"
"anticipate," "believe," "estimate" and "continue," or similar words. You should
read statements that contain these words carefully because they:
o discuss our future expectations;
o contain projections of our future results of operations or of our
financial condition; and
o state other "forward-looking" information.
We believe it is important to communicate our expectations. However, there
may be events in the future that we are not able to accurately predict or over
which we have no control. Our actual results and the timing of certain events
could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including those set forth under "Risk
Factors," "Business" and elsewhere in this prospectus. See "Risk Factors."
Overview
We are a start-up, exploration stage company and have not yet generated or
realized any revenues from our mining business operations, which we recently
commenced in May 2004. We must raise additional cash in order to implement our
plan and stay in business.
Our continued existence and plans for future growth depend on our ability
to obtain the additional capital necessary to operate, through the generation of
revenue and the issuance of additional debt or equity. While we believe that we
have sufficient resources to continue in business for the next 12 months, we may
not be able to continue in business beyond that date unless we obtain additional
capital to pay our bills. Except for the gross proceeds in the amount of
$675,000 we are to receive in connection with the Securities Purchase Agreement
entered in August 2004, our management has not made a commitment of financial
support to meet future obligations and we have not generated any revenues and no
revenues are anticipated unless and until mineralized material is discovered on
the properties that we have an interest in. Accordingly we must raise cash from
other than the sale of mineralized materials. We will be conducting research in
connection with the exploration of our properties. We are not planning to buy or
sell any plant or significant equipment.
Plan of Operations
Our business plan is to proceed with the exploration of our Mexican
mineral properties to determine whether there are commercially exploitable
reserves of gold, silver or other metals.
We have planned a pre-drilling exploration program on our Cieneguita
Property with the goal of identifying drill targets for a subsequent drilling
program. We expect the cost to be approximately $131,000. The proposed
pre-drilling exploration program would include reviewing available data to
create a structural mineralization framework, visits to similar geologies in
region for comparative and information purposes, detailed soil and rock
sampling, resampling existing trenches, the extension of existing trenches, the
creation of new trenches, and ground-based geophysics.
We have also planned preliminary exploration programs, budgeted at
approximately $343,000 on our Guazapares Property. These preliminary exploration
programs have the goal of determining whether subsequent exploration is
warranted and would include reviewing available data to create a structural
mineralization framework, visits to similar geologies in region for comparative
and information purposes, detailed soil and rock sampling, and ground-based
geophysics.
Although our properties have been mined in the past, we are presently in
the exploration stage and there is no assurance that a commercially viable
mineral deposit, a reserve, exists in any of our properties until further
exploration is done and a comprehensive evaluation concludes economic and legal
feasibility.
15
We anticipate that the pre-drilling exploration program on our Cieneguita
Property will be completed within the next six months and the preliminary
exploration programs on our Guazapares Property will be completed within the
next six months.
Once we receive results from these exploration programs, we will assess
whether to proceed to any further exploration phases. In making this
determination, we will make an assessment as to whether the results are
sufficiently positive to enable us to obtain the financing necessary to proceed.
We did not earn any revenues during the fiscal year ended February 29,
2004 or the six months ended August 31, 2004 in connection with our mining
activities. We do not anticipate earning revenues until such time as we have
entered into commercial production of our mineral properties. We are presently
in the exploration stage of our business and we can provide no assurance that we
will discover commercially exploitable levels of mineral resources on our
properties, or if such resources are discovered, that we will enter into
commercial production of our mineral properties. We generated $13,580 in
revenues during the year ended February 29, 2004 and $24,580 for the year ended
February 28, 2003, which such revenue was associated with our ballasts business,
which has been discontinued.
We incurred operating expenses in connection with our discontinued
operations the amount of $365,961 for the year ended February 29, 2004 and a net
loss in the amount of $356,961. Our loss for this fiscal year was attributable
to operating expenses, professional fees, consulting fees and administrative
expenses. In addition, we incurred expenses of $162,818 and $742,500 in
connection with the acquisition of resource properties during the six months
ended August 31, 2004. We incurred a net loss of $1,048,235 during the six
months ended August 31, 2004.
Liquidity and Capital Resources
We remain in the development stage. Since inception we have undergone two
unsuccessful business combinations, which have caused us to incur significant
liabilities and which have resulted in the accumulation of a substantial deficit
during the development stage. As of August 31, 2004, we have total current
assets of $381,316, total current liabilities of $736,116, and a deficit of $
(3,051,662) accumulated in the development stage.
We had cash on hand of $365,955 as of August 31, 2004 primarily as a
result of our receipt of net proceeds from two private placement securities
offerings and after funding a total of $252,500 to a joint venture in which our
wholly-owned subsidiary, Sierra Minerals and Mining, Inc., is a party.
Subsequent to the end of the quarter, on September 1, 2004, we funded an
additional $230,000 to the same joint venture.
During the quarter ended August 31, 2004, we completed a private placement
offering of units which it had commenced during the previous quarter. As of May
31, 2004, we have received subscriptions for a total of 1,991,350 units at $0.10
per unit. During the quarter ended August 31, 2004, the Company received
subscriptions for an additional 19,745 units. Each unit sold in this offering
consisted of one share of common stock and one warrant to purchase an additional
share of common stock at a price of $0.20 per share at any time during the
twelve months following the date of issuance. We received a total of $196,135 in
net proceeds from this offering.
During the current quarter we also received net proceeds of $347,500 from
the offer and sale of Secured Convertible Debentures pursuant to a Securities
Purchase Agreement dated August 25, 2004. The Securities Purchase Agreement
dated August 25, 2004, is between our company and Bristol Investment Fund, Ltd.,
Alpha Capital AG and Stonestreet LP. Pursuant to the Securities Purchase
Agreement, the investors agreed to purchase up to $1,350,000 in face amount of
Secured Convertible Debentures from us. The Secured Convertible Debentures will
not bear interest but will be issued at a 26% discount to the face amount.
Accordingly, the cash purchase price for the full $1,350,000 face amount of the
debentures will be $1,000,000. The debentures will be due and payable in full
one year from the date of issuance.
On August 30, 2004, we received net proceeds of $347,500 as a result of
the initial closing under the Securities Purchase Agreement. At the initial
closing, the investors paid $408,333 for purchase of Secured Convertible
Debentures issued by us in the face amount of $551,250. Finders fees,
commissions and other offering
16
expenses totaling $60,833 were paid out of the gross offering proceeds, which
resulted in net proceeds to the Company of $347,500.
As previously reported, on May 25, 2004, we completed a share exchange
transaction with Sierra Minerals and Mining, Inc, a Nevada corporation. Sierra
is a party to a joint Venture Agreement with Mineral Rio Tinto S.A. de C.V., a
Mexican company ("MRT"), pursuant to which Sierra and MRT have agreed to explore
and, if feasible, develop certain mining properties, which MRT has the option to
acquire. The properties are located in the state of Chihuahua, Mexico. Due to
the uncertainty of the future revenue to be generated from this property the
cost of the acquisition of $430,000, the expenses of the 6 million options of
$60,000 and deposits of $252,500 have been charged to operations for the six
months ending August 31, 2004.
Pursuant to the terms of the Joint Venture Agreement between Sierra and
MRT, Sierra was required to invest cash totalling $1,000,000 into the joint
venture by June 30, 2004, and was also required to secure a $2,000,000 line of
credit for the joint venture within sixty days of signing the joint venture
agreement. At the time of completion of its share exchange with Sierra, the
Company agreed to assist Sierra in meeting its financial obligations under the
Joint Venture Agreement.
As of August 31, 2004, Sierra was in default under the terms of the joint
venture agreement as a result of its failure to satisfy its financial
obligations. As of that date, (and as of September 1, 2004, when it funded the
additional $230,000 it received from the Company as of that date) it had not
obtained the required $2,000,000 line of credit and it had not funded $1,000,000
in cash. However, on October 1, 2004, subsequent to the end of the current
quarter, Sierra signed an extension agreement pursuant to which the deadline for
funding of an additional $517,500 (the balance of the original $1,000,000
commitment after applying the $482,500 funded to date) and to obtain the
required $2,000,000 line of credit would be extended to November 30, 2004.
We plan to continue with its efforts to assist Sierra in satisfying its
financial obligations to the joint venture. We intend to fund Sierra out of any
net proceeds we receive as a result of subsequent closings under the Securities
Purchase Agreement. We may also seek to raise additional capital through other
private placement offering or through debt financing. We also intend to continue
seeking potential sources for the $2,000,000 line of credit.
Should we not be able to obtain further financing to meet its funding
obligations of an additional $517,500 (the balance of the original $1,000,000
commitment after applying the $482,500 funded to date) and to obtain the
required $2,000,000 line of credit, the joint venture agreement may be
terminated by MRT.
17
BUSINESS
BACKGROUND
We were incorporated under the laws of the State of Colorado on August 27,
1997. We were initially formed to seek out and acquire business opportunities.
In accordance with our business plan, we engaged in the acquisition of Prologic
Systems, Inc. in 1999 and HollywoodBroadcasting.com, Inc. in 2000 of which
neither has resulted in the acquisition of a viable operating business. In
addition, we have focused over the past two years on development of a business
related to the marketing, distribution and sale of digital electronic ballasts,
through our wholly-owned Canadian subsidiary, Sunburst Digital, Inc. However,
due to problems with quality and delivery of the ballasts from the manufacturer,
we have also sought other opportunities. On May 25, 2004, subsequent to the end
of the fiscal year, we completed a share exchange transaction with Sierra
Minerals and Mining, Inc., a Nevada corporation ("Sierra"), pursuant to which
Sierra became our wholly-owned subsidiary. Through our new subsidiary, we now
intend to seek to develop several mining properties in Mexico. We have ceased
all operations relating to the sale of digital electronic ballasts.
We are in the exploration stage and will be in the exploration stage until
we achieve significant revenues from operations. In an exploration stage
company, management devotes most of its activities in acquiring and developing
mineral properties. There is no assurance that a commercially viable mineral
deposit exists on any of our properties. Further exploration will be required
before a final evaluation as to the economic and legal feasibility is
determined. Our ability to emerge from the exploration stage with respect to our
planned principal business activity is dependent upon our ability to attain
profitable operations. There is no guarantee that we will be able to identify,
acquire or develop mineral properties that will produce profitability. Moreover,
if a potential mineral property is identified which warrants acquisition or
participation, additional funds may be required to complete the acquisition or
participation, and we may not be able to obtain such financing on terms which
are satisfactory to us. There is substantial doubt regarding our ability to
continue as a going concern. Our management's plans for our continuation as a
going concern include financing our operations through sales of our unregistered
common stock. If we are not successful with our plans, investors could then lose
all or a substantial portion of their investment.
JOINT VENTURE
Through the Joint Venture Agreement entered by our wholly owed subsidiary,
we are engaged in the exploration and development of two gold mines located in
the State of Chihuahua, Mexico: the Cieneguita property and the Guazapares
property. In addition, we intend to identify and option additional gold and
silver properties within the Chihuahua region if possible.
On May 3, 2004 we entered into a Share Exchange Agreement and the
shareholders of Sierra, which closed on May 25, 2004. In consideration for the
all of the outstanding and issued shares of Sierra, we issued the shareholders
of Sierra 43,000,000 shares of our common stock. As a result of this
transaction, Sierra became our wholly-owned subsidiary.
Sierra is a party to a Joint Venture Agreement (the "JV Agreement"), dated
April 26, 2004 and amended on June 1, 2004, by and between Sierra and Minera Rio
Tinto S.A. de C.V., a Mexican company ("MRT"), pursuant to which Sierra and MRT
have agreed to explore and, if feasible, develop two mining properties, which
MRT has the option to acquire. The properties are located in the State of
Chihuahua, Mexico. Mr Ayub, a director of our company, is the President of MRT.
The JV agreement between Sierra and MRT requires Sierra to invest cash
totaling $1,000,000 by June 30, 2004, and to secure a $2,000,000 line of credit
for the joint venture within sixty days of signing the joint venture agreement.
The $1,000,000 investment will be reduced by $57,500 and $170,000 previously
advanced, plus accrued interest, upon commencement of the joint venture. MRT
will contribute the properties. The joint venture is to be owned 60% by Sierra
and 40% by MRT, however, should Sierra fail to secure the line of credit, its
interest shall be reduced to 30% and the interest of MRT shall be increased to
70%. We are in default of the agreement, as we did not fulfill our required
investment of $1,000,000 by June 30, 2004 and did not secure a line of credit
for $2,000,000. The date for obtaining the $1,000,000 investment has been
extended to November 10, 2004 and the date for obtaining the $2,000,000 line of
credit has been extended until November 30, 2004.
18
PRINCIPAL PRODUCT
Our principal product is the exploration, and if warranted, sale of
precious minerals. Since our properties have yet to be explored by us there is
no guarantee any ore body will ever be found.
CIENEGUITA MINES
Introduction
Cieneguita Mines, Chihuahua, Mexico will be the first mine that we intend
to explore and bring back into production, if possible. We believe this mine has
proven reserves and considerable infrastructure in order to return it to
production on an economical basis.
History
The Cieneguita mines were in production in the past. Over a four-year
period the Cieneguita Gold Mine was operated by Mineral Glamis La Cieneguita S.
De R.L. De C.V. ("Glamis"), a subsidiary of the Canadian company Glamis Gold LTD
(GLG.T). In 1995, Glamis mined and processed, 198,000 metric tons with a 2.33
gpt grade. Due to the fact the Cieneguita Gold Mine is a medium size gold
deposit, Glamis decided to stop production two years ago as it was not within
its objectives of develop and operate gold deposits containing at least one
million gold ounces. MRT entered an agreement with Corporative Minero, S.A. DE
C.V. on January 12, 2004 by which it acquired the right to explore and exploit
the Cieneguita mines and purchase the mines for $2,000,000. MRT also agreed to
pay the owner a royalty of $20 per ounce of gold produced and sold from the sale
of gold. However, in the event that the price of gold is in excess of $400, then
MRT is required to pay an additional $.10 per each ounce for every dollar over
$400.
Mine Location
The Cieneguita Gold Mine is located in Cieneguita Lluvia De Oro,
Municipality of Urique, in SW Chihuahua State, Mexico. The total distance from
Chihuahua City is 375 Km and it is located in an area of canyons called the Baja
Tarahumara. Cieneguita's geographical coordinates are 27(0) 08' Latitude North,
108(0) 01' Longitude West.
Geology
The mining potential existing in the Cieneguita mine region is
significant. There have been many small and medium size mines in operation in
the Cieneguita mine region during the past fifty years and some of them are
still operating at present.
A total of 51 diamond drill holes (6,700 meters) defined an auriferous
zone approximately 1,000 meters long by 200 wide, on such a zone two ore bodies
were drilled during 1981 and 1982. Later, two drilling programs were performed,
during 1994, 135 holes were drilled and 62 drill holes during 1997. Both
programs confirmed the delineation of the two ore bodies and more information
was obtained in order to do a more confidential ore reserves estimate. The
initial mining operation conducted by our company will focus in extracting and
processing the oxide and mixed ore reserves by the heap leach method.
19
Infrastructure
The Cieneguita mine region is accessible is by road, railroad or air. The
town site has the following services - cellular phone, radio communication (CB),
a tiny health center and elementary school. Water for human consumption comes
from nearby springs. By air from Chihuahua City it is a one and a half hour
flight. The site can also be accessed by railroad from Chihuahua City or by
road.
Claim Status and Licensing
The mining concessions of this project cover a total area 822 Hectares.
The leases are located 20km away from El Sauzal project, owned and being
developed by Glamis and are adjacent to mining claims owned by Dia Bras. The
project is permitted and has a complete environmental study.
Budget
We estimate that a proposed pre-drilling program on the Cieneguita
Property will cost approximately $131,000 with the goal of identifying drill
targets for a subsequent drilling program. This proposed pre-drilling program
would include reviewing available data to create a structural mineralization
framework, visits to similar geologies in region for comparative and information
purposes, detailed soil and rock sampling, resampling existing trenches, the
extension of existing trenches, the creation of new trenches, and ground-based
geophysics.
GUAZAPARES PROPERTY
Introduction
We believe that Guazapares Mines, Chihuahua, Mexico will be the second
mine in our portfolio to go into production. In addition to known reserves,
additional exploration will be undertaken on this site.
