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**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

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**Washington, D.C. 20549**

**FORM 10-KSB**

| **ý**                                                                                                                                                                                                                                                                                                                       | **ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF  THE SECURITIES EXCHANGE ACT OF 1934**     |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                             |                                                                                    |
| **For  the fiscal year ended         June  30, 2001**                                                                                                                                                                                                                                         |
|                                                                                                                                                                                                                                                                                                                             |
| **o**                                                                                                                                                                                                                                                                                                                            | **TRANSITION REPORT UNDER SECTION 13 OR 15(d)  OF THE SECURITIES EXCHANGE ACT OF 1934** |
|                                                                                                                                                                                                                                                                                                                             |                                                                                    |
| **For  the transition period from                          to                      ** |
|                                                                                                                                                                                                                                                                                                                             |
| **Commission  file number         000-30570      **                                                                                                                                                                                                             |

**Phoenix Metals U.S.A. II, Inc.**

(Name of small businessissuer in its charter)

| **Nevada**                                                      | **95-4571729**                             |
|-----------------------------------------------------------------|--------------------------------------------|
| (State  or other jurisdiction of incorporation or organization) | (I.R.S.  Employer Identification No.)      |
|                                                            |                                       |
| **801 South Rampart Boulevard, Suite 178, Las Vegas, Nevada**   | **89128**                                  |
| (Address  and telephone number of principal executive offices)  | (Zip Code)                                 |
|                                                            |                                       |
| Issuer’s telephone  number:                                | **(****702)  947-2178**                    |
|                                                            |                                       |
| Securities registered pursuant to  Section 12(b) of the Act:    |                                       |
|                                                            |                                       |
| Title of each class                                             | Name of each exchange  on which registered |
|                                                            |                                       |
|                                                                 |                                            |
|                                                            |                                       |
|                                                                 |                                            |
|                                                            |                                       |
| Securities registered pursuant to  Section 12(g) of the Act:    |
|                                                            |
| **Common  Stock, $.0001 par value**                             |
|                                                                 |
| (Title of each class)                                           |
|                                                            |
|                                                                 |
| (Title of each class)                                           |

             Checkwhether the issuer (1) filed all reports required to be filed by Section 13 or15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (orfor such shorter period that the registrant was required to file such reports),and (2) has been subject to such filing requirements for the past 90 days.  Yes o  No ý

             Check if there is no disclosure ofdelinquent filers in response to Item 405 of Regulation S-K is not contained inthis form, and no disclosure will be contained, to the best of the registrant'sknowledge, in definitive proxy or information statements incorporated byreference in Part III of this Form 10-K or any amendment to this Form10-KSB.  ý

             Stateissuer’s revenues for its most recent fiscal year:            $-0-

             Statethe aggregate market value of voting stock held by non-affiliates computed byreference to the price at which the common equity was sold, or the average bidand asked price of such common equity, as of a specified date within the past60 days.  $1,874,489 ($0.11 per share asof October 10, 2001)

             Statethe number of shares outstanding of each of the issuer's classes of commonstock, as of the latest practicable date.

| Common Stock, $.0001  par value | 186,360,335 shares as  of June 30, 2001 |
|---------------------------------|-----------------------------------------|

**DOCUMENTS INCORPORATED BY REFERENCE**

             None.

             Transitional Small BusinessDisclosure Format (Check one):  oYes   ýNo

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**TABLE OF CONTENTS**
| **PART I**   |          |                                                                                                             |
|--------------|---------------|------------------------------------------------------------------------------------------------------------------|
|         |          |                                                                                                             |
|         | ITEM 1.       | DESCRIPTION OF  BUSINESS.                                                                                        |   |
|         | ITEM 2.       | DESCRIPTION OF  PROPERTY.                                                                                        |   |
|         | ITEM 3.       | LEGAL PROCEEDINGS.                                                                                               |   |
|         | ITEM  4.      | SUBMISSION  OF MATTERS TO A VOTE OF SECURITY HOLDERS.                                                            |   |
|         |          |                                                                                                             |   |
| **PART II**  |          |                                                                                                             |
|         |          |                                                                                                             |
|         | ITEM  5.      | MARKET  FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.                                                       |   |
|         | ITEM  6.      | MANAGEMENT  DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.                                                        |   |
|         | ITEM 7.       | FINANCIAL STATEMENTS.                                                                                            |   |
|         | ITEM  8.      | CHANGES  IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.                           |   |
|         |          |                                                                                                             |   |
| **PART III** |          |                                                                                                             |
|         |          |                                                                                                             |
|         | ITEM  9.      | DIRECTORS,  OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE  EXCHANGE ACT OF 1934. |   |
|         | ITEM 10.      | EXECUTIVE  COMPENSATION.                                                                                         |   |
|         | ITEM  11.     | SECURITY  OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.                                                 |   |
|         | ITEM  12.     | CERTAIN  RELATIONSHIPS AND RELATED TRANSACTIONS.                                                                 |   |
|         | ITEM  13.     | EXHIBITS  AND REPORTS ON FORM 8-K.                                                                               |   |
|         | EXHIBIT INDEX |                                                                                                             |
|              |               |                                                                                                                  |  |  |

**PART I**

**Item 1.**              **Description of Business.**

**BusinessOperations**

             Phoenix Metals U.S.A. II, Inc., aNevada corporation (the “Company”), is a development stage, high technologymetals processing and smelting company. The Company’s activities to date have involved the development orimprovement of proprietary processes or techniques to be employed in extractingprecious and noble metals from volcanic cinder ores.  As used in this report, precious metals refer to gold and silver,and noble metals refer to platinum group metals.  Platinum group metals include platinum, palladium, rhodium,iridium, ruthenium and osmium.

             The Company’s current operationssolely consist of pilot or test production of doré metal bars ready for eitherseparation into individual precious and noble metals at a refinery or sale to abuyer.  Doré metal bars are bars of theprocessed but unseparated precious and noble metals extracted from volcaniccinder ore.  The Company’s pilotoperations produce doré metal bars in limited quantities for purposes oftesting the Company’s technology.  SinceJuly 1993, the Company’s principal focus has been research and development ofall aspects of its future business operations, including:
|   | • | developing and acquiring proprietary  processes for the extraction of precious and noble metals from volcanic  cinder ore;                                                                                                                                                     |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                           |
|   | • | acquiring and developing  refining/smelting equipment;                                                                                                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                           |
|   | • | obtaining permits, licenses and other  governmental approvals;                                                                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                           |
|   | • | obtaining patents or other proprietary  information and technology relating to concentrating, smelting and separating  complex volcanic cinder ore containing precious and noble metals, or the  license thereof;                                                              |
|   |   |                                                                                                                                                                                                                                                                           |
|   | • | constructing a testing and pilot  smelting plant and ore mill to produce doré metal bars containing precious  and noble metals, in an amount sufficient to conduct fire, instrumental,  chemical assay testing and volume production test runs under various  conditions; |
|   |   |                                                                                                                                                                                                                                                                           |
|   | • | engineering and designing  environmentally compatible ore processing facilities and systems;                                                                                                                                                                                   |
|   |   |                                                                                                                                                                                                                                                                           |
|   | • | formulating ore processing formulas;  and                                                                                                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                           |
|   | • | establishing employee and management  policies and procedures.                                                                                                                                                                                                                 |

             The Company spent approximately$293,132 for the fiscal year ended June 30, 2001, $411,540 for the fiscal yearended June 30, 2000, $617,169 for the fiscal year ended June 30, 1999, and$368,093 for the fiscal year ended June 30, 1998, on its research anddevelopment activities.  Theseexpenditures are discussed in Item 6 — Management’s Discussion and Analysis orPlan of Operation.

             The Company has been activelyengaged in pre-production operations since July 1993.  The Company currently only tests quantities of ore per day in itspilot operations as it tests various formulas of its proprietary processes. Ifthe Company is able to go into commercial production, the tonnage per day isexpected to increase substantially. Operations are currently conducted at a millsite the Company refers toas the “Black Mountain facility” located on the seven mile marker at 1088 EastCottonwood Cove Road, between Searchlight and Cottonwood Cove, Lake Mojave,Nevada.  See Item 2 — Description ofProperty.  As a result of the Company’stentative settlement of its dispute with the United States, Department of theInterior, Bureau of Land Management (the “BLM”) concerning the Black Mountainfacility, the Company is in the process of locating alternative sites where itmay conduct its operations.  See Item 6— Management’s Discussion and Analysis or Plan of Operation, Plan of OperationOver the Next 12 Months, and Item 3 — Legal Proceedings.****

**Technology and Processes**

             The Company is developing itsbusiness operations to extract precious and noble metals from volcanic cinderore.  The Company uses a combinationof:  (a) patented technology licensedfrom Robert F. Flaherty and Diana Lee Flaherty (the “Flahertys”); (b) developedproprietary technologies; and (c) patented equipment licensed from the Flahertyswith respect to the collider.  The collideris proprietary equipment used at the Black Mountain facility to break volcaniccinder ore into smaller particles in preparation for the smelting process.  Standard mining industry methods are alsoused to process the volcanic cinder ore. The collider and the other equipment used at the Black Mountain facilityare generally not more than four years old.

             The Company has developed athree-step process for converting volcanic cinder ore to precious or noblemetals.  The Company is running pilotoperations as to the first two steps of the process and has not yet expandedits operations to include the third step of the process.  The following is a summary of the Company’sproposed three-step process.

             Step 1:Processing and Concentration of Ore

             The Company currently ships involcanic cinder ore from Arizona to be processed at the Black Mountainfacility.  Crushed earth containing thevolcanic cinder ore called “head ore” is further broken down into particles nogreater in size than 3/8 of an inch.

             The processed head ore is thenplaced in the collider.  The colliderreduces the head ore into fine particulates. The ore is then concentrated. During concentration, the heavier complex amalgams (different metalschemically bound together) are separated from surrounding lighter and lessvaluable rock and clay particles.

**Flow Diagram of Processing and Concentration Operations**

Shipment– head ore shipped to the Black Mountain facility

Crushing– head ore broken down to minus 3/8”

Processing– head ore reduced to fine particles with the collider

Concentration– heavier amalgams separated from lighter dirt and clays

Shipto millsite – Concentrated ore is ready for smelting

 

             Step 2:The Smelting Process

             The Black Mountain facilitypresently uses three diesel-fired crucible furnaces for doré production,smaller blast furnaces for batch testing and one induction furnace for re–melting.  Doré metal consists of metals from whichprecious and noble metals can be extracted. Additionally, several smaller test blast furnaces for batch testing andan induction furnace for re-smelting and reclamation are used.  Processed head ore or concentrated ore ismixed with fluxes pursuant to a proprietary formula or with collector metals.  Fluxes are mixtures of different chemicals thatare added before the smelting process. Collector metals, if used at all, are metals added to enhance theextraction of precious and noble metals. The mixture is then brought to the correct smelting temperature for aspecific amount of time so the critical high-temperature chemical reactionswill take place.

             After pouring off and separatingthe slag material, the precious or noble metal doré is poured into bars forassay, sale, storage or ultimate refinery separation into gold, silver andplatinum group metals using electro-refining and other chemical procedures.

             Management believes all aspects ofthe smelting process are conducted in conformance with applicable environmentalprotection and safety standards. Management believes that all of its smelting processes pose no hazard toair, ground or water systems.

**Flow Diagram of SmeltingOperations**

Blending– fluxes added to ore

Smelting– mixture furnaced to produce molten metal

Pouroff slag – waste product reclaimed or recycled

Pourdoré metal – precious and noble metals are held for inventory or sale

             Step 3:Precious and Noble Metals Refining Process

             Presently, the Company isdeveloping and running pilot operations consisting of Step 1 (processing andconcentration operations) and Step 2 (smelting operations).  However, once the Company relocates itsfacilities, the Company intends to expand its operations within two years aftersuch relocation to include Step 3, the precious and noble metals refiningprocess.

             Because of the Company’s limitedproduction levels, the Company does not sell its doré bars.  Management anticipates that as itsproduction of doré bars increases, the Company will be able to sell its metalsin the international precious and noble metals markets.

**CompetitiveConditions**

             Once the Company commencescommercial production of its doré metal bars, it will compete with otherlarger, more established mining companies that mine and sell the same preciousand noble metals.  Presently, other thangold, only a small amount of the world’s platinum group metals supply isproduced in the United States.  Most ofthe Company’s competition will come from Russia, South Africa and, to a lesserextent, Canada. With respect to domestic producers, the Company believes thatStillwater Mining Company in Montana is the only significant domestic producerof platinum and palladium, but with reserves and technology significantlydifferent from the Company.  While theCompany will compete with these companies in the market place, the Companybelieves they cannot duplicate the Company’s processes to extract precious andnoble metals from volcanic cinder ore. Management believes that the Company’s ability to extract precious andnoble metals from volcanic cinder ore will make it competitive with othermining companies that use traditional mining and refining processes.  Management believes that it can supplydomestic consumers currently purchasing precious and noble metals from foreignproducers and intends to direct its marketing and selling efforts toward such consumers.

