As filed with the Securities and Exchange Commission on October ____, 2001
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
CAN-CAL RESOURCES LTD.
--------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Nevada 88-0336988
------------------------------- ---------------------------- -------------------
(State or other jurisdiction of (Primary standard industrial (I.R.S. Employer
incorporation or organization) classification code number) Identification No.)
8221 Creta Blue Lane, Las Vegas, Nevada; Tel. 702.243.1849
--------------------------------------------------------------------------------
(Address, including zip code, and telephone number
of issuer's principal executive offices)
Ronald D. Sloan, 8221 Creta Blue Lane
Las Vegas, NV 89128; Tel. 702.243.1849
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(Name, address, including zip code, and telephone number of agent for service)
Copies to: Stephen E. Rounds, Esq.
The Law Office of Stephen E. Rounds
4635 East 18th Ave., Denver, CO 80220
Tel: 303.377.6997; Fax: 303.377.0231
---------------
Approximate date of commencement and end of proposed sale to the public: From
time to time after the registration statement becomes effective.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering:[ ] ________
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ________
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
Proposed
Proposed Maximum
Amount of Maximum Aggregate Amount
Title of Each Class Securities Offering Dollar Price of
of Securities to be Registered Price Per of Securities to Registration
to be Registered in the Offering Security(1) be Registered Fee
---------------- --------------- ----------- ------------- ------------------
Common Stock 4,600,000(2) $0.85 $ 3,915,000.00 $ 979.00
Shares
Common Stock 606,059(3) $0.875 $ 530,301.00 $ 133.00
Shares
Common Stock 400,000(4) $0.875 $ 375,000.00 $ 94.00
and $ 1.00 (4)
Common Stock 52,888(5) $0.875 $ 46,277.00 $ 12.00
Total No. Securities
to be Registered 5,658,047 n/a $ 4,866,578.00 $ 1,218.00
<FN>
(1) Under rule 457(f), registration fee calculations are estimated based on the
market value of the registrant's common stock (average of the bid and asked
prices as of October 19, 2001) which is within 5 business days prior to the
initial filing of this statement. The valuation of securities registered is
for future sale by the registrant under the Investment Agreement (equity
line financing) is based on 93% of the average bid and ask price (shares
are to be sold by the registrant at a 7% discount from market price); see
(2) below. The fee for registration for resale of securities already issued
is 100% of the average bid and ask prices at October 19, 2001 (see (3)
below).
(2) These securities are registered for original issue by the registrant under
the Investment Agreement (equity line financing), at 93% of average market
prices, and for resale by the investors who so purchase.
(3) These securities now are issued and outstanding, and are registered for
resale.
(4) Of these securities, 200,000 shares now are issued and outstanding and are
registered for resale; the fee is based on the $0.875 average bid and ask
price on October 19, 2001, for aggregate value of $175,000 for fee
purposes. An additional 200,000 shares are registered for issuance upon
exercise of options; the fee is based on the $1.00 exercise price for these
options.
</FN>
DELAYING AMENDMENT UNDER RULE 473(A): The registrant hereby amends this
registration statement on such date or dates as may be necessary to delay its
effective date until the registrant shall file a further amendment which
specifically states that this registration statement shall become effective in
accordance with section 8(a) of the Securities Act of 1933 or until the
registration statement shall become effective on such date as the Commission
acting pursuant to section 8(a), may determine.
1
The information in this prospectus is subject to completion or amendment. We
cannot sell these securities until the registration statement filed with the
Securities and Exchange Commission becomes effective. This prospectus shall not
constitute an offer to sell or the solicitation of an offer to buy nor shall
there be any sale of these securities in any state in which an offer,
solicitation or sale would be unlawful prior to registration or qualification
under the securities laws of that state.
CAN-CAL RESOURCES LTD.
5,658,947 SHARES OF COMMON STOCK
This prospectus covers the offer and sale of up to 5,658,947 shares of
common stock ($0.001 par value) by the persons identified in this prospectus who
are shareholders, including two entities that may buy more shares, and another
entity holding options to buy shares of common stock. In this prospectus,
"selling shareholders" refers to these persons; "we" and "company" refer to
Can-Cal Resources Ltd. The shares offered for sale include:
- 4,600,000 shares which may be bought from us, by Dutchess Private Equities
Fund, L.P. ("Dutchess Fund") and DRH Investment Company, LLC ("DRH"), who
are providers of the equity line of credit established under the Investment
Agreement with us. Dutchess Fund and DRH are statutory underwriters under
section 2a(11) of the Securities Act of 1933. See "Financing Transactions -
Investment Agreement," "Selling Shareholders," and "Plan of Distribution."
We will not, however, receive any proceeds from sale of these shares by
Dutchess Fund and DRH after purchase from us.
- 606,059 shares already issued as fees to Dutchess Fund, Dutchess Advisors,
Ltd. (the advisor to Dutchess Fund), May Davis Group, Inc. and to the
attorney for Dutchess Fund and DRH. We will not receive any proceeds from
sale of these shares.
- 200,000 shares already issued as fees to National Financial Communications
Corp. ("NFC"), and another 200,000 shares which may be purchased by NFC on
exercise of options to purchase 200,000 shares which has been granted to
NFC.
- 52,999 shares already issued to three cash investors.
Our common stock is traded ("CCRE") on the Over-the-Counter Bulletin Board
("OTCBB"). The closing bid price was $0.77 on October 22, 2001.
An investment in the shares offered by this prospectus is speculative and
subject to high risk of loss. See "Risk Factors" beginning on page 2.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS OCTOBER __, 2001
2
TABLE OF CONTENTS
PAGE NO.
Forward Looking Statements ..................................................5
Where You Can Find More Information..........................................5
Summary Information and Risk Factors.........................................6
Financing Transactions.......................................................8
Risk Factors ...............................................................11
We are a mining company in the exploration state,
have no reserves, have never made a profit, and
may never become profitable............................................11
We are subject to certain kinds of risk which are
unique to the minerals business........................................11
We may encounter difficulty in obtaining future operating permits......11
If we lost the service of our president, the company would suffer......11
We may not be successful in raising the capital necessary to
build and operate the commercial scale production plant................11
Terms of subsequent financings may adversely impact your investment...12
Selling stock to Dutchess Fund and DRH may
substantially dilute the interests of the other stockholders..........12
Selling stock to Dutchess Fund and DRH could reduce
our market price and encourage short sales.............................12
Market Overhang........................................................12
We may not be able to raise enough capital from the
Investment Agreement to meet our liquidity needs.......................13
Persons and entities may sell stock covered by this prospectus
at any time, which could have an adverse effect on the market price....13
We have not paid dividends and do not intend to pay
dividends in the foreseeable future....................................13
Because the company's common shares are "penny stock"
certain rules may impede the development of increased
trading activity and could affect the liquidity for stockholders.......13
3
Use of Proceeds.............................................................14
Management's Discussion and Analysis of
Financial Condition and Results of Operations..........................15
Business....................................................................17
Management..................................................................25
Security Ownership of Certain Beneficial Owners and Management..............26
Certain Relationships and Related Transactions..............................27
Selling Shareholders........................................................28
Plan of Distribution........................................................30
Description of Securities...................................................32
Legal Matters...............................................................33
Experts.....................................................................33
Index to Financial Statements...............................................34
4
REPRESENTATIONS ABOUT THIS OFFERING
We have not authorized anyone to provide you with information different
from that contained in this prospectus. This prospectus is not an offer to sell
nor does it seek an offer to buy the shares in any jurisdiction where this offer
or sale is not permitted. The information contained in this prospectus is
accurate only as of the date of this prospectus (or any supplement), regardless
of when it is delivered or when any shares are sold.
WHERE TO FIND MORE INFORMATION ABOUT US
We have filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form SB-2 under the 1933 Act with
respect to the shares offered by this prospectus. This prospectus, filed as a
part of the registration statement, does not contain certain information
contained in part II of the registration statement or filed as exhibits to the
registration statement. We refer you to the registration statement and exhibits
which may be inspected and copied at the Public Reference Section of the
Commission, 450 5th Street, NW, Washington, D.C. 20549, at prescribed rates. The
registration statement and exhibits also are available for viewing at and
downloading from the EDGAR location within the Commission's internet website
(http://www.sec.gov).
Our common stock is registered with the Commission under section 12(g) of
the Securities Exchange Act of 1934 (the "1934 Act"). Under the 1934 Act, we
file with the Commission periodic reports on Forms 10- KSB, 10-QSB and 8-K, and
proxy statements, and our officers and directors file reports of stock ownership
on Forms 3, 4 and 5. These filings may be viewed and downloaded from the
Commission's internet website (http://www.sec.gov) at the EDGAR location. Also,
we will provide copies of these documents and any exhibits to them, without
charge to prospective investors upon request addressed to Can-Cal Resources
Ltd., 8221 Creta Blue Lane, Las Vegas, Nevada 89128, attention Ronald D. Sloan,
President.
FORWARD LOOKING STATEMENTS
Except for historical data, all the information in this prospectus are
considered to be "forward looking" statements. Specifically, all statements
(other than statements of historical fact) regarding financial and business
strategy and the performance objectives of management for future operations are
forward-looking statements. These forward-looking statements are based on the
beliefs of management, as well as assumptions made by and information currently
available to them. These statements involve known risks such as lack of capital
to put our properties into production, disappointing recoveries of precious
metals from our properties once we put them into production, higher than
expected production costs, declining market prices for precious metals, and
delays or increased costs to obtain production or mining permits.
When we use the words "anticipate," "believe," "estimate," "expect," "may,"
"will, "should, "continue," "intend" and similar words or phrases, we are
identifying forward-looking statements (also known as "cautionary statements"
because you should be cautious in evaluating such statements in the context of
all the information in this prospectus). These statements reflect our current
views with respect to future events. However, the merit or validity of current
views is subject to the realization in fact of assumptions we have made. What we
now think will happen may be turn out much different, and therefore our
assumptions may prove to have been inaccurate or incomplete.
The investment risks discussed under "Risk Factors" specifically address
some (but not all) of the factors that may influence future operating results
and financial performance. The investment risks are not "boiler plate;" they are
intended to tell you about the uncertainties and risks inherent in our business
at the present time which you need to evaluate carefully before making an
investment decision.
5
SUMMARY INFORMATION AND RISK FACTORS
The following summarizes some of the information found elsewhere in this
prospectus. This summary is qualified by the more detailed information in this
prospectus.
THE COMPANY
The company originally was incorporated in the state of Nevada on March 22,
1995 under the name "British Pubs USA, Inc." as a wholly owned subsidiary of
305856 B.C., Ltd. (dba N.W. Electric Carriage Company ("NWE"), a British
Columbia, Canada company). On April 12, 1995, NWE exchanged shares of British
Pubs USA, Inc. for shares of NWE held by its existing shareholders, on a share
for share basis, and the name was changed to Can-Cal Resources, Ltd. on July 2,
1996.
The company is a mining company in the exploration stage. Since 1996, we
have examined various mineral properties prospective for precious metals and
minerals, and have acquired those we believe may contain precious metals and
minerals. Our properties are located California, Arizona, and Nevada. We do not
know if any of the properties contain ore reserves (a reserve is that part of a
mineral deposit which could be economically and legally extracted or produced at
the time of the reserve determination).
We have analyzed materials from one of the properties (patented mining
claims at Pisgah, San Bernadino County, California), and also have analyzed
materials from the unpatented mining claims at the Owl Canyon property, located
in the Silurian Hills area of California (23 miles northeast of Baker,
California). The purpose of the analysis programs was to determine if precious
metals are contained in the materials, and if precious metals are present, how
they might be recovered profitably on a commercial scale.
Test results so far indicate that precious metals (primarily gold, platinum
and palladium) are present in samples of the Pisgah, California volcanic cinder
material. Separate tests indicate that precious metals (gold and silver) are
present in sample materials of the Owl Canyon property.
Although the analysis programs so far indicate there are precious metals
which can be recovered from the two properties, substantial drilling and
sampling of the properties, and testing and assay work on the samples, would be
necessary to determine if either of the properties contain enough precious
metals to constitute reserves. Presently we do not intend to perform the work
needed to determine if we have any reserves. Instead, assuming needed capital
can be raised through the equity line financing with Duchess and DRH, we will
build a small scale production plant on our leased land in Nye County, Nevada
and begin processing material from the Pisgah property. If results are
encouraging, the plant will be expanded. We will continue to hold the Owl Canyon
and other properties and resume testing and evaluation of their potential in the
future.
Executive offices are located at 8221 Creta Blue Lane, Las Vegas, Nevada
89128 (fax 702.243.1869).
6
THE OFFERING
Securities Outstanding 10,056,738 shares of common stock, $0.001
par value.
Securities To Be Outstanding 14,656,738 shares of common stock to be
outstanding if Dutchess Fund and DRH
purchase a total of 4,600,000 shares.