History
Mining operations were commenced on this site in the 17th century. Most of
the production on this site came from high-grade vein deposits mined by crude
underground methods. The main Guazapares breccia veins were discovered in about
1830. The major period of production was from 1870 to 1900 when there were four
silver pan amalgamation mills in operation. Although the deposits contain both
gold and silver, the early mills could not recover the gold as it is very fine
and occurs along cleavage planes in the pyrite. The mills of the time could only
process the oxidized portions of the veins, and the unoxidized, sulfide-bearing
material was usually left in the mines as pillars. The principal mine owner died
in 1890, after which the mines of Guazapares slowly sank into disrepair and
closed by 1900. In 1905, a US company consolidated most of the properties and
reopened some of the mine workings. The company ran into financial difficulties
during 1907 and work halted. Ramon Valenzuela then acquired the properties and
operated a five stamp mill until 1912. From 1958 to 1968, the Alaska-Juneau Gold
Mining Company operated a 150 ton/day flotation mill and developed the San Luis
Mine. A 270-meter deep inclined shaft was sunk to exploit the deposit. Noranda
Exploration, Inc. briefly optioned concessions in the area in the early 1990's.
Kennecott optioned the core concessions in 1993-94 and drilled a few holes in
one of the concessions. MRT either owns are has an option to purchase the claims
located in the Guazapares Mines. If the exploration is successful on the
optioned claims, then MRT intends to exercise its option and acquire the claim.
Mine Location
Guazapares is in the mining district with a history of large ore deposits.
The project is located in the in the Barranca section of Chihuahua State in
Mexico, at the interphase between the two main volcanic groups that conform the
bulk of the Sierra Madre Occidental. The exact location is 220 km to the SW of
Chihuahua city, in the geographic coordinates 27(0) 34'30" LN and 108(0) 18'15"
LW.
20
Geology
Recent drilling indicated gold resources in three different mineralized
structures. These structures are open in various directions and by drilling the
extensions; we believe additional ore reserves will be discovered. Exploration
will focus in defining an ore deposit big enough to attract the attention of
major companies and to delineate an ore reserve that can support a profitable
mid sized mining operation.
The Guazapares district is underlain by both the lower and upper volcanic
series that form most of the Sierra Madre Occidental. It is believed that the
volcanics uncomformably overlay Lower Cretaceous limestone and were deposited
onto an erosional surface with low to moderate relief.
The lower volcanic series is considered to be Upper Cretaceous-Lower
Tertiary in age and is composed of subaerial andesite-rhyolite flows and tuff.
North of Guazapares, along the Chinipas River, the basal sequence of the lower
section contains a thick section of a coarse-grained, massive rhyodacite tuff
that is overlain by fluvially reworked andesite with conglomerate-grit
interbeds. It is not known if the basal rhyodacite extends south to the
Guazapares district.
The lower volcanic series is the host rock of epithermal precious-base
metal deposits in the Sierra Madre Occidental. The mineral systems generally
occur at or near the top of the series and are often associated with rhyolite
stocks and/or flow domes that occur at the top of the lower volcanic series.
These domes may represent the earliest stage of the upper series volcanism. The
feeder stocks and dikes may be hydrothermally altered and weakly mineralized.
The bulk of upper volcanic series is largely ost-mineral and caps the partially
eroded mineral systems. It is Middle Tertiary in age and is composed of felsic
airfall tuff and ash flows.
Mineral Deposits
Guazapares is an epithermal silver-gold system that is fairly typical for
the Sierra Madre Occidental. Historically, the whole region has been a silver
producer, but the area of Guazapares has mined and placered only gold with
silver as a byproduct.
The mineralization is fault-controlled and is hosted in andesite at the
top of the lower volcanic sequence. The Sierra Madre epithermal deposits exhibit
a strong vertical zonation with high gold-silver-lead values near the top of the
system that grade downward into a central silver-lead-zinc (gold) zone, which in
turn, grades downward int a copper-zinc massive sulfide vein root zone. The
various descriptions of the district lead us to believe that the top of the
system is exposed in the historic workings and that the mineralization will
probably continue to a vertical depth of 300-500 meters below surface, with what
we believe will be improved silver and perhaps decreasing gold grades.
The mineralization is most often described as hydrothermally altered
phyrite-galena+sphalerite bearing breccia zones with altered rock and vein
fragments that are cut by a fine stockwork of quartz-sulfide veinlets. One to
several 0.5-2 meter wide, well-defined blue quartzpyrite-glaena+sphalerite veins
cut the breccia. The hanging wall is usually fractured and hydrothermally
altered with a gradational contact. The breccia vein footwall is usually well
defined.
The alteration types mentioned by other workers included propylitization,
argillization and silicification. Propylitization appears to be the most common
alteration present and is noted by chlorite, adularia, calcite, epidote and
isseminated pyrite. Silicification occurs in the breccia vein and fractured
hanging wall. The oxidized alteration tends to form prominent red to brown
stains.
Infrastructure
Guazapares has the infrastructure in place to support a mining operation.
It has power, water, railroad transportation and road access all year round. It
can be accessed via airplane to the Temoris or La Currita Mine airstrips, or by
land using the Chihuahua-El Pacifico railroad from Chihuahua, Chih. (10 - 12
hours) or Los Mochis, Sin. (6 hours) to the station Temoris, from where a 26 km
dirt road goes to the project passing through the towns of Temoris and
Guazapares. There is trained labor for mining available in the area.
21
Exploration Targets
We have selected several targets to commence drilling for their ease to
put back into production and for their potential yield in accordance with the
revenue projections of our company.
Claim Status & Licensing
Minera Rio Tinto, our joint venture partner, owns and controls, through
options with third parties, close to 90% of the mining claims in the district
around Guazapares. Other claims can be optioned if mineralized structures with
good geological potential are identified in areas not controlled by Minera Rio
Tinto. The best-known structures in this area are already in claims controlled
by Minera Rio Tinto.
Budget
We estimate that a proposed pre-drilling program on the Guazapares
Property will cost approximately $343,000 with the goal of identifying drill
targets for a subsequent drilling program. This proposed pre-drilling program
would include reviewing available data to create a structural mineralization
framework, visits to similar geologies in region for comparative and information
purposes, detailed soil and rock sampling, resampling existing trenches, the
extension of existing trenches, the creation of new trenches, and ground-based
geophysics.
EMPLOYEES
We currently have no employees and have no current plans to hire
employees. Instead, we rely on members of management to handle all matters
related to business development and business operations.
DESCRIPTION OF PROPERTY
We currently maintains a mailing address at 541 Howe Street, Suite 300,
Vancouver, BC, Canada BC V6C 2C2. Our telephone number at that address is (604)
684-1755. We pay no rent for use of this mailing address.
We have an interest in the Cieneguita property and the Guazapares property
each described above.
LEGAL PROCEEDINGS
We are not a party to any pending legal proceedings and no such
proceedings are known to be contemplated.
22
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Our executive officers and directors and their respective ages and
positions as of November 8, 2004 are as follows:
- ----------------------------------------------------------------------------------------------------------------------
Name Age Position
- ----------------------------------------------------------------------------------------------------------------------
Terry Fields 60 President, Secretary and Director
- ----------------------------------------------------------------------------------------------------------------------
Mario Ayub 51 Chief Executive Officer, Chief
Financial Officer and Director
- ----------------------------------------------------------------------------------------------------------------------
Directors are elected to serve until the next annual meeting of
stockholders and until their successors are elected and qualified. Currently
there are five seats on our board of directors.
Directors serve without cash compensation and without other fixed
remuneration. Officers are elected by the Board of Directors and serve until
their successors are appointed by the Board of Directors. Biographical resumes
of each officer and director are set forth below.
Biographical Information of Directors and Executive Officers follows:
TERRY FIELDS - PRESIDENT, SECRETARY AND DIRECTOR
Mr. Fields is an inactive attorney in the State of California and has been a
solo-practitioner during the last five years. Mr. Fields has been a licensed
attorney since June 15, 1969, and he has been a director for the following
public companies: Regent Ventures (2000-2003); American Power Technology Inc.
(1995 - 1998); Bishop Gold Inc. (February 2003 - present); Apogee Minerals Ltd
(February 1992 - present); and High Desert Mineral Resources Inc. (1989-2002).
MARIO AYUB - DIRECTOR
Mr. Ayub has served as the President of Minera Rio Tinto S.A. de C.V., a Mexican
company since 1994, and from 1997 to 2001 he was a director on the Board of
Metalline Mining Company and Sheffield Resources. He graduated in 1976 from the
Universidad Iberoamericana in Mexico City with a degree in chemical engineering,
and he has complete post-graduate studies in metallurgy at Comision de Fomento
Minero and South Dakota University.
CODE OF ETHICS
We have adopted a Code of Ethics and Business Conduct for Officers,
Directors and Employees that applies to all of our officers, directors and
employees.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, and the
regulations of the Securities and Exchange Commission promulgated thereunder,
require our directors, executive officers and persons who own more than 10% of a
registered class of our equity securities to file reports of ownership and
changes in ownership with the Securities and Exchange Commission, and provide us
with copies of such reports. Based solely on a review of the copies of the
reports furnished to us, or written representations that no reports were
required to be filed, we believe that during the fiscal year ended May 31, 2004
all Section 16(a) filing requirements applicable to our directors, officers, and
greater than 10% beneficial owners were complied with.
23
EXECUTIVE COMPENSATION
The following table sets forth executive compensation for fiscal years
ended February 29, 2004, 2003 and 2002. We have not paid any salaries or bonuses
to any of our officers from our inception through the date hereof. All of our
executive officers also serve as officers of and are paid by our operating
subsidiary. We refer to all of these officers collectively as our "named
executive officers."
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG TERM COMPENSATION
SECURITIES
SALARY UNDERLYING
NAME AND PRINCIPAL POSITION YEAR ($)(1) BONUS ($) OPTIONS (#S)
Terry Fields 2004 --- --- ---
President, Secretary 2003 --- --- 600,000
and Director 2002 --- --- ---
No officer or director received any cash remuneration from our Company
during the fiscal year. In March 2002, we adopted a Stock Compensation Plan for
the benefit of directors, officers, employees, consultants and advisors. On or
about March 1, 2003, the Board granted Terry Fields, our President an option to
acquire a total of up to 600,000 shares at an exercise price of $0.03 per share.
The option is valid for a period of 10 years from the date of its grant.
OPTIONS GRANTS DURING THE LAST FISCAL YEAR
We did not grant options to our named executive officers during the year
ended February 29, 2004.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
None of the named executive officers exercised options during the year
ended February 29, 2004.
DIRECTOR COMPENSATION
We do not currently compensate our directors for their services as
directors. Directors are reimbursed for their reasonable out-of-pocket expenses
incurred with attending board or committee meetings.
EMPLOYMENT AGREEMENTS
We presently do not have any employment agreements
24
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the quarter ending May 31, 2004, we completed a share exchange with
the shareholders of Sierra Minerals and Mining, Inc. ("Sierra"). Pursuant to the
terms of the share exchange agreement, we issued 43,000,000 shares of our common
stock in exchange for all of the outstanding shares of Sierra. As a result,
Sierra became a wholly owned subsidiary of our company. Sierra is incorporated
in the state of Nevada. Sierra had no activities, other than minor
organizational charges, and no operations other than having an option to acquire
an interest in a property in Mexico.
Sierra is a party to a joint venture agreement with Minera Rio Tinto S.A.
de C.V. ("MRT"), a Mexican company, pursuant to which Sierra and MRT have agreed
to explore and develop, if feasible, certain mining properties in the State of
Chihuahua, Mexico. Mr Ayub, a director of our company, has served as the
President of MRT since 1994. We have loaned, on behalf of Sierra, a total of
$227,500 to MRT. Of this amount, $167,500 is pursuant to an unsecured promissory
note payable due August 31, 2004 with interest at 8% per annum. In addition, at
February 28, 2004, we loaned $57,500 pursuant to an unsecured promissory note
payable, due April 9, 2004 at a rate of 8%. The remaining funds of $2,500 have
no terms and are non-interest bearing. The amounts loaned are not recoverable.
Should Sierra fail to complete the terms of the option agreement as discussed
below, Sierra will lose all right to the loaned amount. As such, we wrote off
the $57,500 previously advanced at February 28, 2004, as well as the $170,000
loaned to MRT during the first quarter ended May 31, 2004, for a total charge to
operations of $227,500.
The joint venture agreement between Sierra and MRT requires Sierra to
invest cash totaling $1,000,000 by June 30, 2004, and to secure a $2,000,000
line of credit for the joint venture within sixty days of signing the joint
venture agreement. The $1,000,000 investment will be reduced by $57,500 and
$170,000 previously advanced, plus accrued interest, upon commencement of the
joint venture. MRT will contribute the properties. The joint venture is to be
owned 60% by Sierra and 40% by MRT, however, should Sierra fail to secure the
line of credit, its interest shall be reduced to 30% and the interest of MRT
shall be increased to 70%. We are in default of the agreement, as we did not
fulfill our required investment of $1,000,000 by June 30, 2004 and did not
secure a line of credit for $2,000,000. We are currently looking for an
extension on the agreement.
25
CHANGES IN OUR CERTIFYING ACCOUNTANT
On or about June 17, 2004, Comiskey & Co., Denver, Colorado, notified us
that effective as of July 9, 2004, it was resigning as our auditor for the
fiscal year ending February 28, 2005, and subsequent years because of the
partner rotation requirements of the Sarbanes-Oxley Act of 2002.
The reports of Comiskey & Co. on our financial statements for the fiscal
years ending February 29, 2004 and February 28, 2003 did not contain any adverse
opinion or disclaimer of opinion and were not qualified or modified as to audit
scope or accounting principle; provided, however, Comiskey & Co. included a
paragraph in our financial statements stating that it was uncertain as to our
ability to continue as a going concern. During the two most recent fiscal years
(ended February 29, 2004 and February 28, 2003) and during the subsequent
interim period from March 1, 2004 until its date of resignation, there have been
no disagreements with Comiskey & Co. on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure. There
were no reportable events, as described in Item 304(a)(1)(v) of Regulation S-K,
during our two most recent fiscal years (ended February 29, 2004 and February
28, 2003) and from March 1, 2004 to the date of its resignation.
On July 15, 2004, our Board of Directors engaged the firm of Pannell Kerr
Forster, Vancouver, Canada, Independent Registered Public Accounting Firm, 7 th
Floor, Marine Building, 355 Burrard Street, Vancouver, B.C. ,Canada V6C 2G8, as
independent accountant to audit our financial statements for the period ending
February 28, 2005.
During the two most recent fiscal years (ended February 29, 2004 and
February 28, 2003), and from March 1, 2004 to July 15, 2004, neither our company
nor anyone on its behalf consulted with Pannell Kerr Forster, Vancouver, Canada,
Independent Registered Public Accounting Firm, regarding the application of
accounting principles to a specified transaction whether completed or
uncompleted, the type of audit opinion that might be rendered on the Company's
financial statements or as to any matter that was either the subject of a
disagreement with the previous independent auditor or was a reportable event.
26
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of our common stock as of November 8, 2004. The information in this
table provides the ownership information for:
o each person known by us to be the beneficial owner of more than 5%
of our Common Stock;
o each of our directors;
o each of our executive officers; and
o our executive officers and directors as a group.
Beneficial ownership has been determined in accordance with the rules and
regulations of the SEC and includes voting or investment power with respect to
the shares. Unless otherwise indicated, the persons named in the table below
have sole voting and investment power with respect to the number of shares
indicated as beneficially owned by them. Common stock beneficially owned and
percentage ownership is based on 86,894,324 shares outstanding on November 8,
2004, and assuming the exercise of any options or warrants or conversion of any
convertible securities held by such person, which are presently exercisable or
will become exercisable within 60 days after November 8, 2004.
- --------------------------------------------------------------------------------------------------------
Name and Address Number of Shares Beneficially Owned Percent of Class
- --------------------------------------------------------------------------------------------------------
Charles Malette 13,500,000 15.53%
1550 35 th Avenue West
Vancouver, B.C.