**Sourcesand Availability of Raw Materials**

             The Company targets cinder oredeposits from extinct volcanoes.  TheCompany has the rights to ore deposits in Arizona and Nevada.  At the Duke’s Peak, a/k/a Cooley’s Knoll site,alone, the Company has the right to remove 3,125,550 tons of volcanic cinderore.  Based on current applications ofthe Company’s processes, management estimates it would take approximately 40years to deplete the ore reserves at this site.

             Thus, management believes that theCompany’s current supply of ore, which also includes cinder ore reserves otherthan Duke’s Peak is sufficient for its present and anticipated operations.  See Item 2 — Description of Property.

**ProprietaryTechnology**

             Presently, the Company’s processesof extracting precious and noble metals from volcanic cinder ore is protectedunder a patent issued by the United States Patent and Trademark Office.  The rights to use the patent were acquiredby the Flahertys who subsequently granted non-exclusive use of those rights tothe Company.  Based on the licenseagreement, the Flahertys could grant another party the same rights to use theproprietary processes, although there are no present plans to do so.

             The collider used by the Company isalso protected under a patent issued by the United States Patent and TrademarkOffice.  The Flahertys were granted alicense to build and use the collider. The Flahertys subsequently granted the Company the non-exclusive rightto build and use the collider for its own purposes.  Based on the license agreement, the Flahertys could grant anotherparty the same rights to build and use the collider, although there are nopresent plans to do so.

**GovernmentApprovals and Effect of Compliance**

             The Company believes it holds or isin the process of obtaining all other business licenses and permits necessaryto conduct its business as required by federal, state and localauthorities.  The Company estimates thecost of obtaining and complying with such governmental permits and licenses hasbeen approximately $200,000 as of the date of this report.

**Historyand Organization**

             The Company was originally formedas Powell Capital Corporation, a Colorado corporation (“Powell Capital”), onDecember 22, 1986.  In June 1987, PowellCapital acquired all of the issued and outstanding common stock of ImagenétSystems, Inc., a Florida corporation (“Imagenét Florida”), in exchange forshares of its common stock.  In November1987, Powell Capital amended its articles of incorporation on file with theColorado Secretary of State to change its name to “Imagenét Systems, Inc.”(“Imagenét”).  In June 1993, Imagenétentered into an agreement with the Flahertys, whereby the Company acquired therights to remove and use certain tonnages of volcanic cinder ore and a licenseto utilize certain processes and equipment, each such asset owned by orlicensed to the Flahertys, in exchange for shares of its common stock.  See Item 2 — Description of Property.  In August 1993, Imagenét further amended itsarticles of incorporation to change its name to “Phoenix Metals U.S.A. II,Inc.”  In March 2000, the Company filedarticles of merger with the Colorado and Nevada Secretaries of State to changethe Company’s state of incorporation from Colorado to Nevada.  The Company changed its state ofincorporation to Nevada because its principal offices and most of itsoperations are located in Nevada, and management believes that Nevada’s minimalannual corporation fees and general corporate law are advantageous to theCompany.

             Powell Capital was initially formedas a “blank check” entity to obtain funding from investors to seek out and takeadvantage of business opportunities. The then current management believed thatby positioning Powell Capital as a small, publicly held company whose commonstock was already listed for trading on the OTC Bulletin Board (the “OTC BB”)with substantial liquidity, various business opportunities would becomeavailable.  As a result of thisstrategy, Powell Capital acquired all of the issued and outstanding commonstock of Imagenét Florida in a tax free exchange.  Imagenét Florida was in the business of developing variouscomputer software programs.  At the timeof the Flahertys’ acquisition of control in June 1993, Imagenét hadsubstantially wound down its activities in software development and sought tocommence its present operations.  Inorder to effect the change in control and business operations, Imagenét enteredinto an agreement with Mr. Flaherty whereby Mr. Flaherty was issued anaggregate of 203,271,200 shares of common stock (prior to a one for 100 reversestock split effected July 9, 1993) in exchange for land use and mining rights,75,000 tons of volcanic cinder ore reserves and for the right to use processesand equipment licensed to the Flahertys, specifically a process for removingprecious and noble metals from volcanic cinder ore and equipment, not theproprietary processes and equipment presently used by the Company.  See Item 1 — Description of Business,Proprietary Technology.  At the time ofthe transaction, the parties valued the mineral ores at $1,000 per ton.  The value was determined based in part onthe Company being able to successfully extract the precious and noble metalsfrom the ore using its technology and equipment.

**Employees**

             The Company maintains a staff of 15full-time employees, including management, and five industry consultants whodevote 50% or more of their business time to the Company.  The Company’s consultants include individualswith areas of expertise in business development, corporate finance and bankingand in technical areas including electro-refining, smelting, metallurgy andland management.  Over the next 12months the Company currently has no plans to hire additional employees.  See Item 6 — Management’s Discussion andAnalysis or Plan of Operation, Expected Significant Changes in Number ofEmployees.

**Item 2.**              **Description of Property.**

             The Company’s executive andadministrative offices are located at 801 South Rampart Boulevard, Suite 178,Las Vegas, Nevada 89128.  The Company’soffices consist of 3,228 square feet of office space.  The Company leases its offices pursuant to a five-year leaseterminating in November 2003 that requires monthly payments at a base rate of$2.00 per square foot during the first year with increases of $0.05 per squarefoot for each subsequent year. Currently, the Company pays approximately $7,400 per month whichreflects the base rate, as adjusted, and additional expenses.

**Millsite**

             The Company currently conducts itsmilling and smelting operations at the Black Mountain facility on the sevenmile marker located at 1088 East Cottonwood Cove Road, between Searchlight andCottonwood Cove, Lake Mojave, Nevada. The Black Mountain facility is located on approximately 12.5 acres, ofwhich 7.5 acres remain unused.  TheBlack Mountain facility is powered by electricity supplied by Nevada PowerCompany and also has auxiliary generator power.  The Black Mountain facility has its own well for water.

             The real property underpinning andsurrounding the Black Mountain facility is owned by the BLM.  The right to occupy the millsite wasconveyed to both Robert F. & Diana L. Flaherty, Inc. (“Flaherty, Inc.”) andthe Company.  The Flahertys are the solestockholders of Flaherty, Inc.  TheCompany has tentatively resolved its dispute with the BLM and, subject to thesatisfaction of certain conditions by the Company, may remain at the BlackMountain facility at least until April 1, 2002.  See Item 3 — Legal Proceedings. The Company is exploring financing alternatives in order to relocate,expand and commercialize its operations.

**MiningSites**

             The Company obtains its volcaniccinder ore by contracting with a third-party for its shipment to the BlackMountain facility where it is processed. The following is a description of the Company’s mining claims in Arizonaand Nevada.

             *Dukes Peak a/k/a Cooley’s Knoll, Navajo County,Arizona* — The Company hasthe right to remove up to approximately 3,125,550 tons of volcanic cinder orelocated on certain real property in Arizona. The Flahertys own the recorded mineral deed pertaining to thisproperty.  This property can be accessedby a paved road from Arizona State Route 60. There is no time limitation on the Company’s right to remove ore fromthis site.

             *First Knoll #1 and First Knoll #2, Navajo County,Arizona —* The Company hasthe right to enter onto and remove volcanic cinder ore on 320 acres of certainreal property also in Arizona.  Theproperty is BLM land.  The right tooccupy the federal lands was conveyed to the Flahertys.  The Flahertys assigned all of their rightsin this real property to the Company. The Company has filed notice with the BLM with respect to its intent tooccupy and use this site, which must be filed on a yearly basis.  This property can be accessed by a pavedaccess road from Arizona State Route 60. Presently, the Company does not remove any volcanic cinder ore nor doesit have any contracts for the shipment of volcanic cinder ore from thislocation.

             *Nevada Mining Sites, Clark County, Nevada* — The Company has the right to conductmining operations on the BLM land which surrounds the Company’s Black Mountainfacility.  The right to occupy thefederal lands was conveyed to Flaherty, Inc. Subsequently, the Company filed notice with the BLM with respect to themining sites, which must be filed on a yearly basis.  Presently, the Company has conducted only preliminary samplingand assaying of the property.

**Item 3.**              **Legal Proceedings.**

             ***United States of America v. Phoenix Metals U.S.A. II, Inc.*** On or aboutSeptember 7, 1999, the BLM served upon the Company its Complaint for Contest ofMining Claims.  This action relates tothe Company’s use of the Black Mountain facility which is located on BLMproperty.  The BLM asserts that theCompany’s use and occupancy of the Black Mountain facility does not meet thequalifications set forth in the Department of the Interior Regulations.  Specifically, the BLM alleges that theCompany is not processing a locatable, valuable mineral in its reductionefforts.  This allegation results froman assay by the BLM of a sample of volcanic cinder ore taken from one ore pileon the property.  The BLM alleges thatthe sample taken did not contain sufficient amounts of valuable minerals tojustify the potential damage to the property. The Company disputed the allegations made by the BLM under both federaland state regulations.

             FromSeptember 12, 2000 through September 14, 2000, the parties appeared at trialbefore an administrative law judge.  OnMay 29, 2001, the administrative law judge concluded that the Company failed toprovide sufficient information to rebut the BLM’s allegations by apreponderance of the evidence and to support the Company’s use and occupancy ofthe Black Mountain facility.  TheCompany filed an appeal with the Interior Board of Land Appeals for the BLM(the “IBLA”) on June 28, 2001.

             On August 16, 2001, the IBLAdismissed the Company’s appeal of the decision of the administrative law judgedue to procedural error.  On August 30,2001, the Company received a letter from the BLM in which the BLM advised theCompany that it had 30 days from the receipt of the letter to begin removingall equipment, structures and foundations from the Black Mountain facility and90 days to complete the reclamation of the Black Mountain facility, which wouldinclude removing all trash and debris, reshaping the site, spreading stockpiledtopsoil, reestablishing drainage patterns, removing any spilled hydrocarbonsand toxic materials, ripping the surface of compacted areas, seeding the siteand plugging the water well.  On August31, 2001, the Company received a letter from the BLM in which the BLM rejectedthe plan of operations submitted by Robert F. Flaherty based upon the decisionof the administrative law judge.

             On September 20, 2001, the Companyfiled a notice of appeal with the BLM with respect to the BLM’s rejection ofthe plan of operations submitted by Mr. Flaherty.  On September 28, 2001, the Company filed with the BLM a petitionfor stay of the Decision of the Las Vegas Field Office of the BLM of August 31,2001 pending the outcome of the Company’s appeal filed with the BLM onSeptember 20, 2001.  In addition, onSeptember 21, 2001, the Company filed a complaint for judicial review anddeclaratory relief with the United States District Court for the District ofNevada to, among other things, stay the decision of the administrative lawjudge.  In October 2001, through itsnegotiations with the BLM, the Company reached a tentative agreement with theBLM through which the Company would agree to dismiss with prejudice thecomplaint filed with the United States District Court for the District ofNevada and the appeal filed with the BLM. In exchange for the dismissals, the Company would be permitted tocontinue its operations at the Black Mountain facility until April 1, 2002, butwould be required to begin reclamation on the unused portion of the propertyand, after April 1, 2002, cease operations and begin reclamation of theremaining portion of the property on which the Black Mountain facility islocated.  The Company would complete thereclamation of the Black Mountain facility in accordance with a reclamationplan approved by the BLM.

             In relocating its operations, theCompany will be required to incur the costs of dismantling the currentoperations at the Black Mountain facility, locating another site for itsoperations and transporting and reassembling the equipment and machinery to thenew site.  There is no assurance thatthe Company will find a suitable location of its operations and that, if found,the Company will have sufficient resources to finance the relocation of itsoperations.  See Item 6 — Management’sDiscussion and Analysis or Plan of Operation.

             ***Ralph C. Gustin, III v. Thornton Duard Barnes, a/k/a T.D. Barnes;Doris Barnes; Geneva Minerals, Inc.; Phoenix Metals U.S.A. II, Inc; Robert F.Flaherty; and Diana Lee Flaherty, consolidated with Robert F. & Diana L.Flaherty, Inc.; Phoenix Metals U.S.A. II, Inc.; Robert F. Flaherty; and DianaFlaherty v. Thornton D. Barnes and Doris W. Barnes; and Geneva Minerals, Inc.***  This matter went to trial on August 3, 1999in the District Court for Clark County. During the course of the trial, Mr. Gustin’s action was dismissed.  The remaining action was tried.  On November 19, 1999, the court rendered itsdecision and judgment was entered on December 9, 1999.  According to the judgment, Mr. Barnes andGeneva Minerals, Inc. (“Geneva Minerals”) were awarded a total of $216,000.  This amount, however, was offset by theamount awarded the Company, the Flahertys and Flaherty, Inc. in the totalamount of $179,000, plus statutory interest. Thus, according to the judgment the net amount owed to Mr. Barnes andGeneva Minerals by the Company, the Flahertys and Flaherty Inc. was $37,000.  As to Mr. Gustin, the court awarded theCompany, the Flahertys and Flaherty Inc. $33,000.