Under the terms of the Investment
Agreement, in fourth quarter 2001 we will
increase our authorized common stock to
be in position to sell more stock under
the Investment Agreement, up to the
$8,000,000 maximum amount, see "Financing
Transactions - Investment Agreement."
This prospectus will be amended from time
to time to disclose how many shares are
sold under the Investment Agreement, and
when our authorized common stock is
increased.
Securities Offered 5,658,947 shares of common stock:
4,600,000 shares by Duchess Private
Equities Fund L.P. ("Dutchess Fund") and
DRH Investment Company, LLC ("DRH") in
equal amounts by each, as purchased and
then resold by Duchess and DRH from time
to time after date of this prospectus.
606,059 shares issued for services in
October 2001 (75,757 shares to Dutchess
Fund; 303,030 shares to May Davis Group,
Inc.; 227,272 shares to Dutchess
Advisors, Ltd.); and 37,000 shares to
Joseph B. LaRocco, attorney for Dutchess
Fund and DRH. See "Financing Transactions
- Investment Agreement."
200,000 shares issued to National
Financial Communications Corp. ("NFC")
for public relations services plus
200,000 shares underlying options granted
to NFC, which may be issued if NFC
exercises the options. See "Financing
Transactions - Public Relations
Agreement."
52,888 shares issued to three private
investors in October 2001.
Use of Proceeds Build an initial small scale production
plant to process mineralized materials
for precious metals, and later build a
larger plant if warranted, and pay
general and adminis- trative expenses.
See "Use of Proceeds." The company will
realize proceeds from this offering only
from sale of shares to Dutchess Fund and
DRH under the Investment Agreement, and
from exercise of options held by NFC. See
"Financing Transactions - Investment
Agreement" and - Public Relations
Agreement").
7
Plan of Distribution The offering is made by the selling
shareholders named in this prospectus, to
the extent they sell their shares. Sales
may be made in the open market or in
private negotiated transactions, at fixed
or negotiated prices. See "Plan of
Distribution."
Risk Factors The company is a mining company in the
exploration stage without established
reserves or production facilities. An
investment is subject to risk. See "Risk
Factors."
FINANCING TRANSACTIONS
On October 4, 2001 we signed an Investment Agreement with Dutchess Private
Equities Fund, L.P. and DRH Investment Company, LLC (referred to as "Dutchess
Fund" and "DRH" in this prospectus) to sell up to $8,000,000 in shares of common
stock to Dutchess Fund and DRH, in equal amounts. We also issued shares of
common stock to Dutchess Fund and May Davis Group, Inc., and to Dutchess
Advisors, Ltd. (advisor to Dutchess Fund), and to the attorney for Dutchess Fund
and DRH, for fees in connection with the Investment Agreement. Terms of these
transactions are described below. Reference is made to the complete text of the
Investment Agreement , which has been filed as an exhibit to the registration
statement which includes this prospectus.
INVESTMENT AGREEMENT. We have signed an Investment Agreement with Dutchess
Private Equities Fund L.P. ("Dutchess Fund," a Delaware limited partnership),
and DRH Investment Company, LLC ("DRH"), who have committed to buy from us up to
a total of $8,000,000 in shares of common stock, when and as requested by us,
until the third anniversary of this prospectus, 50% by Dutchess Fund and 50% by
DRH.
Our ability to sell stock to Dutchess Fund and DRH will depend on market
price and trading volume for our stock. See the risk factor captioned "We may
not be able to raise enough capital from the Investment Agreement to meet our
liquidity needs." If market prices as of prospectus date continue at the
September 2001 levels (less than $1.00 bid) or decline, we will need more
authorized capital than the current 15,000,000 shares of common stock to take
full advantage of the Investment Agreement (assuming trading volume is
sufficient, see below). The Investment Agreement allows us to increase
authorized capital for this purpose, and we intend to ask our shareholders to
approve an increase later in 2001.
Dutchess Fund, and DRH, separately, cannot be required to purchase stock
from the company which, when added to stock of the company which either of them
owns beneficially, exceeds 4.99% of the issued and outstanding stock of the
company on the date of our "put" (see below).
In addition to the foregoing overall limit which applies to Dutchess Fund
and DRH, the amount of stock we can require Dutchess Fund and DRH to purchase at
any time is limited:
O There must be 13 stock market trading days between any two of our
"puts" (requests for purchase delivered to Dutchess Fund and DRH),
although one or more closings of sale of part of the shares may occur
every five trading days within the 13 trading days (the closing date
for each put is 13 trading days after put notice). We will deposit
stock certificates with First Union National Bank, Morristown, New
Jersey (the "escrow agent"), and Dutchess Fund and DRH will deposit
funds with the escrow agent sufficient to buy our stock.
8
O We shall be entitled to request that dollar amount of stock that is
equal to 175% of the average daily volume of our common stock over the
40 trading days prior to our put notice multiplied by the purchase
price (93% of the lowest closing bid price during that 40 days), but
never more than $1 million. This is how the maximum "put amount" is
determined under the Investment Agreement. The actual number of shares
we issue for each put delivered to Dutchess Fund and DRH will have a
total or aggregate purchase price equal to the lesser of (1) the put
amount, and (2) 15% of the aggregate trading volume in the 10 trading
days, multiplied by the average of the lowest closing bid prices
during the first five and the last five trading days, respectively, in
the 10 trading day pricing period.
Closing of each sale of stock to Dutchess Fund and DRH will be subject only
to standard closing conditions (for examples, that this prospectus is current,
that we are not insolvent, and that we continue to be listed for trading on the
Over-the-Counter Bulletin Board). Subject only to meeting the standard closing
conditions, Dutchess Fund and DRH must purchase the stock. We will receive net
sale proceeds (see below) not later than the thirteenth trading day after the
date of our put notice.
The issuance of shares of common stock to Dutchess Fund and DRH under the
Investment Agreement will be exempt from registration with the Securities and
Exchange Commission under section 5 of the 1933 Act, pursuant to section 4(2) of
the 1933 Act; the resale of such shares by Dutchess Fund and DRH is registered
with the Securities and Exchange Commission under section 5 by this registration
statement. We have agreed not to file any other registration statements for the
public sale of our securities for 90 days from the effective date of this
registration statement, with certain limited exceptions. We have also agreed to
use our best efforts to have our officers, directors and any other persons
affiliated with the company refrain from selling shares during each 10 trading
day pricing period.
The Investment Agreement contains mutual indemnities against loss, costs
and expenses arising out of misrepresentations, breach of warranties and
covenants, or other actions or inactions by us or by Dutchess Fund and DRH.
Insofar as such indemnification might be sought for loss, costs and expenses
arising from violations of the 1933 Act, we have been informed that in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the 1933 Act and therefore is not
enforceable.
Pursuant to the Investment Agreement, each time we sell stock to Dutchess
Fund and DRH, we will pay May Davis Group, Inc. ("May Davis"), a securities
broker-dealer and member of the National Association of Securities Dealers, Inc.
cash in the amount of 3.5% of the funds purchased in each transaction by
Dutchess Fund and DRH. See "Selling Shareholders" below. An additional 3.5% of
the funds purchased in each such transaction will be paid to Dutchess Advisors,
see "- Compensation" below.
REGISTRATION RIGHTS AGREEMENT. We have agreed to file with the Securities
and Exchange Commission, see to effectiveness with that agency, and keep current
the registration statement (of which this prospectus is part) for resale of the
shares sold to Dutchess Fund and DRH under the Investment Agreement, for so long
as Dutchess Fund or DRH hold any shares so purchased. The number of shares
available under the initial registration statement is insufficient to cover all
the stock which may be issued to Dutchess Fund and DRH at current market prices
and volumes. Therefore, we will use our best efforts to have our shareholders
approve an increase in authorized common stock and cause an amendment or new
registration statement containing additional shares (an additional 16,000,000
shares) to be filed with the Commission and declared effective by it.
Our agreements as to registration rights are only with Dutchess Fund and
DRH, and Dutchess Advisors and the attorney for Dutchess Fund and DRH.
9
COMPENSATION. We will sell shares to Dutchess Fund and DRH at a 7% discount
from the market price (see above). We will pay Dutchess Advisors, Ltd., an
affiliate and advisor of Dutchess Fund, an amount of cash equal to 3.5% of the
dollar amount of shares we sell to Dutchess Fund and DRH, when each put is
closed (see above). In addition, we have issued 227,272 shares of common stock
to Dutchess Advisors, Ltd. (for its advisory services to Dutchess), and have
issued an additional 75,757 shares to Dutchess Fund, as fees to induce Dutchess
Fund to enter into the Investment Agreement. We will pay May Davis Group, Inc.
an amount of cash equal to 3.5% of the dollar amount of shares we sell to
Dutchess Fund and DRH when each put is closed (see above). We also issued
303,030 shares to May Davis Group, Inc., a securities broker-dealer firm, as a
placement fee for the execution of the Investment Agreement.
All of the foregoing shares were issued based on the value (agreed to by
the company and the parties pursuant to the Investment Agreement) of such fees
in the amounts of $50,000 by Dutchess Fund, $200,000 by May Davis Group, Inc.,
and $150,000 by Dutchess Advisors (total $400,000), divided by the $0.66 closing
bid price of the company's stock when the Investment Agreement was signed
(October 4, 2001).
An additional 37,000 shares were issued to Joseph B. LaRocco, for services
valued at $12,500 ($0.33 per share) provided by him as attorney for Dutchess
Fund and DRH in connection with the Investment Agreement.
All of these shares (606,059 total) were issued as restricted securities
under section 4(2) of the 1933 Act, and are registered for resale by this
prospectus and the registration statement of which this prospectus is a part.
PUBLIC RELATIONS AGREEMENT. As of September 15, 2001 the company signed an
agreement with National Financial Communications Corp. ("NFC"), based in
Needham, Massachusetts, for NFC to provide public relations and communications
services to the company for a period of 12 months. NFC's objective is to
increase awareness of the company among potential investors through traditional
mail channels and media interviews with officers of the company. The cost of
NFC's services is $5,000 per month if paid in cash ($6,000 per month if paid in
stock), plus reimbursement of third party expenses. The term of the agreement is
12 months, but can be terminated by either party on 10 days notice after
December 15, 2001. The agreement is automatically extended for three months if
not terminated by the company prior to end of the 12 month term.
We have paid the first month's service with NFC with $5,000 cash, and have
issued 200,000 shares of stock for services over the balance of the agreement
term. The stock was valued at $0.875 per share (the average of bid and ask
prices as of October 19, 2001). These shares were issued as restricted
securities under section 4(2) of the 1933 Act, and are registered for resale by
this prospectus and the registration statement of which this prospectus is a
part. Profits (if any) realized by NFC from sales of the stock each month in
excess of the monthly base service fee plus reimbursable expenses will be
credited to the company's account for the following month. These shares are to
pay for NFC services and expenses; if proceeds from sale of a portion of these
shares exceeds the agreement's base fees plus expenses, the remaining shares are
to be returned to the company and cancelled.
Also, we have issued options to NFC to purchase 200,000 shares of common
stock at an exercise price of $1.00 per share. The options now are exercisable
and expire September 15, 2004. One-half of the profits realized by NFC from
selling shares purchase on option exercise will be credited to the company's
monthly account to the extent needed to pay base service fees and expenses, and
additional options will be issued to NFC with an exercise price equal to our
then current market price.
10
Issuance by the company of shares of common stock upon exercise of the
options by NFC, and resale of the shares so purchased, both are covered by this
prospectus and the registration statement of which this prospectus is a part.
RISK FACTORS
An investment in our common stock is speculative in nature and involves a
high degree of risk. You should carefully consider the following risks and the
other information in this prospectus before investing.
RISK FACTORS INVOLVING THE COMPANY
WE ARE A MINING COMPANY IN THE EXPLORATION STATE, HAVE NO RESERVES, HAVE
NEVER MADE A PROFIT, AND MAY NEVER BECOME PROFITABLE. For the six months ended
June 30, 2001, the company recorded a net loss of $331,100 from continuing
operations, and had an accumulated stockholders' deficit of $2,968,500 at that
date. The company is a mining company in the exploration stage. If we can raise
the capital to build a production plant, we will build it and start production
without knowing if our properties contain ore reserves (known economic deposits
of mineralized resources) to justify the expenditures. We have not had conducted
(and do not intend to have conducted) any independent study to determine if the
production plant will make money. We will not drill, sample and systematically
test the Pisgah property to delineate ore reserves.
WE ARE SUBJECT TO CERTAIN KINDS OF RISK WHICH ARE UNIQUE TO THE MINERALS
BUSINESS. The exploration for and production of minerals is highly speculative
and involves risks different from and in some instances greater than risks
encountered by companies in other industries. Many exploration programs do not
result in the discovery of mineralization and any mineralization discovered may
not be of sufficient quantity or quality. Also, the mere discovery of promising
mineralization may not warrant mining, because the minerals may be difficult or
impossible to extract (process) on a profitable basis.