Canada, V6M1H2
- --------------------------------------------------------------------------------------------------------
Terry Fields (1) 600,000(3) *
No. 3 Poipu Drive
Honolulu, HI 96825
- --------------------------------------------------------------------------------------------------------
Mario Ayub(1) 21,500,000 24.74%
Pascual Orozco# 2117-A
Chihuahua, Chih. 31310
Mexico
- --------------------------------------------------------------------------------------------------------
Patrick Kephart (2) 10,166,666 11.70%
424 East Central Blvd., Ste. 342
Orlando, FL 32801
- --------------------------------------------------------------------------------------------------------
All officers and directors as a 22,100,000 25.43%
group
- --------------------------------------------------------------------------------------------------------
*Less than one percent
(1) Officer and/or director of our company.
(2) Includes the following shares of which Mr. Kephart may be deemed to be the
beneficial owner: (i) 5,733,333 shares owned by Tenfold Services Incorporated,
which is beneficially owned by the trustee of an irrevocable trust of which Mr.
Kephart is the grantor and also one of the beneficiaries of which Mr. Kephart
has no power to vote, buy or sell these shares; (ii) 716,667 shares owned by
Liberty Management, LLC Defined Benefit Plan, which is an ERISA-qualified plan
with a third party administrator and Mr. Kephart is the Managing Member of
Liberty Management, LLC ("Liberty Management"); (iii) 358,333 shares owned
27
by Jack F. Kephart - UTMA, of which Mr. Kephart is the grantor; (iv) 358,333
shares owned by Annabelle S. Kephart - UTMA, of which Mr. Kephart is the
grantor; and (v) an option to acquire up to 3,000,000 shares of our common stock
for a purchase price of $0.01 per share at any time on or before May 25, 2009.
(3) Represents 600,000 shares issuable upon exercise of a stock option.
28
DESCRIPTION OF SECURITIES TO BE REGISTERED
COMMON STOCK
We are authorized to issue up to 200,000,000 shares of common stock, no
par value. As of November 8, 2004, there were 86,894,324 shares of common stock
outstanding. Holders of the common stock are entitled to one vote per share on
all matters to be voted upon by the stockholders. Holders of common stock are
entitled to receive ratably such dividends, if any, as may be declared by the
Board of Directors out of funds legally available therefor. Upon the
liquidation, dissolution, or winding up of our company, the holders of common
stock are entitled to share ratably in all of our assets which are legally
available for distribution after payment of all debts and other liabilities and
liquidation preference of any outstanding common stock. Holders of common stock
have no preemptive, subscription, redemption or conversion rights. The
outstanding shares of common stock are validly issued, fully paid and
nonassessable.
We have appointed Corporate Stock Transfer, 3200 Cherry Creek Drive South,
Ste. 430, Denver, CO 80209, as transfer agent for our shares of common stock.
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Our Certificate of Incorporation, as amended, provide to the fullest
extent permitted by Colorado law, our directors or officers shall not be
personally liable to us or our shareholders for damages for breach of such
director's or officer's fiduciary duty. The effect of this provision of our
Certificate of Incorporation, as amended, is to eliminate our rights and our
shareholders (through shareholders' derivative suits on behalf of our company)
to recover damages against a director or officer for breach of the fiduciary
duty of care as a director or officer (including breaches resulting from
negligent or grossly negligent behavior), except under certain situations
defined by statute. We believe that the indemnification provisions in our
Articles of Incorporation, as amended, are necessary to attract and retain
qualified persons as directors and officers.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act" or "Securities Act") may be permitted to directors,
officers or persons controlling us pursuant to the foregoing provisions, or
otherwise, we have been advised that in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable.
PLAN OF DISTRIBUTION
Each Selling Stockholder (the "Selling Stockholders") of our common stock
and any of their pledgees, assignees and successors-in-interest may, from time
to time, sell any or all of their shares of common stock on the trading market
or any other stock exchange, market or trading facility on which the shares are
traded or in private transactions. These sales may be at fixed or negotiated
prices. A selling stockholder may use any one or more of the following methods
when selling shares:
o ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
o block trades in which the broker-dealer will attempt to sell
the shares as agent but may position and resell a portion of
the block as principal to facilitate the transaction;
o purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
o an exchange distribution in accordance with the rules of the
applicable exchange;
o privately negotiated transactions;
o settlement of short sales entered into after the date of this
prospectus;
29
o broker-dealers may agree with the Selling Stockholders to sell
a specified number of such shares at a stipulated price per
share;
o a combination of any such methods of sale;
o through the writing or settlement of options or other hedging
transactions, whether through an options exchange or
otherwise; or
o any other method permitted pursuant to applicable law.
The Selling Stockholders may also sell shares under Rule 144 under the
Securities Act of 1933, as amended (the "Securities Act"), if available, rather
than under this prospectus.
Broker-dealers engaged by the Selling Stockholders may arrange for other
brokers-dealers to participate in sales. Broker-dealers may receive commissions
or discounts from the Selling Stockholders (or, if any broker-dealer acts as
agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated. Each Selling Stockholder does not expect these commissions and
discounts relating to its sales of shares to exceed what is customary in the
types of transactions involved.
In connection with the sale of our common stock or interests therein, the
Selling Stockholders may enter into hedging transactions with broker-dealers or
other financial institutions, which may in turn engage in short sales of the
common stock in the course of hedging the positions they assume. The Selling
Stockholders may also sell shares of our common stock short and deliver these
securities to close out their short positions, or loan or pledge the common
stock to broker-dealers that in turn may sell these securities. The Selling
Stockholders may also enter into option or other transactions with
broker-dealers or other financial institutions or the creation of one or more
derivative securities which require the delivery to such broker-dealer or other
financial institution of shares offered by this prospectus, which shares such
broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such transaction).
The Selling Stockholders and any broker-dealers or agents that are
involved in selling the shares may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales. In such event, any
commissions received by such broker-dealers or agents and any profit on the
resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act. Each Selling Stockholder has
informed the Company that it does not have any agreement or understanding,
directly or indirectly, with any person to distribute the Common Stock.
We are required to pay certain fees and expenses incurred by our company
incident to the registration of the shares. We have agreed to indemnify the
Selling Stockholders against certain losses, claims, damages and liabilities,
including liabilities under the Securities Act.
Because Selling Stockholders may be deemed to be "underwriters" within the
meaning of the Securities Act, they will be subject to the prospectus delivery
requirements of the Securities Act. In addition, any securities covered by this
prospectus which qualify for sale pursuant to Rule 144 under the Securities Act
may be sold under Rule 144 rather than under this prospectus. Each Selling
Stockholder has advised us that they have not entered into any agreements,
understandings or arrangements with any underwriter or broker-dealer regarding
the sale of the resale shares. There is no underwriter or coordinating broker
acting in connection with the proposed sale of the resale shares by the Selling
Stockholders.
We agreed to keep this prospectus effective until the earlier of (i) the
date on which the shares may be resold by the Selling Stockholders without
registration and without regard to any volume limitations by reason of Rule
144(e) under the Securities Act or any other rule of similar effect or (ii) all
of the shares have been sold pursuant to the prospectus or Rule 144 under the
Securities Act or any other rule of similar effect. The resale shares will be
sold only through registered or licensed brokers or dealers if required under
applicable state securities laws. In addition, in certain states, the resale
shares may not be sold unless they have been registered or qualified for sale
30
in the applicable state or an exemption from the registration or qualification
requirement is available and is complied with.
Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of the resale shares may not simultaneously engage
in market making activities with respect to our common stock for a period of two
business days prior to the commencement of the distribution. In addition, the
Selling Stockholders will be subject to applicable provisions of the Exchange
Act and the rules and regulations thereunder, including Regulation M, which may
limit the timing of purchases and sales of shares of our common stock by the
Selling Stockholders or any other person. We will make copies of this prospectus
available to the Selling Stockholders and have informed them of the need to
deliver a copy of this prospectus to each purchaser at or prior to the time of
the sale.
PENNY STOCK
The Securities and Exchange Commission has adopted Rule 15g-9 which
establishes the definition of a "penny stock," for the purposes relevant to us,
as any equity security that has a market price of less than $5.00 per share or
with an exercise price of less than $5.00 per share, subject to certain
exceptions. For any transaction involving a penny stock, unless exempt, the
rules require:
o that a broker or dealer approve a person's account for transactions
in penny stocks; and
o the broker or dealer receive from the investor a written agreement
to the transaction, setting forth the identity and quantity of the
penny stock to be purchased.
In order to approve a person's account for transactions in penny stocks,
the broker or dealer must
o obtain financial information and investment experience objectives of
the person; and
o make a reasonable determination that the transactions in penny
stocks are suitable for that person and the person has sufficient
knowledge and experience in financial matters to be capable of
evaluating the risks of transactions in penny stocks.
The broker or dealer must also deliver, prior to any transaction in a
penny stock, a disclosure schedule prescribed by the Commission relating to the
penny stock market, which, in highlight form:
o sets forth the basis on which the broker or dealer made the
suitability determination; and
o that the broker or dealer received a signed, written agreement from
the investor prior to the transaction.
Disclosure also has to be made about the risks of investing in penny
stocks in both public offerings and in secondary trading and about the
commissions payable to both the broker-dealer and the registered representative,
current quotations for the securities and the rights and remedies available to
an investor in cases of fraud in penny stock transactions. Finally, monthly
statements have to be sent disclosing recent price information for the penny
stock held in the account and information on the limited market in penny stocks.
31
SELLING STOCKHOLDERS
The table below sets forth information concerning the resale of the shares
of common stock by the selling stockholders. We will not receive any proceeds
from the resale of the common stock by the selling stockholders. We will receive
proceeds from the exercise of the warrants unless the selling stockholders
exercise the warrants on a cashless basis. Assuming all the shares registered
below are sold by the selling stockholders, none of the selling stockholders
will continue to own any shares of our common stock.
The following table also sets forth the name of each person who is
offering the resale of shares of common stock by this prospectus, the number of
shares of common stock beneficially owned by each person, the number of shares
of common stock that may be sold in this offering and the number of shares of
common stock each person will own after the offering, assuming they sell all of
the shares offered.
Total Shares of Total Shares of Beneficial Percentage of Beneficial Percentage of
Common Stock Percentage Common Stock Ownership Common Stock Ownership Common Stock
Issuable Upon of Common Included in Before Owned Before After the Owned After
Conversion of Stock, Prospectus(1) the Offering* Offering* Offering (5) Offering (5)
NAME Debentures, Assuming
Additional Full
Investment Rights Conversion
and/or Warrants
- ---------------------- ------------------- ------------- --------------- -------------- --------------- -------------- -------------
Bristol Investment 13,500,000 13.45% Up to 4,563,758(2) 4.9% -- --
Fund, Ltd. (3) 27,000,000
shares of
common
stock (4)
Alpha Capital 13,500,000 13.45% Up to 4,563,758(2) 4.9% -- --
Aktiengesellschaft 27,000,000
(3) shares of
common
stock (4)
Stonestreet Limited 13,500,000 13.45% Up to 4,563,758(2) 4.9% -- --
Partnership (3) 27,000,000
shares of
common
stock (4)
Bristol Capital 1,500,000 1.70% Up to 1,500,000 1.70% -- --
LLC(6 3,000,000
shares of
common
stock (6)
32
Liberty Management 3,000,000 3.39% Up to 3,000,000 3.39% -- --
LLC(7) 3,000,000
shares of
common
stock (7)
T.R. Winston & 435,000 ** Up to 435,000 ** -- --
Company, LLC(8) 435,000
shares of
common
stock (8)
Diana Derycz-Kessler 3,915,000 4.31% Up to 3,915,000 4.31% -- --
(9) 3,915,000
shares of
common
stock (9)
477291 BC Ltd.(10) 200,000 ** Up to 200,000 ** -- --
200,000
shares of
common
stock (10)
Jason Sunda(11) 400,000 ** Up to 400,000 ** -- --
400,000
shares of
common
stock (11)
Lance Morgan(12) 500,000 ** Up to 200,000 ** -- --
500,000
shares of
common
stock (12)
CGK Capital, LLC(13) 722,190 ** Up to 722,190 ** -- --
722,190
shares of
common
stock (13)
NBCN Place du 200,000 ** Up to 200,000 ** -- --
Canada (14) 200,000
shares of
common
stock (14)
33
Dean Duke (15) 200,000 ** Up to 200,000 ** -- --
200,000
shares of
common
stock (15)
Douglas Casey(16) 800,000 ** Up to 800,000 ** -- --
800,000
shares of
common
stock (16)
Sanovest Holdings(17) 500,000 ** Up to 500,000 ** -- --
500,000
shares of
common
stock (17)
Dhir Enterprises(18) 500,000 ** Up to 500,000 ** -- --
500,000
shares of
common
stock (18)
* These columns represents the aggregate maximum number and percentage of shares
that the selling stockholders can own at one time (and therefore, offer for
resale at any one time) due to their 4.9% limitation with respect to the
remaining selling stockholders. **Less than one percent.
The number and percentage of shares beneficially owned is determined in
accordance with Rule 13d-3 of the Securities Exchange Act of 1934, and the
information is not necessarily indicative of beneficial ownership for any other
purpose. Under such rule, beneficial ownership includes any shares as to which
the selling stockholders has sole or shared voting power or investment power and
also any shares, which the selling stockholders has the right to acquire within
60 days. The actual number of shares of common stock issuable upon the
conversion of the convertible debentures is subject to adjustment depending on,
among other factors, the future market price of the common stock, and could be
materially less or more than the number estimated in the table.
(1) Includes a good faith estimate of the shares issuable upon conversion of the
secured convertible debentures based on current market prices and a good faith
estimate of the shares issubale upon exercise of the warrants and additional
investment right, subject to antidilution and price protection. Because the
number of shares of common stock issuable upon conversion of the secured
convertible debentures is dependent in part in certain circumstances upon the
market price of the common stock prior to a conversion, the actual number of
shares of common stock that will be issued upon conversion may fluctuate daily
and cannot be determined at this time. Further, the
34
(2) The actual number of shares of common stock offered in this prospectus, and
included in the registration statement of which this prospectus is a part,
includes such additional number of shares of common stock as may be issued or
issuable upon conversion of the convertible debentures and exercise of the
warrants and additional investment rights by reason of any stock split, stock
dividend or similar transaction involving the common stock, in accordance with
Rule 416 under the Securities Act of 1933. However, the selling stockholders
have contractually agreed to restrict their ability to convert their convertible
debentures or exercise their warrants and additional investment rights and
receive shares of our common stock such that the number of shares of common
stock held by them in the aggregate and their affiliates after such conversion
or exercise does not exceed 4.9% of the then issued and outstanding shares of
common stock as determined in accordance with Section 13(d) of the Exchange Act.
Accordingly, the number of shares of common stock set forth in the table for the
selling stockholders exceeds the number of shares of common stock that the
selling stockholders could own beneficially at any given time through their
ownership of the convertible debentures and the warrants. In that regard, the
beneficial ownership of the common stock by the selling stockholder set forth in
the table is not determined in accordance with Rule 13d-3 under the Securities
Exchange Act of 1934, as amended.
(3) Bristol Investment Fund, Ltd. is a private investment fund that is owned by
its investors and managed by Bristol Capital Advisors, LLC (f/k/a Bristol DLP,
LLC). Paul Kessler is the manager of Bristol Capital Advisors, LLC, and as such
has voting and investment control over the securities held by Bristol Investment
Fund, Ltd. Mr. Kessler disclaims beneficial ownership of these securities. Alpha
Capital Aktiengesellschaft is a private investment fund that is owned by all its
investors and managed by Mr. Konrad Ackerman. Mr. Konrad Ackerman may be deemed
the control person of the shares owned by such entity, with final voting power
and investment control over such shares. Stonestreet Limited Partnership is a
private investment fund that is owned by all its investors and managed by Ms.
Libby Leonard and Mr. Michael Finkelstein. Ms. Libby Leonard and Mr. Michael
Finkelstein may be deemed control persons of the shares owned by such entity,
with final voting power and investment control over such shares.
(4) Such figure represents (i) 9,000,000 shares of common stock that are
issuable upon exercise of the secured convertible debentures issued pursuant to
the August 2004 financing; (ii) 9,000,0000 shares of common stock issuable upon
exercise of the common stock purchase warrants issued in connection with the
August 2004 financing; and (iii) 9,000,000 shares of common stock issuable upon
exercise of the additional investment right issued in connection with the August
2004 financing.