             Post-judgment motions werefiled.  On November 30, 1999, Mr. Barnesand Geneva Minerals filed a Motion for a New Trial or Alternative Relief.  Mr. Gustin filed a Countermotion to CorrectDecision, to Grant a New Trial and/or to Alter or Amend Decision. Both motionswere denied.  Messrs. Barnes and Gustinappealed the District Court’s Decision and Judgment. The appeals are presentlypending before the Nevada Supreme Court.  At the first settlement conference, the settlement judge requested thatthe Company and the Flahertys submit a Motion to Amend the Judgment. Thismotion was ultimately granted and the district court judge prepared an amendeddecision and judgment for submission to the Nevada Supreme Court. Thesettlement judge has requested that the Company and the Flahertys submitdocuments supporting their claims for damages. The appeal is currently in the briefing process.  Management does not believe that any of theappeals will change the ultimate judgment of the trial court and that theNevada Supreme Court will rule in the Company’s favor and will affirm theDistrict Court’s Decision and Judgment.

             ***900 Capital Services, Inc. v. Phoenix Metals U.S.A. II, Inc.,et al.***  In April 1997, a lawsuit wasfiled against the Company and others by 900 Capital Services, Inc. (“900Capital”) in the United States District Court for the Northern District ofCalifornia (the “900 Capital Lawsuit”). The 900 Capital Lawsuit was then transferred to the United StatesDistrict Court in Memphis, Tennessee, pursuant to an order of November 7, 1997by the United States District Court for the Northern District of Californiagranting defendant’s motion to dismiss for improper venue or, in thealternative, to transfer for improper venue.

             Following the transfer of the 900Capital Lawsuit, 900 Capital filed a First Amended Compliant on July 28, 1998,for alleged damages suffered by Plaintiff from actions of all the defendantsrelated to a loan (the “Loan”) of approximately $700,000 provided by 900Capital (or an affiliated entity) to defendants Sunrise Mortgage and itsprincipals, Allen Thompson and his wife Margaret West, for the purchase of realproperty in Memphis, Tennessee. The Loan was secured by the purchased realproperty as well as approximately 84 pounds of doré metal purchased with theapproval of 900 Capital (or an affiliated entity) from the Company by SunriseMortgage for $134,000. Other than the purchase of the metal bars, the Companyand the Flahertys had no relationship with Sunrise Mortgage and/or itsprincipals.

             A default judgment against theCompany in favor of 900 Capital in the amount of $597,913 was entered by theclerk of the United States District Court in Memphis, Tennessee on February 24,1999 as a result of the Company’s failure to answer the First AmendedComplaint.  This failure by the Companyto file such answer resulted from 900 Capital’s failure to serve the Company withthe First Amended Complaint in accordance with the court’s January 15, 1998order requiring that the Company be served at its Las Vegas, Nevadaaddress.  The Company’s motion to setaside the default judgment was denied by the court on May 18, 1999.  The court entered an order of judgment againstthe Company in favor of 900 Capital in the amount of $609,912 on November 23,1999, which included a denial of the Company’s motion for an evidentiaryhearing on the issue of damages.  Thecourt entered an order granting the Company’s motion for an interlocutoryappeal of the default judgment on April 24, 2000.  The United States Court of Appeals for the Sixth Circuit acceptedappellate jurisdiction of the appeal by its order of May 11, 2000.

             On June 1, 2001, 900 Capital, theCompany and the Flahertys entered into a settlement agreement whereby theFlahertys agreed to pay $275,000 to 900 Capital as full and final settlement ofthe matters between and among 900 Capital, the Company and the Flahertys.  The payments to 900 Capital by the Companyare scheduled as follows:  (a) $25,000on June 1, 2001; (b) $10,000, plus accrued interest, on the first day of eachmonth commencing on July 1, 2001 and continuing through May 1, 2003; and (c)$20,000, plus accrued interest, on June 1, 2003.  To the extent that the Company provides total principal paymentsof $250,000 to 900 Capital by June 1, 2002, the Company will have satisfied itsentire obligation under the settlement agreement.  In addition, the Company is required to file a motion for goodfaith settlement.  To the extent thatthe motion for good faith settlement is not granted, the Company has theability to declare the settlement agreement void.

             As part of the settlementagreement, 900 Capital agreed to:  (a)cause to be filed a dismissal of default judgment against the Company in UnitedStates District Court in Memphis, Tennessee upon the payment by the Company ofthe first payment due under the settlement agreement; (b) return, or use itsbest efforts to direct, instruct or order any party to return, the doré to theCompany; (c) assign its rights to the order issued by District Court of El PasoCounty in favor of 900 Capital awarding 900 Capital “a valid and perfectedsecurity interest and lien against the metal doré” that was the subject of theaction; and (d) release and discharge the Company and the Flahertys from anylosses, damages, debts, liabilities, claims, demands, suits and causes ofactions, presently known or unknown, which it may have arising, either directlyor indirectly, from the facts, circumstances and claims related to the 900Capital Lawsuit.  As security for thepayments to be made by the Company, 900 Capital has the right to record a FormUCC-1 with respect to all of the property on the Black Mountain facility, andMrs. Flaherty executed a confession of judgment in the amount of $609,912.81 tobe held in trust by counsel for the Company.

             In connection with the 900 CapitalLawsuit, the Federal Bureau of Investigation (“FBI”) has taken possession ofcertain inventory of the Company.  Althoughthe amount of doré metal purchased by Sunrise Mortgage was only approximately84 pounds, the 327th Judicial District Court for the District of El Paso Countyin March 1997 in an interpleader action took constructive possession of theentire inventory of the Company’s doré metal stored by Miracle Delivery ArmoredService, which included the doré metal purchased by Sunrise Mortgage, pendingthe resolution of the action, approximately two tons.  The court subsequently awarded the FBI actual possession of theentire inventory.

**Item 4.**              **Submission of Matters to a Vote ofSecurity Holders.**

             There were no matters submitted toa vote of security holders during the Company’s fourth quarter of fiscal yearended June 30, 2001.

**PART II**

**Item 5.**              **Market for Common Equity and RelatedStockholder Matters.**

             The Company’s common stock istrading over-the-counter under the trading symbol: PMTU.OB.  Prior to March 9, 2000, the Company’s commonstock was listed for trading on the OTC BB. The trading market is limited and sporadic and should not be deemed toconstitute an established trading market.

             The following table sets forth thehigh and low bid information for the Company’s common stock for each quarterfrom July 1, 1999 until March 8, 2000 as quoted on the OTC BB, from March 9,2000 until March 11, 2001 as reflected in the pink sheets and from March 12,2001 until June 30, 2001 as quoted on the OTC BB.  The quotations may reflect inter-dealer prices, without retailmarkup, markdown or commission, and may not represent actual transactions.

| **FISCAL YEAR AND QUARTER**       | **HIGH**        |   | **LOW** |   |
|-----------------------------------|-----------------|--------|---------|--------|
|                              |            |   |    |   |
| FISCAL YEAR ENDED June  30, 2000: |            |   |    |   |
|                              | First Quarter   | $0.64  |    | $0.25  |   |
|                              | Second Quarter  | $1.50  |    | $0.28  |   |
|                              | Third Quarter   | $1.13  |    | $0.09  |   |
|                              | Fourth  Quarter | $1.05  |    | $0.25  |   |
|                              |            |   |    |   |   |
| FISCAL YEAR ENDED June  30, 2001: |            |   |    |   |
|                              | First  Quarter  | $0.90  |    | $0.60  |   |
|                              | Second  Quarter | $0.60  |    | $0.15  |   |
|                              | Third Quarter   | $0.51  |    | $0.10  |   |
|                              | Fourth  Quarter | $0.39  |    | $0.13  |   |

 

             As of June 30, 2001, there were 434stockholders of record and 186,360,335 shares of the Company’s common stockoutstanding.

**DividendPolicy**

             The Company has never paiddividends on its common stock and does not anticipate paying dividends on itscommon stock in the foreseeable future. It is the present policy of the Company’s board of directors (the “Board”)to retain all earnings in order to provide for the future growth of theCompany.  The payment of dividends onthe common stock in the future will depend on the results of operations,financial condition, capital expenditure plans and other cash obligations ofthe Company and will be at the sole discretion of the Board.

**RecentSales of Unregistered Securities**

             During the fiscal year ended 2001,the Company issued unregistered securities in the following instances:

             (a)         OnJuly 1, 2000, the Company entered into a stock purchase agreement with EdwardHealy, an unrelated third party, for the sale of 1,100,000 shares of commonstock for $1.10 per share, for a total purchase price of $1,210,000.  The Company received $800,000 from Mr.Healy, representing two of the three installments of the total purchaseprice.  Although the last payment was tobe received no later than November 1, 2000, the Company has agreed to extendthe deadline.  This sale of theCompany’s common stock was exempt from registration under the Securities Act of1933, as amended, pursuant to Section 4(2).

             (b)        OnDecember 27, 2000, the Company issued a total of 2,886,895 shares of its commonstock to the Flahertys (1,443,448 to Diana Lee Flaherty and 1,443,447 to RobertF. Flaherty), pursuant to the terms and conditions of the Advance Agreement aspayment for the debt incurred by the Company during calendar year 2000 totaling$577,379. This sale of the Company's common stock was exempt from registrationunder the Securities Act of 1933, as amended, pursuantto Section 4(2).

             All funds received by the Companyfrom the sales of the Company’s common stock were used for working capital andoverhead expenses including, without limitation, rent for the Company’s officespace, utilities, payroll, and research and development activities.  No underwriters, brokers or dealers wereused in connection with the above sales.

**Item 6.**              **Management Discussion and Analysis orPlan of Operation.**

**Plan ofOperation Over the Next 12 Months**

             Since the Company’s inception, theFlahertys, its principal stockholders, agreed to advance money, fromtime-to-time, to the Company to cover capital acquisitions and working capitalrequirements.  This arrangement with theFlahertys was memorialized in December 1999, when the Company and the Flahertysentered into an Advance Agreement, as amended (the “Advance Agreement”),setting forth the terms under which the Flahertys advanced sums to theCompany.  As a result, generally all ofthe Company’s future plans are based on the Company’s assumption that theFlahertys will continue to lend their financial support pursuant to the AdvanceAgreement.  However, there is nothing inthe Advance Agreement which requires the Flahertys to advance money to the Company.  The Advance Agreement only sets forth theterms and conditions of such loans if so effected by the Flahertys.

             Despite the significant investmentsmade by the Company in infrastructure at the Black Mountain facility duringfiscal year 1999 and due to the dismissal by the IBLA of the Company’s appealof the decision of the administrative law judge in the BLM matter, the Companythen tentatively agreed with the BLM to cease its operations at the BlackMountain facility by April 1, 2002.  SeeItem 3 — Legal Proceedings.  The Companycurrently plans to relocate its millsite facility from the Black Mountainfacility.  For the Company to relocateits operations, the Company will be required to incur the costs of dismantlingits current operations at the Black Mountain facility and transporting andreassembling the equipment and machinery to a new site.  There is no assurance that the Company willfind a suitable location of its operations and that, if found, the Company willhave sufficient resources to finance the relocation of its operations.

             To finance the relocation of itsoperations and the reclamation of the land on which the Black Mountain facilityis located, the Company is seeking financing alternatives.  While the Company has had discussions withpotential joint venture partners, no agreement has been made.  If adequate financing is not obtained, theCompany will be required to reduce or suspend its operations until adequatefinancing is secured.

***Research and Development***

             For fiscal year 2001, the Company’sresearch and development expenses were approximately $293,132, compared to$411,540 for fiscal year 2000, a decrease of $118,408, or 28.8%.  Except to the extent purchases are requiredin connection with the relocation of the Black Mountain facility, managementdoes not anticipate the need for additional new equipment during the next 12months, it expects that the Company’s research and development expenses willstay constant or continue to decrease.

             As a result of the significantresearch and development expenditures and advances made in the fiscal yearsended 1999 and 2000, the Company has not needed to spend as much for thoseitems in fiscal year 2001.  Most of theCompany’s research and development activities during fiscal year 2001 have focusedon or been related to testing and improvement of base metal separation andextraction procedures only. Additionally, the Company has tentatively agreed with the BLM todiscontinue its research and development activities at the Black Mountainfacility by April 1, 2002.  See Item 3 –Legal Proceedings.