Profitability of any mining and processing we may conduct will involve a
number of factors, including, but not limited to: the ability to obtain all
required permits; costs of bringing the property into production, including the
construction of adequate production facilities; the availability and costs of
financing; keeping ongoing costs of production at economic levels; and market
prices for the metals to be produced above costs of production. We can't assure
you that any of our properties, or properties we might acquire in the future,
contain (or will contain) commercially minable mineral deposits that will be
profitable to operate.
WE MAY ENCOUNTER DIFFICULTY IN OBTAINING FUTURE OPERATING PERMITS.
Presently, we believe no permits (other than routine building permits) are
required to build and operate a precious metals production plant on our land in
Nye County, Nevada. However, it is possible that regulatory agencies may require
construction of expensive features (such as containment ponds and other
emergency facilities) and installation of costly equipment (air scrubbers to
trap chemical fumes). We might not have the necessary funds to comply; if we
were able to comply, costs might increase and reduce or eliminate expected
profit margins.
IF WE LOST THE SERVICE OF OUR PRESIDENT, THE COMPANY WOULD SUFFER. Ronald
Sloan is the only full time officer of the company. He has business experience,
but he has no experience in running an operating mining company. The company has
relied and will continue to rely on consultants with mining and processing
experience. We don't have an employment agreement with Mr. Sloan (he serves at
the will of the board of directors). If we lost his services, our business
prospects would be impaired.
WE MAY NOT BE SUCCESSFUL IN RAISING THE CAPITAL NECESSARY TO BUILD AND
OPERATE THE COMMERCIAL SCALE PRODUCTION PLANT. We will need approximately
$1,000,000 to design, build and start operating a large commercial scale
production plant (processing 104 tons of volcanic cinder material per day)
planned for late
11
2002, provided operations at the very small scale plant justify the larger
facility. More than $1,000,000 could be needed for the larger plant to modify
its design or install more equipment to improve yield. The net proceeds from
selling stock to DRH and Dutchess Fund will be used in part for the larger plant
design and construction process, but we may sell enough stock to fund complete
construction. We have no alternative arrangements in place to raise the funds we
will need if we don't sell enough stock to Dutchess Fund and DRH under the
Investment Agreement. See the risk factor below concerning the Investment
Agreement.
TERMS OF SUBSEQUENT FINANCINGS MAY ADVERSELY IMPACT YOUR INVESTMENT. If we
can't raise enough capital to execute our business strategy (build the small
scale and commercial scale production plants) from the Investment Agreement, or
if we do have the funds to build the larger plant but decide to modify or
enlarge it, we may have to raise equity, debt or preferred stock financing in
the future. Your rights and the value of your investment in the common stock
could be reduced. For example, if we have to issue secured debt securities, the
holders of the debt would have a claim to our assets that would be prior to the
rights of stockholders until the debt is paid. Interest on these debt securities
would increase costs and negatively impact operating results. Preferred stock
could be issued in series from time to time with such designations, rights,
preferences, and limitations as needed to raise capital. The terms of preferred
stock could be more advantageous to those investors than you as holders of
common stock. In addition, if we need to raise more equity capital from sale of
common stock, institutional or other investors may negotiate terms at least and
possibly more favorable than the terms of this offering.
RISK FACTORS INVOLVING THIS OFFERING.
SELLING STOCK TO DUTCHESS FUND AND DRH MAY SUBSTANTIALLY DILUTE THE
INTERESTS OF THE OTHER STOCKHOLDERS. Under the Investment Agreement, we will be
selling shares of common stock to Dutchess Fund and DRH at prices which are 93%
of the bid price in the market. The exercise of our put rights under the
Investment Agreement therefore may result in substantial dilution to the
interests of the other holders of our common stock.
SELLING STOCK TO DUTCHESS FUND AND DRH COULD REDUCE OUR MARKET PRICE AND
ENCOURAGE SHORT SALES. If and to the extent Dutchess Fund and DRH resell shares
of our common stock bought under the Investment Agreement, our stock market
price may decrease due to the additional shares coming into the market. If the
price of our common stock decreases, and if we decide to sell more shares to
Dutchess Fund and DRH, we would be issuing more shares for any given amount
invested by such parties. This could encourage short sales, which would place
further downward pressure on the market price.
MARKET OVERHANG. Approximately 4,100,000 shares of the total 10,056,738
shares issued and outstanding are restricted under rule 144 under the 1933 Act
from immediate resale to the public stock market. This number does not include
the outstanding shares registered for resale with this prospectus. Rule 144
provides, in essence, that a person holding "restricted securities" for a period
of one year may sell only an amount every three months equal to the greater of
(a) 1% of a company's issued and outstanding shares, or (b) the average weekly
volume of sales during the four calendar weeks preceding the sale. The amount of
"restricted securities" which a person who is not our affiliate sells is not so
limited, since non-affiliates may sell without volume limitation their shares
held for two years if there is adequate current public information available
concerning us. In that event, "restricted securities" would be eligible for sale
to the public at an earlier date. As restrictions on resale end, the market
price of our common stock could drop significantly if the holders of these
restricted shares sell them or are perceived by the market as intending to sell
them.
In addition, this prospectus covers the resale of 606,059 shares of common
stock issued to Dutchess Fund, May Davis Group, Inc., Dutchess Advisors, Ltd.
and Joseph B. LaRocco, 200,000 shares of common
12
stock issued to NFC, and 200,000 shares of common stock which may be purchased
by NFC upon exercise of options held by NFC. Sale of such shares could further
adversely impact our market price.
WE MAY NOT BE ABLE TO RAISE ENOUGH CAPITAL FROM THE INVESTMENT AGREEMENT TO
MEET OUR LIQUIDITY NEEDS. The future market price and volume of trading of our
common stock limits the rate at which we can obtain funding from Dutchess Fund
and DRH under the Investment Agreement. Further, we might be unable to satisfy
the conditions in that agreement which would result in our inability to sell
stock on a timely basis, or at all. If the price of our common stock and/or
trading volume do not increase significantly from recent levels, we will be
unable to obtain sufficient funds to meet our liquidity needs. During the three
months ended July 31, 2001 a total of 481,655 shares were traded, of which
221,560 were traded in June 2001. These volumes and prices (then approximately
$1.00 or less bid price) would have to increase significantly in future months
to entitle us to require Dutchess Fund and DRH to buy enough shares to result in
the amounts of capital the company will need to build a production plant.
PERSONS AND ENTITIES MAY SELL STOCK COVERED BY THIS PROSPECTUS AT ANY TIME,
WHICH COULD HAVE AN ADVERSE EFFECT ON THE MARKET PRICE. Such sales will not be
limited by rule 144. Therefore, even if the market price and volume increases,
subsequent sales by such persons and entities could result in a decreasing price
for our common stock. See "Plan of Distribution".
WE HAVE NOT PAID DIVIDENDS AND DO NOT INTEND TO PAY DIVIDENDS IN THE
FORESEEABLE FUTURE. A purchaser of our stock from sales covered by this
prospectus, or from the open market, will only realize a gain on investment from
appreciation, if any, in the market price for our stock.
BECAUSE THE COMPANY'S COMMON SHARES ARE "PENNY STOCK" CERTAIN RULES MAY
IMPEDE THE DEVELOPMENT OF INCREASED TRADING ACTIVITY AND COULD AFFECT THE
LIQUIDITY FOR STOCKHOLDERS. Penny stocks generally are equity securities with a
price of less than $5.00 per share other than securities registered on certain
national securities exchanges or quoted on the Nasdaq stock market, provided
that current price and volume information with respect to transactions in such
securities is provided by the exchange or system. Our securities now are subject
to the "penny stock rules" that impose additional sales practice requirements on
broker-dealers who sell penny stock securities to persons other than established
customers and accredited investors (generally those with assets in excess of
$1,000,000 or annual income exceeding $200,000 or $300,000 together with their
spouse). For transactions covered by these rules, the broker-dealer must make a
special suitability determination for the purchase of penny stock securities and
have received the purchaser's written consent to the transaction prior to the
purchase. Additionally, for any transaction involving a penny stock, unless
exempt, the "penny stock rules" require the delivery, prior to the transaction,
of a disclosure schedule relating to the penny stock market. The broker-dealer
also must disclose the commissions payable to both the broker-dealer and the
registered representative and current quotations for the securities. Finally,
monthly statements must be sent disclosing recent price information on the
limited market in penny stocks. These rules may restrict the ability of
broker-dealers to sell our securities and may have the effect of reducing the
level of trading activity of our common stock in the secondary market. The
foregoing rules will not apply to our securities if our securities maintain a
market price of $5.00 or greater. The price of our securities may not reach or
maintain that level.
MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The stock is traded on the Nasdaq Over-the-Counter Bulletin Board ("CCRE").
The following shows in United States dollars the high and low bid quotation
for the shares for the last two years and the first two quarters of 2001.
Quotations reflect inter-dealer prices, without retail mark-up, mark-down, or
commissions, and do not necessarily represent actual transactions.
13
1999 Low High
---- --- ----
First Quarter $0.375 $0.812
Second Quarter $0.406 $1.875
Third Quarter $0.75 $4.125
Fourth Quarter $0.906 $1.75
2000
First Quarter $0.875 $5.00
Second Quarter $2.125 $5.125
Third Quarter $1.50 $3.312
Fourth Quarter $1.031 $2.75
2001
First Quarter $1.218 $1.75
Second Quarter $1.156 $1.813
Third Quarter $0.77 $1.563
The company has approximately 220 shareholders of record. The stock
transfer agent is Pacific Stock Transfer Company, 5844 South Pecos Road, Suite
G, Las Vegas, Nevada 80120.
The company has never paid any dividends. There are no legal restrictions
which limit our ability to pay dividends. Based on the present financial
situation, it is unlikely we will pay dividends in the near future.
USE OF PROCEEDS
We may receive up to $8,000,000 from selling shares to Dutchess Fund and
DRH under the Investment Agreement; we will not receive any proceeds from their
sales of the shares purchased. We intend to use initial proceeds for working
capital and other general corporate purposes, and to build a small scale
production plant to process volcanic cinder material from our Pisgah, California
property. Plans and budget have not been prepared for the small scale production
plant, but we estimate total startup production costs to be from $50,000 to
$75,000 (capital costs of $35,000 to $45,000 to set up a small scale plant with
3 tons per day processing capacity, and operate the plant for six months without
revenues from production ). General and administrative expense and debt service
will be from $80,000 to $108,000 for the approximately 12 months after date of
this prospectus (to November 30, 2002). Debt service includes only the cash we
will have to pay to the two lenders who hold security interests in the Pisgah
property, and assumes the second lender exercises an option granted when we were
late on an interest payment in 2001.
Plans and budget have not been prepared for a larger commercial-scale
production facility to process 104 tons of material per day, however, it is
estimated that engineering, capital and startup costs would be in the range of
$1,000,000.
Presently we are building very small production facility to process
material in 100 pound batches. If production results from this facility are
promising, we may move directly to the larger commercial-scale production
facility, without building a small scale (3 tons per day) plant.
14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following should be read together with the financial statements
included in this prospectus.
We hold interests in four mineral properties in the southwestern United
States. None of these properties has any proven or probable reserves and none of
these properties is in production. All expenditures on all properties are
expensed, not capitalized.
LIQUIDITY AND CAPITAL RESOURCES AT DECEMBER 31, 2000 COMPARED WITH DECEMBER 31,
1999, AND RESULTS OF OPERATIONS FOR THE TWO YEARS ENDED DECEMBER 31, 2000.
Year ended December 31
------------------------------
2000 1999
----------- ----------
Sales $ 67,500 $ 3,700
Costs of goods sold --- ---
Gross Profit $ 67,500 $ 3,700
Net income (loss) $ (917,500) $ (322,100)
The only income during 2000 was the $22,500 minimum annual royalty received
from the Twin Mountain Rock Venture. It received the same royalty payment during
1998 and 1999. All these payments were recognized as income received during 2000
(see Note 11 to the audited financial statements.) The company has assigned
those royalty payments to lenders who are paid directly by Twin Mountain.
The following table summarizes working capital and total assets.
Year ended December 31
-------------------------------
2000 1999
----------- -----------
Working capital $ 487,600 $ 65,700
Total Assets $ 1,324,100 $ 888,500
We sustained a loss from continuing operations of $917,500 for 2000
compared to a loss from continuing operations of $612,800 for 1999. The increase
in the loss was substantially accounted for by the following items: an increase
in mine exploration costs to $534,700 for 2000 from $152,200 in 1999; the
issuance of 200,000 shares of common stock valued at $1.50 per share resulting
in a $300,000 charge to mine exploration costs; an increase in consulting,
processing, testing, extracting and assaying expenditures to approximately
$225,000 in 2000 from approximately $125,700 in 1999; accounting and legal
expenses increased from $45,600 to $59,300 largely as a result of being a
reporting company and attempting to collect for judgment; travel and
entertainment expenses, including automobile expenses and business travel,
increased from $29,100 to $65,300 as a result of increased travel, the lease of
an additional vehicle, more people traveling and an increase in overall
activities; and insurance expenses increased from $18,300 to $54,800 as a result
of increased insurance coverage. Office rent increased from $16,000 to $33,900
because we leased a residence in Las Vegas which now serves as the principal
office and provides accommodations for visiting
15
officers and directors other persons with whom we transact business. The company
continues to rent its prior office. Office expense increased to $41,600 from
$9,500 as a result of increased activity.