(5) Assumes that all securities registered will be sold.
(6) Paul Kessler is the manager of Bristol Capital, LLC, and as such has voting
and investment control over the securities held by Bristol Capital, LLC. Mr.
Kessler disclaims beneficial ownership of these securities. Such figure
represents 3,000,000 shares of common stock underlying a secured convertible
debenture convertible at $.02 per share.
(7) Patrick Kephart is the sole member of Liberty Management, LLC, and as such
has voting and investment control over the securities held by Liberty
Management, LLC. Such figure represents 1,500,000 shares of common stock and
1,500,000 shares of common stock underlying a common stock purchase warrant
exercisable at $.01 per share.
(8) Such figure represents 435,000 shares of common stock underlying a common
stock purchase warrant exercisable at $.01 per share.
(9) Such figure represents 3,915,000 shares of common stock underlying a common
stock purchase warrant exercisable at $.01 per share.
(10) Such figure represents 100,000 shares of common stock and 100,000 shares of
common stock underlying a common stock purchase warrant exercisable at $.20 per
share. John Norton is the beneficial owner of the shares owned by 477291 BC Ltd.
(11) Such figure represents 200,000 shares of common stock and 200,000 shares of
common stock underlying a common stock purchase warrant exercisable at $.20 per
share.
35
(12) Such figure represents 250,000 shares of common stock and 250,000 shares of
common stock underlying a common stock purchase warrant exercisable at $.20 per
share.
(13) Such figure represents 361,095 shares of common stock and 361,095 shares of
common stock underlying a common stock purchase warrant exercisable at $.20 per
share. David Galland is the beneficial owner of the shares owned by CGK Capital.
(14) Such figure represents 100,000 shares of common stock and 100,000 shares of
common stock underlying a common stock purchase warrant exercisable at $.20 per
share. United European Bank is the beneficial owner of the shares owned by NBCN
Place du Canada.
(15) Such figure represents 100,000 shares of common stock and 100,000 shares of
common stock underlying a common stock purchase warrant exercisable at $.20 per
share.
(16) Such figure represents 400,000 shares of common stock and 400,000 shares of
common stock underlying a common stock purchase warrant exercisable at $.20 per
share.
(17) Such figure represents 250,000 shares of common stock and 250,000 shares of
common stock underlying a common stock purchase warrant exercisable at $.20 per
share. Sanowar Family Trust is the beneficial owner of the shares owned by
Sanovest Holdings.
(18) Such figure represents 250,000 shares of common stock and 250,000 shares of
common stock underlying a common stock purchase warrant exercisable at $.20 per
share. Rakesh Dhir is the beneficial owner of the shares owned by Dhir
Enterprises.
TERMS OF SECURED CONVERTIBLE DEBENTURES
To obtain funding for our ongoing operations, in August 2004, we entered
into a Securities Purchase Agreement with Alpha Capital Aktiengesellschaft,
Bristol Investment Fund, Ltd. and Stonestreet Limited Partnership, which are
accredited institutional investors for the issuance of an aggregate of
$1,350,000 principal amount secured convertible debentures with an original
issue discount of 25%. On August 25, 2004, we closed on an aggregate principal
amount of $675,000 of secured convertible debentures and received gross proceeds
of $500,000. The second closing on an additional $675,000 will be on or before
the fifth day following the effective date of this registration statement. The
secured convertible debentures are due one year from the date of issuance. The
secured convertible debentures are convertible at the option of the holders into
our shares of common stock at a fixed conversion price of $0.10 per share.
However, in the event that our intraday trading price during any 20 trading day
period is less than $.10 for ten nonconsecutive or consecutive days, then the
conversion price will be the lesser of $.10 or 80% of the average of the lowest
three intraday trading prices during the 20 trading days prior to such
conversion.
In connection with the Securities Purchase Agreement, we also issued
warrants to purchase an aggregate of 13,500,000 shares of our common stock and
an additional investment right to purchase an aggregate of 13,500,000 shares to
the investors. The term of the warrants is five years and the exercise price is
$0.12 per share. The additional investment right provides each investor with the
right to purchase up to an aggregate of 13,500,000 shares of common stock at
$.10 per share for a period equal to the earlier of the six month anniversary of
the effective date of this registration statement or the 18 month anniversary of
the first closing date of this financing. Furthermore we entered into a
Registration Rights Agreement in order to register the above-referenced
securities and a Security Agreement that provides the investor with the first
priority security interest in certain of our assets. These securities were
issued pursuant to an exemption from registration pursuant to Section 4 (2) of
the Securities Act of 1933.
The selling stockholders have contractually agreed to restrict their
ability to convert their secured convertible notes or exercise their warrants
and receive shares of our common stock such that the number of shares of common
stock held by them in the aggregate and their affiliates after such conversion
or exercise does not exceed 4.99% of the then issued and outstanding shares of
common stock.
36
A complete copy of the Securities Purchase Agreement and related documents
are filed with the SEC as exhibits to our Form SB-2 relating to this prospectus.
SAMPLE CONVERSION CALCULATION
The number of shares of common stock issuable upon conversion of the
secured convertible debentures is determined by dividing that portion of the
principal of the notes to be converted by the conversion price. For example,
assuming conversion of $1,350,000 of debentures at the conversion price of $.10
the number of shares issuable upon conversion would be:
$1,350,000/$.10 = 13,500,000 shares
in the event that our intraday trading price during any 20 trading day
period is less than $.10 for ten nonconsecutive or consecutive days, then the
conversion price will be the lesser of $.10 or 80% of the average of the lowest
three intraday trading prices during the 20 trading days prior to such
conversion. The following is an example of the amount of shares of our common
stock that are issuable, upon conversion of the debentures and assuming that our
intraday trading price during any 20 trading day period is less than $.10 for
ten nonconsecutive or consecutive days, based on market prices 25%, 50% and 75%
below $0.10.
Number % of
% Below Price Per With Discount of Shares Outstanding
Market Share at 20% Issuable Stock
- ------- ------ ------ ---------- -----
25% $.0750 $.0600 22,500,000 20.57%
50% $.0500 $.0400 33,750,000 27.97%
75% $.0250 $.0200 67,500,000 43.72%
LEGAL MATTERS
Sichenzia Ross Friedman Ference LLP, New York, New York will issue an
opinion with respect to the validity of the shares of common stock being offered
hereby.
EXPERTS
Comiskey & Co., Certified Public Accountants, have audited, as set forth
in their report thereon appearing elsewhere herein, the financial statements at
February 29, 2004 and February 28, 2003 and for the years then ended that appear
in the prospectus. The financial statements referred to above are included in
this prospectus with reliance upon the independent registered public accounting
firm's opinion based on their expertise in accounting and auditing.
Pannell Kerr Forster, Vancouver, Canada, Independent Chartered
Accountants, have audited, as set forth in their report thereon appearing
elsewhere herein, the of Sierra Minerals and Mining Inc.'s financial statements
for the period ended June 30, 2004 that appear in the prospectus. The financial
statements referred to above are included in this prospectus with reliance upon
the independent registered public accounting firm's opinion based on their
expertise in accounting and auditing.
AVAILABLE INFORMATION
We have filed a registration statement on Form SB-2 under the Securities
Act of 1933, as amended, relating to the shares of common stock being offered by
this prospectus, and reference is made to such registration statement. This
prospectus constitutes the prospectus of Sunburst Acquisitions IV, Inc., filed
as part of the registration statement, and it does not contain all information
in the registration statement, as certain portions have been omitted in
accordance with the rules and regulations of the Securities and Exchange
Commission.
37
We are subject to the informational requirements of the Securities
Exchange Act of 1934 which requires us to file reports, proxy statements and
other information with the Securities and Exchange Commission. Such reports,
proxy statements and other information may be inspected at public reference
facilities of the SEC at Judiciary Plaza, 450 Fifth Street N.W., Washington D.C.
20549. Copies of such material can be obtained from the Public Reference Section
of the SEC at Judiciary Plaza, 450 Fifth Street N.W., Washington, D.C. 20549 at
prescribed rates. Because we file documents electronically with the SEC, you may
also obtain this information by visiting the SEC's Internet website at
http://www.sec.gov.
38
INDEX TO FINANCIAL STATEMENTS
SUNBURST ACQUISITIONS IV, INC.
For the Three Months Ended August 31, 2004 and August 31, 2003
Consolidated Balance Sheets August 31, 2004 (Unaudited) F-1
Consolidated Statements of Operations for the three
months ended August 31, 2004 and 2003 (Unaudited) F-2
Consolidated Statements of Cash Flows For the three months
ended August 31, 2004 and 2003 (Unaudited) F-3
Notes to the Consolidated Financial Statements (Unaudited) F-4
For the Years Ended February 29, 2004 and February 28, 2003
Report of Independent Registered Public Accounting Firm F-6
Consolidated Balance Sheets F-7
Consolidated Statement of Operations F-8
Consolidated Statement of Cash Flows F-9
Consolidated Statement of Stockholders Equity F-10
Notes to Consolidated Financial Statements F-11
Financials for Sierra Minerals and Mining Inc.
Report of Independent Chartered Accountants F-16
Balance Sheet F-17
Statement of Loss F-18
Statement of Stockholders Deficiency F-19
Statement of Cash Flows F-20
Notes to Financial Statements F-21
Pro Forma Condensed Consolidated Financial Statements F-27
39
SUNBURST ACQUISITIONS IV, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
AUGUST 31
(UNAUDITED)
================================================================================
2004
- --------------------------------------------------------------------------------
ASSETS
CURRENT
Cash $ 365,955
Accounts receivable 8,378
Other current assets 6,983
- --------------------------------------------------------------------------------
TOTAL ASSETS $ 381,316
================================================================================
LIABILITIES
CURRENT
Accounts payable and accrued liabilities $ 80,619
Convertible debentures (note 3) 581,250
Notes payable to related parties 28,500
Customer Deposits 45,747
- --------------------------------------------------------------------------------
TOTAL LIABILITIES 736,116
- --------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY (DEFICIT)
CAPITAL STOCK
AUTHORIZED
20,000,000 Preferred stock with no par value
200,000,000 Common stock with no par value
ISSUED
86,618,692 Shares of Common stock 2,495,978
ADDITIONAL PAID-IN CAPITAL FROM STOCK OPTIONS 194,375
ADDITIONAL PAID-IN CAPITAL 16
DEFICIT ACCUMULATED DURING THE DEVELOPMENT STAGE (3,051,662)
ACCUMULATED OTHER COMPREHENSIVE INCOME 6,493
- --------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (354,800)
- --------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 381,316
================================================================================
F-1
SUNBURST ACQUISITIONS IV, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
======================================================================================================================
Period Ended
from Inception
(August 27, 1997) Three Months Ended August 31, Six Months Ended August 31,
to August 31, 2004 2004 2003 2004 2003
- ----------------------------------------------------------------------------------------------------------------------
REVENUES $ 246,395 $ 0 $ 0 $ 0 $ 13,579
- ----------------------------------------------------------------------------------------------------------------------
EXPENSES
Cost of goods sold 24,721 0 0 0 10,786
Selling, general and administrative 1,593,278 114,203 5,565 162,818 3,407
- ----------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES 1,617,999 114,203 5,565 162,818 14,193
- ----------------------------------------------------------------------------------------------------------------------
NET OPERATING LOSS (1,371,604) (114,203) (5,565) (162,818) (614)
OTHER INCOME AND EXPENSE
Interest expense (186,200) (142,917) (1,152) (142,917) (2,303)
Gain on sale of securities 469,863 0 0 0 0
Write down of Acquisition of resource
properties (note 2) (742,500) (85,000) 0 (742,500) 0
- ----------------------------------------------------------------------------------------------------------------------
NET LOSS FROM CONTINUING OPERATIONS (1,830,441) (342,120) (6,717) (1,048,235) (2,917)
DISCONTINUED OPERATIONS
Loss on disposal
HollywoodBroadcasting.com (2,066,371) 0 0 0 0
Gain on disposition of discontinued
operations 845,150 0 0 0 0
- ----------------------------------------------------------------------------------------------------------------------
NET LOSS (3,051,662) (342,120) (6,717) (1,048,235) (2,917)
ACCUMULATED DEFICIT, BEGINNING OF PERIOD 0 (2,482,042) (1,642,666) (2,003,427) (1,646,466)
- ----------------------------------------------------------------------------------------------------------------------
ACCUMULATED DEFICIT, END OF PERIOD $ (3,051,662) $ (2,824,162) $ (1,649,383) $ (3,051,662) $(1,649,383)
- ----------------------------------------------------------------------------------------------------------------------
OTHER COMPREHENSIVE INCOME (LOSS)
Unrealized foreign exchange income
(loss) 6,493 (1,160) (1,496) (2,436) 10,114
- ----------------------------------------------------------------------------------------------------------------------
TOTAL COMPREHENSIVE LOSS $ (3,045,169) $ (343,280) $ (8,213) $ (1,050,671) $ 7,197
- ----------------------------------------------------------------------------------------------------------------------
TOTAL LOSS PER SHARE
Loss from continuing operations $ (0.00) $ (0.00) $ (0.02) $ (0.00)
Loss from discontinued operations (0.00) (0.00) (0.00) (0.00)
Gain on disposal of discontinued
operations (0.00) (0.00) (0.00) (0.00)
- ----------------------------------------------------------------------------------------------------------------------
TOTAL LOSS $ (0.00) $ (0.00) $ (0.02) $ (0.00)
- ----------------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE NUMBER OF SHARES OF
COMMON STOCK OUTSTANDING 84,578,702 35,457,597 61,555,963 35,457,597
======================================================================================================================
F-2
SUNBURST ACQUISITIONS IV, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
========================================================================================================================
Period from Inception
(August 27, 1997) Six Months Ended August 31,
to August 31, 2004 2004 2003
- ------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net loss $(3,051,662) $(1,048,235) $ (2,917)
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET CASH FLOWS
Write-off of deposit for exploration expenditures 0 57,500 0
Acquisition of resource properties (note 2) 490,000 490,000 0
Discount on Convertible Debentures (note 3) 142,917 142,917 0
Gain on sale of securities (469,863) 0 0
Foreign exchange loss, unrealized 6,493 (2,436) 10,114
Issuance of options 225,375 0 0
Depreciation 52,332 0 0
Allowance for doubtful accounts 88,360 0 0
Discontinued operations (846,150) 0 0
(Increase) decrease in inventory (57,705) 0 22,245
Decrease in other assets (482,240) (503) (87,692)
(Increase) decrease in accounts receivable (29,876) (172) 12,128
Increase (decrease) in accrued expenses 150,218 0 2,302
Increase in customer deposits 45,747 938 41,712
Increase in accounts payable 183,658 58,426 3,734
- ------------------------------------------------------------------------------------------------------------------------
NET CASH FLOWS FROM OPERATING ACTIVITIES (3,552,396) (301,565) 1,717
- ------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of investment (22,353) 0 0
Maturity of investment 22,353 0 0
Proceeds from sale of securities 394,863 0 0
Purchase of property and equipment (208,585) 0 0
- ------------------------------------------------------------------------------------------------------------------------
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 186,278 0 0
- ------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Proceeds of sale of discontinued operations 1,000 0 0
Related party debt 691,056 0 0
Proceeds from notes payable to stockholders 548,191 0 0
Proceeds from notes payable 100,500 0 0
Proceeds from convertible debenture 438,333 408,333 0
Paid-in capital 16 0 0
Stock subscriptions 196,135 196,135 0
Proceeds from exercise of options 68,000 35,000 0
Issuance of common stock 1,688,842 5,975 0
- ------------------------------------------------------------------------------------------------------------------------
CASH PROVIDED BY FINANCING ACTIVITIES 3,732,073 645,443 0
- ------------------------------------------------------------------------------------------------------------------------
INFLOW OF CASH AND CASH EQUIVALENTS 365,955 343,878 1,717
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 0 22,077 9,577
- ------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 365,955 $ 365,955 $ 11,294
========================================================================================================================
F-3
SUNBURST ACQUISITIONS IV, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX-MONTH ENDED AUGUST 31, 2004
(UNAUDITED)
================================================================================
1. MANAGEMENT'S REPRESENTATION OF INTERIM FINANCIAL INFORMATION
These unaudited financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America
for interim financial information. These financial statements are
condensed and do not include all disclosures required for annual financial
statements. The organization and business of the Company, accounting
policies followed by the Company and other information are contained in
the notes to the Company's audited financial statements filed as part of
the Company's February 29, 2004 Form 10KSB.
