|
|
|
by
the selling stockholders
|
|
16,944,209
Shares
|
|
|
|
Common
stock outstanding
|
|
|
prior
to this offering
|
|
171,643,646
Shares
|
|
|
|
Use
of Proceeds
|
|
We
will not receive any of the proceeds from the sale of the shares
of common
stock because they are being offered by the selling stockholders
and we
are not offering any shares for sale under this prospectus, but
we may
receive proceeds from the exercise of warrants and options held
by the
selling stockholders. We will apply such proceeds, if any, toward
future
exploration and/or acquisitions and for working capital. See "Use
of
Proceeds."
|
|
|
|
Over-The-Counter
Bulletin
|
|
|
Board
symbol
|
|
CGLD
|
|
|
|
Toronto
Stock Exchange symbol
|
|
CGC
|
The
16,944,209 shares
of
our common stock offered consist of:
|
·
|
Up
to 12,561,667 shares of common stock owned by certain of the selling
stockholders; and
|
|
·
|
Up
to 4,382,542 shares of common stock issuable upon the exercise
of
outstanding warrants and options.
|
Summary
Financial Data
In
the
table below, we provide you with our summary historical financial data. We
have
prepared this information using our audited financial statements for each
of the
five years in the period ended July 31, 2006 and
our
unaudited financial statements for the nine months ended April 30, 2006 and
April 30, 2007. Operating results for the nine months ended April 30, 2007
are
not necessarily indicative of the results that may be expected for the year
ending July 31, 2007.
It
is
important that you read this summary historical financial data in conjunction
with our historical financial statements and related notes and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations"
appearing elsewhere in this prospectus.
Statement
of Operations Data
|
|
For
the Years Ended
|
|
|
|
July
31,
|
|
|
|
2002
|
|
2003
|
|
2004
|
|
2005
|
|
2006
|
|
|
|
(consolidated)
|
|
(consolidated)
|
|
(consolidated)
|
|
(consolidated)
|
|
(consolidated)
|
|
Revenues
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
Mine
Expenses
|
|
$
|
709,961
|
|
$
|
1,028,899
|
|
$
|
673,050
|
|
$
|
851,374
|
|
$
|
1,940,805
|
|
Selling,
General and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Administrative
|
|
$
|
639,652
|
|
$
|
770,629
|
|
$
|
687,722
|
|
$
|
1,005,038
|
|
$
|
2,135,493
|
|
Stock
& Warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued
for Services
|
|
$
|
222,338
|
|
$
|
288,623
|
|
$
|
379,033
|
|
$
|
187,844
|
|
$
|
89,391
|
|
Depreciation
&
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
|
|
$
|
3,105
|
|
$
|
-
|
|
$
|
-
|
|
$
|
7,431
|
|
$
|
38,969
|
|
Total
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(Expense)
|
|
$
|
2,027,810
|
|
$
|
(11,735
|
)
|
$
|
(950,005
|
)
|
$
|
46,005
|
|
$
|
(600,034
|
)
|
Minority
Interest
|
|
$
|
54,543
|
|
$
|
180,625
|
|
$
|
51,220
|
|
$
|
-
|
|
$
|
-
|
|
Write
Down of Mining,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Milling
and Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
and Equipment
|
|
$
|
999,445
|
|
$
|
-
|
|
$
|
300,000
|
|
$
|
-
|
|
$
|
-
|
|
Net
Loss
|
|
$
|
(492,148
|
)
|
$
|
(1,919,261
|
)
|
$
|
(2,938,590
|
)
|
$
|
(2,005,682
|
)
|
$
|
(4,804,692
|
)
|
|
|
For
the Nine months Ended
|
|
|
|
April
30,
|
|
|
|
2006
|
|
2007
|
|
|
|
(consolidated)
|
|
(consolidated)
|
|
|
|
(unaudited)
|
|
(unaudited)
|
|
Revenues
|
|
$
|
-
|
|
$
|
-
|
|
Mine
Expenses
|
|
$
|
1,528,653
|
|
$
|
743,334
|
|
Selling,
General and
|
|
|
|
|
|
|
|
Administrative
|
|
$
|
1,377,104
|
|
$
|
2,151,362
|
|
Stock
& Warrants
|
|
|
|
|
|
|
|
Issued
for Services
|
|
$
|
6,585
|
|
$
|
153,093
|
|
Exploration
|
|
$
|
-
|
|
$
|
581,395
|
|
Depreciation
& Amortization
|
|
$
|
27,000
|
|
$
|
631,797
|
|
Total
Other Income (Expense)
|
|
$
|
(276,814
|
)
|
$
|
(1,222,586
|
)
|
Net
Loss
|
|
$
|
(3,216,156
|
)
|
$
|
(5,483,568
|
)
|
Balance
Sheet Data
|
|
As
of July 31,
|
|
|
|
2002
|
|
2003
|
|
2004
|
|
2005
|
|
2006
|
|
|
|
(consolidated)
|
|
(consolidated)
|
|
(consolidated)
|
|
(consolidated)
|
|
(consolidated)
|
|
Working
Capital
|
|
$
|
1,192,871
|
|
$
|
105,661
|
|
$
|
182,939
|
|
$ |
4,239,991 |
|
$
|
7,031,526
|
|
Total
Assets
|
|
$
|
2,056,851
|
|
$
|
761,607
|
|
$
|
485,753
|
|
$ |
5,551,871 |
|
$
|
9,545,580
|
|
Total
Liabilities
|
|
$
|
467,017
|
|
$
|
254,299
|
|
$
|
204,159
|
|
$
|
282,816
|
|
$
|
615,643
|
|
Stockholders’
Equity
|
|
$
|
1,622,119
|
|
$
|
651,000
|
|
$
|
281,594
|
|
$ |
5,269,055 |
|
$
|
8,929,937
|
|
|
|
As
of April 30
|
|
|
|
|
|
2006
|
|
2007
|
|
|
|
(consolidated)
|
|
(consolidated)
|
|
|
|
(unaudited)
|
|
(unaudited)
|
|
Working
Capital
|
|
$
|
8,213,728
|
|
$
|
9,358,500
|
|
Total
Assets
|
|
$
|
10,535,564
|
|
$
|
27,854,550
|
|
Total
Liabilities
|
|
$
|
462,992
|
|
$
|
14,587,942
|
|
Stockholders’
Equity
|
|
$
|
10,072,572
|
|
$
|
13,266,608
|
|
RISK
FACTORS
WE
ARE SUBJECT TO VARIOUS RISKS THAT MAY MATERIALLY HARM OUR BUSINESS, FINANCIAL
CONDITION AND RESULTS OF OPERATIONS. YOU SHOULD CAREFULLY CONSIDER THE RISKS
AND
UNCERTAINTIES DESCRIBED BELOW AND THE OTHER INFORMATION IN THIS PROSPECTUS
BEFORE DECIDING TO PURCHASE OUR COMMON STOCK. IF ANY OF THESE RISKS OR
UNCERTAINTIES ACTUALLY OCCUR, OUR BUSINESS, FINANCIAL CONDITION OR OPERATING
RESULTS COULD BE MATERIALLY HARMED. IN THAT CASE, THE TRADING PRICE OF OUR
COMMON STOCK COULD DECLINE AND YOU COULD LOSE ALL OR PART OF YOUR
INVESTMENT.