Unless we can establish the economic viability of the mining properties, we
will continuing writing off its expenses of exploration and testing of its
properties. Therefore, losses will continue unless we locate and delineate
reserves. If that occurs, we may capitalize certain of those expenses.
During 2000 the company sold 919,009 shares of its common stock for cash
proceeds of approxi- mately $649,000 to obtain financing for continued
operations. We also borrowed $300,000 from a corporate lender at 16% interest,
secured by a second mortgage on its Pisgah Volcanic Cinders Property. In
addition Ronald D. Sloan, the president, loaned the company $99,900 on an
unsecured basis.
We have no material commitments for capital expenditures.
LIQUIDITY AND CAPITAL RESOURCES AT JUNE 30, 2001 AND RESULTS OF OPERATIONS FOR
THE THREE MONTHS ENDED JUNE 30, 2001 COMPARED TO THE THREE MONTHS ENDED JUNE 30,
2000
As of June 30, 2001, working capital was $154,600, compared to $308,900 at
March 31, 2001. During the quarter ended June 30, 2001, we did not make an
interest payment of $24,000 to the lender which loaned us $300,000 in November,
2000, and which holds a second deed of trust on its Pisgah Property. We also did
not make the final principal payment of $10,000 due on July 31, 2001 to a
different lender which holds the first deed of trust on the Pisgah property.
Subsequent to June 30, 2001 arrangements were made with the two lenders to avoid
default. See "Business - Properties - Pisgah Property" above.
We had no operating income or cash flow from mineral operations for the
three months ended June 30, 2001 other than the sale of a small amount of gold
produced and sold for $137 from lab tests and royalty revenue of $22,500 which
was pledged and paid direct to the lender holding the first deed of trust. There
was no revenue during the three months ended June 30, 2000. The company
sustained a loss from operations of $134,100 for the three month period ended
June 30, 2001, compared to a loss of $148,100 for the three period ended June
30, 2000. The decreased loss reflect an increase of approximately $8,000 in
operating expenses as a result of the expanded testing program, as well as
royalty revenue of $22,500, which was paid directly to the lender holding the
first deed of trust.
During the three month period ended June 30, 2001, mine exploration costs
decreased to $21,100 from $50,900 for the three month period ended June 30, 2000
and consulting costs increased from $14,800 to $57,100. The decrease in mine
exploration and the increase in consulting costs is accounted for by the focus
on an accelerated testing program on the volcanic cinders, compensation paid to
an officer, consulting fees, and assay expenses associated with the testing
program. Travel and entertainment costs decreased to $18,100 from $18,800.
Office expense increased from $10,500 to $12,400 as a result of increased
activity. Insurance costs decreased from $14,500 to $12,400. Accounting and
legal expenses decreased to $5,000 from $6,100. Advertising and promotion
decreased from $6,200 to $2,100 and lease expense (equipment rental) decreased
from $6,700 to $2,800.
The company has no material commitments for capital expenditures.
As a result of the expanded and accelerated program for testing its
volcanic cinders material during the quarter ended June 30, 2001, and continuing
thereafter, the company has expended its funds faster than anticipated. The high
level of testing will continue so long as warranted, we may build a production
facility on a small scale to produce precious metals from its volcanic cinders
material. Additional funds will be
16
required for these purposes and pay for general and administrative overhead. In
August, 2001 the company sold 30,000 shares of its common stock (restricted
under Rule 144) to a citizen and resident of Canada for $.75 per share for
proceeds of $22,500. In October 2001 the company sold another 52,888 restricted
shares of common stock for $38,416 (prices were from $0.50 to $1.50 per share,
depending on market price).
PLAN OF OPERATIONS
Over the 12 months ending November 30, 2002, the company expects to depend
on sales of stock to Dutchess Fund and DRH to pay general and administrative
expenses, property holding costs, and construction of a very small scale
production plant for processing material from the Pisgah, California property.
The total funds required will be from $130,000 to $183,000 for this period of
time. If additional funds are available within this period of 12 months, in the
amount of approximately $400,000 (out of total stock sale proceeds of $530,000
to $583,000), we will start the process of designing and building a larger
commercial scale production plant (total budget would be approximately
$1,000,000 for this objective). Total number of employees and consultants would
increase to approximately eight when the small scale plant is operational, and
up to 25 when the larger scale plant is running.
Presently and before sale of any stock to Dutchess Fund and DRH, we have
less than $70,000 cash available to sustain operations. If and when proceeds are
realized from sale of stock to Dutchess Fund and DRH, equipment purchases are
anticipated, first for the small scale production plan, and thereafter for the
larger scale production plant.
We have discussed possible funding alternatives with other mining companies
but have no plans in place to fund the company if sufficient shares cannot be
sold to Dutchess Fund and DRH to execute the 12 month business plan.
BUSINESS
CORPORATE BACKGROUND. Can-Cal Resources, Ltd. is a Nevada corporation
incorporated on March 22, 1995 under the name of British Pubs USA, Inc. as a
wholly owned subsidiary of 305856 B.C., Ltd. dba N.W. Electric Carriage Company
("NWE"), a British Columbia, Canada company ("NWE"). On April 12, 1995, NWE
exchanged shares of British Pubs USA, Inc. for shares of NWE held by its
existing shareholders, on a share for share basis. NWE changed its name to
Can-Cal Resources, Ltd. on July 2, 1996.
BUSINESS ACTIVITIES. The company is a mining company in the exploration
stage. Since 1996, we have examined various mineral properties prospective for
precious metals and minerals and acquired those deemed promising. We own, lease
or have an interest in four mineral properties in the southwestern United States
(Nevada, California and Arizona). All these properties are "grass roots" because
they are not known to contain any proven reserves of precious metals or
minerals. None of these properties have any proven or probable reserves and none
of these properties is in production, although we did sell a small amount of
gold we extracted in our analysis program on material taken from the Pisgah
property in the second quarter of 2001. We also sold 16.8 ounces of gold we
produced from minerals which had been partially processed which we bought from a
third party (the minerals did not originate from our properties).
We have performed more than 1000 "in-house" assays on mineral samples from
our properties. An assay is a test performed on a sample of minerals to
determine the quantity of one or more elements contained in the sample. The
in-house work has been conducted with our equipment by persons with whom we have
contracted, who are experienced in performing assays, but are not independent of
us. From time to time, we also send samples of materials from which we have
obtained the most promising results to outside independent assayers to confirm
in-house results.
17
We have done an extensive amount of preliminary testing and assaying on the
Owl Canyon property in Arizona, in which we hold a 50% ownership interest in
through the S&S Joint Venture. Results indicate the presence of precious metals
in material located on the Owl Canyon property; presently we have suspended
testing there to evaluate the Pisgah property.
During 2000 and continuing to date, we have focused efforts on the
"volcanic cinders" property located on patented mining claims we own at Pisgah,
California. We have run an analysis program to determine if the material
contains precious metals and whether a production plant to process this material
would be commercially viable. Our analysis program indicates the existence of
precious metals in material taken from the Pisgah property. We intend to build a
production plant on a small scale to begin processing the volcanic cinder
material (3 tons per day) from the Pisgah property; the plant would be located
in Nye County, Nevada. Substantial amounts of additional testing and drilling
would be necessary to determine whether the Pisgah property contains sufficient
amounts of precious metals to constitute "reserves," and whether any such
reserves are capable of economic production. We have elected to begin production
without the benefit of a feasibility or "reserves" study. See "Risk Factors." If
funds are available, a larger plant (104 tons per day) would be built in the
third and fourth quarters of 2002.
Presently we are building very small production facility to process
material in 100 pound batches. If production results from this facility are
promising, we may move directly to the larger commercial-scale production
facility (104 tons per day), without building a small scale (3 tons per day)
plant.
Further geologic and exploration work at the Cerbat and Limestone
properties has not been initiated and the company does not intend to conduct
further exploration on those properties in the near future, however, the company
intends to keep these properties.
PROPERTIES
We own or have interests in four properties, one which is owned (patented
mining claims on the volcanic cinders property at Pisgah, California), one which
is leased with an option to purchase (the Cerbat property in Mohave County,
Arizona), and two properties which are unpatented mining claims leased from the
United States Bureau of Land Management, the "BLM" (the Owl Canyon property,
southwest of Lucerne Valley, Arizona and the Limestone property in Arizona).
Unpatented claims are located upon federal public land pursuant to
procedure established by the General Mining Law. Each placer claim covers 160
acres; a placer claim covers the placer material located inside the surface
boundaries of the placer claim and on or beneath the surface within the
boundaries. Each lode claim covers 20 acres; a lode claim covers the minerals
located inside the lode mining claim boundaries and on or beneath the surface
within the boundaries and also the extensions of veins of minerals which extend
down and outside the lode claim boundaries. The company is obligated to pay a
holding fee or spend $100.00 in work per claim each year in order to maintain
the claims. Requirements for the location of a valid mining claim on public land
depend on the type of claim being staked, but generally include posting thereon
of a location notice, marking the boundaries of the claim with monuments, and
filing a certificate of location with the county in which the claim is located
and with the BLM. If the statutes and regulations for the location of a mining
claim are complied with, the locator obtains a valid possessory right to the
contained minerals. To preserve an otherwise valid claim, a claimant must also
annually pay certain rental fees to the federal government (currently $100 per
claim) and make certain additional filings with the county and the BLM. Failure
to pay such fees or make the required filings may render the mining claim void
or voidable. Because mining claims are self-initiated and self-maintained, they
possess some unique vulnerabilities not associated with other types of property
interests. It is impossible to ascertain the validity of unpatented mining
claims solely from public real estate records and it can be difficult or
impossible to confirm that all of the requisite
18
steps have been followed for location and maintenance of a claim. If the
validity of an unpatented mining claim is challenged by the government, the
claimant has the burden of proving the present economic feasibility of mining
minerals located thereon. Thus, it is conceivable that during times of falling
metal prices, claims which were valid when located could become invalid if
challenged. Disputes can also arise with adjoining property owners for
encroachment.
PISGAH, CALIFORNIA PROPERTY.
GENERAL, TESTING. In 1997 we acquired fee title to a "volcanic cinders"
property at Pisgah, San Bernardino County, California. The cinders material
resulted from a geologically recent volcanic eruption (see geology discussion
below).
The property is comprised of approximately 120 acres, with a very large
hill of volcanic cinders, accessible by road from Interstate 40. An independent
survey service hired by the company reported that there are approximately
13,500,000 tons of volcanic cinders above the surface. The company has not
verified any tonnage existing below the surface. Approximately 3,500,000 tons of
the cinders have been screened and stockpiled, the result of prior operations by
Burlington Northern Railroad Co. which processed the cinders from the hill for
railroad track ballast, taking all cinders above about one inch diameter and
leaving the rest on the ground surface within one-quarter mile of the hill. The
remaining material in the hill, and the material left over from Burlington's
operations, can easily be removed by front loaders and loaded into dump trucks
for hauling.
The company owns equipment which was acquired with the property, and is
located on the property: a ball mill for crushing cinders, truck loading pads,
two buildings, large storage tanks, conveyors to load trucks, ore silos and
screening equipment.
We have run an analysis program on the stockpiled material for gold,
silver, and platinum group metals using generally accepted assaying procedures.
Samples were removed from 5 separate zones on the surface (down to approximately
3 feet) of the stockpiled cinder hill and subjected to in-house testing and
assay using several standard metallurgical procedures. Beginning in early 2001,
we have been testing the material by "oxy-leach," which requires dissolving the
material in different mixes of standard industrial chemicals, then filtering the
liquids into powder residue and performing assay tests on the residue. Results
have varied, but the most promising results used longer leach times. The results
indicate the presence of significant amounts of precious metals (gold, platinum
group metals) in the samples tested. Sample size in each of the tests summarized
below has consisted of one liter volumes of liquid material, out of 25 liters
derived from separate 25 pound and/or 3 liters from separate one pound batches
of raw (head ore) material. Test results in July and August, 2001 were confirmed
by independent assayers.
We have contracted detailed mineralogical study of precious metal-bearing
minerals and their associations in the volcanic cinders. These studies,
conducted at the Universite Libre de Bruxelles and the Colorado School of Mines,
used microscopical methods to document and identify and confirm the presence of
minerals and native metal grains and alloys of gold, silver, platinum and
palladium in the material. The studies confirmed the existence of precious metal
minerals in the material, and helped us modify extraction methods which we will
be implementing in the production plants to be constructed in the future (see
"Use of Proceeds").
We have conducted or had others conduct extractive processes to determine
how best to process the cinder material.