In the opinion of the Company's management, these financial statements
reflect all adjustments necessary to present fairly the Company's
financial position at August 31, 2004 and the results of operations for
the three-months and six-months ended August 31, 2004 and from inception
to August 31, 2004, and the statement of cash flows for the six-months
ended August 31, 2004. The results of operations for the three and six
months ended August 31, 2004 are not necessarily indicative of the results
to be expected for the entire year.
2. ACQUISITION OF SIERRA MINERALS AND MINING, INC.
During the quarter ending May 31, 2004, the Company completed a share
exchange with the shareholders of Sierra Minerals and Mining, Inc.
("Sierra"). Pursuant to the terms of the share exchange agreement, the
Company issued 43,000,000 shares of its common stock in exchange for all
of the outstanding shares of Sierra. As a result, Sierra became a wholly
owned subsidiary of the Company. The common shares were valued at $0.01
per share. Finder's fees of 6,000,000 options to purchase the same number
of shares in the Company at $0.01 per share are payable to non-related
parties in connection with this share exchange. The 6 million options have
been expensed for $60,000 at $0.01 per share. The options have been issued
and 1.5 million options were exercised in the quarter ending August 31,
2004. Sierra is a company incorporated in the state of Nevada that was
incorporated just prior to the share exchange with the Company. Sierra had
no activities or operations other than having an option to acquire an
interest in a property in Mexico, as noted below. Due to the uncertainty
of the future revenue to be generated from this property the cost of the
acquisition of $430,000 and the expense of the 6 million options issued of
$60,000 have been charged to operations for the six months ending August
31, 2004.
Sierra is a party to a joint venture agreement with Minera Rio Tinto S.A.
de C.V., a Mexican company ("MRT") pursuant to which Sierra and MRT have
agreed to explore and develop, if feasible, certain mining properties in
the state of Chihuahua, Mexico. During the period the Company loaned a
total of $195,000 to MRT pursuant to an unsecured promissory note payable
due August 31, 2004 with interest at 8% per annum (the Company had
previously funded $57,500 during the year ended February 29, 2004 under
similar terms) to be applied to the $1,000,000 funding requirement as
stated below. Due to the uncertainty of the future revenue to be generated
from this property the $195,000 loan as well as the $57,500 funding were
charged to operations along with the $430,000 and $60,000 described above
for the six months ending August 31, 2004.
The joint venture agreement between Sierra and MRT requires Sierra to fund
cash totalling $1,000,000 by June 30, 2004, and to secure a $2,000,000
line of credit for the joint venture within sixty days of signing the
joint venture agreement. The $1,000,000 funding will be reduced by $57,500
and $195,000 previously funded, plus accrued interest, upon commencement
of the joint venture. MRT will contribute the properties. The joint
venture is to be owned 60% by Sierra and 40% by MRT, however, should
Sierra fail to secure the line of credit, its interest shall be reduced to
30% and the interest of MRT shall be increased to 70%. The Company is in
default of the agreement, as it did not fulfil its required funding of
$1,000,000 by June 30, 2004 and did not secure a line of credit for
$2,000,000. On October 1, 2004, the Company has signed an extension to
provide the required funding of $1,000,000 by November 10, 2004. The
Company will also have until November 30, 2004, to secure the $2,000,000
line of credit.
F-4
SUNBURST ACQUISITIONS IV, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX-MONTH ENDED AUGUST 31, 2004
(UNAUDITED)
================================================================================
3. CONVERTIBLE DEBENTURES
On August 25, 2004, the company entered into a Securities Purchase
Agreement (the "Agreement"), with Bristol Investment Fund, Ltd., Alpha
Capital AG and Stonestreet LP (the "Purchasers"). Pursuant to the
Agreement, the Purchasers agreed to purchase up to $1,350,000 in face
amount of Secured Convertible Debentures (the "Debentures") from the
company. The Debentures will not bear interest but will be issued at a 26%
discount to the face amount. Accordingly, the cash purchase price for the
full $1,350,000 face amount of the Debentures will be $1,000,000. The
Debentures will be due and payable in full one year from the date of
issuance.
The Purchasers have the right to convert the full face amount of the
Debentures to common stock of the company at a price of $0.10 per share.
The conversion price is subject to adjustment in the event the market
price of the company's common stock falls below $0.10 per share for 10
days during any consecutive 20 day period. Under the Agreement, the
Purchasers will also receive Warrants and Additional Investment Rights to
purchase shares of the company's common stock. The Warrants are
exercisable at a price of $0.12 per share for a period of 5 years and give
the holders the right to purchase the same number of shares as the total
number of shares issuable upon conversion of the Debentures. The
Additional Investment Rights are exercisable at a price of $0.10 per share
and give the holders the right to purchase the same number of shares as
the total number of shares issuable upon conversion of the Debentures. The
Additional Investment Rights will generally be exercisable for a period of
six months following the effective date of a registration statement (the
"Registration Statement") to be filed for purposes of registering the
common stock underlying the Debentures, the Warrants and the Additional
Investment Rights. The company is obligated to file the Registration
Statement within 30 days after the initial closing under the Agreement.
On August 30, 2004, the Company issued $551,250 face amount of Debenture
of which $142,917 has been charged as interest. The cash purchase price of
the Debenture was $408,333 less finder fees and commissions of $60,833 for
net proceeds of $347,500.
4. COMMON STOCK
===================================================================================
NUMBER
OF SHARES AMOUNT
-----------------------------------------------------------------------------------
Balance, February 29, 2004 35,457,597 $1,701,843
Issued during the period
Pursuant to private placements 3,650,000 73,000
Pursuant to exercise of stock options 1,000,000 20,000
Pursuant to acquisition of Sierra (note 2) 43,000,000 430,000
-----------------------------------------------------------------------------------
Balance, May 31, 2004 83,107,597 $2,224,843
F-5
SUNBURST ACQUISITIONS IV, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX-MONTH ENDED AUGUST 31, 2004
(UNAUDITED)
================================================================================
4. COMMON STOCK (CONTINUED)
===================================================================================
NUMBER
OF SHARES AMOUNT
-----------------------------------------------------------------------------------
Issued during the period
Pursuant to private placements 2,011,095 196,135
Pursuant to exercise of stock options 1,500,000 15,000
Pursuant to acquisition of Sierra and
issuance of stock options (note 2) 0 60,000
-----------------------------------------------------------------------------------
Balance, August 31, 2004 86,618,692 $2,495,978
===================================================================================
During the quarter ended May 31, 2004, the Company completed a private
placement of 3,650,000 common shares for total proceeds of $73,000. At
February 28, 2004, the Company had received $67,025 of these proceeds and
during the quarter ended May 31, 2004 received the remaining $5,975 to
complete the private placement.
During the quarter ended August 31, 2004, the Company completed a private
placement of 2,011,095 units at $0.10 per unit. Each unit consists of one
share of common stock and one warrant to purchase an additional share of
common stock at a price of $0.20 per share at any time during the twelve
months following the date of issuance. At August 31, 2004, the Company
raised a total of $196,135 through the sale of these units.
F-6
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of
Sunburst Acquisitions IV, Inc.
We have audited the accompanying consolidated balance sheet of Sunburst
Acquisitions IV, Inc. and subsidiary (a development stage company) as of
February 29, 2004, and the related consolidated statements of operations,
stockholders' equity, and cash flows for the year ended February 29, 2004, for
the year ended February 28, 2003, and for the period from inception (August 27,
1997) to February 29, 2004. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. 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 financial position of Sunburst
Acquisitions IV, Inc. as of February 29, 2004, and the results of its
consolidated operations, cash flows and changes in stockholders' equity for the
year ended February 29, 2004, for the year ended February 28, 2003, and for the
period from inception (August 27, 1997) to February 29, 2004, in conformity with
U.S. generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 6 to the
financial statements, the Company has sustained operating losses since its
inception and has deficits in working capital and equity which raises
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to these matters, which include a private placement of
securities, are also described in Note 6. The financial statements do not
include any adjustments related to the recoverability and classification of
asset carrying amounts or the amount and classification of liabilities that
might result should the Company be unable to continue as a going concern.
Denver, Colorado /s/ COMISKEY & CO.
May 24, 2004 PROFESSIONAL CORPORATION
F-7
SUNBURST ACQUISITIONS IV, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
FEBRUARY 29, 2004
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 22,077
Accounts receivable 8,206
Other current assets 6,480
-----------
Total current assets 36,763
-----------
OTHER ASSETS
Investment in Sierra 57,500
-----------
TOTAL ASSETS $ 94,263
-----------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 6,338
Accrued interest 15,855
Convertible debenture 30,000
Notes payable - related parties 28,500
-----------
Total current liabilities 80,693
-----------
LONG-TERM LIABILITIES
Customer deposits 44,809
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, no par value; 20,000,000 shares
authorized; no shares issued and outstanding --
Common stock, no par value; 200,000,000 shares
authorized; 35,457,597 shares issued and outstanding 1,701,843
Additional paid-in capital from stock options 194,375
Additional paid-in capital 16
Stock subscriptions 67,025
Deficit accumulated during the development stage (2,003,427)
Accumulated other comprehensive income 8,929
-----------
(31,239)
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 94,263
-----------
The accompanying notes are an integral part of the financial statements.
F-8
SUNBURST ACQUISITIONS IV, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE PERIOD
FROM INCEPTION FOR THE YEAR FOR THE YEAR
(August 27, 1997) ENDED ENDED
TO FEBRUARY 29, FEBRUARY 29, FEBRUARY 28,
2004 2004 2003
------------ ------------ ------------
REVENUES $ 246,395 $ 13,580 $ 24,580
------------ ------------ ------------
EXPENSES
Cost of goods sold 24,721 8,082 16,639
Selling, general and administrative 1,430,460 357,879 273,795
------------ ------------ ------------
Total expenses 1,455,181 365,961 290,434
NET OPERATING LOSS (1,208,786) (352,381) (265,854)
OTHER INCOME AND EXPENSE
Interest expense (43,283) (4,580) (4,811)
Gain on sale of securities 469,863 -- 69,863
------------ ------------ ------------
NET LOSS FROM CONTINUING OPERATIONS (782,206) (356,961) (200,802)
DISCONTINUED OPERATIONS
Loss from operations of HollywoodBroadcasting.com
disposed of (net of income taxes of $0) (2,066,371) -- --
Gain on disposition of discontinued operations (net of income taxes of $0) 845,150 -- --
------------ ------------ ------------
NET INCOME (LOSS) (2,003,427) (356,961) (200,802)
Accumulated deficit
Balance, beginning of period -- (1,646,466) (1,445,664)
------------ ------------ ------------
Balance, end of period $ (2,003,427) $ (2,003,427) $ (1,646,466)
NET LOSS PER SHARE $ (0.02) $ (0.01) $ (0.01)
Other comprehensive income (loss)
Unrealized foreign exchange income (loss) $ 8,929 $ 14,739 $ (5,810)
OTHER COMPREHENSIVE INCOME (LOSS) $ 8,929 $ 14,739 $ (5,810)
TOTAL COMPREHENSIVE INCOME (LOSS) $ (1,994,498) $ (342,222) $ (206,612)
TOTAL COMPREHENSIVE INCOME (LOSS) PER SHARE
Loss from continuing operations $ (0.02) $ (0.01) $ (0.01)
Loss from discontinued operations (0.06) -- --
Gain on disposal of discontinued operations 0.03 -- --
Other comprehensive income -- -- --
------------ ------------ ------------
Total comprehensive income (loss) $ (0.05) $ (0.01) $ (0.01)
WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK AND
COMMON STOCK EQUIVALENTS OUTSTANDING 33,778,590 35,457,597 33,877,227
------------ ------------ ------------
The accompanying notes are an integral part of the financial statements.
F-9
SUNBURST ACQUISITIONS IV, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the period
from inception FOR THE YEAR FOR THE YEAR
(AUGUST 27, 1997) ENDED ENDED
TO FEBRUARY 29, FEBRUARY 29, FEBRUARY 28,
2004 2004 2003
----------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(2,003,427) $(356,961) $(200,802)
Adjustments to reconcile
net loss to net cash flows
from operating activities:
Gain on sale of securities (469,863) -- (69,863)
Foreign exchange income (loss), unrealized 8,929 14,739 (5,810)
Issuance of options 225,375 146,055 79,320
Depreciation 52,332 -- --
Allowance for doubtful accounts 88,360 -- 88,360
Discontinued operations (846,150) -- --
(Increase) decrease in inventory (57,705) 22,245 (22,245)
(Increase) decrease in other assets (481,737) 84,380 (83,089)
(Increase) decrease in accounts receivable (29,704) 13,038 (34,604)
Increase in accrued expenses 150,218 4,580 2,311
Increase in customer deposits 44,809 44,809 --
Increase (decrease) in accounts payable 125,232 74 (2,250)
----------- --------- ---------
Net cash flows from operating activities (3,193,331) (27,041) (248,672)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investment (22,353) -- (22,353)
Maturity of investment 22,353 -- 22,353
Proceeds from sale of securities 394,863 -- 69,863
Purchase of property and equipment (208,585) -- --
----------- --------- ---------
Net cash flows from investing activities 186,278 -- 69,863
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds of sale of discontinued operations 1,000 -- --
Related party debt 691,056 -- (49,500)
Proceeds from notes payable to stockholders 548,191 -- --
Proceeds from notes payable 100,500 -- --
Proceeds from convertible debenture 30,000 30,000 --
Proceeds from exercise of options 33,000 -- 33,000
Stock subscriptions 67,025 67,025 --
Paid-in capital 16 16 --
Issuance of note receivable (57,500) (57,500) --
Issuance of common stock 1,615,842 -- 204,426
----------- --------- ---------
Net cash flows from financing activities 3,029,130 39,541 187,926
----------- --------- ---------
NET INCREASE IN CASH
AND CASH EQUIVALENTS 22,077 12,500 9,117
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD -- 9,577 460
----------- --------- ---------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 22,077 $ 22,077 $ 9,577
----------- --------- ---------
The accompanying notes are an integral part of the financial statements.
F-10
Sunburst Acquisitions IV, Inc.
(a Development Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Deficit
Common stock accumulated Total
------------ Additional during the Other stockholders'
Number of paid-in Stock development comprehensive equity
shares Amount capital subscriptions stage income (loss) (deficit)
----------- ------------ ------------ ------------ ------------ ------------ ------------
Common stock issued for cash:
April 1999 15,000,000 $ 15,000 $ -- $ -- $ -- $ -- $ 15,000
May 1999 15,000,000 15,000 -- -- -- -- 15,000
July 1999 2,500,000 2,500 22,500 -- -- -- 25,000
August 1999 1,500,000 1,500 13,500 -- -- -- 15,000
September 1999 136,667 137 81,863 -- -- -- 82,000
October 1999 100,000 100 59,900 -- -- -- 60,000
November 1999 376,667 377 225,623 -- -- -- 226,000
December 1999 546,667 547 327,453 -- -- -- 328,000
January 2000 521,667 522 312,478 -- -- -- 313,000
February 2000 150,000 150 89,850 -- -- -- 90,000
Net loss for the period ended
February 29, 2000 -- -- -- -- (536,237) -- (536,237)
----------- ------------ ------------ ------------ ------------ ------------ ------------
Balance, February 29, 2000 35,831,668 35,833 1,133,167 -- (536,237) -- 632,763
Recapitalization of
HollywoodBroadcasting.com
December 4, 2000 9,070,831 1,309,283 (1,133,167) -- -- -- 176,116
Net loss for the year ended
February 28, 2001 -- -- -- -- (1,630,777) -- (1,630,777)
----------- ------------ ------------ ------------ ------------ ------------ ------------
Balance, February 28, 2001 44,902,499 1,345,116 -- -- (2,167,014) -- (821,898)
Cancellation of shares:
December 4, 2000 (15,000,000) -- -- -- -- -- --
Common stock issued for cash:
June 2001 235,000 7,050 -- -- -- -- 7,050
July 2001 945,000 28,351 -- -- -- -- 28,351
August 2001 350,000 10,500 -- -- -- -- 10,500
September 2001 350,000 10,500 -- -- -- -- 10,500
October 2001 330,000 9,900 -- -- -- -- 9,900
Net gain for the year ended
February 28, 2002 -- -- -- -- 721,350 -- 721,350
----------- ------------ ------------ ------------ ------------ ------------ ------------
Balance, February 28, 2002 32,112,499 1,411,417 -- -- (1,445,664) -- (34,247)
Common stock issued for cash:
September 2002 1,082,098 110,126 -- -- -- -- 110,126
November 2002 943,000 94,300 -- -- -- -- 94,300
Common stock issued
in exchange of debt:
September 2002 220,000 22,000 -- -- -- -- 22,000
Options issued:
March 2002 -- 31,000 31,000 -- -- -- 62,000
June 2002 -- -- 17,320 -- -- -- 17,320
Options excercised:
April 2002 1,000,000 30,000 -- -- -- -- 30,000
September 2002 100,000 3,000 -- -- -- -- 3,000
Foreign exchange translation
adjustment -- -- -- -- -- (5,810) (5,810)
Net loss for the year ended
February 28, 2003 -- -- -- -- (200,802) -- (200,802)
----------- ------------ ------------ ------------ ------------ ------------ ------------
Balance, February 28, 2003 35,457,597 1,701,843 48,320 -- (1,646,466) (5,810) 97,887
Capital contribution -- -- 16 -- -- -- 16
Stock subscriptions -- -- -- 67,025 -- -- 67,025
Options issued:
March 2003 -- -- 146,055 -- -- -- 146,055
Foreign exchange translation
adjustment -- -- -- -- -- 14,739 14,739
Net loss for the year ended
February 29, 2004 -- -- -- -- (602,206) -- (602,206)
----------- ------------ ------------ ------------ ------------ ------------ ------------
35,457,597 $ 1,701,843 $ 194,391 $ 67,025 $ (2,248,672) $ 8,929 $ (276,484)
----------- ------------ ------------ ------------ ------------ ------------ ------------
The accompanying notes are an integral part of the financial statements.