***General and Administrative Expenses***

             The Company has seen a modestincrease in its general and administrative costs from $678,267 for fiscal year2000 to $683,791 for fiscal year 2001. Management attributes this a significant portion of its general andadministrative expenses to the retention of attorneys and other professionalsin connection with the defense of the actions brought by the BLM and 900Capital.  See Item 3 – LegalProceedings.  Additionally, the Companyhas paid, and expects to continue to pay attorneys’ and accountants’ fees andcosts in connection with and as a result of the Company’s successfulregistration of its common stock under the Securities Exchange Act of 1934, asamended (the “Exchange Act”).  As areporting company, the Company is obligated to comply with the periodic andother reporting requirements under the Exchange Act.

***Outlook***

             The Company is aware that itstransition from an essentially research and development operation into asustainable commercial production operation could be a difficult andpotentially expensive effort, and could be expected to present barriers to bothattracting skilled executive management and technical manpower.  In addition, even though the Company investedin the scaling up the size, scope and capability of its Black Mountainfacility, the Company has reached a tentative settlement with the BLM to ceaseits operations by April 1, 2002 and, ultimately, move its operations to anotherlocation.  In this regard, the Companyhas engaged a real estate broker familiar with its operations to search forpotential land that the Company could lease or purchase. A relocation of thefacilities and equipment would require the Company to shut down its operations,in phases, breakdown the equipment and move it to be re-assembled at the newlocation.  It is possible to relocate insuch a manner that limited production could be performed and maintained on thetwo sites until the entire facility has been relocated.  The costs of relocating would be unknown untila new site is located and the existing infrastructure and facilities areassessed for compliance with air quality, environmental, traffic and safetystandards, regulations and conditions.****

**Financingand Liquidity**

             During its research and developmentefforts, the Company has not relied on or used traditional outside sources offinancing to fund its current operations or to develop its proprietarytechnology and processes.  The Companyhas received substantial funding from the Flahertys, its principal stockholders,who continue to advance funds pursuant to the Advance Agreement to further theresearch and development activities, exchanging those cash advances for capitalstock.  The Company, therefore, has notbeen required to borrow from banks or other traditional financial or capitalsources.  While the Flahertys continueto promise their financial support during the transition into commercialproduction, there is no assurance that such financial support will continue, orthat the Company may not find it desirable to seek funding from moretraditional financial and capital sources, or that the Company may move toraise additional debt or equity capital to finance its transition intocommercial exploitation of its technology. There is no assurance that, if the Flahertys should terminate theAdvance Agreement and thereby terminate their financial support, the Companywill be able to borrow from traditional institutional financial sources onacceptable terms or raise debt or equity capital.  In such event, the Company may have to suspend operations, sellits technology, or seek a merger, combination or other strategic alternative.

             As of the fiscal year ended June30, 2001, the Company had cash of $25,286 and inventories of $94,334, comparedwith cash of $188,675 and inventories of $89,829 for fiscal year ended June 30,2000.  The decrease in cash resultedfrom the continued use of cash in the Company’s operations and the absence ofrevenue from the Company’s operations. Over the next 12 months, management believes that the Company willrequire additional funding from the Flahertys, and other third parties, tocover its relocation costs and operating expenses, including withoutlimitation, payroll, overhead, modest capital expenditures, repairs andreplacement parts, supplies, compliance and professional services, taxes andpermit fees in an amount between $1 to $5 million.

**ExpectedSignificant Changes in Number of Employees**

             The Company expects to maintain itspersonnel at current levels until the Company successfully relocates itsoperations.  Once the Company issuccessful in relocating its operations from the Black Mountain facility toanother site, the Company may add key senior management to support theadministrative and marketing infrastructure and to plan, control and grow thebusiness.

**Abilityto Continue as a Going Concern**

             In its report dated August 20,2001, the Company’s independent auditors stated that the fact that theCompany’s ability to commence operations is dependent on (i) the successfulcompletion of its research and development and (ii) continued advances from theFlahertys or other financing or capital investments, raises substantial doubtas to the Company’s ability to continue as a going concern.  See Item 7 – Financial Statements.

**Risk Relatedto the Company**

***Limited Operating History***

             The Company has been operatingunder its current management since June 1993. Since that time, the Company has engaged in limited business operationsmostly consisting of the research, development and acquisition of technologiesand equipment necessary for the extraction of precious and noble metals fromvolcanic cinder ore.  Presently, theCompany still expends a substantial amount of its resources acquiring and developingequipment and technology for its business operations, and has been operating ata loss since the commencement of its present activities.  There is no assurance that the Company willbe able to generate the revenues necessary to be profitable or that the Companywill be successful if forced to seek additional funds to further develop orsustain its current limited business operations.

             ***Inability to Continue as a Going Concern***

             We have a history of operatinglosses.  For the years ended June 30,2001 and 2000, we have incurred net losses of $2,090,527 and $1,284,268,respectively, and our operations have used $876,322 and $891,484 of cash,respectively.  As of June 30, 2001 and2000, we had accumulated deficits of $6,781,875 and $4,691,348, respectively.  In addition, the Company’s independent auditorsstated that the fact that the Company’s ability to commence operations isdependent on:  (i) the successfulcompletion of its research and development; and (ii) continued advances fromthe Flahertys or other financing or capital investments, raises substantialdoubt as to the Company’s ability to continue as a going concern.  If the Flahertys elect to discontinue theirfinancial support to the Company, we cannot assure you that we will havesufficient capital to finance the relocation of our facilities or fundoperations.  Further, there is noassurance that if required to do so the Company would be able to secure othersources of financing on terms acceptable to the Company.

***Proprietary Technology May Ultimately ProveIneffective or Unfeasible***

             The Company has been granted alicense to use proprietary processes and equipment to process and concentratevolcanic cinder ore to extract precious and noble metals.  Similar attempts have been made by others inthe geological, geophysical and/or other related fields with limitedsuccess.  The Company has successfullyextracted precious and noble metals in test runs at the Black Mountainfacility. However, these test runs produced a relatively small amount of metal.  Further, the processes used on different reservesof volcanic cinder ore are different each time depending on the mineral make-upof the deposit. This lack of consistency could result in the Company’s actualcosts of production exceeding those anticipated.  There is no assurance that the Company will be able toconsistently duplicate the results of the test runs on a continuous basis in acommercially or economically feasible manner. In addition, the special equipment licensed to and used by the Companycould prove costly to maintain or prove unreliable when used on a continuousbasis in a commercial setting.

***No Revenues from Operations***

             Despite the experience and effortsof the directors and officers of the Company, the Company remains in thedevelopment stage and therefore has not been profitable since the commencementof its present business activities in June 1993.  There is no assurance the Company will generate revenues in thefuture, or that such revenues, if generated, will be sufficient to permit theCompany to be successful, to expand or to continue operations.

***Potential Adverse Impact of Relocating itsOperations***

             In light of the tentativesettlement of the Company’s dispute with the BLM, the Company will cease itsoperations at the Black Mountain facility by April 1, 2002 and, ultimately,relocate its operations to another site. Although the Company may remain at the Black Mountain facility, theCompany has begun its search for alternative locations for its millsite.  In identifying and relocating to anothersite, the Company will be required to incur the costs of dismantling thecurrent operations at the Black Mountain facility and transporting andreassembling the equipment and machinery to the new site.  There is no assurance that the Company willfind a suitable location of its operations and that, if found, the Company willhave sufficient resources to finance the relocation of its operations.  See Item 6 — Management’s Discussion andAnalysis or Plan of Operation.

***Lack of Market Acceptance of Product andTechnology***

             The Company believes that there isa resistance to the Company’s product as a result of the general industrybelief that it is extremely difficult and economically unfeasible to extractprecious and noble metals from volcanic cinder ore.  Companies in the past have attempted to extract precious andnoble metals from volcanic cinder ore with poor results. The Company uses acombination of traditional extracting principles and methods with its ownproprietary processes and equipment.  Notwithstandingthe Company’s success in its test and pilot production runs, there may be anindustry backlash to this type of precious and noble metals extractionprocess.  As a result of this industryperception, there is no assurance that the Company will be able to recruit andretain qualified employees, obtain additional financing if needed, or obtainand retain required governmental permits or licenses.

***Potential Inaccuracy of Cinder Ore Reservesand/or Assay Reports***

             The Company’s cinder ore reservesand assay reports estimating the presence and amounts of precious and noblemetals are based on tests and reports conducted by independent geologists andassayers hired by the Company.  Theseestimates may be imprecise as they depend on geological interpretation andstatistical inferences drawn from procedures which may prove to beunreliable.  There is no assurance thatthe cinder ore reserve figures or the precious and noble metals estimates onwhich the Company relies will be accurate.

***Termination of License of ProprietaryProcess or Technology***

             The Company uses a proprietaryprocess and the collider, both of which are protected under a patent.  See Part I, Item 1 — Description ofBusiness.  The Company does not own thesepatents, rather it was granted the right to use them under license agreementswhich are non-exclusive.  Termination ofthe licenses would have a material adverse effect on the Company’s operations.

***Uncertainties and Delays Associated withRequired Governmental Approvals***

             Obtaining the necessary governmentpermits is a complex and time-consuming process involving numerous federal,state and local agencies.  The durationand success of each permitting effort is contingent upon many variables notwithin the Company’s control. Notwithstanding the Company’s good faith expectations, there is noassurance that any government permit or approval will be issued whenanticipated or without conditions that may have a material adverse effect onthe project.  In the context ofenvironmental permitting, including the approval of reclamation plans, theCompany must comply with existing standards, laws and regulations which mayentail unexpected costs and delays depending on the nature of the activity tobe permitted and the interpretation of the regulations implemented by thepermitting authority.  Substantialdelays in obtaining, or failing to obtain, certain government permits orapprovals without burdensome conditions could have a material adverse effect onthe Company’s operations.

***Lack of Funding for Projects***

             The Company’s operations require asubstantial amount of capital prior to and during the actual production of thedoré metal.  Such capital requirementsrelate to the costs of, among other things, research and developmentactivities, obtaining government permits and complying with bondingrequirements established by various regulatory agencies regarding the futureremediation and reclamation activities for the Company’s property.  While the Company anticipates that many ofits costs of operations will be less than traditional methods of miningprecious and noble metals, there is no assurance that the Company will havesufficient funds to finance its operations.

**RisksRelated to the Industry**

***Inability to Compete with Larger MiningCompanies***

             While the Company’s managementbelieves that the processes used by the Company to extract precious and noblemetals from volcanic cinder ore are unique to the Company, the Companynonetheless faces competition in the precious and noble metals market fromlarge, established mining companies having substantial capabilities and greaterfinancial and technical resources than the Company.  There is no assurance that the Company will be able to competewith these larger mining companies with respect to the cost and pricing of theend product, to acquire future properties on terms acceptable to the Company orto recruit or retain qualified employees.

***Cost of Compliance With and PossibleLiability Under Environmental Laws***

             The Company is required to complywith numerous environmental laws and regulations imposed by federal and stateauthorities.  At the federal level,legislation such as the Clean Water Act, the Clean Air Act, the FederalResource Conservation and Recovery Act (“RCRA”), the ComprehensiveEnvironmental Response, Compensation and Liability Act of 1980 and the NationalEnvironmental Policy Act impose effluent and waste standards, performancestandards, air quality and emissions standards and other design or operationalrequirements for various components of mineral processing.

             Many states, including the State ofNevada, have also adopted regulations that establish design, operation,monitoring and closing requirements for mining operations.  Under these regulations, mining companiesare required to provide a reclamation plan and financial assurance to insurethat the reclamation plan is implemented upon completion of miningoperations.  Additionally, Nevada andother states require mining operations to obtain and comply with environmentalpermits, including permits regarding air emissions and the protection ofsurface water and ground water.

             The Company’s compliance withfederal and state environmental laws may necessitate significant capitaloutlays or delays, may have a material adverse effect on the economics of agiven property or may cause material changes or delays in the Company’sintended development and production activities.  Further, new or different environmental standards imposed bygovernmental authorities in the future could have a material adverse effect onthe Company’s business operations.  TheCompany could be jointly and severally liable with current or prior propertyowners for the treatment, cleanup, remediation and/or removal of substancesdiscovered at or on any of the Company’s properties which are deemed by thefederal and/or state and local governments to be toxic or hazardous. Althoughthe Company believes that it does not use any such hazardous substances in itsoperations, all reasonable and practicable safeguards are used to prevent anyliability under applicable laws relating to hazardous substances.  The Company, as it is engaged in mineralprocessing, is inherently subject to substantial risk that environmentalremediation will be required.