Risks
related to our business and operations
We
have just begun generating operating revenues. If we are unable to sustain
operating revenues, we will not be able to generate profits and our business
may
fail.
Until
recently, we had no producing properties and, historically, have operated
and
continue to operate at a loss. We only commenced gold producing activities
and
started to generate revenues in August 2007. Our ultimate success will depend
on
our ability to generate profits from our properties. Our viability is largely
dependent on the successful commercial development of our El Chanate gold
mining
project in Sonora, Mexico. While we have commenced revenue producing mining
operations, we cannot assure if or when revenues will cover cash flow or
generate profits.
We
lack operating cash flow and, historically, have relied on external funding
sources. While we have started to receive revenues from mining operations
at El
Chanate and we believe that we have adequate funds to permit us to reach
positive cash flow from such operations, if we encounter unexpected problems
and
we are unable to generate positive cash flow in a timely manner, we may need
to
raise additional capital. If additional capital is required and we are unable
to
obtain it from outside sources, we may be forced to reduce or curtail our
operations or our anticipated exploration activities.
Historically,
we have not generated cash flow from operations. We believe that we have
adequate funds to cover our financial requirements until such time as mining
operations at the El Chanate Project generate positive cash flow. However,
if we
encounter unexpected problems and we are unable to generate positive cash
flow
in a timely manner, we may need to raise additional capital. We also may
need to
raise additional capital for property acquisition and new exploration. To
the
extent that we need to obtain additional capital, management intends to raise
such funds through the sale of our securities and/or joint venturing with
one or
more strategic partners. We cannot assure that adequate additional funding,
if
needed, will be available.
If
we
need additional capital and we are unable to obtain it from outside sources,
we
may be forced to reduce or curtail our operations or our anticipated exploration
activities.
Our
year end audited financial statements contain a “going concern” explanatory
paragraph. Our
inability to continue as a going concern would require a restatement of assets
and liabilities on a liquidation basis, which would differ materially and
adversely from the going concern basis on which our financial statements
included in this prospectus have been prepared.
Our
consolidated financial statements for the year ended July 31, 2006 included
herein have been prepared on the basis of accounting principles applicable
to a
going concern. Our auditors’ report on the consolidated financial statements
contained herein includes an additional explanatory paragraph following the
opinion paragraph on our ability to continue as a going concern. A note to
these
consolidated financial statements describes the reasons why there is substantial
doubt about our ability to continue as a going concern and our plans to address
this issue. Our July 31, 2006 and April 30, 2007 consolidated financial
statements do not include any adjustments that might result from the outcome
of
this uncertainty. Our inability to continue as a going concern would require
a
restatement of assets and liabilities on a liquidation basis, which would
differ
materially and adversely from the going concern basis on which our consolidated
financial statements have been prepared. See, Management's
Discussion and Analysis of Financial Condition and Results of Operations;
Liquidity and Capital Resources; Plan of Operations.”
Our
Credit Facility with Standard Bank plc imposes restrictive covenants on us.
Our
Credit Facility with Standard Bank requires us, among other obligations,
to meet
certain financial covenants including (i) a debt service coverage ratio of
not
less than 1.2 to 1.0, (ii) a projected debt service coverage ratio of not
less
than 1.2 to 1.0, (iii) a loan life coverage ratio of at least 1.6 to 1.0,
(iv) a
project life coverage ratio of at least 2.0 to 1.0 and (v) a minimum reserve
tail. We are also required to maintain a certain minimum level of unrestricted
cash. In addition, the Credit Facility restricts, among other things, our
ability to incur additional debt, create liens on our property, dispose of
any
assets, merge with other companies or make any investments. A failure to
comply
with the restrictions contained in the Credit Facility could lead to an event
of
default thereunder which could result in an acceleration of such indebtedness.
We
are using reconditioned equipment which could adversely affect our cost
assumptions and our ability to economically and successfully mine the
project.
We
are
using reconditioned carbon column collection equipment to recover gold. Such
equipment is subject to the risk of more frequent breakdowns and need for
repair
than new equipment. If the equipment that we use breaks down and needs to
be
repaired or replaced, we will incur additional costs and operations may be
delayed resulting in lower amounts of gold recovered. In such event, our
capital
and operating cost assumptions may be inaccurate and our ability to economically
and successfully mine the project may be hampered, resulting in decreased
revenues and, possibly, a loss from operations.
The
gold deposit we have identified at El Chanate is relatively low-grade. If
our
estimates and assumptions are inaccurate, our results of operation and financial
condition could be materially adversely affected.
The
gold
deposit we have identified at our El Chanate Project is relatively low-grade.