19
(a) Smelting of varying weights of "head ore" material at various
temperatures in a variety of furnace-types using a variety of
different materials melted with the head ore material (the other
materials help collect and concentrate the precious metal).
(b) Various acid digestion precious metal extractions of "head ore"
material. Filtration of resultant "pregnant" precious metal bearing
solutions with subsequent "dropping" of contained precious metals from
these solutions using methods such as solvent extraction,
electrowinning and wet chemical methods.
(c) Various precious metal chemical-leaching extractions of "head ore"
material. Filtration of the resultant "pregnant" precious
metal-bearing solutions with subsequent "dropping" of the contained
precious metals. Currently, this approach is yielding the best
results, see below.
The precious metal-bearing products yielded by the processes were
subsequently sent to refineries and to certified analytical laboratories for
testing to determine the precious metal content. Extractive testing results
obtained to date from the independent laboratories show that we have "in-house"
repeatedly extracted precious metals including gold, silver and PGMs (platinum
group metals, here referring to platinum and palladium) using "laboratory
bench-top" sample weights of the material.
Results of tests using chemical-leaching extraction in July and August 2001
follow. The results do not represent uniform content or grade of metals
contained mineralized material located on the Pisgah property, and are
insufficient to establish any kind of ore reserves or commercially minable
deposits. Tests have been run only on stockpiled material; no tests have been
run on material located in the original hill deposit. The "metal percentage"
column shows the percentage (out of the total "weight of metal recovered") of
precious metals identified in the recovery. For example, the first test yielded
10.6 mg of metal (4.7% of the sample weight), containing 0.8798 mg of gold (8.3%
of total metal recovered).
All samples from a composite of material kept at the laboratory; the
composite had been removed from five different locations on the surface (down to
about five feet) of the stockpiled material. The material (head ore) was not
processed, concentrated or otherwise treated prior to testing.
SAMPLE WEITHT OF PRECIOUS
TEST SAMPLE WEIGHT METAL METALS METAL
DATE NUMBER OF HEAD ORE RECOVERED CONTENT PERCENTAGE
7.18.2001 9007 227g 10.6mg Gold 8.3%
PGM'S 5.89%
7.20.2001 9008 227g 15.5mg Gold 6.9%
PGM'S 17.0%
7.23.2001 9015 227g 35.8mg Gold 31.0%
PGM'S 23.33%
8.01.2001 9024 454g 22.3mg Gold 5.8%
PGM'S 21.15%
8.01.2001 9025 454g 14.5mg Gold 11.0%
PGM'S 16.13%
8.01.2001 9026 454g 16.4mg Gold 6.5%
PGM'S 32.2%
On October 9, 2001, market prices for gold, platinum and palladium were
approximately $290.00, $427.00 and $339.00. Platinum and palladium were the
predominant platinum group metals recovered in the tests.
20
A production plant would incorporate closed circuits to first, leach the
material (dissolve out metals with industrial chemicals) to yield a pregnant
solution (in which the metals and other materials are suspended); second, add
precipitating chemicals to cause the metals to separate out from the pregnant
solution; then third, run the pregnant solution through a separate circuit and
there add solvents to extract each specific metal; and fourth, run each batch of
pregnant solution with its own solvent through a last circuit to separate the
metal from its solvent.
Cinder material for processing will be hauled from Pisgah, California to
Nye County (approximately five hour drive) by a contract trucking company.
PISGAH PROPERTY MINING LEASE. To generate working capital, as of May 1,
1998 we signed a Mining Lease Agreement for the Pisgah property with Twin
Mountain Rock Venture, a California general partnership ("Twin Mountain," an
indirect subsidiary of Peter Kiewit & Sons, Inc., Omaha, Nebraska). The
Agreement is for an initial term of 10 years, with an option to renew for an
additional ten year term. Twin Mountain has the right to take 600,000 tons of
volcanic cinders during the initial term, and 600,000 more tons during the
additional term, which Twin Mountain will process and sell primarily as
decorative rock. The material will be removed from the original cinder deposit,
not the stockpiled material.
The agreement provides Twin Mountain will pay minimum annual royalty
payments of $22,500 for the initial term and $27,500 per year for the additional
term. Twin Mountain is also obligated to pay us a monthly production royalty for
all material removed from the premises: The greater of 5% of gross sales f.o.b.
Pisgah, or $.80 per ton for material used for block material; plus 10% of gross
sales f.o.b. Pisgah for all other material. Against these payments, Twin
Mountain will be credited for minimum royalty payments previously made.
Twin Mountain is current in payments, which are pledged to service company
debt (see below). Twin Mountain has not yet removed any material from the
property and has indicated that it is unlikely it will do so until about 2003.
Twin Mountain does not have the right to remove or extract any precious metals
from the property; it does have the right to remove cinder material which could
contain precious metals, but it cannot process the materials for precious metals
either on or off site.
Mining and reclamation permits, and an air quality permit have been issued
by the California regulatory agencies in the names of both Twin Mountain and the
company (we posted a cash bond in the amount of $1,379 (1% of the total bond
amount) and Twin Mountain has posted the remainder of the bond).
PISGAH PROPERTY - DEBT TRANSACTIONS. In 1998, we borrowed $77,500 from a
private lender. The debt bears annual interest at 8% and is secured by our first
deed of trust on the Pisgah property, plus our rights to payments under the Twin
Mountain lease. The original maturity date has been extended to June 1, 2002,
when the remaining $10,000 principal is due (extended from original maturity
date of July 31, 2001). Principal and interest to date have been paid through
direct payment of Twin Mountain royalty payments to the lender. See
"Management's Discussion and Analysis of Financial Condition and Plan of
Operation."
In 2000, the we borrowed $300,000 from a second private lender. The debt
bears annual interest at 16% (payable semi-annually in May and November), is due
November 23, 2005, and is secured by our second deed of trust and assignment of
rents (second right to payments under the Twin Mountain lease). For additional
consideration, the company granted the lender a five year option to purchase
300,000 restricted shares of common stock, at the lower of $0.65 per share or
50% of the lowest trading price during the month before exercise, payable in
cash. The option was exercised in 2000 at $0.52 per share. As further
consideration, also in 2000 we issued 45,000 restricted shares of common stock
to a corporate affiliate of the lender as a loan placement fee.
21
By subsequent agreement in 2001 with the second lender, the $24,000
interest payment due May 2001 was not paid but will be due when the November
2001 interest payment is due (total interest due will be $48,000). For this
forbearance of interest due, we granted the lender an option through November
19, 2001 to purchase restricted shares in the amount of $24,000 plus 16%
interest to exercise date, divided by 50% of the lowest stock price from
November 23, 2000 through November 19, 2001. If the lender exercises this option
the principal of the note shall be reduced by $24,000, no interest shall be due
on the $24,000, and the amount of the interest payment due November 2001 will be
$24,000.
NYE COUNTY FACILITY. 20 acres of rural land are leased in Nye County,
Nevada, approximately 95 miles north of Las Vegas, including a laboratory
building, two mobile homes, assay furnaces, analytical equipment, leaching
tanks, and extraction equipment. Lease payments are $1,000 per month for the
lease term of 14 months (expires December 31, 2001); the purchase option is not
finalized but is expected to be about $100,000. If purchase is not feasible at
lease end, the lease would be renewed. It is expected that operating permits
will be granted as necessary, as the proposed operation is similar in some
respects to gold recovery plants elsewhere in Nye County. However, permitting
delays could be encountered.
OWL CANYON - S & S JOINT VENTURE
In 1996, the company entered into a Joint Venture Agreement with the
Schwarz family covering approximately 425 acres of unpatented placer and lode
mining claims in the Silurian Hills of California, known as Owl Canyon. An
unpatented placer claim is a claim located under the mining laws of the United
States, under which the locator obtains a possessory right to remove and keep
any contained minerals. The S & S Joint Venture has since increased its holdings
to approximately 1,600 acres of placer claims, of which 740 acres are also
covered by lode claims and five acres by a mill site claim. These claims are
deemed to be prospective for precious metals and some base metals. The property
is located approximately 23 miles northeast of Baker, California, accessible by
23 miles of paved and dirt road. The company and the Schwarz family each have a
50% interest in the venture which is operated by a management committee,
comprised of our president and Ms. Robin Schwarz, a member of the Schwarz family
and also an employee of the company. Pursuant to the Joint Venture Agreement, we
are funding the venture's operations. Any income from the venture will first be
paid to the company to repay funds advanced to the venture or spent on its
account, with any additional income divided 50% to the company and 50% to the
Schwarz family.
As the acquisition price of its 50% interest in the S & S Joint Venture,
the company issued 500,000 restricted shares of common stock to the Schwarz
family. As of December 31, 2000, the company had a total investment of
approximately $1,219,700 in the venture, however, the carrying value of this
investment is $19,000 (see the financial statements).
The venture owns equipment and facilities, all of which is used but
operational: a refurbished 8-level screen classifier to separate various grades
of ores; five concentrate tables to obtain concentrates from the "in- house"
processed ore; a fire assay furnace and a smelting furnace; an impact mill for
crushing rock; a conveyor feeding system, built for quantity, fed by a front end
loader which was purchased in 1998 to move mineralized material from the lode
mining claims; an additional screening system for processing of placer material;
several platforms designed and constructed to access the furnaces and ore
loading areas; two 400 lb. capacity furnaces (out of five total furnaces on the
property); sediment tanks, with two additional 3,000 gallon tanks, run by pumps
for recycling thousands of gallons of water used for concentrating shaker
tables; plumbing and PVC installed underground to move water on and within the
property; air compressors; several drill rigs; and rebuilt engines and new
engines for the milling facility. A new generating power plant has also been
added, and new roads have been constructed throughout the canyon to allow
accessibility to the various deposits. Also, the venture spent approximately
$32,000 to clean up all areas of the property to the BLM's satisfaction.
22
GEOLOGY OF OWL CANYON.
The general geology of the Silurian Hills is well represented within the
Owl Canyon Mineral Property. In general, the property is dominated by an
abundance of Precambrian and Paleozoic rocks.
The Precambrian is comprised of an older and abundant group of foliated
metasedimentary rock and gneiss and generally course-grained to porphyritic
textured, variably colored, granite. The younger Precambrian rocks are marien
clastic sedimentary rocks which may contain fine-grained clastics and carbonate
rocks. This thick Precambrian section is known as the Pahrump Group or series.
Distinctive members of the Pahrump Group have been traced in the 1960s from
unmetamorphosed sedimentary rocks in the west to intensely metamorphosed
equivalents in the east portions of the Silurian Hills. The older Precambrian
gneissic-granite complex is in minor fault contact with the grey colored Pahrump
Group.
At the Owl Canyon Mineral Property the next most abundant group of rocks
are the Paleozoic recrystallized carbonate rocks known locally in the Silurian
Hills as the Riggs Formation. Massive beds of dolomite dominate the Riggs
Formation, which is light buff or grey in color in contrast to the less abundant
blue-grey to white limestone. These Riggs formation interbeds are
unfossiliferous, estimated to be 2,500 feet thick and probably are late
Paleozoic in age.
It has been suggested by earlier geologists that the Riggs fault is a
detachment fault, which separates the Paleozoic Riggs carbonate formation into
upper plate rocks while the lower plate rocks are Precambrian Pahrump Group. The
Riggs fault may be a thrust.
In the Silurian Hills most mineralization is hosted in the Riggs fault
upper plate rocks in a detachment terrain or above the thrust. However,
high-angle faulting in a north-south direction or trend would appear to be of
greater importance as hosts to mineral carrying solutions than the thrust or
detachment of the Riggs fault within the Owl Canyon Mineral Property).
Locally pinkish colored aplitic to porphyritic rock of granite to quartz
monzonite intrudes older and younger Precambrian rocks and the Paleozoic Riggs
rock types. These granite phases may be Cretaceous or Tertiary in age. Within
the Owl Canyon Mineral Property these units are minor and of no importance to
the mineralization distribution.
Suspected Tertiary-aged volcanics of latite composition and volcanic
sandstones and conglomerates are found in the northeast corner of the Silurian
hills. At the Owl Canyon Mineral Property red sandstones and possibly lapilli
tuffs of red to purple coloration are found exposed in washes north of Papa Hill
in OCL #1 claim. Very locally in this area vesicular basalt float and minor
outcrops are also found in place. Because Tertiary to Quaternary sand and gravel
fans and Quaternary terrace gravels and alluvium overlie much of the area, the
distribution and geologic setting of the volcanic tuffs and basalt is unknown.
It may be suggested that extensional tectonics and Tertiary structural
features are related to the geologically active Death Valley and Garlock fault
zones. Earthquakes are common in the region with the latest being the Hector
Mine fault and quake of the summer of 1999. A late Pliocene age has been
assigned for the Riggs thrust. All of these regional and more local secondary
structural features are believed to have influenced the volcanism, heat flow,
and fluid flow responsible for the Silurian Hills rear surface epithermal spring
activity. These features are prominently evident by multi-episodic events of
brecciation and silicification at the Papa Hill discovery outcrop in the
Silurian Hills.