F-11
SUNBURST ACQUISITIONS IV, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 29, 2004
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DEVELOPMENT STAGE ACTIVITIES AND BASIS OF PRESENTATION
Sunburst Acquisitions IV, Inc. (a development stage company) (the "Company") was
formed to seek out and acquire business opportunities. In August 1999, the
Company invested $1,000,000 in Prologic Management Systems, Inc. ("Prologic"),
an Arizona corporation in the software industry, in anticipation of a business
combination with that company. The agreement to acquire Prologic was terminated
prior to its consummation, and the Company charged off the investment to
operations in March 2000. Since that time, the Company has entered into an
agreement with Prologic to recover a portion of its investment and, to date, has
received $325,000 in funds related thereto. (See Note 5).
In December 2000, the Company acquired all of the issued and outstanding common
stock of HollywoodBroadcasting.com ("HBC") in exchange for 35,831,668 shares of
the Company's stock in a transaction accounted for as a recapitalization of HBC.
HBC was incorporated under the laws of the State of Nevada on March 19, 1999. It
was created to provide live, daily, interactive programming for the internet. On
September 28, 2001, the Company completed the sale of its wholly owned
subsidiary HollywoodBroadcasting.com for $1,000 in cash. (See Note 8).
On February 27, 2002, the Company signed an agreement with 1357784 Ontario Ltd.
("EPI") to distribute 1000-watt ballasts. On January 23, 2003, the Company
terminated its agreement with EPI and began an agreement with Romlight
International, Inc. ("Romlight"), the manufacturer of the ballasts. (See Note
7).
The Company is a new enterprise in the development stage as defined by Statement
No. 7 of the Financial Accounting Standards Board, since it has derived only
minimal revenues from its activities to date.
ACCOUNTING METHOD
The Company records income and expenses on the accrual method.
FISCAL YEAR
The fiscal year of the Company is February 28.
PRINCIPLES OF CONSOLIDATION
The accompanying financial statements include all of the accounts and activity
of Sunburst Acquisitions IV, Inc., and its wholly-owned subsidiary, Sunburst
Digital. All intercompany transactions have been eliminated in consolidation.
ACCOUNTS RECEIVABLE
The Company writes off accounts receivable as bad debts when they are determined
to be uncollectible. Based on the Company's experience, this practice
approximates treatment under GAAP. For certain notes and interest receivables,
an allowance has been recorded to reflect the fair value of the assets.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FINANCIAL INSTRUMENTS
Unless otherwise indicated, the fair value of all reported assets and
liabilities that represent financial instruments (none of which are held for
trading purposes) approximate the carrying values of such amount.
ADVERTISING COSTS
Costs associated with advertising are expensed in the year incurred.
F-12
STATEMENTS OF CASH FLOWS
For purposes of the statements of cash flows, the Company considers all highly
liquid debt instruments purchased with an original maturity of three months or
less to be cash equivalents.
LOSS PER SHARE
Loss per share has been calculated based upon the weighted average shares
outstanding.
IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS
In August 2001, the FASB issued Statement No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("FAS 144"). FAS 144 clarifies the
accounting for the impairment of long-lived assets and for long-lived assets to
be disposed of, including the disposal of business segments and major lines of
business. The Company has implemented FAS 144 for this fiscal year. Long-lived
assets are reviewed when facts and circumstances indicate that the carrying
value of the asset may not be recoverable. When necessary, impaired assets are
written down to estimated fair value based on the best information available.
Estimated fair value is generally based on either appraised value or measured by
discounting estimated future cash flows. Considerable management judgment is
necessary to estimate discounted future cash flows. Accordingly, actual results
could vary significantly from such estimates.
See Note 7 for discussion of evaluation of deposit on merchandise and subsequent
impairment write-down for the fiscal year ending February 29, 2004.
USE OF ESTIMATES
The preparation of the Company's financial statements in conformity with
generally accepted accounting principles requires the Company's management to
make estimates and assumptions that effect the amounts reported in these
financial statements and accompanying notes. Actual results could differ from
those estimates.
CONSIDERATION OF OTHER COMPREHENSIVE INCOME ITEMS
SFAS No. 130 - Reporting Comprehensive Income, requires companies to present
comprehensive income (consisting primarily of net income plus other direct
equity changes and credits) and its components as part of the basic financial
statements.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK-BASED COMPENSATION
SFAS No. 123 - Accounting for Stock-Based Compensation allows companies to
choose whether to account for stock-based compensation under the method
prescribed in Accounting Principles Board Opinion No. 25 ("APB 25") or use the
fair value method described in SFAS No. 123. For purposes of options granted to
employees, the Company continues to follow the accounting measurement provisions
of APB 25 and implements the disclosure provisions of SFAS No. 123.
During the year ended February 29, 2004, the Company issued 3,900,000 options
under its Incentive Stock Option Plan. Compensation expense recognized for the
year totaled $146,055. The average fair value was estimated using the
Black-Scholes option-pricing model based on the following weighted average
assumptions: risk free interest rate of 6.0% and 199% volatility, no assumed
dividends, and an expected life of between five and ten years.
INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109
- -Accounting for Income Taxes. Deferred tax assets and liabilities are recognized
with respect to the tax consequences attributable to differences between the
financial statement carrying values and tax basis of existing assets and
liabilities. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which these temporary
differences are expected to be recovered or settled. Further, the effect on
deferred tax assets and liabilities of changes in tax rates is recognized in
income in the period that includes the enactment date.
2. STOCKHOLDERS' EQUITY
The Company is authorized to issue 20,000,000 shares of preferred stock. The
Company's Board of Directors is authorized to divide the preferred stock into
series, and with respect to each series, to determine the preferences and rights
and qualifications, limitations or restrictions thereof, including the dividend
rights, conversion rights, voting rights, redemption rights and terms,
liquidation preferences, sinking fund provisions, and the number of shares
constituting the series and the designations of such series. The Board of
Directors could, without stockholder approval, issue preferred stock with voting
and other rights that could adversely affect the voting rights of the holders of
common stock which issuance could have certain anti-takeover effects.
F-13
3. RELATED PARTY TRANSACTIONS
As of February 29, 2004, the Company had notes payable to related entities in
the amount of $28,500. Interest on these notes has been imputed at a rate of
6.09% and totaled $15,855 cumulatively at February 29, 2004.
4. INCOME TAXES
A deferred tax asset of $337,000 at February 29, 2004 relates to net operating
losses and deductible temporary differences due to development stage costs.
Management does not consider it likely that the deferred tax asset will be
realized. Therefore, a full valuation allowance has been established against the
deferred tax asset. The net operating losses will begin to expire in 2020.
5. INVESTMENT IN PROLOGIC MANAGEMENT SYSTEMS, INC.
On February 16, 2001, the Company completed the sale of 2,859,972 shares of
stock in Prologic Management Systems, Inc. ("Prologic"), an Arizona corporation,
to Prologic, or its designees, for a total sales price of $400,000, or
approximately $0.1399 per share. The sale was completed pursuant to the terms of
a Settlement Agreement and Release, dated January 26, 2001. This investment had
been charged to operations in August 2000 by the Company.
The sales price was paid $325,000 in cash at closing and $75,000 through
Prologic's execution of a promissory note. The promissory note bears interest at
the rate of 10% per annum and requires payments of $25,000 each on both the
principal and interest, as of April 12, 2001, July 12, 2001, and October 12,
2001. No payments have been made to date. The Company does not expect to receive
payment from Prologic. The Company has accrued an allowance for doubtful
accounts covering the $75,000 note and the corresponding interest in the amount
of $13,360.
In February 2004, all assets of Prologic were taken under foreclosure in
bankruptcy. The Company has removed the note and interest and related allowance
from its balance sheet.
6. GOING CONCERN
The accompanying financial statements have been prepared on a going concern
basis. The Company has a history of operating losses and will need to raise
additional capital to fund its planned operations. It has current assets of
$36,763 and current liabilities totaling $80,693 resulting in a current ratio of
0.46 as of February 29, 2004. Liquidity was achieved through the exercise of
options and through the issuance of a convertible debenture, and not from
operations. The Company has a cumulative loss from continuing operations of
approximately $782,000 at February 29, 2004, $558,000 of which was earned within
the past two fiscal years. These conditions raise substantial doubt about the
Company's ability to continue as a going concern.
The Company intends to reduce its cumulative loss from continuing operations
through the attainment of profitable operations, either through its existing
product lines which include ballasts (see Note 7) or potential cash flow from
its new investment in a Mexican mining joint venture (see Note 13). In addition,
the Company has conducted a private placement of convertible debt and equity
(see Notes 11 and 12), which has generated sufficient liquidity to satisfy the
initial cash requirements of its planned mining joint venture.
7. DISTRIBUTION AGREEMENT
On February 27, 2002, the Company signed a distribution agreement with EPI. EPI
has a distribution agreement with Romlight, with offices at Stevmar House,
Rockley, Christ Church Barbados, West Indies. Under this agreement, Sunburst
Acquisitions IV, Inc. will be the sole sub-distributor for the length of the
contract.
The distribution agreement between Romlight and EPI was signed October 5, 2000.
The initial purchase for the first year was 20,000 units of a Romlight ballast.
Romlight was not able to supply the ballasts in 2001 and, therefore, the
contract took effect in 2002 when Romlight could produce and deliver the
ballasts. During the last fiscal year, the Company took delivery of 500 ballasts
valued at approximately $45,000 ($70,000CND). On January 23, 2003, the Company
terminated its agreement with EPI and began an agreement with Romlight, the
manufacturer of the ballasts. During the fiscal year ended February 29, 2004,
the Company received samples of 600-watt ballast produced for Romlight by a
Korean manufacturer, but did not sell any of the product due to quality
concerns.
7. DISTRIBUTION AGREEMENT (CONTINUED)
A deposit of $183,454 ($245,920CND) was issued to Romlight through EPI pursuant
to their agreement. The deposit will be applied to the last 1,000 ballasts and
also gives the Company exclusive rights to sell Romlight Ballasts to the
hydroponic market. Management has performed an impairment assessment on this
long term assets and determined that, due to quality controls issues, the asset
is impaired and has written off the entire deposit.
8. SALE OF DISCONTINUED OPERATIONS
On September 28, 2001, the Company completed the sale of its wholly owned
subsidiary HollywoodBroadcasting.com for $1,000 in cash.
F-14
Operating results of HollywoodBroadcasting.com during the inception to date
period are shown separately in the accompanying income statement as loss from
discontinued operations.
Assets and liabilities of HollywoodBroadcasting.com sold consisted of the
following:
Cash $2,510
Accounts receivable 367
Inventories 57,705
Capitalized project costs 481,519
Property, plant, and equipment 156,253
---------
Total assets 698,354
---------
Accounts payable 118,893
Accrued expenses 134,364
Notes payable to stockholders 548,191
Due to related party 741,056
---------
Total liabilities 1,542,504
---------
Net liabilities disposed of $ 844,150
---------
9. STOCK COMPENSATION PROGRAMS
On March 14, 2002, the Company's Board of Directors approved a Stock
Compensation Program and an Incentive Stock Option Plan (the "Plans"). The
maximum number of shares that may be purchased pursuant to the Plans is
6,000,000. Options granted under the Plans include incentive and nonqualified
stock options, as well as actual shares of common stock, with vesting determined
on the grant date, not to exceed ten years, and are exercisable over a ten-year
maximum period at a price to approximate the fair market value of the common
stock at the date of grant.
On March 1, 2003, the Company granted 3,900,000 options under its Incentive
Stock Option Plan, which vested immediately. Compensation expense was recognized
for the fiscal year totaling $146,055 for these options. These options are
exercisable at prices between $0.02 and $0.03 per share. One million options
vested immediately; the remaining options vested 50% as of the date of grant and
the remaining 50% on the one year anniversary of the date of grant.
Subsequent to year end, 1,000,000 options were exercised at $0.02 per share.
9. STOCK COMPENSATION PROGRAMS (CONTINUED)
The options are summarized as follows:
Weighted
Average
Exercise
Shares Price
---------- ----------
Outstanding at February 28, 2002 -- $ --
Granted 2,100,000 0.03
Cancelled -- --
Exercised (1,100,000) 0.03
---------- ----------
Outstanding at February 28, 2003 1,000,000 0.03
Granted 3,900,000 0.026
Cancelled -- --
Exercised -- --
--------- ----------
Outstanding at February 29, 2004 4,900,000 $ 0.027
---------- ----------
The following table summarizes options outstanding at February 29, 2004:
Outstanding
Range Number Wtd. Ave. Life Wtd. Ave. Price Exercisable
- ------------- ------------ -------------- --------------- -----------
$0.02 - $0.03 4,900,000 6.76 $ 0.027 2,950,000
F-15
10. INVESTMENT IN SIERRA MINERALS AND MINING, INC.
As of February 29, 2004, in anticipation of the consummation of the share
exchange agreement more fully described in Footnote 13, the Company had invested
$57,500 in Sierra Minerals and Mining, Inc., a Nevada corporation ("Sierra.") An
additional $167,500 was invested in Sierra after year end.
11. CONVERTIBLE DEBENTURE
On January 15, 2004, the Company secured financing in the form of a convertible
debenture. The loan is convertible into common stock at any time during the
following one year period. The conversion of principal and accrued interest (8%
per annum) shall be at the rate of $0.02 per share.
12. PRIVATE PLACEMENT
The Company began accepting subscriptions for shares of common stock at $0.02
per share during the current fiscal year. At year end, the Company had received
$67,025 as payment for approximately 3,351,250 shares of common stock, which
amount is shown as common stock subscribed in the stockholders' equity section
of the balance sheet. Subsequent to year end, the Company completed the private
placement and issued 3,650,000 shares of common stock for total proceeds of
$73,000.
13. SUBSEQUENT EVENTS
Subsequent to year end, the Company began accepting subscriptions for shares of
common stock at $0.10 per Unit. Each Unit consists of one share of common stock
and one warrant to purchase an additional share of common stock at a price of
$0.20 per share at any time during the twelve months following the date of
issuance. The Company raised a total of $196,286 through the sale of Units.
On May 25, 2004, the Company completed a share exchange with the shareholders of
Sierra (See Note 10) pursuant to the terms of the Share Exchange Agreement dated
May 3, 2004. In the exchange, the Company issued 43,000,000 shares of common
stock representing approximately 51.7% of the Company's then-outstanding shares
to Sierra's shareholders in exchange for all of the shares of Sierra capital
stock. As a result, Sierra became a wholly owned subsidiary of the Company.