If
the estimates of ore grade or recovery rates contained in the feasibility
study
turn out to be higher than the actual ore grade and recovery rates, if costs
are
higher than expected, or if we experience problems related to the mining,
processing, or recovery of gold from ore at the El Chanate Project, our results
of operation and financial condition could be materially adversely affected.
Moreover, it is possible that actual costs and economic returns may differ
materially from our best estimates. It is not unusual in the mining industry
for
new mining operations to experience unexpected problems during the initial
production phase and to require more capital than anticipated. There can
be no
assurance that our operations at El Chanate will be profitable.
We
have only one project. As a result, our chances of conducting viable mining
operations are dependent upon the success of that
project.
Our
only
current properties are the El Chanate concessions. Accordingly, we are dependent
upon the success of the El Chanate concessions.
Gold
prices can fluctuate on a material and frequent basis due to numerous factors
beyond our control. If and when we commence production, our ability to generate
profits from operations could be materially and adversely affected by such
fluctuating prices.
The
profitability of any gold mining operations in which we have an interest
will be
significantly affected by changes in the market price of gold. Gold prices
fluctuate on a daily basis. During the first eight months of 2007, the spot
price for gold on the London Exchange has fluctuated between $608.30 and
$691.40
per ounce. During 2006, the spot price for gold on the London Exchange
fluctuated between $524.75 and $725.00 per ounce. Gold prices are affected
by
numerous factors beyond our control, including:
|
·
|
the
level of interest rates,
|
|
·
|
world
supply of gold and
|
|
·
|
stability
of exchange rates.
|
Each
of
these factors can cause significant fluctuations in gold prices. Such external
factors are in turn influenced by changes in international investment patterns
and monetary systems and political developments. The price of gold has
historically fluctuated widely and, depending on the price of gold, revenues
from mining operations may not be sufficient to offset the costs of such
operations.
We
have
entered into metals trading transactions to hedge against fluctuations in
gold
prices, using call option purchases and forward sales, and have entered into
various interest rate swap agreements. The terms of our Credit Facility with
Standard Bank require that we utilize various price hedging techniques to
hedge
a portion of the gold we plan to produce at the El Chanate Project and hedge
at
least 50% of our outstanding loan balance. There can be no assurance that
we
will be able to successfully hedge against gold price and interest rate
fluctuations.
Further,
there can be no assurance that the use of hedging techniques will always
be to
our benefit. Hedging instruments that protect against metals market price
volatility may prevent us from realizing the full benefit from subsequent
increases in market prices with respect to covered production, which would
cause
us to record a mark-to-market loss, decreasing our revenues and profits.
Hedging
contracts also are subject to the risk that the other party may be unable
or
unwilling to perform its obligations under these contracts. Any significant
nonperformance could have a material adverse effect on our financial condition,
results of operations and cash flows.
We
had
not yet physically produced gold dore on March 30, 2007 and June 30, 2007,
the
first two dates upon which we were required to settle a forward sale of 5,285
oz
and 7,841 oz of gold, respectively with Standard Bank. Rather than modifying
the
original Gold Price Protection agreement with Standard Bank to satisfy these
forward sale obligations, we opted for a net cash settlement between the
call
option purchase price of $535 and the forward sale price of $500, or $35.00
per
oz. We paid Standard Bank approximately $185,000 and $274,000, respectively,
due
to these settlements with corresponding reductions in our derivative liability.
As we commenced gold production in August 2007, we believe we will be able
to
deliver the quantity of gold required by our forward sales on a going forward
basis; however, we may continue to net cash settle these forward sale
obligations if it is the most cost effective option for us. If we are unable
for
any reason to produce the quantity of gold required by our forward sales
and
generate sufficient cash flow to settle these forward sales in gold or cash,
we
could have a material adverse effect on our financial condition and cash
flows.
Our
material property interests are in Mexico. Risks of doing business in a foreign
country could adversely affect our results of operations and financial
condition.
We
face
risks normally associated with any conduct of business in a foreign country
with
respect to our El Chanate Project in Sonora, Mexico, including various levels
of
political and economic risk. The occurrence of one or more of these events
could
have a material adverse impact on our efforts or operations which, in turn,
could have a material adverse impact on our cash flows, earnings, results
of
operations and financial condition. These risks include the
following:
|
·
|
invalidity
of governmental orders,
|
|
·
|
uncertain
or unpredictable political, legal and economic
environments,
|
|
·
|
war
and civil disturbances,
|
|
·
|
changes
in laws or policies,
|
|
·
|
delays
in obtaining or the inability to obtain necessary governmental
permits,
|
|
·
|
governmental
seizure of land or mining claims,
|
|
·
|
limitations
on ownership,
|
|
·
|
limitations
on the repatriation of earnings,
|
|
·
|
increased
financial costs,
|
|
·
|
import
and export regulations, including restrictions on the export of
gold,
and
|
|
·
|
foreign
exchange controls.
|
These
risks may limit or disrupt the project, restrict the movement of funds or
impair
contract rights or result in the taking of property by nationalization or
expropriation without fair compensation.
We
sell gold in U.S. dollars; however, we incur a significant amount of our
expenses in Mexican pesos. If applicable currency exchange rates fluctuate,
our
revenues and results of operations may be materially and adversely affected.
We
sell
gold in U.S. dollars. We incur a significant amount of our expenses in Mexican
pesos. As a result, our financial performance would be affected by fluctuations
in the value of the Mexican peso to the U.S. dollar.
Changes
in regulatory policy could adversely affect our exploration and future
production activities.
Any
changes in government policy may result in changes to laws
affecting:
|
·
|
environmental
regulations,
|
|
·
|
repatriation
of income and/or
|
Any
such
changes may affect our ability to undertake exploration and development
activities in respect of future properties in the manner currently contemplated,
as well as our ability to continue to explore, develop and operate those
properties in which we have an interest or in respect of which we have obtained
exploration and development rights to date. The possibility, particularly
in
Mexico, that future governments may adopt substantially different policies,
which might extend to expropriation of assets, cannot be ruled out.
Compliance
with environmental regulations could adversely affect our exploration and
future
production activities.