TESTING. We have performed in-house fire assays on material from the Owl
Canyon property. We also have sent both samples and whole rocks taken from the
surface of the property to independent
23
laboratories. Of the most promising surface samples taken, Cone Geochemical,
Inc. reported the following assay results:
Sample ID Location Assay Results
--------- -------- -------------
SQHO Owl Canyon 0.577 oz/ton gold/86 oz/ton silver
SQ Rock 3 Owl Canyon 0.559 oz/ton gold/19.8 oz/ton silver
SQH 0300 Owl Canyon 1.396 oz/ton gold/311 oz/ton silver
SSQ Head Ore Screen Owl Canyon 0.690 oz/ton gold/118 oz/ton silver
In order to determine if those values continued below the surface,
approximately 15 tons of material were removed to a depth of 3 to 4 feet to
expose a continuation of one of the veins. Following that vein structure 8 feet,
a sample was removed from a depth of approximately 3 to 4 feet, and the sample
was again sent for an independent assay. The independent assay on that sample
showed:
8FTSOQ 11-24 Owl Canyon 1.351 oz/ton gold/66.5 oz/ton silver
Four separate samples were fire assayed, showing these results:
SAMPLE OZ/TON GOLD OZ/TON SILVER
W-1 0.257 5.08
W-2 0.002 0.35
W-3 0.009 0.2
W-4 0.274 1.94
Other samples have been independently assayed and showed results similar to
the above.
A detailed structural and geologic mapping survey has been completed on the
property, indicating some zones in certain areas are suitable exploration
targets. Currently, work on this property has been suspended while evaluation
work at Pisgah, California continues.
CERBAT PROPERTY
On March 12, 1998, we signed a Lease and Purchase Option Agreement covering
six patented mining claims in the Cerbat Mountains, Hualapai Mining District,
Mojave County, Arizona. The patented claims cover approximately 120 acres. We
paid $10,000 as the initial lease payment and are obligated to pay $1,500 per
quarter as minimum advance royalties. The company has the option to purchase the
property for $250,000, less payments already made. In the event of production
before purchase, we will pay the lessor a production royalty of 5% of the gross
returns received from the sale or other disposition of metals produced. No work
has been performed on this property since 1999.
The property contains several mine shafts of up to several hundred feet in
length and tailing piles containing thousands of tons of tailings. The property
has not produced since the late 1800's.
24
LIMESTONE PROPERTY
This property consists of 460 acres of lode claims on BLM property ,
prospective for use in cement, located 18 miles southeast of Lucerne Valley,
California, off highway 247. The first 12 miles is paved surface and the next
six miles is excellent dirt road. The deposit is contained in a very large hill,
with the deposit rising from the ground level to several hundred and possibly a
thousand feet up within the hill. There are dirt roads to the top of the
property. The property was previously mined by a cement company which
discontinued operations around 1981. There are other companies currently mining
limestone deposits in the same general area. We have initiated discussions with
companies engaged in the cement business with respect to the possible sale of
the property, but to date no agreement has been reached.
MANAGEMENT
DIRECTORS AND OFFICERS
Officers and directors of the company are listed below. Directors are
elected to hold office until the next annual meeting of shareholders and until
their successors are elected or appointed and qualified. Officers are appointed
by the board of directors until a successor is elected and qualified or until
resignation, removal or death.
NAME AGE POSITION AND TENURE
Ronald D. Sloan 60 President, Treasurer and a Director
since May, 1996
Brian John Wolfe 47 Secretary and a Director since May, 1996
Barry E. Amies 56 Vice President and Director
since October, 1998
James Dacyszyn 69 Director since February, 1999
No arrangement exists between any of the above officers and directors
pursuant to which any one of those persons was elected to such office or
position.
RONALD DANIEL SLOAN. Mr. Sloan has been employed full time with the company
since May 2, 1996. For the past 10 years, Mr. Sloan, through a number of
companies, has been engaged in the automotive brokerage business, dealing with
total loss vehicles for insurance companies. Since 1994, Mr. Sloan has owned
Canadian Auto Market Trends Ltd., a Company engaged in that business. From
approximately 1986 to 1996, he owned Knight Auto Recyclers Ltd., an automotive
parts company which dismantled total loss vehicles and sold guaranteed parts to
automotive dealers, collision repair shops and the retail public. From 1992
until 1996, Mr. Sloan worked at Truck City, Inc., which is engaged in the
business of purchasing damaged trucks from insurance companies and dismantling
the vehicles for the sale of parts. Until approximately 1990, Mr. Sloan was a
director and secretary of Save-On Used Auto and Truck Parts Ltd., which was sold
to unaffiliated persons.
BRIAN JOHN WOLFE. Mr. Wolfe has, since 1987, owned Wolfe & Associates
Appraisal Services, which appraises damages sustained by vehicles, recreation
vehicles, motorcycles and equipment after an accident, for insurance companies
throughout North America. Prior to 1987, Mr. Wolfe managed Collision Repair
Shops in the Vancouver, B.C. area.
25
BARRY E. AMIES. Mr. Amies has extensive experience in financing, insurance
and mining. He started Baron Insurance Agency in 1968 and built it from a
one-man operation to 45 employees, when he sold it in 1994. He also started
Baron Financial, which was added to the insurance business to incorporate
financial investments. Mr. Amies was the President of the Insurance Brokers of
British Columbia, Director and Vice President of Insurance Brokers of Canada,
President/Chairman for the Centre for the Study of Insurance Operations of
Canada, and was Chairman of the Insurance Council of British Columbia, which is
a regulatory body for brokers. In 1990, he was the Insurance Marketer of the
Year for North America. Since 1980, Mr. Amies has been President of Zalmac
Mines, Ltd., which has properties in Canada prospective for gold, silver,
molybdenum, and other metals.
JAMES DACYSZYN. Mr. Dacyszyn is a Canadian citizen who is semi-retired and
is a member of the association of professional engineers, geologists and
geophysicists of Alberta, Canada. Mr. Dacyszyn currently owns and operates
several concrete transit mix plants and gravel operations in central Alberta,
Canada. The companies are now being managed by his son, a professional engineer,
and Mr. Dacyszyn is retained in a consulting capacity. Mr. Dacyszyn has
extensive experience in materials engineering, including drill testing and
engineering evaluation of fine grained soils, sands and gravels.
EXECUTIVE COMPENSATION
During 1999 and 2000 no officer or director received any compensation and
no officer or director has any options or other rights to purchase any shares of
the company. They are reimbursed for out of pocket expenses incurred on behalf
of the company or miscellaneous expenses as a result of employment by the
company or service as a director. Mr. Sloan, a resident of Vancouver, British
Columbia, spends virtually all of his time on the company's business both in the
United States and Canada. The company pays for the costs of maintaining an
apartment in Las Vegas which Mr. Sloan uses and which other persons transacting
business with the company use and which also serves as a company office. There
are no director's fees.
In the first quarter of 2001, the company started paying Mr. Sloan a salary
of $60,000 per year. He does not have a written employment agreement.
We do not have any stock option or similar plan or any annuity, pension,
retirement incentive, deferred compensation or any arrangements whereby officers
or directors have been paid or may receive compensation.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information about beneficial
ownership of our common stock as of the date of this prospectus by each officer
and director, by any person or group who is known by us to own more than 5% of
our common stock, and by the officers and directors as a group. The ownership
information is based on the Forms 3 and 4 filed by our officers and directors
with the Securities and Exchange Commission as required by section 16(a) of the
Securities and Exchange Act of 1934. Based on those Forms 3 and 4, the
beneficial owners have sole voting and dispositive power with respect to their
shares except as noted. Shares shown as owned by Mr. Amies include 54% of the
shares held by a family partnership owned by his wife and adult children; the
balance of shares (46%) are owned beneficially by the adult children. Shares
shown as owned by Mr. Dacysyzn include shares held by a family company as to
which he exercises beneficial ownership; the balance of shares in the family
company are beneficially owned by an adult son.
26
NAME AND ADDRESS OF AMOUNT AND NATURE OF
TITLE OF CLASS BENEFICIAL OWNER BENEFICIAL OWNER PERCENT OF CLASS
Common stock, par Ronald D. Sloan 785,431 7.8%
value $.001 4312-212 Street
Langley, B.C., Canada
Common stock, par John Brian Wolf, 785,431 7.8%
value $.001 3157 Silverthrone Drive
Coquitlam, B.C. Canada
Common stock, par Barry E. Amies 155,535 1.5%
value $.001 14198 Tamarack Drive
Vernon, B.C., Canada
Common stock, par James Dacysyzn 511,000 5.1%
value $.001 #64, 9703-41 Avenue
Edmonton, B.C., Canada
Common stock, par All Officers and Directors 2,237,297 22.2%
value $.001 as a group
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
LOANS BY OFFICERS
Mr. Sloan has loaned the company $110,500 to finance operations. The loan
is unsecured, due on demand, and bears interest at 1% over prime.
PURCHASE OF STOCK
From time to time we have sold stock to directors or their affiliates, to
raise operating capital. These transactions were not negotiated at arms-length.
Prices were determined by the board of directors based on market prices at which
the stock then was trading, less a discount for rule 144 investment
restrictions.
Mr. Amies' family partnership purchased restricted shares of common stock
from the company as follows:
Date Number of Shares Price
10-28-98 63,000 $.50 per share
12-24-98 38,571 $.35 per share
02-18-99 62,500 $.40 per share
05-14-99 15,000 $.50 per share
06-22-99 50,000 $.50 per share
03-09-00 21,000 $.75 per share
27
A family company controlled by Mr. Dacysyzn has purchased restricted
shares of common stock from the company as follows:
Date Number of Shares Price
12-24-98 200,000 $.35 per share
02-18-99 70,000 $.40 per share
05-14-99 100,000 $.50 per share
06-22-99 60,000 $.50 per share
03-09-00 134,000 $.75 per share
Mr. Dacyszyn, for his own account, purchased 100,000 restricted shares of
common stock in 1998, at $.45 per share.
In 1999 and 2000, Josef Reschreiter, a former director, purchased
restricted shares of common stock, as follows.
Date Number of Shares Price
06-22-99 32,000 $.50 per share
06-22-99 10,000 $.50 per share
03-02-00 45,000 $.75 per share
COMPENSATION TO CONSULTANT. As of January 8, 2001 we retained Mr. S. Bruce
Ballantyne as a consultant to advise and assist on a daily basis principally
with respect to evaluation of the Pisgah property and its volcanic cinder
material. Mr. Ballantyne's compensation was $1,700 per week, plus 10,000
restricted shares of common stock upon termination of the agreement. In
addition, we agreed to grant him, if we were producing or able to produce
precious metals from the Pisgah property on an economic basis during the term of
the agreement or any extension, an option to purchase up to 40,000 restricted
shares of common stock. Mr. Ballantyne is no longer a consultant to the company
and the option was not granted to him.
SELLING SHAREHOLDERS
This prospectus covers the offer and sale by the holders or future holders
of up to 5,406,059 shares of common stock held or to be purchased by certain
shareholders, which includes (i) up to 4,800,000 shares that may be sold to
Dutchess Fund and DRH under the Investment Agreement; and (ii) 606,059 shares
presently issued and outstanding which are held by Dutchess Fund, May Davis
Group, Inc., Dutchess Advisors, Ltd., and Joseph B. LaRocco, attorney for
Dutchess Fund and DRH.
The selling shareholders may offer their shares for sale on a continuous
basis pursuant to rule 415 under the 1933 Act. See "Risk Factors."
The following information has been provided to us by the selling
shareholders, and states ownership data for each person who is or might become a
selling shareholder. As shown in footnote (1)below, except for the total 806,059
shares issued and outstanding which are held by Dutchess Fund, Dutchess
Advisors, Ltd., May Davis Group, Inc., Joseph B. LaRocco, and National Financial
Communications Corp., all numbers of shares, and percentage ownership, are
stated on a pro forma basis as of prospectus date and assume the 4,600,000
shares of stock covered by this prospectus are sold to Dutchess Fund and DRH
under the Investment Agreement (50% to each). There are 14,856,738 shares issued
and outstanding on a pro forma basis as of prospectus date.
28
Number of Number of Shares
Shares of of Common Stock Percent Owned
Name and Address Common Stock Registered Prior to After
of Beneficial Owner Owned For Sale Offering(1) Offering(1)
-------------------------------------------------------------------------------------------------------------------
Dutchess Private 2,375,757(2) 2,376,757(2) 16.6% 0
Equities Fund Ltd. (3)
100 Mill Plain road, 3rd Floor
Danbury, CT 06811
DRH Investment 2,300,000(2) 2,300,000(2) 16.5% 0
Company, LLC. (3)
578 Post Road East
Westport, CT 06880
Dutchess Advisors, Ltd. (3) 227,272 227,272 1.5% 0
100 Mill Plain road, 3rd Floor
Danbury, CT 06811
May Davis Group, Inc. 303,030 303,030 2.0% 0
[address]
Joseph B. LaRocco, Esq. 37,000 37,000 * 0
49 Locust Ave., Suite 107
New Canaan, CT 06840
National Financial 200,000 400,000(4) 2.7% 0
Communications Corp.