***Failure to Comply with Regulations of MSHAResulting in Fines or Loss of Permit***

             The Mining Safety and HealthAdministration (“MSHA”) is the main regulatory agency overseeing health andsafety issues in connection with mining and milling operations.  Presently the Company holds a permit issuedby MSHA.  MSHA requires that, amongother safety standards, certain designated employees complete safetytraining.  All of the Company’semployees who work at the Black Mountain facility have completed the requiredtraining.  Although the Company believesthat it is in compliance with all applicable MSHA standards or requirements,violations could result in substantial fines or even the loss of the MSHApermit.  Either penalty could have amaterial adverse effect on the Company’s operations.

***Volatility of the Price of Precious andNoble Metals***

             While the Company considers itselfa high technology metals processing and smelting company, as opposed to atraditional mining company, the profitability of the Company’s futureoperations will be affected by the market prices of gold, silver and the platinumgroup metals.  The price of gold, forexample, is currently at depressed levels; however, the prices of platinumgroup metals have risen in recent years. Prices for precious and noble metalscan fluctuate widely and are affected by numerous factors beyond the Company’scontrol, including industrial and jewelry demand, expectations with respect tothe rate of inflation, the strength of the U.S. dollar (the currency in whichthe price of gold is generally quoted) and of other currencies, interest rates,central bank sales, forward sales by producers, global or regional political oreconomic events and production costs in major gold, precious and noble metalsproducing regions such as South Africa and the former Soviet Union.  In addition, the price of precious and noblemetals is occasionally subject to rapid short-term changes because ofspeculative activities. There is no assurance that the market prices ofprecious and noble metals will be sufficient in the future to cover theCompany’s operating costs and sustain production.

***Uncertainty Related to the Effects ofProposed Legislation for Mining Claims***

             During the past several years, theUnited States Congress considered a number of proposed amendments to theGeneral Mining Law of 1872, as amended (the “General Mining Law”), whichgoverns mining claims and related activities on federal lands.  In 1992, a holding fee of $100 per claim wasimposed upon unpatented mining claims located on federal lands.  Beginning in October 1994, a moratorium onthe processing of new patent applications was approved.  In addition, a variety of legislation is nowpending before the United States Congress to amend further the General MiningLaw.  The proposed legislation would,among other things, change the current patenting procedures, limit the rightsobtained in a patent, impose royalties on unpatented claims and enact newreclamation, environmental controls and restoration requirements.  The royalty proposals range from a twopercent royalty on “net profits” from mining claims to an eight percent royaltyon modified gross income/net smelter returns. The extent of any such changes that may be enacted is not presentlyknown and the potential impact on the Company as a result of future congressionalaction is difficult to predict.  Ifenacted, the proposed legislation could adversely affect the economics ofdeveloping and of operating mines on the federal unpatented mining claims heldby the Company.  A substantial amount ofthe Company’s properties consist of unpatented mining claims and the BlackMountain facility is on federal land. See Part I, Item 3 — Properties.  The Company’s operations could therefore bematerially and adversely affected by passage of any or all parts of theproposed legislation.

***Uncertainty of Title of Mining ClaimsResulting in Loss of Right to Possess Property***

             The Company’s mining claims andmillsite claims are subject to the claims procedures established by the GeneralMining Law.  See Part I, Item 3 —Properties.  Under this law, if aclaimant complies with the statute and the regulations for the location of amining claim or millsite claim, the claimant obtains a valid possessory rightto the land or the minerals contained therein. To preserve an otherwise valid claim, the claimant must also make certainadditional filings with the county in which the land or mineral is situated andthe BLM, and pay an annual holding fee of $100 per claim.  If a claimant fails to make the annualholding payment or make the required filings, the mining claim or millsiteclaim is void or voidable.

             Because mining claims and millsiteclaims are self-initiated and self-maintained rights, they are subject tounique vulnerabilities not associated with other types of propertyinterests.  It is difficult to ascertainthe validity of unpatented mining claims or millsite claims from publicproperty records and, therefore, it is difficult to confirm that a claimant hasfollowed all of the requisite steps for the initiation and maintenance of aclaim.  The General Mining Law requiresthe discovery of a valuable mineral on each mining claim in order for suchclaim to be valid, and mining claims may be challenged by rival miningclaimants and the United States.  Underjudicial interpretations of the rule of discovery, the mining claimant has theburden of proving that the mineral found is of such quality and quantity as tojustify further development, and that the deposit is of such value that it canbe mined, removed and disposed of at a profit. The burden of showing that there is a present profitable market appliesnot only to the time when the claim was located, but also to the time when suchclaim’s validity is challenged.  It istherefore conceivable that, during times of falling metal prices, claims whichwere valid when they were located could become invalid if challenged.

             Title to unpatented claims andother mining properties in the western United States typically involves certainother inherent risks due to the frequently ambiguous conveyance history ofthose properties, as well as the frequently ambiguous or imprecise language ofmining leases, agreements and royalty obligations.  No generally applicable title insurance is available for miningor millsite claims.  As a result, theCompany’s right to possess its properties may be subject to challenge.  In addition to the general risks anduncertainties associated with mining claims and millsite claims, the Company’smillsite operating permit at the Black Mountain facility is also at risk ofbeing revoked.  See Part II, Item 2 — LegalProceedings.

***Risks Associated with InsufficientInsurance Coverage***

             The Company’s operations aresubject to all of the operating hazards and risks normally incident toexploring and developing mineral properties and operating a millsite, such asunusual or unexpected geological formations, environmental pollution, personalinjuries, flooding, changes in technology or mining techniques, periodicinterruptions because of inclement weather and industrial accidents.  Although the Company currently maintainscommercial insurance within ranges of coverage consistent with industrypractice to ameliorate some of these risks, no assurance can be given that suchinsurance will continue to be available at economically feasible rates, or thatthe Company’s insurance is adequate to cover the risks and potentialliabilities associated with exploring, owning and operating itsproperties.  Insurance againstenvironmental risks is not generally available to the Company or to othercompanies in the mining industry.

**RisksRelated to the Company’s Common Stock**

***Limited and Sporadic Trading Market***

             Although the Company’s common stockis traded over-the-counter, the trading market for the Company’s common stockis limited and sporadic.  As a result,since the ability to transfer the Company’s common stock is limited, theisolated trades in the Company’s common stock should not be viewed as anestablished trading market.  Further,holders of the Company’s common stock may not be able to liquidate their sharespromptly at a reasonable price.

***Control by Officers and Directors***

             The Company’s executive officersand directors, individually and through their affiliates, beneficially own169,319,526 shares of the Company’s common stock, or approximately 91% of theoutstanding shares of our common stock. These stockholders will have the power to influence all mattersrequiring approval by our stockholders, including the election of directors andapproval of mergers and other significant corporate transactions.  This concentration of ownership may alsohave the effect of delaying or preventing a change in control of the Company.

***Issuance of Preferred Stock WithoutStockholder Approval***

             The Company’s articles ofincorporation authorize the issuance of “blank check” preferred stock with suchdesignations, rights, preferences and limitations as determined by theBoard.  Accordingly, the Board isempowered, without prior approval by the holders of the Company’s common stock,to issue shares of preferred stock with dividend, liquidation, redemption,conversion, voting or other rights equal or superior to the rights of theholders of the Company’s common stock. If issued, preferred stock could be used, under certain circumstances,as a method of discouraging, delaying or preventing a change in control of theCompany.  The Company may also issuepreferred stock as a way to raise additional capital.  Notwithstanding the Board’s authority, the Company has no currentplans to issue any of its preferred stock.

***Dilution Associated with Future Acquisitions***

             The Company periodically considersthe acquisition of mining claims, properties and businesses.  In connection with any such futureacquisitions, the Company could incur indebtedness or issue equity securitiesresulting in dilution of the percentage ownership of existingstockholders.  The Company intends toseek stockholder approval for any such acquisitions only to the extent requiredby applicable law, regulations or stock market listing rules and requirements.  The Company is not contemplating any suchacquisitions for the near future.

***Reliance upon Current Directors andOfficers***

             The Company is wholly dependent, atpresent, upon the personal efforts, know-how and abilities of its directors andofficers.  The loss of either of itsdirectors or officers could have a material adverse effect on the Company’soperations.  Presently, the Company doesnot maintain key-man life insurance policies on its directors andofficers.  Further, the development ofthe proprietary processes used by the Company in connection with the extractionand processing of precious and noble metals from volcanic cinder ore wasdeveloped by, and is now licensed from, the Company’s directors andofficers.  The resignation or removal ofthe directors and officers and their subsequent refusal to license suchproprietary information would have a material adverse effect on the Company’soperations.  While the Company has nointention of altering the current relationship it has with its directors andofficers, there is no assurance that the Company will be able to retain theirservices.****

**Item 7.****Financial Statements.**

**PHOENIX METALS U.S.A. II, INC.**

**INDEX TO FINANCIAL STATEMENTS**

 
|   | Independent Auditors’ Report                                                                                                                              |   |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|   |                                                                                                                                                           |   |
|   | Balance Sheet  at June 30, 2001                                                                                                                                |   |
|   |                                                                                                                                                           |   |
|   | Statements of Development  Stage Operations for the Years Ended June 30, 2001 and 2000 and the  Cumulative Period from July 1, 1993, through June 30, 2001     |   |
|   |                                                                                                                                                           |   |
|   | Statements  of Stockholders' Equity (Deficiency) for the Years Ended June 30, 2001 and  2000 and the Cumulative Period from July 1, 1993 through June 30, 2001 |   |
|   |                                                                                                                                                           |   |
|   | Statements  of Cash flows for the Years Ended June 30, 2001 and 2000 and the Cumulative  Period from July 1, 1993, through June 30, 2001                       |   |
|   |                                                                                                                                                           |   |
|   | Notes to Financial  Statements                                                                                                                                 |   |

 

**INDEPENDENT AUDITORS’ REPORT**

Boardof DirectorsPhoenix Metals U.S.A. II, Inc.

LasVegas, NV

Wehave audited the accompanying  balancesheet of Phoenix Metals U.S.A. II, Inc. (a development stage enterprise)  as of June 30, 2001, and the related statements of development stage operations, stockholders’ equity(deficiency) and cash flows for each of the two years and for the cumulativeperiod from July 1, 1993, then ended. These financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinionon these consolidated financial statements based on our audit.

Weconducted our audit in accordance with auditing standards generally accepted inthe United States.  Those standardsrequire that we plan and perform the audits to obtain reasonable assuranceabout whether the consolidated financial statements are free of materialmisstatement.  An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements.  An audit alsoincludes assessing the accounting principles used and significant estimatesmade by management, as well as evaluating the overall financial statementpresentation. We believe that our audit provides a reasonable basis for ouropinion.

Inour opinion, the financial statements referred to above present fairly, in allmaterial respects, the financial position of Phoenix Metals U.S.A. II, Inc. asof June 30, 2001, and the results of its development stage operations and itscash flows for each of the years and for the cumulative period from July 1,1993, then ended, in conformity with accounting principles. generally acceptedin the United States.

Theaccompanying financial statements have been prepared assuming that the Companywill continue as a going concern.  Asdiscussed in Note 5, the Company’s ability to commence operations is dependentupon the successful completion of its research and development and continuedadvances from stockholders or other financing or capital inflow.  These conditions raise substantial doubt asto the Company’s ability to continue as a going concern.  Management’s plans in regard to this matterare also described in Note 5.  Thefinancial statements do not include any adjustments that might result from theoutcome of this uncertainty.