With
respect to environmental regulation, future environmental legislation could
require:
|
·
|
stricter
standards and enforcement,
|
|
·
|
increased
fines and penalties for non-compliance,
|
|
·
|
more
stringent environmental assessments of proposed projects and
|
|
·
|
a
heightened degree of responsibility for companies and their officers,
directors and employees.
|
There
can
be no assurance that future changes to environmental legislation and related
regulations, if any, will not adversely affect our operations. We could be
held
liable for environmental hazards that exist on the properties in which we
hold
interests, whether caused by previous or existing owners or operators of
the
properties. Any such liability could adversely affect our business and financial
condition.
We
have insurance against losses or liabilities that could arise from our
operations. If we incur material losses or liabilities in excess of our
insurance coverage, our financial position could be materially and adversely
affected.
Mining
operations involve a number of risks and hazards, including:
|
·
|
metallurgical
and other processing,
|
|
·
|
mechanical
equipment and facility performance problems.
|
Such
risks could result in:
|
·
|
damage
to, or destruction of, mineral properties or production
facilities,
|
|
·
|
personal
injury or death,
|
|
·
|
monetary
losses and /or
|
|
·
|
possible
legal liability.
|
Industrial
accidents could have a material adverse effect on our future business and
operations. While we do not have insurance coverage on our processing plant,
we
anticipate obtaining such coverage when this plant is fully commissioned.
We
currently maintain general liability, auto and property insurance coverage.
We
cannot be certain that the insurance we have in place will cover all of the
risks associated with mining or that we will be able to maintain insurance
to
cover these risks at economically feasible premiums. We also might become
subject to liability for pollution or other hazards which we cannot insure
against or which we may elect not to insure against because of premium costs
or
other reasons. Losses from such events may have a material adverse effect
on our
financial position.
Calculation
of reserves and metal recovery dedicated to future production is not exact,
might not be accurate and might not accurately reflect the economic viability
of
our properties.
Reserve
estimates may not be accurate. There is a degree of uncertainty attributable
to
the calculation of reserves, resources and corresponding grades being dedicated
to future production. Until reserves or resources are actually mined and
processed, the quantity of reserves or resources and grades must be considered
as estimates only. In addition, the quantity of reserves or resources may
vary
depending on metal prices. Any material change in the quantity of reserves,
resource grade or stripping ratio may affect the economic viability of our
properties. In addition, there can be no assurance that mineral recoveries
in
small scale laboratory tests will be duplicated in large tests under on-site
conditions or during production.
We
are dependent on the efforts of certain key personnel and contractors to
develop
our El Chanate Project. If we lose the services of these personnel and
contractors and we are unable to replace them, our planned operations at
our El
Chanate Project may be disrupted and/or materially adversely
affected.
We
are
dependent on a relatively small number of key personnel, including but not
limited to John Brownlie, Chief Operating Officer, who oversees the El Chanate
Project, the loss of any one of whom could have an adverse effect on us.
We are
also dependent upon Sinergia to provide mining services. Sinergia
commenced mining operations on March 25, 2007, and transitioned from the
pre-production to production phase of the mining contract in July 2007.
Sinergia continued to mobilize portions of its mining fleet to the site in
August 2007; however, its mining fleet is not new. If we lose the services
of
our key personnel, or if Sinergia is unable to effectively maintain its fleet,
our planned operations at our El Chanate Project may be disrupted and/or
materially adversely affected.
There
are uncertainties as to title matters in the mining industry. We believe
that we
have good title to our properties; however, any defects in such title that
cause
us to lose our rights in mineral properties could jeopardize our planned
business operations.
We
have
investigated our rights to explore, exploit and develop our concessions in
manners consistent with industry practice and, to the best of our knowledge,
those rights are in good standing. However, we cannot assure that the title
to
or our rights of ownership in the El Chanate concessions will not be challenged
or impugned by third parties or governmental agencies. In addition, there
can be
no assurance that the concessions in which we have an interest are not subject
to prior unregistered agreements, transfers or claims and title may be affected
by undetected defects. Any such defects could have a material adverse effect
on
us.
Our
ability to remain profitable long term, should we become profitable, eventually
will depend on our ability to find, explore and develop additional properties.
Our ability to acquire such additional properties will be hindered by
competition. If we are unable to acquire, develop and economically mine
additional properties, we most likely will not be able to be profitable on
a
long-term basis.
Gold
properties are wasting assets. They eventually become depleted or uneconomical
to continue mining. The acquisition of gold properties and their exploration
and
development are subject to intense competition. Companies with greater financial
resources, larger staffs, more experience and more equipment for exploration
and
development may be in a better position than us to compete for such mineral
properties. If we are unable to find, develop and economically mine new
properties, we most likely will not be able to be profitable on a long-term
basis.
Our
ability on a going forward basis to discover additional viable and economic
mineral reserves is subject to numerous factors, most of which are beyond
our
control and are not predictable. If we are unable to discover such reserves,
we
most likely will not be able to be profitable on a long-term
basis.
Exploration
for gold is speculative in nature, involves many risks and is frequently
unsuccessful. Few properties that are explored are ultimately developed into
commercially producing mines. As noted above, our long-term profitability
will
be, in part, directly related to the cost and success of exploration programs.
Any gold exploration program entails risks relating to
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the
location of economic ore bodies,
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development
of appropriate metallurgical processes,
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·
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receipt
of necessary governmental approvals and
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·
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construction
of mining and processing facilities at any site chosen for mining.
|
The
commercial viability of a mineral deposit is dependent on a number of factors
including:
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·
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the
particular attributes of the deposit, such as its
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proximity
to infrastructure,
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·
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importing
and exporting gold and
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·
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environmental
protection.
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The
effect of these factors cannot be accurately predicted.
Risks
related to ownership of our stock
There
is a limited market for our common stock. If a substantial and sustained
market
for our common stock does not develop, our stockholders may have difficulty
selling, or be unable to sell, their shares.