1040 Great Plain Avenue
Nedham, MA 02492
Scooter Investments, Ltd.(5) 30,000 30,000 * 0
30-11100 railway Ave.
Richmond, British Columbia V7E 2B9
Keith Balcaen 27,888 27,888 * 0
9933 Hill Drive
Vernon, British Columbia V1B 3C8
Pat Heron 20,000 20,000 * 0
246 Greenoch Crescent
Edmonton, Alberta
Canada T6L 1B4
<FN>
* Less than 1%.
(1) Assumes all shares are sold by the selling shareholder.
(2) Based on shares owned at prospectus date (75,757 shares for Dutchess Fund,
no shares for DRH) plus 2,300,000 shares which may be sold under the
Investment Agreement to each of Dutchess Fund and DRH.
(3) Dutchess Fund and DRH, investors under the Investment Agreement, are
statutory underwriters under section 2(a)(11) of the 1933 Act.
The principals of Dutchess Fund are Dutchess Capital Management
29
LLC, its general partner, and Michael A. Novielli and Douglas H. Leighton,
managing members and principal owners of the general partner. The
principals of DRH are David Danovitch, Alfred Hahnfeldt and Hunter Singer.
The principals of Dutchess Advisors, Ltd., advisor to Dutchess Fund, are
Michael A. Novielli and Douglas h. Leighton. See "Financing Transactions -
Investment Agreement" above, and "Plan of Distribution" below.
(4) Includes 200,000 shares owned, and 200,000 shares issuable on exercise of
three year options at $1.00 per share. See "Financing Transactions - Public
Relations Agreement."
(5) A cash investor who bought restricted stock, and who is not an affiliate of
the company.
</FN>
The shares owned or to be owned by the selling shareholders are registered
under rule 415 of the general rules and regulations of the Securities and
Exchange Commission, concerning delayed and continuous offers and sales of
securities. In regard to the offer and sale of such shares, we have made certain
undertakings in Part II of the registration statement of which this prospectus
is part, by which, in general, we have committed to keep this prospectus current
during any period in which these persons make offers to sell or sell the covered
securities pursuant to rule 415.
PLAN OF DISTRIBUTION
The selling shareholders and any of their pledgees, donees, assignees and
successors-in-interest may, from time to time, sell any or all of their shares
of common stock on any stock exchange, market or trading facility on which the
shares are traded. These sales may be at fixed or negotiated prices. The selling
shareholders may use any one or more of the following methods when selling
shares:
O ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
O block trades in which the broker-dealer will attempt to sell the
shares as agent but may position and resell a portion of the block as
principal to facilitate the transaction;
O purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
O an exchange distribution in accordance with the rules of the
applicable exchange;
O privately negotiated transactions;
O short sales;
O broker-dealers may agree with the selling shareholders to sell a
specified number of such shares at a stipulated price per share;
O a combination of any such methods of sale; and
O any other method permitted pursuant to applicable law.
The selling shareholders may also sell shares under rule 144, if
available, rather than under this prospectus.
30
The selling shareholders may also engage in short sales against the box,
puts and calls and other transactions in securities of the company or
derivatives of company securities and may sell or deliver shares in connection
with these trades. The selling shareholders may pledge their shares to their
brokers under the margin provisions of customer agreements. If a selling
shareholder defaults on a margin loan, the broker may, from time to time, offer
and sell the pledged shares. The selling shareholders have advised the company
that they have not entered into any agreements, understandings or arrangements
with any underwriters or broker- dealers regarding the sale of their shares
other than ordinary course brokerage arrangements, nor is there an underwriter
or coordinating broker acting in connection with the proposed sale of shares by
the selling shareholders.
Broker-dealers engaged by the selling shareholders may arrange for other
brokers-dealers to participate in sales. Broker-dealers may receive commissions
or discounts from the selling shareholders (or, if any broker-dealer acts as
agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated. The selling shareholders do not expect these commissions and
discounts to exceed what is customary in the types of transactions involved.
DRH Investment Company, LLC ("DRH") and Dutchess Private Equities Fund,
L.P. ("Dutchess Fund"), and their affiliates (for Dutchess Fund, Dutchess
Advisors, Ltd. and Dutchess Management LLC) are each an "underwriter" under
section 2(a)(11) of the 1933 Act, in connection with the resale of common stock
under the Investment Agreement. Dutchess Fund and DRH will pay us 93% of the
market price for our common stock, determined in accordance with the Investment
Agreement (see "Financing Transactions - Investment Agreement"). The discount on
the purchase of the common stock to be received by them will be an underwriting
discount. We retained May Davis Group, Inc. as placement agent in connection
with the financing facility under the Investment Agreement. May Davis Group,
Inc. will be paid a commission of 3.5% of each investing transaction by Dutchess
Fund and DRH under the Investment Agreement. This cash commission is in addition
to the 303,030 shares of common stock issued to May Davis Group, Inc. as a
placement fee under the terms of the Investment Agreement upon its execution on
October 4, 2001. Dutchess Advisors, Ltd. is acting in an advisory capacity to
Dutchess Fund and the company has agreed to pay Dutchess Advisors, Ltd. as its
advisory fee 3.5% of each investing transaction and has issued 227,272 shares of
common stock to Dutchess Advisors, Ltd. The company also has issued 75,757
shares of common stock to Dutchess Fund as an inducement to enter into the
Investment Agreement.
Other selling shareholders and any broker-dealers or agents that are
involved in selling the shares may be deemed to be "underwriters" within the
meaning of the 1933 Act in connection with such sales. In such event, any
commissions received by such broker-dealers or agents and any profit on the
resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the 1933 Act.
We are required to pay all fees and expenses incident to the registration
of the shares. Otherwise, all discounts, commissions or fees incurred in
connection with the sale of the common stock offered hereby will be paid by the
selling shareholders. The company has agreed to indemnify certain selling
shareholders against certain losses, claims, damages and liabilities, including
liabilities under the 1933 Act. We have been advised that in the opinion of the
Securities and Exchange Commission, indemnification for liabilities under the
1933 Act is against public policy, and therefore is unenforceable.
Upon the company being notified by a selling shareholder that any material
arrangement has been entered into with a broker-dealer for the sale of shares
through a block trade, special offering, exchange distribution or secondary
distribution or a purchase by a broker or dealer, a supplement to this
prospectus will be filed, if required, pursuant to rule 424(b) under the 1933
Act, disclosing (i) the name of each such selling shareholder and of the
participating broker-dealer(s), (ii) the number of shares involved, (iii) the
price at which such shares were sold, (iv) the commissions paid or discounts or
concessions allowed to such broker-dealer(s),
31
where applicable, (v) that such broker-dealer(s) did not conduct any
investigation to verify the information set out or incorporated by reference in
this prospectus, and (vi) other facts material to the transaction.
In order to comply with the securities laws of certain states, if
applicable, the shares will be sold in such jurisdictions, if required, only
through registered or licensed brokers or dealers. In addition, in certain
states the shares may not be sold unless the shares have been registered or
qualified for sale in such state or an exemption from registration or
qualification is available and complied with.
We have advised the selling shareholders that the anti-manipulative
provisions of the Securities and Exchange Commission's regulation M promulgated
under the Securities Exchange Act of 1934 may apply to their sales of the shares
offered under this prospectus. Regulation M provides that any person engaged in
a distribution of the common stock offered hereby may not simultaneously engage
in market making activities with respect to the common stock for a period of up
to five days preceding such distribution. The selling shareholders will be
subject to other provisions of the Exchange Act and the rules and regulations
thereunder, which provisions may limit the timing of purchases and sales by the
selling shareholders.
DESCRIPTION OF SECURITIES
COMMON STOCK
We are authorized to issue 15,000,000 shares of common stock ($.001 par
value).
Holders of common stock are entitled to one vote per share on each matter
submitted to a vote at any meeting of shareholders. Cumulative voting is not
permitted in elections of directors or otherwise.
Our board of directors has authority, without action by the shareholders,
to issue all or any portion of the authorized but unissued shares of common
stock, which would reduce the percentage ownership of its present shareholders
and which may dilute the book value of the common stock.
Shareholders have no pre-emptive rights to acquire additional shares of
common stock. The common stock is not subject to redemption and carries no
subscription or conversion rights. In the event of liquidation, the shares of
common stock are entitled to share equally in corporate assets after
satisfaction of all liabilities.
Holders of common stock are entitled to receive such dividends as the board
of directors may from time to time declare out of funds legally available for
the payment of dividends.
PREFERRED STOCK
We are authorized to issue 10,000,000 shares of preferred stock ($.001 par
value). The board of directors has authority, without action by the
shareholders, to issue preferred stock in one or more series and to determine
the voting rights, preferences as to dividends and liquidation, conversion
rights, and other rights of such series. Preferred stock may carry rights
superior to those of the common stock. No series of preferred stock has been
authorized, and no shares of preferred stock have been issued.
Reference is made to our certificate of incorporation and by-laws which are
available for inspection at our offices or which can be viewed through the EDGAR
data base at http://www.sec.gov as exhibits to the registration statement on
Form SB-2. Reference is also made to applicable statutes of the state of Nevada
for laws concerning rights of shareholders.
32
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
Our bylaws provide that we shall indemnify directors provided that the
indemnification shall not eliminate or limit the liability of a director for
breach of the director's duty or loyalty to the corporation or its stockholders,
or for acts of omission not in good faith or which involve intentional
misconduct or a knowing violation of law.
Nevada law permits a corporation, under specified circumstances, to
indemnify its directors, officers, employees or agents against expenses
(including attorney's fees), judgments, fines and amounts paid in settlements
actually and reasonably incurred by them in connection with any action, suit or
proceeding brought by third parties by reason of the fact that they were or are
directors, officers, employees or agents of the corporation, if these directors,
officers, employees or agents acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceedings, had no
reason to believe their conduct was unlawful. In a derivative action, i.e., one
by or in the right of the corporation, indemnification may be made only for
expenses actually and reasonably incurred by directors, officers, employees or
agent in connection with the defense or settlement of an action or suit, and
only with respect to a matter as to which they shall have acted in good faith
and in a manner they reasonably believed to be in or not opposed to the best
interests of the corporation, except that no indemnification shall be made if
such person shall have been adjudged liable to the corporation, unless and only
to the extent that the court in which the action or suit was brought shall
determine upon application that the defendant directors, officers, employees or
agents are fairly and reasonably entitled to indemnify for such expenses despite
such adjudication of liability.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
company pursuant to the foregoing provisions, or otherwise, we have been advised
that in the opinion of the Commission such indemnification is against public
policy as expressed in the 1933 Act, and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the company of expenses incurred or paid by a director, officer or
controlling person in the successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling person in connection with
the securities being registered, the company will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the 1933 Securities Act, and will be
governed by the final adjudication of such issue.
LEGAL PROCEEDINGS
The company is not a party to current litigation and no notice of possible
claims against the company has been received.
LEGAL MATTERS
The validity of the issuance of the shares offered hereby will be passed
upon for us by The Law Office of Stephen E. Rounds, Denver, Colorado. Dutchess
Private Equities Fund and DRH Investment Company LLC are represented in
connection with the Investment Agreement by Joseph B. LaRocco, New Canaan,
Connecticut. Mr. LaRocco owns 37,000 shares of common stock in the company.
EXPERTS
Our financial statements as of December 31, 2000 and for the 24 months then
ended have been included in this prospectus in reliance on the report of Murphy,
Bennington & Co., Las Vegas, Nevada. Their report is included upon the authority
of such firm as experts in accounting and auditing.
33
INDEX TO FINANCIAL STATEMENTS
PAGE
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
INDEPENDENT AUDITORS' REPORT 35
FINANCIAL STATEMENTS:
Balance sheets 36
Statements of operations 37
Statements of changes in stockholders' deficit 38
Statements of cash flows 39
Notes to financial statements 40-47
SUPPLEMENTARY SCHEDULE:
Supplemental schedule I--
Operating, general and administrative expenses 48
FOR THE YEARS ENDED DECEMBE 31, 2000 AND 1999
INDEPENDENT ACCOUNTANTS' REPORT 49
FINANCIAL STATEMENTS:
Interim balance sheets 50
Interim statements of operations 51
Interim statements of changes in stockholders' deficit 52
Interim statements of cash flows 53
Notes to interim financial statements 54-57
SUPPLEMENTARY SCHEDULE:
Supplemental schedule I--
Operating, general and administrative expenses 58
34
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Can-Cal Resources, Ltd.