Sierra is a party to a Joint Venture Agreement with Minera Rio Tinto S.A. de
C.V., a Mexican company ("MRT") pursuant to which Sierra and MRT have agreed to
explore and develop, if feasible, certain mining properties in the state of
Chihuahua, Mexico.
Effective May 3, 2004, Sierra loaned a total of (US)$167,500 to MRT pursuant to
an unsecured promissory note payable due August 31, 2004 with interest at 8%.
The joint venture agreement between Sierra and MRT requires Sierra to invest
cash totaling $1,000,000 by June 30, 2004, and to secure a $2,000,000 line of
credit for the joint venture within sixty days of signing the joint venture
agreement. The $1,000,000 investment will be reduced by $57,500 and $167,500
previously advanced, plus accrued interest, upon commencement of the joint
venture. MRT will contribute the properties. The joint venture is to be owned
60% by Sierra and 40% by MRT.
F-16
REPORT OF INDEPENDENT
CHARTERED ACCOUNTANTS
To the Stockholders and Directors of
Sierra Minerals and Mining Inc.
(An exploration stage company)
We have audited the balance sheet of Sierra Minerals and Mining Inc. (an
exploration stage company) as at June 30, 2004 and the statements of loss,
stockholders' deficiency, and cash flows for the period from March 19, 2004
(date of inception) to June 30, 2004. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with the auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform an audit to obtain reasonable assurance 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 audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company as at June 30,
2004, and the results of its operations and cash flows for the period from March
19, 2004 (inception) to June 30, 2004, in conformity with accounting principles
generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. The Company will need additional working
capital for its planned activities, which raises substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these
matters are also discussed in note 2 to the financial statements. These
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ Pannell Kerr Forster
Independent Chartered Accountants
Vancouver, Canada
July 31, 2004
F-17
SIERRA MINERALS AND MINING INC.
(AN EXPLORATION STAGE COMPANY)
INTERIM BALANCE SHEET
(STATED IN U.S. DOLLARS)
JUNE 30
2004
LIABILITIES
CURRENT
Accounts payable and accrued liabilities $ 13,385
Due to parent company (note 5) 227,500
TOTAL CURRENT LIABILITIES 240,885
STOCKHOLDERS' DEFICIENCY
CAPITAL STOCK
Authorized:
10,000,000 Common shares, par value $0.001 per share
Issued and outstanding:
3,000 Common shares 3
DEFICIT ACCUMULATED DURING THE EXPLORATION STAGE (240,888)
TOTAL STOCKHOLDERS' DEFICIENCY (240,885)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ --
See accompanying notes to the financial statements
F-18
SIERRA MINERALS AND MINING INC.
(AN EXPLORATION STAGE COMPANY)
INTERIM STATEMENT OF LOSS
(STATED IN U.S. DOLLARS)
FOR THE
PERIOD FROM
DATE OF
INCEPTION
MARCH 19,
2004 TO
JUNE 30,
2004
EXPENSES
Professional fees $ 13,388
Deposit for mineral properties (note 6) 227,500
NET LOSS FOR THE PERIOD $ 240,888
See accompanying notes to the financial statements
F-19
SIERRA MINERALS AND MINING INC.
(An Exploration Stage Company)
STATEMENT OF STOCKHOLDERS' DEFICIENCY
FROM INCEPTION ON MARCH 19, 2004 THROUGH JUNE 30, 2004
(STATED IN U.S. DOLLARS)
DEFICIT
COMMON STOCK ACCUMULATED
ADDITIONAL DURING THE TOTAL
PAID-IN EXPLORATION STOCKHOLDERS'
SHARES AMOUNT CAPITAL STAGE DEFICIT
Share subscriptions 3,000 $ 3 $ -- $ -- $ 3
Net loss for the period -- -- -- (240,888) (240,888)
Balance, June 30, 2004 3,000 $ 3 $ -- $(240,888) $(240,885)
See accompanying notes to the financial statements
F-20
SIERRA MINERALS AND MINING INC.
(An Exploration Stage Company)
INTERIM STATEMENT OF CASH FLOWS
(STATED IN U.S. DOLLARS)
FOR THE
PERIOD FROM
DATE OF
INCEPTION
MARCH 19,
2004 TO
JUNE 30
2004
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss for the period $ (240,888)
ADJUSTMENTS TO RECONCILE NET LOSS FOR NON-CASH ITEMS
Accounts payable and accrued liabilities 13,388
Due to parent company 227,500
NET CASH FLOW --
CASH, BEGINNING OF PERIOD --
CASH, END OF PERIOD $ --
See accompanying notes to the financial statements
F-21
SIERRA MINERALS AND MINING INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO INTERIM FINANCIAL STATEMENTS
FROM INCEPTION ON MARCH 19, 2004 THROUGH JUNE 30, 2004
(STATED IN U.S. DOLLARS)
1. NATURE OF BUSINESS
Sierra Minerals and Mining Inc. (the "Company") was incorporated under the laws
of the state of Nevada on March 19, 2004, and is involved in the acquisition,
exploration, and development of mineral properties. The Company is a party to a
property option agreement, as described more fully in note 6 for certain claims
located in Mexico. The Company is in the exploration stage as defined in
statement No. 7 of the Financial Accounting Standards Board.
2. GOING CONCERN
These financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America on a going concern
basis. This presumes funds will be available to finance on-going development,
operations and capital expenditures and the realization of assets and the
payment of liabilities in the normal course of operations for the foreseeable
future.
The general business strategy of the Company is to explore and research an
existing mineral property and to potentially acquire further claims either
directly or through the acquisition of operating entities. The continued
operations of the Company depends upon the recoverability of mineral reserves,
confirmation of the Company's interest in the underlying mineral claims, the
ability of the Company to obtain necessary financing to complete the development
of these claims and upon the claims' future profitable production. Pursuant to
the property option agreement described in note 6, the Company is required to
invest $1,000,000 to secure an interest in certain claims in Mexico. The Company
does not have any funds to fulfill the option. Management intends to raise
additional capital by securing a line of credit for the claims. In addition,
management will also rely on funding from the Company's parent company, Sunburst
Acquisitions IV, Inc., which is a public company listed on the OTC.BB. It is
expected the Company's parent will arrange funding through the equity markets to
finance on-going operations.
The Company has a working capital deficit of $240,885, has accumulated losses of
$240,888 to June 30, 2004, has not generated any operating revenue to date, and
has no capital resources presently available to meet obligations which normally
can be expected to be incurred by similar companies. These factors raise
substantial doubt about the Company's ability to continue as a going concern
which is dependent on the Company's ability to obtain and maintain an
appropriate level of financing on a timely basis and to achieve sufficient cash
flows to cover obligations and expenses. The outcome of the above matters cannot
be predicted at this time. These financial statements do not give effect to any
adjustments to the amounts and classification of assets and liabilities which
might be necessary should the Company be unable to continue as a going concern.
Should the Company not be able to raise the necessary funding to complete the
property option or to develop a feasible and profitable production from a proven
mineral resource property, the Company is at risk of failing and becoming
insolvent.
F-22
SIERRA MINERALS AND MINING INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO INTERIM FINANCIAL STATEMENTS
FROM INCEPTION ON MARCH 19, 2004 THROUGH JUNE 30, 2004
(STATED IN U.S. DOLLARS)
3. SIGNIFICANT ACCOUNTING POLICIES
a) Use of estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates
and would impact future results of operations and cash flows.
b) Foreign currency translation
The Company's operations and activities are conducted principally outside of the
United States of America, hence the functional currency will be a foreign
currency which is translated into U.S. dollars for reporting purposes as
follows:
(i) Monetary assets and liabilities at the rate of exchange in effect as at the
balance sheet date;
(ii) Revenues and expenditures at the average rate of exchange for the period.
Gains and losses arising from this translation of foreign currency will be
included in other comprehensive income (loss) as a separate component of
stockholders' deficiency.
c) Mineral property acquisition payments and exploration costs
The Company expenses all costs related to acquiring, exploring and retaining
mineral claims in which no proven and probable reserves exist. To date, the
Company has not established the commercial feasibility of the target mineral
property, therefore, all exploration expenditures are being expensed.
Liabilities are recorded when environmental assessments and/or remedial efforts
are probable, and the cost can be reasonably estimated. As at June 30, 2004, the
Company had no accrued liabilities for compliance with environmental
regulations.
F-23
SIERRA MINERALS AND MINING INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO INTERIM FINANCIAL STATEMENTS
FROM INCEPTION ON MARCH 19, 2004 THROUGH JUNE 30, 2004
(STATED IN U.S. DOLLARS)
3. SIGNIFICANT ACCOUNTING POLICIES (Continued)
d) Income Taxes
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards (SFAS) No. 109. Under the asset and liability method of
SFAS No. 109, deferred tax assets and liabilities are recognized for future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and are measured using the
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. Under SFAS
No. 109, the effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
e) Stock-based compensation
The Company applies the intrinsic value method of accounting as prescribed by
APB Opinion No. 25 "Accounting for Stock Issued to Employees" and related
interpretations, in accounting for options granted to employees. As such,
compensation expense is recorded on the date of the grant when the market price
of the underlying stock exceeds the exercise price. SFAS No. 123 "Accounting for
Stock-Based Compensation" establishes accounting and disclosure requirements
using the fair value-based method of accounting for stock-based compensation
plans. As allowed by SFAS No. 123, the Company has elected to apply the
intrinsic value-based method of accounting described above and has adopted the
disclosure requirements of SFAS No. 123, as amended by SFAS No. 148. To date,
the Company has not adopted a stock option plan or issued any stock options.
F-24
SIERRA MINERALS AND MINING INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO INTERIM FINANCIAL STATEMENTS
FROM INCEPTION ON MARCH 19, 2004 THROUGH JUNE 30, 2004
(STATED IN U.S. DOLLARS)
3. SIGNIFICANT ACCOUNTING POLICIES (Continued)
f) Recent accounting pronouncements
(i) In December 2002, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure". SFAS No. 148 amends SFAS No. 123, "Accounting for Stock-Based
Compensation", to provide alternative methods of transition for a
voluntary change to the fair value based method of accounting for
stock-based employee compensation. In addition, SFAS No. 148 amends the
disclosure requirements of SFAS No. 123 to require prominent disclosures
in both annual and interim financial statements about the method of
accounting for stock-based employee compensation and the effect of the
method used on reported results. SFAS No. 148 is effective for fiscal
years beginning after December 15, 2002. The interim disclosure provisions
are effective for financial reports containing financial statements for
interim periods beginning after December 15, 2002. The adoption of SFAS
No. 148 had no effect on the Company's financial statement presentation or
disclosures.
(ii) In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133
on Derivative Instruments and Hedging Activities". SFAS No. 149 amends and
clarifies under what circumstances a contract with initial investments
meets the characteristics of a derivative and when a derivative contains a
financing component. SFAS No. 149 is effective for contracts entered into
or modified after June 30, 2003. The adoption of SFAS No. 149 had no
effect on the Company's financial statement presentation or disclosures.
(iii) In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and
Equity". SFAS No. 150 establishes standards for how an issuer classifies
and measures in its statement of financial position certain financial
instruments with characteristics of both liabilities and equity. SFAS No.
150 requires that an issuer classify a financial instrument that is within
its scope as a liability (or an asset in some circumstances) because that
financial instrument embodies an obligation of the issuer. SFAS No. 150 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. SFAS No. 150 is to be implemented by
reporting the cumulative effect of a change in accounting principle for
financial instruments created before the issuance date of SFAS No. 150 and
still existing at the beginning of the interim period of adoption.
Restatement is not permitted. The adoption of SFAS No. 150 had no
significant effect on the Company's financial statement presentation or
disclosures.
F-25
SIERRA MINERALS AND MINING INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO INTERIM FINANCIAL STATEMENTS
FROM INCEPTION ON MARCH 19, 2004 THROUGH JUNE 30, 2004
(STATED IN U.S. DOLLARS)
3. SIGNIFICANT ACCOUNTING POLICIES (Continued)
g) Recent accounting pronouncements (Continued)
(iv) In January 2003, the FASB issued Interpretation No. 46, "Consolidated of
Variable Interest Entities (an Interpretation of ARB No. 51)" ("FIN 46").
FIN 46 requires that the primary beneficiary in a variable interest entity
consolidate the entity even if the primary beneficiary does not have a
majority voting interest. The consolidated requirements of FIN 46 are
required to be implemented for any variable interest entity created on or
after January 31, 2003. In addition, FIN 46 requires disclosure of
information regarding guarantees or exposures to loss relating to any
variable interest entity existing prior to January 31, 2003 in financial
statements issued after January 31, 2003. The implementation of the
provisions of FIN 46 effective January 31, 2003 had no effect on the
Company's financial statement presentation or disclosures.
4. FINANCIAL INSTRUMENTS
a. Fair value
The carrying values of accounts payable and accrued liabilities and due to
parent company approximate their fair values because of the short maturity of
these financial instruments.
b. Interest rate risk
The Company is not exposed to significant interest rate risk due to the
short-term maturity of its monetary current liabilities.
c. Credit risk
The Company is not exposed to significant credit risk.
d. Translation risk
The Company is exposed to foreign currency risk to the extent expenditures
incurred by the Company are not denominated in the Company's functional
currency. The Company's activities are currently outside the United States of
America, and as such management expects expenditures to be both in Canadian
dollars and Mexican Pesos.
F-26
SIERRA MINERALS AND MINING INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO INTERIM FINANCIAL STATEMENTS
FROM INCEPTION ON MARCH 19, 2004 THROUGH JUNE 30, 2004
(STATED IN U.S. DOLLARS)
5. DUE TO PARENT
On May 25, 2004 the Company completed a share exchange with the shareholders of
Sunburst Acquisitions IV, Inc. ("Sunburst"). Pursuant to the terms of the share
exchange agreement, Sunburst issued 43,000,000 shares of its common stock in
exchange for all of the issued and outstanding shares of the Company. As a
result, the Company became a wholly owned subsidiary of Sunburst. The common
shares were valued at $0.01 per share. During the period the parent company
advanced certain option payments as described in note 6 on behalf of the
Company. The advances due to the parent are without interest or stated terms of
payment.
6. MINERAL PROPERTY OPTION
The Company is a party to a joint venture agreement with Minera Rio Tinto S.A.
de C.V., a Mexican company ("MRT"), pursuant to which the Company and MRT have
agreed to explore and develop, if feasible, certain mining properties in the
state of Chihuahua, Mexico. During the period, the Company's parent loaned a
total of $227,500 to MRT on behalf of the Company. Of this amount, $167,500 is
pursuant to an unsecured promissory note payable due August 31, 2004 with
interest at 8% per annum. In addition, $57,500 was also loaned pursuant to an
unsecured promissory note payable and due April 9, 2004 at a rate of 8% (the
loan has not been called by the Company and no terms have been renegotiated).
The remaining funds of $2,500 have no terms and are non-interest bearing. The
amounts loaned are not recoverable. Should the Company fail to complete the
terms of the option agreement as discussed below, the Company will lose the
right to collect the entire loaned amount. As such, the Company has charged
$227,500 to operations for the period ending June 30, 2004.
The joint venture agreement between the Company and MRT requires the Company to
invest cash totalling $1,000,000 by June 30, 2004, and to secure a $2,000,000
line of credit for the joint venture within sixty days of signing the joint
venture agreement. The $1,000,000 investment will be reduced by the $227,500
previously advanced, plus accrued interest, upon commencement of the joint
venture. MRT will contribute the properties. The joint venture is to be owned
60% by the Company and 40% by MRT, however, should the Company fail to secure
the line of credit, its interest shall be reduced to 30% and the interest of MRT
shall be increased to 70%. The Company is in default of the agreement as it did
not fulfil its required investment of $1,000,000 by June 30, 2004 and did not
secure a line of credit for $2,000,000. The Company is currently looking for an
extension and is renegotiating the terms of the agreement.
During the period from inception (March 19, 2004) to June 30, 2004, MRT and the
Company shared a common director and were therefore acting as related parties.
F-27
SUNBURST ACQUISITIONS IV, INC.