PIERCY,BOWLER, TAYLOR & KERN

August20, 2001, except as to footnote 10 for which the date is October 9, 2001

**PHOENIX METALS U.S.A. II, INC.****(A Development Stage Enterprise)BALANCE SHEETJUNE 30, 2001**
| **ASSETS**                                                                                                                                           |       |      |
|------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------|
| **Current assets**                                                                                                                                   |       |      |
| Cash                                                                                                                                                 | $          | 25,286    |   |
| Inventories                                                                                                                                          | 94,334     |      |
| Prepaid  expenses                                                                                                                                    | 18,785     |      |
|                                                                                                                                                 |            |      |
|                                                                                                                                                 | 138,405    |      |
| **Property  and equipment, net of accumulated depreciation and amortization**                                                                        | 366,451    |      |
| **Mining  claims and mineral ore rights**                                                                                                            | 1,712,144  |      |
|                                                                                                                                                 |            |      |
|                                                                                                                                                 | $          | 2,217,000 |   |
|                                                                                                                                                 |            |      |
| **LIABILITIES  AND STOCKHOLDER’S EQUITY (DEFICIENCY)**                                                                                          |       |      |
| **Current  liabilities**                                                                                                                             |       |      |
| Current  portion of long–term debt                                                                                                              | $          | 141,114   |   |
| Accounts  payable                                                                                                                                    | 108,225    |      |
| Accrued  expenses                                                                                                                                    | 13,623     |      |
| Notes  payable                                                                                                                                       | 22,264     |      |
|                                                                                                                                                 |            |      |
|                                                                                                                                                 | 285,226    |      |
|                                                                                                                                                 |            |      |
| **Long–term  debt, net of current portion**                                                                                                     | 163,970    |      |
|                                                                                                                                                 |            |      |
| **Advances  from stockholders, including accrued interest**                                                                                          | 593,107    |      |
|                                                                                                                                                 |            |      |
| **Stockholders’  equity (deficiency)**                                                                                                          |       |      |
| Preferred  stock (preferences to be determined by the Board of Directors upon issuance),  $0.01 par value, 30,000,000 shares authorized, none issued |       |      |
| Common  stock, $0.0001 par, 500,000,000 shares authorized, 186,360,335 shares issued  and outstanding                                                | 18,673     |      |
| Additional  paid–in capital                                                                                                                     | 8,347,899  |      |
| Deficit  accumulated in the development stage                                                                                                        | (6,781,875 | )         |
| Less  stock subscription receivable, due December 31, 2001                                                                                           | (410,000   | )         |
|                                                                                                                                                 |            |      |
|                                                                                                                                                 | 1,174,697  |      |
|                                                                                                                                                 |            |      |
|                                                                                                                                                 | $          | 2,217,000 |   |
|                                                                                                                                                 |            |      |
|                                                                                                                                                 |       |      |
| See Accompanying Notes  to Financial Statements                                                                                                      |

 

**PHOENIXMETALS U.S.A. II, INC.(A Development Stage Enterprise)STATEMENTS OF DEVELOPMENT STAGEOPERATIONSFOR THE YEARS ENDED JUNE 30, 2001 AND 2000 AND     THE CUMULATIVE PERIOD FROM JULY 1,1993, THROUGH JUNE 30, 2001**
|                                                      | **2001**    |       | **2000**    |   | **Cumulative  July 1, 1993  through  June 30, 2001** |   |
|-----------------------------------------------------------|-------------|------------|-------------|--------|------------------------------------------------------|--------|
|                                                      | ****        |       | ****        |   | ****                                                 |   |
| **Operating  costs and expenses**                         |        |       |        |   |                                                 |   |
| General  and administrative                               | $           | 683,791    |        | $      | 678,267                                              |   | $ | 2,514,144 |   |
| Research  and development                                 | 293,132     |       | 411,540     |   | 2,462,332                                            |   |
| Depreciation                                              | 95,009      |       | 85,712      |   | 307,909                                              |   |
|                                                      |             |       |             |   |                                                      |   |
| **Loss  from operations**                                 | (1,071,932  | )          | (1,175,519  | )      | (5,284,385                                           | )      |
| Impairment  writedown                                     | (704,169    | )          | —      |   | (704,169                                             | )      |
| Settlement  expense                                       | (275,000    | )          | —      |   | (275,000                                             | )      |
| Interest  expense                                         | (39,426     | )          | (108,749    | )      | (518,321                                             | )      |
|                                                      |             |       |             |   |                                                      |   |
| **Net  loss**                                             | $           | (2,090,527 | )           | $      | (1,284,268                                           | )      | $ | (6,781,875 | ) |
|                                                      |             |       |             |   |                                                      |   |
| **Net  loss per common share**                            | $           | (0.011     | )           | $      | (0.007                                               | )      | $ | (0.046 | ) |
|                                                      |             |       |             |   |                                                      |   |
| **Weighted  average number of common shares outstanding** | 184,783,175 |       | 181,574,936 |   | 145,915,684                                          |   |
|                                                      |             |       |             |   |                                                      |   |
|                                                      |        |       |        |   |                                                 |   |
| See  Accompanying Notes to Financial Statements           |

 

**PHOENIX METALS U.S.A. II, INC.****(A Development Stage Enterprise)STATEMENTS OF STOCKHOLDERS’EQUITY (DEFICIENCY)FOR THE YEARS ENDED JUNE 30, 2001 AND 2000 AND     THE CUMULATIVE PERIOD FROM JULY 1,1993 THROUGH JUNE 30, 2001**
|                                                          |              | **Additional  paid-in  capital** |           | **Deficit  accumulated  during the  development  stage** |   | **Stock  subscriptions  receivable** |   | **Total** |   |
|---------------------------------------------------------------|-------------------|----------------------------------|----------------|----------------------------------------------------------|--------|--------------------------------------|--------|-----------|--------|
|                                                          | **Common  stock** |
|                                                          | ****              |
|                                                          | **Shares**        |                             | **Par  value** |
|                                                          | ****              |                             | ****           | ****                                                     |   | ****                                 | ****   | ****      |
|                                                          |              |                             |           |                                                     |   |                                 |   |      |   |   |   |   |
| **From  July 1, 1993, through****  June 30, 1999:** |              |                             |           |                                                     |   |                                 |   |      |   |   |   |   |  
**Balances,  July 1, 1993**

962,288

 

$

96

 

$

547,717

 

$

(999,608

)

$

 

 

$

(451,795

)

 
 

 

 

 

 

 

 

 

 

 

 

 

 

 
Stock  issuances in connection with change in control and restructuring of business:

 

** **

 

** **

 

** **

 

** **

 

** **

 

** **

 
 

Issuance  of common stock to new principal stockholders in exchange for land use,  mining claims and mineral ore rights in connection with and shortly after  change in control

24,532,712

 

2,453

 

1,772,547

 

 

 

 

 

1,775,000

 

 
 

Quasi-reorganization

 

 

 

** **

(999,608

)

999,608

** **

 

** **

 

** **

 
 

Other  issuances of common stock to principal stockholders in exchange for ore  reserves, patents and other intellectual property, and other nonmonetary  operating assets

147,754,232

 

14,776

 

(14,776

)

 

** **

 

** **

 

** **

 
 

Issuances  of common stock to former controlling stockholder in settlement of related  party debt

200,000

 

20

 

484,827

 

 

 

 

 

484,847

 

 
Stock  sales to unrelated parties for cash and subscriptions receivable

5,996,936

 

600

 

617,350

 

 

 

(11,700

)

606,250

 

 
Contributed  services, officer/shareholders

 

 

 

 

600,000

 

 

 

 

 

600,000

 

 
Net  loss

 

 

 

 

 

 

(3,407,080

)

 

 

(3,407,080

)

 
Stock  subscription payments received

 

 

 

 

 

 

 

 

10,200

 

10,200

 

 
 

 

 

 

 

 

 

 
**Balances,  June 30, 1999**

179,446,168

 

17,945

 

3,008,057

 

(3,407,080

)

(1,500

)

(382,578

)

 
Issuance  of common stock in payment of stockholders’ advances and related accrued  interest

3,000,000

 

300

 

3,262,891

 

 

 

 

 

3,263,191

 

 
Stock  sale to unrelated party for subscription receivable

300,000

 

30

 

89,970

 

 

 

(90,000

)

 

 

 
Contributed  services, officer/shareholders

 

 

 

 

100,000

 

 

 

 

 

100,000

 

 
Net  loss

 

 

 

 

 

 

(1,284,268

)

 

 

(1,284,268

)

 
Stock  subscription payments received

 

 

 

 

 

 

 

 

91,500

 

91,500

 

 
 

 

 

 

 

 

 

 
**Balances,  June 30, 2000**

182,746,168

 

18,275

 

6,460,918

 

(4,691,348

)

 

 

$

1,787,845

 

 
Issuance  of common stock in payment of stockholders’ advances and related accrued  interest

2,886,895

 

288

 

577,091

 

 

 

 

 

577,379

 

 
Stock  sale to unrelated party for subscription receivable

727,272

 

110

 

1,209,890

 

 

 

(1,210,000

)

 

 

 
Contributed  services, officer/shareholders

 

 

 

 

100,000

 

 

 

 

 

100,000

 

 
Net  loss

 

 

 

 

 

 

(2,090,527

)

 

 

(2,090,527

)

 
Stock  subscription payments received

 

 

 

 

 

 

 

 

800,000

 

800,000

 

 
 

 

 

 

 

 

 

 
**Balances,  June 30, 2001**

186,360,335

 

$

18,673

 

$

8,347,899

 

$

(6,781,875

)

$

(410,000

)

$

1,174,697

 

 
 

 

 

 

 

 

 

 
 

 

 

 

 

 

 

 

 

 

 

 

 

 
See  Accompanying Notes to Financial Statements

 

**PHOENIX METALS U.S.A. II, INC.****(A Development Stage Enterprise)STATEMENTS OF CASH FLOWSFOR THE YEARS ENDED JUNE 30, 2001 AND 2000 AND     THE CUMULATIVE PERIOD FROM JULY 1,1993, THROUGH JUNE 30, 2001**

 

**2001**

 

**2000**

 

**Cumulative  July 1, 1993  through  June 30, 2001**

 

 
****
 
****
 
****
 

**Operating  activities**

 

 

 

 

 

 

Net  cash used in operating activities

$

(876,322

)

$

(891,484

)

$

(4,276,205

)

 

 

 

 

**Investing  activities**

 

 

 

 

 

 

Purchase  of property and equipment

(64,902

)

(122,714

)

(1,281,197

)

 

 

 

 

**Financing  activities**

 

 

 

 

 

 

Advances  from stockholders

577,952

 

1,023,800

 

4,563,745

 

Repayments  to stockholders

(550,000

)

—

 

(550,000

)

Proceeds  from debt

2,528

 

24,956

 

268,779

 

Repayments  of debt

(52,645

)

(27,012

)

(207,786

)

Stock  subscription payments received

800,000

 

91,500

 

901,700

 

Proceeds  from sale of common stock

—

 

—

 

606,250

 

 

 

 

 

Net  cash provided by financing activities

777,835

 

1,113,244

 

5,582,688

 

 

 

 

 

**Net  increase (decrease) in cash**

(163,389

)

99,046

 

25,286

 

**Cash,  beginning**

188,675

 

89,629

 

 

 

 

 

 

 

**Cash,  ending**

$

25,286

 

$

188,675

 

$

25,286

 

 

 

 

 

 

 

 

 

 

 

 

See  Accompanying Notes to Financial Statements

 

**PHOENIX METALS U.S.A. II, INC.****(A Development Stage Enterprise)NOTES TO THE FINANCIAL STATEMENTSFOR THE YEARS ENDED JUNE 30, 2001 AND 2000 AND     THE CUMULATIVE PERIOD FROM JULY 1,1993 THROUGH JUNE 30, 2001**

**1.**          **Nature of activities and history:**

PhoenixMetals U.S.A. II, Inc. (the Company) is engaged in research and developmentactivities in connection with proprietary processes, fabrication of equipment,in securing all operating permits, and obtaining licenses for patents andtechnology relating to concentrating, smelting and separating complexrefractory ores into pure refined precious and noble metals.  In that regard, the Company has operated apilot and testing facility on five acres in Nevada to mill, smelt and separategold, silver, platinum, palladium, rhodium, osmium, and iridium commercially.  In this phase, the Company has developedemployee and management training manuals and related procedures, formulas forprocessing head ore to pure metals, and engineering, fabricating and puttinginto operation environmentally compatible ore processing systems andfacilities.  The amount of ore that hasbeen removed from the Company’s ore reserves to date is insignificant andwithout measurable cost.

Sincethe Company’s activities to date have involved principally the development orimprovement of processes and techniques to be employed in extraction, rather thanmining activities, the costs thereof are accounted for and expensed as providedfor in Financial Accounting Standards Board (FASB) Statement No. 2, *Research andDevelopment Costs*.  Inaddition, pursuant to the American Institute of Certified Public Accountants’Statement of Position 98-5,*Start-up Costs*, the costs of all otherstart-up activities are expensed as incurred.

TheCompany is not in the exploration stage and, except to the extent describedabove, it is not and has not engaged, nor has it incurred any costs, in“exploration” and “development” activities, as those terms are commonly used inthe mining industry (for example for prospecting, geophysical analysis,drilling or removing overburden). Accordingly, the accompanying financial statements include nocapitalized costs or related amortization of such costs that might otherwise beamortizable over estimated production. Only the costs of acquiring or building physical facilities, equipmentand mineral ore reserves and mining rights have been capitalized (Note 2).

TheCompany commenced its development stage activities during the year ended June30, 1994, as a result of a series of transactions early in that year involvingthe acquisition of a controlling interest in the Company (then engaged unsuccessfullyin an unrelated business and known as Imagenet Systems, Inc.) and the relatedtransfer to the Company by its present principal officer/stockholders of rightsto certain mineral ore reserves and land use and mining rights (Note 7) inexchange for common stock.  Inconnection with the change in control and related transactions, the Companydiscontinued its unrelated business and adopted “quasi-reorganization”accounting as of July 1, 1993, eliminating its then accumulated deficit ofapproximately $1,000,000.  Norevaluations of assets or liabilities were deemed necessary at the time.