Our
common stock is tradable in the United States in the over-the-counter market
and
is quoted on the Over-The-Counter Bulletin Board and our shares of common
stock
trade on the Toronto Stock Exchange. There is only a limited market for our
common stock and there can be no assurance that this market will be maintained
or broadened. If a substantial and sustained market for our common stock
does
not develop, our stockholders may have difficulty selling, or be unable to
sell,
their shares.
Our
stock price may be adversely affected if a significant amount of shares,
including those offered herein, are sold in the public
market.
As
of
September 7, 2007, approximately 80.3 million shares of our common stock,
constituted "restricted securities" as defined in Rule 144 under the Securities
Act of 1933. We have registered herein and in prior registration statements
more
than half of these shares for public resale. In addition, we have registered
herein and in prior registration statements 24.4 million shares
of
common stock issuable upon the exercise of outstanding warrants and options
that, as of the date hereof, have not expired or been exercised. All of the
foregoing shares, assuming exercise of all of the above options and warrants,
would represent in excess of 50% of the then outstanding shares of our common
stock. Registration
of the shares permits the sale of the shares in the open market or in privately
negotiated transactions without compliance with the requirements of Rule
144. To
the extent the exercise price of the warrants or options is less than the
market
price of the common stock, the holders of the warrants are likely to exercise
them and sell the underlying shares of common stock and to the extent that
the
exercise prices of these securities are adjusted pursuant to anti-dilution
protection, the securities could be exercisable or convertible for even more
shares of common stock. We
also
may
issue
shares
to be used to meet our capital requirements or use shares to compensate
employees, consultants and/or directors. We are unable to estimate the amount,
timing or nature of future sales of outstanding common stock. Sales of
substantial amounts of our common stock in the public market could cause
the
market price for our common stock to decrease. Furthermore, a decline in
the
price of our common stock would likely impede our ability to raise capital
through the issuance of additional shares of common stock or other equity
securities.
We
do not intend to pay cash dividends in the near future.
Our
board
of directors determines whether to pay cash dividends on our issued and
outstanding shares. The declaration of dividends will depend upon our future
earnings, our capital requirements, our financial condition and other relevant
factors. Our board does not intend to declare any dividends on our shares
for
the foreseeable future. We anticipate that we will retain any earnings to
finance the growth of our business and for general corporate purposes.
Provisions
of our Certificate of Incorporation, By-laws and Delaware law could defer
a
change of our management which could discourage or delay offers to acquire
us.
Provisions
of our Certificate of Incorporation, By-laws and Delaware law may make it
more
difficult for someone to acquire control of us or for our stockholders to
remove
existing management, and might discourage a third party from offering to
acquire
us, even if a change in control or in management would be beneficial to our
stockholders. For example, our Certificate of Incorporation allows us to
issue
different series of shares of common stock without any vote or further action
by
our stockholders and our Board of Directors has the authority to fix and
determine the relative rights and preferences of such series of common stock.
As
a result, our Board of Directors could authorize the issuance of a series
of
common stock that would grant to holders the preferred right to our assets
upon
liquidation, the right to receive dividend payments before dividends are
distributed to the holders of other common stock and the right to the redemption
of the shares, together with a premium, prior to the redemption of other
series
of our common stock.
FORWARD-LOOKING
STATEMENTS
Risks
Associated With Forward-Looking Statements
Certain
statements in this prospectus constitute “forwarding-looking statements” within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the
Securities and Exchange Act of 1934. Certain, but not necessarily all, of
such
forward-looking statements can be identified by the use of forward-looking
terminology such as “believes,” “expects,” “may,” “will,” “should,” or
“anticipates” or the negative thereof or other variations thereon or comparable
terminology, or by discussions of strategy that involve risks and uncertainties.
All statements other than statements of historical fact, included in this
prospectus regarding our financial position, business and plans or objectives
for future operations are forward-looking statements. Without limiting the
broader description of forward-looking statements above, we specifically
note
that statements regarding exploration, costs, grade, production and recovery
rates, permitting, financing needs and the availability of financing on
acceptable terms or other sources of funding are all forward-looking in nature.
Such
forward-looking statements involve known and unknown risks, uncertainties
and
other factors, including but not limited to, the risk factors discussed above,
which may cause our actual results, performance or achievements to be materially
different from any future results, performance or achievements expressed
or
implied by such forward-looking statements and other factors referenced in
this
prospectus. We do not undertake and specifically decline any obligation to
publicly release the results of any revisions which may be made to any
forward-looking statement to reflect events or circumstances after the date
of
such statements or to reflect the occurrence of anticipated or unanticipated
events.
USE
OF PROCEEDS
Proceeds,
if any, from stockholders exercising some or all of the warrants and options
will be used for future exploration and/or acquisitions and for working capital.
SELLING
STOCKHOLDERS
The
following table provides information regarding the selling stockholders and
the
number of shares of common stock they are offering, which includes shares
issuable upon exercise of warrants held by the selling stockholders. Under
the
rules of the SEC, beneficial ownership includes shares over which the indicated
beneficial owner exercises voting or investment power. Shares of common stock
subject to warrants and options that are currently exercisable or will become
exercisable within 60 days are deemed outstanding for computing the
percentage ownership of the person holding the options but are not deemed
outstanding for computing the percentage ownership of any other person.
Unless
otherwise indicated in the footnotes below, we believe that the persons and
entities named in the table have sole voting and investment power with respect
to all shares beneficially owned. The information regarding shares beneficially
owned after the offering assumes the sale of all shares offered by each of
the
selling stockholders. The percentage ownership data is based on 171,643,646
shares of our common stock issued and outstanding as of September 7,
2007.
The
shares of common stock covered by this prospectus may be sold by the selling
stockholders, by those persons or entities to whom they transfer, donate,
devise, pledge or distribute their shares or by other successors in interest.
We
are registering the shares of our common stock for resale by the selling
stockholders defined below. The shares are being registered to permit public
secondary trading of the shares, and the selling stockholders may offer the
shares for resale from time to time. See "How
The Shares May Be Distributed"
below
The
following table has been prepared based solely upon information furnished
to us
as of the date of this prospectus by the selling stockholders listed below.