PRO-FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2004
(UNAUDITED)
F-28
SUNBURST ACQUISITIONS IV, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED BALANCE SHEET
MAY 31
(UNAUDITED)
(U.S. DOLLARS)
2004
ASSETS
CURRENT
Cash $33,687
Accounts receivable and other current assets 14,910
TOTAL ASSETS $48,597
LIABILITIES
CURRENT
Accounts payable and accrued liabilities $42,949
Convertible debenture 30,000
Notes payable to related parties 28,500
TOTAL CURRENT LIABILITIES 101,449
CUSTOMER DEPOSITS 44,056
TOTAL LIABILITIES $145,505
STOCKHOLDERS' DEFICIT
CAPITAL STOCK
AUTHORIZED
20,000,000 Preferred stock with no par value
200,000,000 Common stock with no par value
ISSUED
83,107,597 Common stock issued and outstanding 2,224,843
ADDITIONAL PAID-IN CAPITAL FROM STOCK OPTIONS 194,375
ADDITIONAL PAID-IN CAPITAL 16
STOCK SUBSCRIPTIONS 199,135
DEFICIT ACCUMULATED DURING THE DEVELOPMENT STAGE (2,722,930)
ACCUMULATED OTHER COMPREHENSIVE INCOME 7,653
TOTAL STOCKHOLDERS' DEFICIT (96,908)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $48,597
See notes to pro-forma condensed consolidated financial statements.
F-29
SUNBURST ACQUISITIONS IV, INC.
(A DEVELOPMENT STAGE COMPANY)
PRO-FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED FEBRUARY 29, 2004
(UNAUDITED)
(U.S. DOLLARS)
REVENUES $13,580
EXPENSES
Selling, general, and administrative 370,541
NET LOSS (356,961)
OTHER COMPREHENSIVE INCOME
Unrealized foreign exchange income 14,739
TOTAL COMPREHENSIVE LOSS $(342,222)
LOSS PER SHARE $(0.00)
WEIGHTED AVERAGE NUMBER OF
COMMON STOCK OUTSTANDING 78,457,597
**Note: The financial statements of the acquired company, Sierra Minerals and
Mining Inc. are not included in these pro-froma condensed consolidated
statements of operations, as this company was incorporated on March 19, 2004 and
had no operations at February 29, 2004.
See notes to pro-forma condensed consolidated financial statements.
F-30
SUNBURST ACQUISITIONS IV, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FIRST QUARTER ENDED MAY 31, 2004
(UNAUDITED)
(U.S. DOLLARS)
REVENUES $0
EXPENSES
Selling, general, and administrative 62,003
Acquisition of resource properties 430,000
Deposit for property acquisition 227,500
TOTAL EXPENSES 719,503
NET LOSS FOR PERIOD (719,503)
OTHER COMPREHENSIVE INCOME
Unrealized foreign exchange income (1,276)
TOTAL COMPREHENSIVE LOSS $(720,779)
LOSS PER SHARE $(0.02)
WEIGHTED AVERAGE NUMBER OF
COMMON STOCK OUTSTANDING 37,782,597
F-31
SUNBURST ACQUISITIONS IV, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO PRO-FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2004
(UNAUDITED)
(U.S. DOLLARS)
The pro-forma condensed consolidated financial statements give effect to the
following:
1. THE ACQUISITION OF SIERRA MINERALS AND MINING, INC. ("SIERRA")
On May 25, 2004, the Company completed a share exchange with the shareholders of
Sierra. Pursuant to the terms of the share exchange agreement, the Company
issued 43,000,000 shares of its common stock in exchange for all of the
outstanding shares of Sierra. Sierra is a company incorporated in the state of
Nevada that was incorporated just prior to the share exchange with the Company.
Sierra had no activities, other than minor organizational charges, and no
operations other than having an option to acquire an interest in a property in
Mexico.
2. THE EXPENDITURE FOR COST OF MINING PROPERTIES INTEREST
Sierra is a party to a joint venture agreement with Minera Rio Tinto S.A. de
C.V. ("MRT"), a Mexican company, pursuant to which Sierra and MRT have agreed to
explore and develop, if feasible, certain mining properties in the state of
Chihuahua, Mexico. The Company loaned on behalf of Sierra, a total of $227,500
to MRT. The amounts loaned are not recoverable. Should Sierra fail to complete
the terms of the option agreement, Sierra will lose all right to the loaned
amount. As such, the Company wrote off the loans to MRT resulting in a charge to
operations of $227,500.
3. THE ACCRUING OF LEGAL AND ACCOUNTING FEES
In addition, professional fees of $13,388 have been incurred relating to
organizational and set up costs to Sierra which have been charged to operations.
F-32
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Our Articles of Incorporation, as amended, provide to the fullest extent
permitted by Colorado law, our directors or officers shall not be personally
liable to us or our shareholders for damages for breach of such director's or
officer's fiduciary duty. The effect of this provision of our Articles of
Incorporation, as amended, is to eliminate our right and our shareholders
(through shareholders' derivative suits on behalf of our company) to recover
damages against a director or officer for breach of the fiduciary duty of care
as a director or officer (including breaches resulting from negligent or grossly
negligent behavior), except under certain situations defined by statute. We
believe that the indemnification provisions in its Articles of Incorporation, as
amended, are necessary to attract and retain qualified persons as directors and
officers.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Company pursuant to the foregoing provisions, or otherwise, the Company has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth an itemization of all estimated expenses,
all of which we will pay, in connection with the issuance and distribution of
the securities being registered:
NATURE OF EXPENSE AMOUNT
SEC Registration fee $ 1,170.36
Accounting fees and expenses 10,000.00*
Legal fees and expenses 35,000.00*
Miscellaneous 5,000.00
----------
TOTAL $51,170.36*
==========
* Estimated.
II-1
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
In April 2004, in connection with the acquisition of certain mineral
properties, we entered into a Transaction Fee Agreement with T.R. Winston &
Company LLC. Pursuant to this agreement, we issued a warrant to purchase
3,000,000 shares of common stock at $.01 per share. In connection the
acquisition of the mineral properties, we also entered into an agreement with
Liberty Management, LLC whereby we provided Liberty a common stock purchase
warrant to purchase 1,500,000 shares of common stock at $.01 per share.
During the third quarter of fiscal 2002, we sold a total of 2,025,098
shares at $0.10 per share in a private placement offering through which we
received gross offering proceeds of $202,510. We also issued 220,000 shares at
$0.10 per share in satisfaction of debt.
During the fiscal year ending February 29, 2004, the Company received
$30,000 and issued a convertible debenture, which bears interest at 8% per annum
and is convertible to stock at $0.02.
On May 25, 2004, the Company completed a share exchange with the
shareholders of Sierra Minerals and Mining, Inc. In the exchange, the Company
issued 43,000,000 shares of common stock representing approximately 51.7% of the
Company's then-outstanding shares to Sierra's shareholders in exchange for all
of the shares of Sierra capital stock. As a result, Sierra became a wholly owned
subsidiary of the Company.
During the fourth quarter of the fiscal year ending February 29, 2004, and
the quarter ended May 31, 2004, the Company completed a private placement
offering of 3,650,000 shares of common stock at a price of $0.02 per share. All
such shares were issued for cash in transactions which were made in reliance
upon exemptions from registration under the Securities Act of 1933. The gross
offering proceeds received from the sale of such shares was $73,000, and the
Company paid no underwriting discounts or commissions.
In addition, during the quarter ended May 31, 2004, the Company received
subscriptions in the amount of $199,135 from a private placement offering of
units at $0.10 per unit. Each unit consists of one share of common stock and one
warrant to purchase an additional share of stock at the price of $0.20 per share
at any time within twelve months from the date of issuance of the warrant.
A total of 361,095 units ($36,109.50) were offered and sold in reliance
upon the intrastate offering exemption from registration provided by Section
3(a)(11) of the Securities Act of 1933. All the shares of common stock and all
remaining units were offered and sold in reliance upon the safe harbor
provisions of Regulation S, adopted under the Securities Act of 1933, for offers
and sales that occurred outside the United States.
To obtain funding for our ongoing operations, in August 2004, we entered
into a Securities Purchase Agreement with Alpha Capital Aktiengesellschaft,
Bristol Investment Fund, Ltd. and Stonestreet Limited Partnership, which are
accredited institutional investors for the issuance of an aggregate of
$1,350,000 principal amount secured convertible debentures with an original
issue discount of 25%. On August 25, 2004, we closed on an aggregate principal
amount of $675,000 of secured convertible debentures and received gross proceeds
of $500,000. The second closing on an additional $675,000 will be on or before
the fifth day following the effective date of this registration statement. The
secured convertible debentures are due one year from the date of issuance. The
secured convertible debentures are convertible at the option of the holders into
our shares of common stock at a fixed conversion price of $0.10 per share.
However, in the event that our intraday trading price during any 20 trading day
period is less than $.10 for ten nonconsecutive or consecutive days, then the
conversion price will be the lesser of $.10 or 80% of the average of the lowest
three intraday trading prices during the 20 trading days prior to such
conversion. In connection with the Securities Purchase Agreement, we also issued
warrants to purchase an aggregate of 13,500,000 shares of our common stock and
an additional investment right to purchase an aggregate of 13,500,000 shares to
the investors. The term of the warrants is five years and the exercise price is
$0.12 per share. The additional investment right provides each investor with the
right to purchase up to an aggregate of 13,500,000 shares of common stock at
$.10 per share for a period equal to the earlier of the six month anniversary of
the effective date of this registration statement or the 18 month anniversary of
the first closing date of this financing. Furthermore we entered into a
Registration Rights Agreement in order to register the above-referenced
securities and a Security Agreement that provides the investor with the first
priority security interest in certain of our assets. These securities were
issued pursuant to an exemption from registration pursuant to Section 4 (2) of
the Securities
II-2
Act of 1933. The investors have contractually agreed to restrict their ability
to convert the secured convertible debentures, exercise the warrants and
exercise the additional investment right and receive shares of our common stock
such that the number of shares of our common stock held by them and their
affiliates after such conversion or exercise does not exceed 4.99% of our then
issued and outstanding shares of our common stock. In connection with this
financing, we entered into a Transaction Fee Agreement with T.R. Winston &
Company LLC. Pursuant to this agreement, we issued a warrant to purchase
1,350,000 shares of common stock at $.01 per share.
* All of the above offerings and sales were deemed to be exempt under rule
506 of Regulation D and Section 4(2) of the Securities Act of 1933, as amended.
No advertising or general solicitation was employed in offering the securities.
The offerings and sales were made to a limited number of persons, all of whom
were accredited investors, business associates of our company or executive
officers of our company, and transfer was restricted by our company in
accordance with the requirements of the Securities Act of 1933. In addition to
representations by the above-referenced persons, we have made independent
determinations that all of the above-referenced persons were accredited or
sophisticated investors, and that they were capable of analyzing the merits and
risks of their investment, and that they understood the speculative nature of
their investment. Furthermore, all of the above-referenced persons were provided
with access to our Securities and Exchange Commission filings.
Except as expressly set forth above, the individuals and entities to whom
we issued securities as indicated in this section of the registration statement
are unaffiliated with us.
II-3
ITEM 27. EXHIBITS.
The following exhibits are included as part of this Form SB-2. References
to "the Company" in this Exhibit List mean Sunburst Acquisitions IV, Inc., a
Colorado corporation.
Exhibit
Number Description
- ------ -----------
3.1 Articles of Incorporation (incorporated by reference from
Registration Statement on Form 10-SB/A filed with the Securities and
Exchange Commission on December 29, 1997).
3.2 Bylaws (incorporated by reference from Registration Statement on
Form 10-SB/A filed with the Securities and Exchange Commission on
December 29, 1997).
4.1 Registration Agreement dated April 20, 2004, by and among Sunburst
Acquisitions IV, Inc., a Colorado company, and each of the
purchasers in a private placement of shares of Sunburst.
(incorporated by reference from Current Report on Form 8-K filed
with the Securities and Exchange Commission dated May 25, 2004)
4.2 Promissory Note between Sunburst Acquisitions IV, Inc. and Minera
Rio Tinto S.A. de C.V. in the amount of $ 57,500 dated January 9,
2004. (incorporated by reference from Current Report on Form 8-K
filed with the Securities and Exchange Commission dated May 25,
2004)
4.3 Promissory Note between Sierra Mineral and Mining, Inc. and Minera
Rio Tinto S.A. de C.V. in the amount of $ 167,500, dated May 3,
2004. (incorporated by reference from Current Report on Form 8-K
filed with the Securities and Exchange Commission dated May 25,
2004)
4.4 Securities Purchase Agreement with exhibits entered in connection
with the $1,350,000 original issued discount secured convertible
debenture financing dated August 25, 2004 (incorporated by reference
from Current Report on Form 8-K filed with the Securities and
Exchange Commission dated August 25, 2004)
4.5 Letter Agreement dated January 16, 2004 Bristol Capital, LLC and
Sunburst Acquisitions IV, Inc.
4.6 Secured Convertible Debenture by and between Bristol Capital, LLC
and Sunburst Acquisitions IV, Inc. dated January 15, 2004
4.7 Common Stock Purchase Warrant in the name of Diana Derycz-Kessler
4.8 Common Stock Purchase Warrant in the name of T.R. Winston & Company,
LLC
4.9 Transaction Fee Agreement dated April 22, 2004 between Sunburst
Acquisitions IV Inc. and T.R. Winston & Company LLC
5.1 Sichenzia Ross Friedman Ference LLP Opinion and Consent (filed
herewith)
10.1 Share Exchange Agreement, dated May 3, 2004, by and among Sunburst
Acquisitions IV, Inc., a Colorado corporation, Sierra Minerals and
Mining, Inc., a Nevada corporation, and the shareholders of Sierra
Minerals & Mining, Inc. (incorporated by reference from Current
Report on Form 8-K filed with the Securities and Exchange Commission
dated May 25, 2004)
10.2 Joint Venture Agreement, dated April 26, 2004 and amended on June 1,
2004, by and between Sierra Mining and Minerals, Inc., a Nevada
corporation, and Minera Rio Tinto S.A. de C.V., a Mexican company
(incorporated by reference from Current Report on Form 8-K filed
with the Securities and Exchange Commission dated May 25, 2004)
II-4
10.3 Amendment to Joint Venture Agreement dated June 1, 2004.
(incorporated by reference from Current Report on Form 8-K filed
with the Securities and Exchange Commission dated May 25, 2004)
10.4 Amendment to Joint Venture Agreement dated October 1, 2004.
14.1 Code of Ethics
16.1 Responsive letter of Comiskey & Co. (incorporated by reference from
Current Report on Form 8-K filed with the Securities and Exchange
Commission dated July 9, 2004)
21.1 Subsidiaries of the Registrant.
23.1 Consent of Comiskey & Co. - Independent Public Accountants (filed
herewith).
23.2 Consent of Pannell Kerr Forster - Independent Registered Chartered
Accountants (filed herewith).
ITEM 28. UNDERTAKINGS.
The undersigned Company hereby undertakes to:
(1) File, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the Securities Act of
1933, as amended (the "Securities Act");
(ii) Reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of the securities offered would
not exceed that which was registered) and any deviation from the low or high end
of the estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) under the
Securities Act if, in the aggregate, the changes in volume and price represent
no more than a 20% change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective registration
statement, and
(iii) Include any additional or changed material information on the plan of
distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
(4) For purposes of determining any liability under the Securities Act, treat
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Company pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act as part of this registration statement as of the time
it was declared effective.
(5) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and that offering of the securities at that time as the initial bona fide
offering of those securities.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company
II-5
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Company of expenses incurred or paid by a
director, officer or controlling person of the Company in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
II-6
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Company certifies that it has reasonable grounds to believe that it meets all of
the requirements of filing on Form SB-2 and authorizes this registration
statement to be signed on its behalf by the undersigned, in the City of
Vancouver, British Columbia, Canada, on November 10, 2004.
SUNBURST ACQUISITIONS IV, INC.
By: /s/ Terry Fields
-----------------------------------------------------
Terry Fields, President, Principal Executive Officer,
Principal Financial Officer, Secretary and Director
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated.
SIGNATURE TITLE DATE
/s/ Mario Ayub Director November 10, 2004
- ------------------
Mario Ayub
II-7