**2.**          **Summary of significant accounting policies:**

Inventory

In-processinventories are stated  at  the lower of cost or net realizable value.

Propertyand Equipment

Propertyand equipment (Note 3) is stated at cost. Depreciation, including amortization of leasehold improvements andcapitalized leases, which are not material, is computed using the straight–lineand declining balance methods over the estimated useful lives of the assets.

Useof Estimates

Timelypreparation of financial statements in conformity with generally acceptedaccounting principles requires management to make estimates and assumptionsthat affect reported amounts, some of which may require revision in futureperiods.

**3.**          **Property and equipment:**

Propertyand equipment at June 30, 2001, after writedown for impairment resulting fromthe tentative settlement with the BLM (Note 10), consists of the following:

 

Adjusted  Cost

 

 

 

Building  and improvements

$

48,850

 

Equipment

593,443

 

Other

14,148

 

 

 

 

650,441

 

Less  accumulated depreciation

(283,990

)

 

 

 

$

366,451

 

 

 

**4.**          **Long-term debt:**

Long-term  debt at June 30, 2001, consisted of:

 

 

 

Settlement  note payable at 8%, collateralized by land use and mining rights, payable at  $10,000 monthly, due June 2003 (Note 5)

$

250,000

 

 

Notes  payable at 11.5 – 8.5%, collateralized by vehicles, payable at $1,200  monthly, due May 2000 to June 2003

13,778

 

 

Notes  payable at 21.81% – 18.90%, collaterized by equipment, payable at  $1,019 monthly, due April 2004

41,306

 

 

 

 

 

305,084

 

 

Less  current maturities

(141,114

)

 

 

 

 

$

163,970

 

 

 

At  June 30, 2001, maturities were:

 

 

 

Year  ending June 30,

 

 

 

2002

$

141,114

 

 

2003

148,751

 

 

2004

15,219

 

 

 

 

 

$

305,084

 

 

 
****
 

**5.**          **Commitments and contingencies:**

OperatingLeases

TheCompany has noncancelable operating lease agreements for administrativeoffices, vehicles and telephone equipment. Rental expense is included in general and administrative expenses andwas $103,314 and $93,257 for 2001 and 2000.

TheCompany’s minimum future lease payments under noncancelable operating leasesare as follows as of June 30, 2001:

Year  ending June 30,

 

 

 

2002

$

104,934

 

 

2003

102,114

 

 

2004

56,241

 

LegalProceedings

OnFebruary 24, 1999, a default judgment was entered against the Company in theamount of $597,913.  The judgment stemsfrom a disputed transaction in the period prior to July 1, 1997.  On November 29, 1999, the court entered anorder increasing judgment against the Company for additional interest to$609,912.  The court entered an ordergranting the Company’s motion for an appeal of the default judgment.  Subsequently, on June 1, 2001, the partiesto the litigation entered into a settlement agreement whereby the Company paid$25,000 and agreed to pay $275,000 to the plaintiff as full and finalsettlement of the matters between and among the parties to the litigationpursuant to a payment schedule.  To theextent that the Company provides total principal payments of $250,000 to 900Capital by June 1, 2002, the Company and the Company’s majority stockholderswill have satisfied their entire obligation under the settlement agreement.

TheCompany has also been engaged in a dispute with the United States Department ofInterior, Bureau of Land Management (BLM) over its rights of occupancy withrespect to its millsite on certain public lands under the Mining Act of1872.  (See Note 10).

TheCompany is also party to other legal proceedings, most of which relate toroutine matters.  Management does notbelieve that the outcome of such proceedings will have a material adverseeffect on the Company’s financial position or future operations.

EnvironmentalObligations

TheCompany is obligated under federal and state legislation to performenvironmental reclamation at its refinery and testing facility.  Management’s estimate of the costs ofmeeting such obligations, as approved by the state, is not material.

GoingConcern

TheCompany has not had any revenues to date and has accumulated a developmentstage deficit of $6,781,875 as of June 30, 2001.  Other than the purchases that would be required in connectionwith the relocation and reclamation of the Black Mountain facility, the Companyplans to conduct only a modest level of processing and relatively modestcapital expenditures and product research and development during the next 12months (because it believes it is unnecessary).  Accordingly, in all respects the Company plans to continue toadequately fund its limited operations as may be necessary, with additionaladvances from its principal stockholders, who are both able and committed toprovide such funding, and new capital inflow.

**6.**          **Income taxes:**

Becausethe Company has not generated any revenues or otherwise commenced operations,and has engaged in extensive development stage activities over a period ofalmost seven years, it has incurred substantial losses for income tax reportingpurposes, the realization of benefits of which cannot be viewed at this time asmore likely than not and, accordingly, have effectively been offset by avaluation allowance.

Thesignificant components of the Company’s deferred tax assets and liabilities areas follows:

Assets:

 

 

 

Net  operating losses carried forward*

$

1,698,347

 

 

Nondeductible  asset valuation adjustments

352,125

 

 

Accrued  interest to principal shareholders

6,020

 

 

 

 

 

 

2,056,492

 

 

Less  valuation allowance

(2,028,146

)

 

 

 

 

$

28,346

 

 

 

Liabilities:

 

 

 

Depreciation

$

28,346

 

 

 

 

*           As of June 30, 2001, the Company hasnet operating loss carryforwards of $4,995,137 for federal income tax purposesthat will expire if not used during the periods beginning 2010 through 2021.

**7.**          **Related party transactions:**

Advancesfrom Stockholders

TheCompany’s most significant source of financing has been and continues to beadvances from its majority stockholders. Under a related agreement, the funds borrowed were payable on demand andaccrue interest at variable rates, currently 5.9%, aggregating $593,107 at June30, 2001.  However, effective onNovember 19, 1999, the agreement relative to advances from the principalofficer/stockholders was amended to provide that the obligation could besettled at the Company’s option with the Company’s equity securities.  Accordingly, the total advances as of June30, 1999, of $3,263,191 including accrued interest, were settled in full for3,000,000 unregistered, restricted shares of the Company’s common stock valuedat $1.09 per share in November 1999 and total advances as of September 30,2000, of $577,379 including accrued interest, was settled in full for 2,886,895unregistered, restricted shares of the Company’s common stock valued at $0.20per share in December 2000.  The sharesare restricted in that they cannot be freely traded.  For the shares to be re–sold, they must be eitherregistered under the Securities Act of 1933, as amended, and applicable statesecurities laws, or satisfy the requirements for an exemption from suchregistration.

TheCompany’s principal officer/stockholders and directors have served the Companyin their respective roles for all periods presented without compensation.  Accordingly, the financial statementsinclude a contribution of capital and compensation expense in all periods equalto the estimated value of such donated services.

OtherIssuances of Common Stock

Inthe fiscal year ended June 30, 1994, the principal officer/stockholderstransferred to the Company, in a series of exchange transactions, various landuse and mining rights, including ore reserves in Arizona and Nevada, inexchange for an aggregate of 162,286,944 shares of common stock of theCompany.  The costs assigned to theseassets, and the value of the common stock issued in exchange, consist of thecosts incurred by the principal officer/stockholders (transferors’ historicalcost basis).

Inaddition, on several occasions, the Company’s principal officer/stockholdersassigned to the Company nonexclusive limited use licenses to certain patentsand related intellectual property developed over a number of years for theextraction of gold, silver, and platinum group metals from igneous rocks inexchange for 10,000,000 shares of common stock of the Company issued in January1998.  Neither the shares nor the assetsso acquired have been valued in the balance sheet (although the shares areincluded as outstanding) because the costs incurred by the stockholders indeveloping such assets were primarily in the nature of research and developmentand, therefore, would have been expensed. There are no continuing royalty obligations in connection with theselicenses.

InNovember 1999, the Company issued a total of 55,000,000 shares to its principalstockholders, which transactions were retroactively rescinded and reversed inFebruary 2000.  Accordingly, theseshares were not considered in the weighted average number of shares outstandingfor purposes of computing loss per share in the period ended June 30, 2000.

Inconnection with the 1993 change in control of the Company, obligations to theformer principal stockholder were settled in full with the issuance of 200,000shares valued at the carrying amount of these obligations.

Noneof the foregoing stock transactions involved any compensation for any services.

**8.**          **Financial instruments:**

Thecarrying amounts of advances from stockholders and other financial instrumentsapproximate their fair value because of their short maturities or because thedebt bears variable or fixed interest rates that approximate current ratesavailable on similar borrowings.

**9.**          **Supplemental cash flow information:**

Inconnection with the change in control of the Company in 1993, the Companyobtained land use rights, mining claims and mineral ores valued at$1,775,000.  Other non-cash investingand financing activities consisted of acquisition of land by seller financingof $100,000 prior to July 1, 1997, and of the settlement (discussed in Note 7)of $3,263,191 of advances including accrued interest at June 30, 1999 fromstockholders by issuing 3,000,000 shares of common stock on November 15, 1999and of $577,379 of advances including accrued interest at September 30, 2000from stockholders by issuing 2,886,895 shares of common stock on December 27,2000.

Cashpaid for interest during each of the periods presented was not material.

Thefollowing reconciles net loss to cash used in operating activities:

 

**2001**

 

**2000**

 

**Cumulative  July 1, 1993  through  June 30, 2001**

 

 
****
 
****
 
****
 

Net  loss

$

(2,090,527

)

$

(1,284,268

)

$

(6,781,875

)

Depreciation

95,009

 

85,712

 

307,909

 

Impairment

704,169

 

—

 

704,169

 

Settlement

275,000

 

—

 

275,000

 

Contributed  services

—

 

100,000

 

800,000

 

(Increase)  decrease in operating assets:

 

 

 

 

 

 

 

Inventories

(4,505

)

15,277

 

(94,334

)

 

Prepaid  expenses

5,980

 

22,670

 

(18,785

)

 

Other  assets

—

 

21,857

 

—

 

Increase  (decrease) in operating liabilities:

 

 

 

 

 

 

 

Accounts  payable

8,296

 

61,382

 

108,225

 

 

Accrued  expenses

3,707

 

(6,299

)

13,623

 

 

Accrued  interest to stockholders

26,549

 

92,185

 

409,863

 

 

 

 

 

 

$

(891,484

)

$

(4,276,205

)

$

(876,322

)

 

 

 

 

**10.**        **Subsequent Events**

OnSeptember 11, 2001, the United States was subjected to extensive terroristattacks likely to have far-reaching effects on economic activity in the countryfor an indeterminate period.  The near-and long-term impact on the southern Nevada economy and the Company’soperations cannot be predicted at this time but may be substantial.

OnOctober 9, 2001, the Company negotiated and reached a tentative agreement withthe BLM through which the Company agreed to dismiss with prejudice certainactions filed by the Company.  Inexchange for the dismissals, the Company would be permitted to continue itsoperations until April 1, 2002, but would be required to begin reclamation onthe unused portion of the millsite and, after April 1, 2002, cease operationsand begin reclamation of the remaining portion of the millsite.  The Company would complete the reclamationof the millsite in accordance with a reclamation plan approved by the BLM.  Pursuant to the tentative agreement with theBLM, the Company has recorded an impairment write down against its cost of themillsite and certain related improvements. Additional costs will be incurred to relocate its millsite and tocomplete reclamation of the millsite that cannot be estimated at this time.

**Item 8.****Changes in and Disagreements with Accountants onAccounting and Financial Disclosure.**

             During the last two fiscal yearsended June 30, 2000 and 2001, there have been no changes in or disagreementswith accountants.

**PARTIII**

**Item 9.****Directors, Officers, Promoters and Control Persons;Compliance with Section 16(a) of the Exchange Act of 1934.**

             The following table sets forth thename, age and position of each director and officer of the Company as of thedate hereof.

 

Name

 

Age

 

Positions Held

 

Year of  Appointment

 

 

 

 

 

Diana  Lee Flaherty1

 

52

 

Chairperson  of the Board, Chief Executive  Officer, Secretary and Treasurer

 

1993

 

 

 

 

 

 

 

 

 

Robert  F. Flaherty1

 

66

 

Director,  Chief Operating Officer and President

 

1995

 

1RobertF. Flaherty and Diana Lee Flaherty are husband and wife.