The
selling stockholders identified below may have sold, transferred or otherwise
disposed of, in transactions exempt from the registration requirements of
the
Securities Act, all or a portion of their shares since the date on which
the
information in the following table is presented.
None
of
the selling stockholder has had any position, office or other material
relationship with us or any of our affiliates within the past three years,
other
than as disclosed in the footnotes to the table.
*
|
This
selling stockholder has identified itself as a broker-dealer or
an
affiliate of a registered broker-dealer.
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(1)
|
Includes
2,500,000 shares issuable upon exercise of warrants issued in the
January
2007 Private Placements. The securities are held of record by Banque
Cantonale Vaudoise. We have been advised that FidFund Management
SA is the
Fund Manager for Strategic Precious Metal Fund and that various
persons at
the Fund Manager, including its directors, Christian Piguet, Gino
Leonardi, Ariane Ischi, Claudio Müller and Herzig Steve, share dispositive
and voting power over the shares held by Strategic Precious Metal
Fund.
Two signatories are required to take any such
action.
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(2)
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The
securities are held of record by HSBC Private Bank (Suisse)(SA).
Includes
50,000 shares issuable upon exercise of warrants issued in the
January
2007 Private Placements.
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(3) |
Includes
85,000 shares issuable upon exercise of warrants issued in the
January
2007 Private Placements. The selling stockholder has identified
Raphael R.
W. Gerstel ,
its Managing Director, as the natural person with voting and investment
control over shares of our common stock beneficially owned by the
selling
stockholder.
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(4)
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Includes
166,667 shares issuable upon exercise of warrants issued in the
January
2007 Private Placements. The selling stockholder has identified
Peter M.
Collery, President of SC Fundamental BVI, Inc., as a natural person
with
voting and investment control over shares of our common stock beneficially
owned by the selling stockholder. SC Fundamental BVI, Inc., is
the
Managing general partner of SC-BVI Partners, the selling stockholder’s
investment advisor. Excludes shares owned by SC
Fundamental Value Fund, LP. Although SC Fundamental Value Fund,
LP and SC
Fundamental Value BVI, Ltd. are under common control, each disclaims
beneficial ownership of the securities owned by the
other.
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(5)
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Includes
250,000 shares issuable upon exercise of warrants issued in the
January
2007 Private Placements. The selling stockholder has identified
Peter M.
Collery, a control person of SC Fundamental LLC, as a natural person
with
voting and investment control over shares of our common stock beneficially
owned by the selling stockholder. SC Fundamental LLC is the general
partner of the selling stockholder. Excludes shares owned by SC
Fundamental Value BVI, Ltd. Although SC Fundamental Value BVI,
Ltd. and SC
Fundamental Value Fund, LP are under common control, each disclaims
beneficial ownership of the securities owned by the
other.
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(6)
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Includes
16,250 shares issuable upon exercise of warrants issued in the
January
2007 Private Placements.
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(7)
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The
shares owned include 60,000 shares issuable upon exercise of previously
issued warrants. The shares owned and offered include 37,500 shares
issuable upon exercise of warrants issued in the January 2007 Private
Placements.
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(8)
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The
shares owned include 10,000 shares issuable upon exercise of warrants
issued in the January 2007 Private
Placements.
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(9)
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The
shares owned are all issuable upon exercise of options. Mr. Klein
is the
Managing Member of RK Equity Advisors, LLC, an entity that provides
consulting services to us and received the options as partial
consideration for such services. RK Equity Advisors, LLC subsequently
transferred them to Mr. Klein. Mr. Klein is a Managing Director
of
Broadband Capital Management LLC. He disclaims beneficial ownership
of the
placement agent options, and shares issuable upon exercise thereof,
issued
to Broadband.
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(10)
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The
shares owned include 25,000 shares issuable upon exercise of warrants
issued in the January 2007 Private
Placements.
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(11)
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The
shares offered and owned represent shares issuable upon exercise
of
placement agent warrants issued with regard to one of the January
2007
Private Placements. The selling stockholder was the placement agent
for
the January 2007 Private Placement conducted in the United States.
The
selling stockholder has identified Michael Rapp and Phil Wagenheim
as
natural persons with voting and investment control over shares
of our
common stock beneficially owned by the selling stockholder. Howard
Klein,
another selling stockholder, is a Managing Director of Broadband
Capital
Management LLC. He disclaims beneficial ownership of the placement
agent
options, and shares issuable upon exercise thereof, owned by Broadband.
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(12) |
The
shares offered represent shares issuable upon the exercise of 100,000
options unrelated to the January 2007 Private Placement and 817,125
placement agent warrants issued with regard to one of the January
2007
Private Placements. These options and warrants were transferred
to the
selling stockholder by Paul Ensor. Paul Ensor was the placement
agent for
the January 2007 Private Placement conducted outside of the United
States.
The selling stockholder has identified Peter Grut, Director of
Fairbanc
Advisors Ltd as the natural person with voting and investment control
over
shares of our common stock beneficially owned by the selling stockholder.
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(13)
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Consists
of shares issuable upon exercise of outstanding options. 100,000
of these
option shares have been registered for public resale in a prior
registration statement.
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(14)
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The
shares owned and offered consist of shares issuable upon exercise
of
placement agent warrants issued to Broadband Capital Management
LLC as the
placement agent in the January 2007 Private Placement conducted
in the
United States and transferred to Mr. Bodenlos. Mr. Bodenlos is
affiliated
with Broadband Capital Management
LLC.
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January
2007 Private Placements
We
closed
two private placements in January 2007 pursuant to which we issued an aggregate
of 12,561,667 units, each unit consisting of one share of our common stock
and a
warrant to purchase ¼ of a share of our common stock for proceeds of
approximately $3,486,000, net of commissions of approximately $283,000. The
Warrant issued to each purchaser in the January 2007 Private Placement is
exercisable for one share of our common stock, at an exercise price equal
to
$0.40 per share. Each Warrant has a term of eighteen months and is fully
exercisable from the date of issuance. We issued to the placement agents
eighteen month warrants to purchase up to an aggregate of 942,125 shares
of our
common stock at an exercise price of $0.30 per share. Such placement agent
warrants are valued at approximately $142,000 using the Black-Scholes option
pricing method. The shares issued in the January 2007 Private Placement and
the
shares issuable upon exercise of the warrants issued in that placement are
registered for resale herein on behalf of the selling stockholders.
HOW
THE SHARES MAY BE DISTRIBUTED
The
selling stockholders and any of their pledgees, donees, assignees and
successors-in-interest may, from time to time, sell any or all of their shares
of common stock on any stock exchange, market or trading facility on which
the
shares are traded or in private transactions. These sales may be at fixed
or
negotiated prices. The selling stockholders may use any one or more of the
following methods when selling shares:
·
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ordinary
brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
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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;
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purchases
by a broker-dealer as principal and resale by the broker-dealer
for its
account;
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an
exchange distribution in accordance with the rules of the applicable
exchange;
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privately
negotiated transactions;
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·
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short
sales
that are not violations of the laws and regulations of any state
or the
United States;
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broker-dealers
may agree with the selling stockholders to sell a specified number
of such
shares at a stipulated price per
share;
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a
combination of any such methods of sale;
and
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·
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any
other method permitted pursuant to applicable
law.
|
The
selling stockholders may also sell shares under Rule 144 under 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.
The
compensation paid to a particular broker-dealer may be less than or in excess
of
customary commissions.
The
selling stockholders may from time to time pledge or grant a security interest
in some or all of the Shares owned by them and, if they default in the
performance of their secured obligations, the pledgees or secured parties
may
offer and sell shares of common stock from time to time under this prospectus,
or under an amendment to this prospectus under Rule 424(b)(3) or other
applicable provision of the Securities Act of 1933 amending the list of selling
stockholders to include the pledgee, transferee or other successors in interest
as selling stockholders under this prospectus.
The
selling stockholders have been apprised that, if a particular offer of common
stock is to be made on terms constituting a material change from the information
set forth above with respect to how the shares may be distributed, then,
to the
extent required, a post-effective amendment to the accompanying registration
statement must be filed with the Securities and Exchange
Commission.
The
selling stockholders also may transfer the shares of common stock in other
circumstances, in which case the transferees, pledgees or other successors
in
interest will be the selling beneficial owners for purposes of this
prospectus.
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. In
addition, each of the selling stockholders who is a registered broker-dealer
or
is affiliated with a registered broker-dealer has advised us that:
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·
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it
purchased the shares in the ordinary course of business; and
|
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·
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at
the time of the purchase of the shares to be resold, it had no
agreements
or understandings, directly or indirectly, with any person to distribute
the shares.
|
Broadband
Capital Management LLC is a registered broker dealer and NASD member firm
and
listed as a selling stockholder in this prospectus. Broadband Capital Management
LLC served as placement agent in our recently completed U.S. private placement
offering and received, in addition to cash commissions and reimbursement
of
certain expenses, warrants to purchase an aggregate of 125,000 shares of
our
Common Stock with an exercise price of $0.30 per share and an exercise period
of
18 months from the date of issuance. Paul Ensor served as placement agent
in our
recently completed offshore private placement offering and received, in addition
to cash commissions and reimbursement of certain expenses, warrants to purchase
an aggregate of 817,125 shares of our Common Stock with the same terms as
the
warrants issued to Broadband Capital Management LLC. Paul Ensor transferred
his
securities to Fairbanc
Advisors Ltd. Neither Mr. Ensor nor Fairbanc Advisors Ltd. is a
U.S.
person, registered broker dealer or NASD member firm. Fairbanc Advisors Ltd.
is
listed as a selling stockholder in this prospectus. The registration statement
of which this prospectus forms a part includes the shares underlying the
warrants issued to Broadband Capital Management LLC and Paul Ensor.
The
warrants held by Broadband Capital Management LLC expire on July 23, 2008.
The
125,000 shares of Common Stock issued or issuable upon conversion of placement
agent warrants received by Broadband Capital Management LLC are restricted
from
sale, transfer, assignment, pledge or hypothecation or from being the subject
of
any hedging, short sale, derivative, put, or call transaction that would
result
in the effective economic disposition of the securities by any person for
a
period of 180 days immediately following the effective date of the registration
statement of which this prospectus forms a part, except transfers of the
warrants to officers, partners or certain affiliates of Broadband Capital
Management LLC as allowed under NASD Rule 2710 (g)(1) and (2). In this regard,
Broadband Capital Management LLC transferred 100,000 of its warrants
to
William
Bodenlos, an affiliate of
Broadband Capital Management LLC.
Broadband
Capital Management LLC has indicated to us its willingness to act as selling
agent on behalf of certain of the selling stockholders named in the prospectus
under the section titled "Selling Security Holders" that purchased our privately
placed securities. All shares sold, if any, on behalf of selling stockholders
by
Broadband Capital Management LLC would be in transactions executed by Broadband
Capital Management LLC on an agency basis and commissions charged to its
customers in connection with each transaction shall not exceed a maximum
of 5%
of the gross proceeds. Broadband Capital Management LLC does not have an
underwriting agreement with us and/or the selling stockholders and no selling
stockholders are required to execute transactions through Broadband Capital
Management LLC. Further, other than any existing brokerage relationship as
customers with Broadband Capital Management LLC, no selling stockholder has
any
pre-arranged agreement, written or otherwise, with Broadband Capital Management
LLC to sell their securities through Broadband Capital Management
LLC.