             All directors hold office until thenext annual meeting of the stockholders and until their successors are electedand qualified. There are no agreements with respect to the election ofdirectors.  Officers of the Company areappointed by the Board and serve at the will and pleasure of the Board.  Set forth below is certain biographical informationregarding the Company’s directors and officers:

             Diana Lee Flaherty is theChairperson of the Board of Directors, Chief Executive Officer, Secretary andTreasurer of the Company.  She hasserved the Company in an official capacity since June 1993 and since that timesubstantially all of her time and efforts have been directed toward thedevelopment of the Company.  Ms.Flaherty directs the business operations of the Company, overseeing theperformance of the Company’s management team and evaluating the effectivenessof the Company’s proprietary processes. Ms. Flaherty’s responsibilities also involve arranging for private andinstitutional project financing and providing direction for short and long-termCompany planning.

             Robert F. Flaherty is a directorChief Operating Officer and President of the Company.  He has served the Company in an official capacity since February1995 and since that time substantially all of his time and efforts have beendirected toward the development of the Company. Oversight of the Company’sproduction operations is one of Mr. Flaherty’s primary responsibilities. Mr.Flaherty also handles recruiting and hiring of the Company’s management teamand consultants necessary to expand operations from pilot to commercialproduction.  Mr. Flaherty designed andcoordinated the construction of the Company’s Black Mountain facility, and isinstrumental in the application of advanced gold and platinum group metalsresearch and refining technology.  Dueto health problems, Mr. Flaherty has reduced his role in the day-to-daymanagement of the Company and Mrs. Flaherty has assumed, in the interim, agreater role in such management.

             **Permanent Injunction**

             In February 1998, a Judgment ofPermanent Injunction and Other Relief was entered in the United States DistrictCourt, Central District of California, Western Division against the Company andMr. Flaherty, enjoining each of them from violating Section 17(a) of theSecurities Act of 1933, as amended, Section 10(b) of the Exchange Act and Rule10b-5 thereunder, and enjoining Mr. Flaherty from future violations of Section15(a)(1) of the Exchange Act.  Theinjunction was sought by the U.S. Securities and Exchange Commission (the“SEC”) as a result of allegations that the Company and Mr. Flaherty madematerial misrepresentations to investors and that funds raised were usedpersonally by Mr. Flaherty.  The Companyand Mr. Flaherty consented to the permanent injunction without admitting ordenying the allegations.

             In May 1998, the court entered aFinal Judgment of Disgorgement against the Company and Mr. Flaherty.  In that order, the court ordered thatneither the Company nor Mr. Flaherty would be required to pay a disgorgementamount, subject to the accuracy of the representations made by the Company andMr. Flaherty regarding amounts spent for Company expenditures.  The court retained jurisdiction to orderdisgorgement in the event such representations are false, misleading,inaccurate or incomplete; but to date no additional actions have been broughtby the SEC against the Company or Mr. Flaherty.

             **Compliance with Section 16(a) of theExchange Act**

             Section 16(a) of the Exchange Actrequires the Company’s directors, officers and persons who own more than 10% ofa registered class of the Company’s equity securities to file with the SECinitial reports of ownership and reports of changes in ownership of commonstock and other equity securities of the Company.  Directors, officers and stockholders holding more than 10% of theclass of stock are required by SEC regulation to furnish the Company withcopies of all Section 16(a) forms they file.

             To the Company’s knowledge, basedsolely on a review of the copies of such reports furnished to the Company andwritten representations that no other reports were required, during the fiscalyear ended June 30, 2001, all reports required under Section 16(a) filingrequirements were filed as required, except for the Form 4’s for the Flahertysfor July 2001 that were filed with the SEC on September 10, 2001.

**Item 10.**            **Executive Compensation.**

             The Company has not paidcompensation to its directors and officers for the fiscal years ended June 30,1999, 2000 or 2001.  There are noemployment contracts between the Company and any of its directors orofficers.  There are no compensatoryplans or arrangements of any kind, including payments to be received from theCompany, with respect to any person which would in any way result in paymentsto any such person because of his or her resignation, retirement or othertermination of such person’s employment with the Company or its subsidiaries,or any change in control of the Company, or a change in the person’sresponsibilities following a change in control of the Company.  In addition, the Company is not obligated topay royalties to the Flahertys on any mineral rights or proprietary rightsassigned to the Company.

**Item 11.**            **Security Ownership of Certain Beneficial Owners andManagement.**

             The following table sets forth theinformation as of June 30, 2001 with respect to each person known to theCompany to be the beneficial owner of more than five percent of any class ofthe Company’s common stock, each director of the Company and all directors andofficers of the Company as a group. Beneficial ownership includes securities to which a person has sole orshared voting or investment power in any shares or shares to which the personhas the right to acquire within 60 days through the exercise of any option,warrant or right. 

Title of Class

 

Name and Address of  Beneficial Owner

 

Amount and Nature of  Beneficial Ownership

 

Percent  of Class3

 

 

 

 

 

Common  Stock

 

Diana  Lee Flaherty  801 S. Rampart Blvd., #178  Las Vegas, Nevada 89127

 

169,319,526

 

91

%

Common  Stock

 

Robert  F. Flaherty  801 S. Rampart Blvd., #178  Las Vegas, Nevada 89127

 

169,319,526

 

91

%

Common  Stock

 

Robert  F. & Diana L. Flaherty, Inc.  801 S. Rampart Blvd., #178  Las Vegas, Nevada 89127

 

1,821,196

 

1

%

Common  Stock

 

Dynasty  Corporation of Nevada, Inc.  801 S. Rampart Blvd., #178  Las Vegas, Nevada 89127

 

1,618,762

 

1

%

Common  Stock

 

Total  of all Shares Beneficially Owned by  Officers and Directors (as a group)

 

169,319,526

 

91

%

             The Flahertys both serve asofficers and directors of the Company. The beneficial ownership of the Flahertys consists of 86,850,460 sharesheld by Diana Lee Flaherty, 79,026,108 shares held by Robert F. Flaherty,1,821,196 shares held by Flaherty, Inc. and 1,618,762 shares held by DynastyCorporation of Nevada, Inc.  Inaddition, the Flahertys are the sole stockholders of Flaherty, Inc. and DynastyCorporation of Nevada, Inc.  Thepercentages of beneficial ownership are based upon 186,360,335 shares of commonstock outstanding as of June 30, 2001.

             There are no arrangements presentlyknown to the Company that could result in a change in control of the Company.

**Item 12.**            **Certain Relationships and Related Transactions.**

             During the fiscal years ended June30, 1999, 2000 and 2001, the Company entered into a series of loan transactionswith Flaherty, Inc.  The aggregateprincipal amount of the loans for those years was approximately $3,463,580,which amount the Company agreed to repay at the interest rate of six percentper annum.  The Flahertys are thebeneficial owners of approximately 91% of the Company’s outstanding commonstock and are the sole stockholders of Flaherty, Inc.  See Item 11 — Security Ownership of Certain Beneficial Owners andManagement.  Subsequently, the Companyissued common stock to Flaherty, Inc. to cancel the debt.

             In November 1999, the Companyissued an aggregate of 55,000,000 shares of common stock to Flaherty, Inc.  However, this issuance was made inerror.  The Flahertys intended to pledgeshares of the Company’s common stock issued to Flaherty, Inc. as considerationfor a contract for the right to purchase metals and/or concentrates.  The Company was not a party to the contractand the rights to be acquired were to run to the Flahertys.  Upon realizing the error in February 2000,the Company rescinded the resolutions authorizing the issuance.  Certificates representing 55,000,000 sharesof common stock were surrendered by Flaherty, Inc. to the Company andcancelled.  Although it is contemplatedthat the Flahertys could assign all or a portion of their rights to purchasemetals or concentrates under the contracts to the Company, presently there areno such plans.

             On January 28, 2000, the Company,Flaherty, Inc. and the Flahertys entered into that certain First Amendment tothe Advance Agreement whereby, among other things, the Company issued 3,000,000shares of its common stock to the Flahertys in exchange for the extinguishmentof $3,203,191 in outstanding debt and accrued interest.

             On December 27, 2000, the Companyissued an aggregate of 2,886,895 shares of its common stock to the Flahertys(1,443,448 to Diana Lee Flaherty and 1,443,447 to Robert F. Flaherty), pursuantto the terms and conditions of the Advance Agreement as payment for debtincurred by the Company during their 2000 calendar year.  See Part II, Item 4 — Recent Sales ofUnregistered Securities.

**Item 13.**            **Exhibits and Reports on Form 8-K.**

             (a)         Thefollowing exhibits are included as part of this report:

             See exhibits listed on the ExhibitIndex following the signature page of this Annual Report on Form 10-KSB whichis incorporated herein by reference.

             (b)        TheCompany issued no reports on Form 8-K during the fourth quarter of fiscal year2001.****

**SIGNATURES**

             In accordance with Section 13 or15(d) of the Exchange Act, the registrant caused this report to be signed onits behalf by the undersigned, thereunto duly authorized.

 

 

 

**Phoenix Metals U.S.A. II, Inc.**

 

 

 

 

 

 

 

 

 

 

Dated:

October 13, 2001

 

By:

/s/ Diana Lee Flaherty

 

 

 

 

 

 

 

 

*Diana Lee Flaherty, Chairperson of the Board of Directors,  Chief Executive Officer, Secretary and Treasurer*

 

 

 

 

 

             In accordance with the ExchangeAct, this report has been signed by the following persons on behalf of theregistrant and in the capacities and on the dates indicated below.

 

/s/ Diana Lee Flaherty

Chairperson of the  Board of Directors,

October 13, 2001

Chief Executive  Officer, Secretary

 

*Diana Lee Flaherty*

and Treasurer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

President, Chief  Operating Officer

October 13, 2001

and Director

 

*Robert F. Flaherty*

 

 

 

 

 

**Supplemental Information to beFurnished With Reports Filed Pursuant to Section 15(d) of the Exchange Act byNon-reporting Issuers**

             No annual report or proxy materialshave been or will be sent to the Company’s stockholders in connection with thisreport.****

**EXHIBIT INDEX**

**EXHIBIT  NUMBER**

 

**DOCUMENT NAME**

 
****
 
****
 

3.01

 

Certificate of Amendment and  Restatement of the Articles of Incorporation filed with the Nevada Secretary  of State on February 25, 2000, incorporated by reference to the Company’s  Form 10-SB, as filed with the Securities and Exchange Commission on March 13,  2000.

 

 

 

 

 

3.02

 

Bylaws of the Company dated February  15, 2000, incorporated by reference to the Company’s Form 10-SB, as filed  with the Securities and Exchange Commission on March 13, 2000.

 

 

 

 

 

4.01

 

Form of Stock Certificate of Phoenix  Metals U.S.A. II, Inc., incorporated by reference to the Company’s Form  10-SB, as filed with the Securities and Exchange Commission on March 13,  2000.

 

 

 

 

 

10.01

 

Corporate Reorganization Agreement by  and between Powell Capital Corporation and Imagenét Systems, Inc. dated June  30, 1987, incorporated by reference to the Company’s Form 10-SB, as filed  with the Securities and Exchange Commission on March 13, 2000.

 

 

 

 

 

 

10.02

 

Acquisition Agreement by and between  Robert F. Flaherty and Imagenét Systems, Inc. dated June 30, 1993,  incorporated by reference to the Company’s Form 10-SB, as filed with the  Securities and Exchange Commission on March 13, 2000.

 

 

 

 

 

10.03

 

Assignment of Patent Licensing  Agreement by and among Robert F. Flaherty, Diana L. Flaherty and Phoenix  Metals U.S.A. II, Inc., incorporated by reference to the Company’s Form  10-SB, as filed with the Securities and Exchange Commission on March 13,  2000.

 

 

 

 

 

10.04

 

Patent Licensing Agreement by and  between Robert F. & Diana L. Flaherty, Inc. and Phoenix Metals U.S.A. II,  Inc., incorporated by reference to the Company’s Form 10-SB, as filed with  the Securities and Exchange Commission on March 13, 2000.

 

 

 

 

 

10.05

 

Advance Agreement by and among Robert  F. & Diana L. Flaherty, Inc., Robert F. Flaherty, Diana L. Flaherty and  Phoenix Metals U.S.A. II, Inc. dated December 1, 1999, incorporated by reference  to the Company’s Form 10-SB, as filed with the Securities and Exchange  Commission on February 4, 2000.

 

 

 

 

 

10.06

 

Reincorporation Agreement and Plan of  Merger between the Company and Phoenix Metals U.S.A. II, Inc., a Colorado  corporation, dated February 15, 2000, incorporated by reference to the  Company’s Form 10-SB, as filed with the Securities and Exchange Commission on  March 13, 2000.

 

 

 

 

 

10.07

 

First Amendment to Advance Agreement by  and among Robert F. & Diana L. Flaherty, Inc., Robert F. Flaherty, Diana  L. Flaherty and Phoenix Metals U.S.A. II, Inc. dated January 28, 2000.

 

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