NASD
Rule
2710 requires NASD members firms (unless an exemption applies) to satisfy
the
filing requirements of Rule 2710 in connection with the resale, on behalf
of
selling stockholders, of the securities on a principal or agency basis. NASD
Notice to Members 88-101 states that in the event a selling stockholder intends
to sell any of the shares registered for resale in this prospectus through
a
member of the NASD participating in a distribution of our securities, such
member is responsible for insuring that a timely filing, if required, is
first
made with the Corporate Finance Department of the NASD and disclosing to
the
NASD the following:
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·
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it
intends to take possession of the registered securities or to facilitate
the transfer of such certificates;
|
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·
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the
complete details of how the selling stockholders' shares are and
will be
held, including location of the particular
accounts;
|
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·
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whether
the member firm or any direct or indirect affiliates thereof have
entered
into, will facilitate or otherwise participate in any type of payment
transaction with the selling stockholders, including details regarding
any
such transactions; and
|
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·
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in
the event any of the securities offered by the selling stockholders
are
sold, transferred, assigned or hypothecated by any selling stockholder
in
a transaction that directly or indirectly involves a member firm
of the
NASD or any affiliates thereof, that prior to or at the time of
said
transaction the member firm will timely file all relevant documents
with
respect to such transaction(s) with the Corporate Finance Department
of
the NASD for review.
|
The
NASD
has recently proposed rule changes to NASD Rule 2710 which may, if approved,
modify the requirements of its members to make filings under NASD Rule 2710.
Further, no NASD member firm may receive compensation in excess of that
allowable under NASD rules, including Rule 2710, in connection with the resale
of the securities by the selling stockholders, which total compensation may
not
exceed 8%.
We
have
advised the selling stockholders that they are required to comply with
Regulation M promulgated under the Securities and Exchange Act during such
time
as they may be engaged in a distribution of the shares. With
certain exceptions, Regulation M precludes a selling stockholder, any affiliated
purchasers, and any broker-dealer or other person who participates in the
distribution from bidding for or purchasing, or attempting to induce any
person
to bid for or purchase any security which is the subject of the distribution
until the entire distribution is complete. Regulation M also prohibits any
bids
or purchases made in order to stabilize the price of a security in connection
with the distribution of that security. All of the foregoing may affect the
marketability of the shares offered hereby in this prospectus.
We
are
required to pay all fees and expenses 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.
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to our directors, officers, and controlling persons, we have been
advised that in the opinion of the SEC this indemnification is against public
policy as expressed in the Securities Act and is therefore,
unenforceable.
Under
the
securities laws of certain states, the shares may be sold in those states
only
through registered or licensed broker-dealers. In addition, the shares may
not
be sold unless the shares have been registered or qualified for sale in the
relevant state or unless the shares qualify for an exemption from registration
or qualification.
LEGAL
MATTERS
The
validity of the common stock offered in this prospectus has been passed upon
for
us by Richard Feiner, Esq., 381 Park Avenue South, Suite 1601, New York,
New
York 10016. Mr. Feiner owns options to purchase an aggregate of 200,000 shares
of our common stock.
EXPERTS
Our
consolidated financial statements incorporated by reference in this Prospectus
and in the Registration Statement have been audited by Wolinetz, Lafazan
&
Company, P.C., independent registered public accountants, to the extent and
for
the periods set forth in their report incorporated herein by reference, and
are
included in reliance upon such report given upon the authority of said firm
as
experts in auditing and accounting.
WHERE
YOU CAN FIND MORE INFORMATION
We
have
filed with the Securities and Exchange Commission a registration statement
on
Form S-3 (File No. 333-143957) under the Securities Act of 1933, as amended,
with respect to the common stock the selling stockholders are offering by
this
prospectus. This prospectus does not contain all of the information included
in
the registration statement. For further information about us and our securities,
you should refer to the registration statement and the exhibits filed with
the
registration statement.
We
are
subject to the information requirements of the Securities Exchange Act of
1934
and file annual, quarterly and current reports, proxy statements and other
information with the SEC. You can read our SEC filings, including the
registration statement, over the Internet at the SEC’s website at www.sec.gov.
You may also read and copy any document we file with the SEC at its public
reference facility at 100 F Street, NE, Washington, D.C. 20549.
You
may
also obtain copies of the documents at prescribed rates by writing to the
Public
Reference Section of the SEC at 100 F Street, NE, Washington, D.C. 20549.
Please
call the SEC at 1-800-SEC-0330 for further information on the operation of
the
public reference facilities.
INFORMATION
INCORPORATED BY REFERENCE
The
Commission allows us to “incorporate by reference” the information that we file
with them, which means that we can disclose important information to you
by
referring you to those documents. The information incorporated by reference
is
considered to be part of this prospectus, and later information that we file
with the Commission will automatically update and supersede this information.
We
incorporate by reference the following documents and any future filing made
with
the Commission under Sections 13(a), 14 or 15(d) of the Securities Exchange
Act
of 1934 until we and the selling stockholders sell all the securities included
in this prospectus:
(a)
|
Our
annual report on Form 10-KSB for our fiscal year ended July 31,
2006.
|
(b)
|
Our
quarterly report on Form 10-QSB for the quarterly period ended
October 31,
2006.
|
(c)
|
Our
quarterly report on Form 10-QSB for the quarterly period ended
January 31,
2007.
|
(d)
|
Our
quarterly report on Form 10-QSB/A for the quarterly period ended
April 30,
2007.
|
(e)
|
Our
proxy statement on schedule 14A for our 2007 annual
meeting.
|
(f)
|
Our
Current Reports on Form 8−K filed with the SEC on September 5, 2007, June
12, 2007, March 27, 2007, February 26, 2007, February 9, 2007,
January 29,
2007 and December 5, 2006.
|
(g)
|
A
description of our common stock contained in our registration statement
on
Form SB-2, SEC File No. 333-138858, and any amendment or report
filed for
the purpose of updating this description filed subsequent to the
date of
this prospectus and prior to the termination of this
offering.
|
You
may
request a copy of these filings, at no cost, by writing or telephoning us
at the
following address: Capital Gold Corporation, 76 Beaver Street, 26th
floor,
New York, NY10005, telephone number (212) 344-2785.
You
should rely only on the information incorporated by reference or provided
in
this prospectus or any supplement. We have not authorized anyone else to
provide
you with different information. We and the selling stockholders will not
make
offers to these shares in any state where the offer is not permitted. You
should
not assume that the information in this prospectus or any supplement is accurate
as of any date other that the date on the front of those documents.