Las Vegas, Nevada
We have audited the accompanying balance sheets of Can-Cal Resources, Ltd. (a
Nevada corporation) as of December 31, 2000 and 1999, and the related statements
of operations, changes in stockholders' equity, and cash flows for the years
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of Can-Cal Resources, Ltd. as of December 31, 2000 and
1999, and the results of their operations and their cash flows for the years
then ended in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company's significant operating losses raise
substantial doubt about its ability to continue as a going concern. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental information on page 14
is presented for purposes of additional analysis and is not a required part of
the basic financial statements. Such information has been subjected to the
auditing procedures applied in the audits of the basic financial statements and,
in our opinion, is fairly stated in all material respects in relation to the
basic financial statements taken as a whole.
/s/ Murphy, Bennington & Co.
Las Vegas, NV
February 18, 2001
35
CAN-CAL RESOURCES, LTD.
BALANCE SHEETS
DECEMBER 31, 2000 AND 1999
(ROUNDED TO THE NEAREST HUNDRED, EXCEPT SHARE DATA)
ASSETS 2000 1999
------------ ------------
CURRENT ASSETS:
Cash $ 510,800 $ 51,800
Notes receivable, related parties (Note 2) 48,100 44,700
Prepaid expenses -- 1,200
Current portion of note receivable 53,000 48,000
----------- -----------
Total current assets 611,900 145,700
PROPERTY AND EQUIPMENT, NET (NOTES 1 AND 3) 72,400 61,400
OTHER ASSETS (NOTE 4) 53,700 95,300
LONG-TERM INVESTMENTS (NOTE 5) 586,100 586,100
----------- -----------
$ 1,324,100 $ 888,500
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Checks written against future deposits $ 14,200 $ --
Accounts payable 51,300 7,100
Accrued expenses 26,300 56,300
Notes payable, current portion 32,500 6,800
----------- -----------
Total current liabilities 124,300 70,200
NOTE PAYABLE, (NOTE 6) 300,000 55,000
NOTES PAYABLE, RELATED PARTIES (NOTE 7) 119,200 14,800
----------- -----------
543,500 140,000
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value; authorized, 15,000,000
shares; issued and outstanding, 9,372,791 shares 9,400 8,200
Preferred stock, $.001 par value; authorized, 10,000,000
shares; none issued or outstanding -- --
Additional paid-in-capital 3,408,600 2,460,200
Accumulated deficit (2,637,400) (1,719,900)
----------- -----------
780,600 748,500
----------- -----------
$ 1,324,100 $ 888,500
=========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
36
CAN-CAL RESOURCES, LTD.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2000 AND 1999
(ROUNDED TO THE NEAREST HUNDRED, EXCEPT SHARE DATA)
2000 1999
----------- ------------
SALES
Mining revenue $ -- $ 3,700
Royalty revenue 67,500 --
----------- -----------
67,500 3,700
----------- -----------
COST OF GOODS SOLD -- --
----------- -----------
GROSS PROFIT 67,500 3,700
OPERATING, GENERAL AND ADMINISTRATIVE EXPENSES 1,012,200 614,600
----------- -----------
LOSS FROM OPERATIONS (944,700) (610,900)
OTHER INCOME (EXPENSES):
Other income 30,600 --
Interest income 12,300 7,200
Interest expense (15,700) (9,100)
----------- -----------
NET INCOME(LOSS) FROM CONTINUING OPERATIONS (917,500) (612,800)
----------- -----------
INCOME (LOSS) FROM DISCONTINUED OPERATIONS:
Income (loss) from discontinued
automobile salvage division -- 116,400
Gain on disposal of automobile
salvage division (net of taxes) -- 174,300
----------- -----------
NET INCOME (LOSS) $ (917,500) $ (322,100)
=========== ===========
NET INCOME (LOSS) PER SHARE OF COMMON
STOCK AND COMMON STOCK EQUIVALENTS:
BASIC EPS
Net loss from continuing operations $ (0.10) $ (0.04)
=========== ===========
Weighted average shares outstanding 8,811,282 7,907,054
=========== ===========
DILUTED EPS
Net loss from continuing operations $ (0.10) $ (0.04)
=========== ===========
Weighted average shares outstanding 8,811,282 7,907,054
=========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
37
CAN-CAL RESOURCES, LTD.
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
YEARS ENDED DECEMBER 31, 2000 AND 1999
(Rounded to the nearest hundred, except share data)
ADDITIONAL CUMULATIVE TOTAL
PAID-IN ACCUMULATED TRANSLATION STOCKHOLDERS'
COMMON STOCK CAPITAL DEFICIT ADJUSTMENT EQUITY
----------------------- ------------ ------------ ------------ -------------
SHARES AMOUNT
--------- -----------
BALANCE, DECEMBER 31, 1998 7,005,161 $ 7,000 $ 1,887,600 $(1,397,800) $ 8,500 $ 505,300
Issuance of common stock 1,248,621 1,200 572,600 -- -- 573,800
Foreign currency translation adjustment -- -- -- -- (11,800) (11,800)
Realized foreign currency translation loss -- -- -- -- 3,300 3,300
Net income (loss) for the year -- -- -- (322,100) -- (322,100)
--------- ----------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1999 8,253,782 8,200 2,460,200 (1,719,900) -- 748,500
Issuance of common stock 1,119,009 1,200 948,400 -- -- 949,600
Net income (loss) for the year -- -- -- (917,500) -- (917,500)
--------- ----------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 2000 9,372,791 $ 9,400 $ 3,408,600 $(2,637,400) $ -- $ 780,600
========= =========== =========== =========== =========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
38
CAN-CAL RESOURCES, LTD.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2000 AND 1999
(ROUNDED TO THE NEAREST HUNDRED)
2000 1999
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
NET LOSS $ (917,500) $ (322,100)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 31,000 18,700
Bad debt expense 53,300 152,100
Gain on disposal of facility -- (116,400)
Undistributed earnings of affiliate -- (174,300)
Gain on foreign currency translation -- 8,500
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (3,400) (4,000)
(Increase) decrease in inventories -- 100
(Increase) decrease in prepaid expenses 1,200 --
(Increase) decrease in other assets (10,500) --
Increase (decrease) in accounts payable and
other current liabilities 28,400 34,100
----------- -----------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (817,500) (403,300)
----------- -----------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of property and equipment (42,000) (57,400)
Loan to an individual (5,000) 65,300
----------- -----------
NET CASH PROVIDED BY INVESTING ACTIVITIES (47,000) 7,900
----------- -----------
CASH FLOW FROM FINANCING ACTIVITIES:
Increase (decrease) in related party debt 104,400 (148,500)
Principal payments on note payable (30,500) (55,200)
Proceeds from issuance of common stock 949,600 574,000
Proceeds from debt issuance 300,000 35,300
----------- -----------
NET CASH USED BY FINANCING ACTIVITIES 1,323,500 405,600
NET INCREASE (DECREASE) IN CASH 459,000 10,200
CASH AT BEGINNING OF YEAR 51,800 41,600
----------- -----------
CASH AT END OF YEAR $ 510,800 $ 51,800
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
CASH PAID DURING THE YEAR FOR:
Interest $ -- $ --
=========== ===========
Income taxes $ -- $ --
=========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
39
CAN-CAL RESOURCES, LTD.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization and nature of business:
Can-Cal Resources, Ltd. ( the "Company") is a corporation formed under the
laws of the State of Nevada on March 22, 1995. The company is engaged in
the precious metal processing industry and other investment opportunities.
Company's activities and operating cycle:
In the course of its activities, the Company has sustained continuing
operating losses and expects such losses to continue for the foreseeable
future. The Company plans to continue to fund its operations with various
types of financing including borrowings and sales of stock, and, in the
longer term, revenues from sales. The Company's ability to continue as a
going concern is dependent upon future financing and ultimately upon
achieving profitable operations.
Revenue recognition:
Sales revenues are recognized at the point of sale.
Basis of accounting:
The Company prepares its financial statements in accordance with generally
accepted accounting principles.
Cash:
For purposes of preparing the statement of cash flows, unrestricted
currency, demand deposits, and money market accounts are considered cash
and cash equivalents.
Property, equipment and depreciation:
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is provided on the straight-line method over the estimated
useful lives of the assets. The amounts of depreciation provided are
sufficient to charge the cost of the related assets to operations over
their estimated useful lives.
The cost of maintenance and repairs is charged to expense as incurred.
Expenditures for betterments and renewals are capitalized. Upon sale or
other disposition of depreciable property, cost and accumulated
depreciation are removed from the accounts and any gain or loss is
reflected in income.
40
CAN-CAL RESOURCES, LTD.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Concentration of credit risk:
A majority of the Company's business activity is with customers primarily
located in the metropolitan area of Las Vegas, NV.
The company maintains multiple cash balances at financial institutions
located in Las Vegas, NV. The accounts are insured by the Federal Deposit
Insurance Corporation ("FDIC") up to $100,000. As of December 31, 2000, the
Company had $ 409,500 in excess of FDIC limits.
Income taxes:
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." This statement
requires an asset and liability approach to account for income taxes. The
Company provides deferred income taxes for temporary differences that will
result in taxable or deductible amounts in future years based on the
reporting of certain costs in different periods for financial statement and
income tax purposes.
Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Reclassifications:
Certain financial statements from prior years have been reclassified to
conform with current year presentation.
Net income (loss) per share of common stock:
In 1997 the Company adopted Statement of Financial Accounting Standards No.
128 ("SFAS 128"), "Earnings Per Share," which sets forth the basis for the
computation of "basic" earnings per share and "dilutive" earnings per
share. Basic EPS excludes dilution and is computed by dividing income
(loss) available to common stockholders by the weighted-average number of
common shares outstanding for the period. Diluted EPS reflects the
potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that would then share in the
earnings of the entity. Diluted EPS is computed on the basis of the
weighted-average shares of Common Stock outstanding plus common equivalent
shares arising from the effect of cumulative convertible Preferred Stock,
using the if- converted method, and dilutive stock options, using the
treasury-stock method. All EPS amounts for prior years have been restated
to conform to these new standards, and the effect of the restatement was
not significant.
41
CAN-CAL RESOURCES, LTD.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Recent accounting pronouncements:
In 1997, the Financial Accounting Standards Board issued Statement No. 130
("SFAS 130"), "Reporting Comprehensive Income". SFAS 130 requires that all
items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement
that is displayed with the same prominence as other financial statements.
The statement requires that an enterprise classify items of other
comprehensive income by their nature in a financial statement and to
display the accumulated balance of other comprehensive income separately
from retained earning earnings and additional paid-in capital in the equity
section of a statement of financial position. SFAS 130 is effective for
fiscal years beginning after December 15, 1997.
2. NOTES RECEIVABLE (RELATED PARTIES):
Notes receivable, related parties, at December 31, 2000 and 1999 consisted
of the following:
2000 1999
-------- --------
Note receivable from S&S Joint Venture, a joint venture partner,
unsecured, interest imputed at 8%, due on demand $ 28,000 $ 28,000
Note receivable from an individual, unsecured, interest imputed
at 8%, due on demand 12,000 12,000
Accrued interest receivable 13,900 10,500
-------- --------
53,900 50,500
Allowance for uncollectible accounts 5,800 5,800
-------- --------
$ 48,100 $ 44,700
======== ========
3. PROPERTY AND EQUIPMENT:
Property and equipment at December 31, 2000 and 1999 consisted of the
following:
2000 1999
---------- -----------
Machinery and equipment $ 95,100 $ 81,700
Transportation equipment 18,400 --
Office equipment and furniture 14,200 4,000
---------- -----------
127,700 85,700
Less accumulated depreciation (55,300) (24,300)
---------- -----------
$ 72,400 $ 61,400
========== ===========
DEPRECIATION EXPENSE FOR THE YEARS ENDED DECEMBER 31,2000 AND 1999 TOTALED
$31,000 AND $18,800, RESPECTIVELY.
42
CAN-CAL RESOURCES, LTD.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
4. OTHER ASSETS:
Other assets at December 31, 2000 and 1999 consisted of the following:
2000 1999
---------- ---------
Note receivable from Tyro, Inc., and principals, a corporation, secured
by equipment, interest accrued at 5% annum, due on demand $ 53,300 $ 53,300
Deposits 6,800 5,600
Non-destructive testing supplies 10,500 --
Mining claims 36,400 36,400
--------- ---------
107,000 95,300
Allowance for uncollectible notes (53,300) --
--------- ---------
$ 53,700 $ 95,300
========= =========
The company has litigated the Tyro note receivable and obtained a judgment
against Tyro, Inc, and its two principals. The judgment, however, had not
been paid at December 31, 2000, and there exists doubt as to the ultimate
collectibility of the amount outstanding. As a result, the Company has
incurred a charge to bad debt expense of $53,000 at December 31, 2000. The
Company is, however, vigorously pursuing its efforts to collect that
judgement.
5. LONG-TERM INVESTMENTS:
Long-term investments at December 31, 2000 and 1999 consisted of the
following:
2000 1999
--------- ----------
Pisgah property $ 567,100 $ 567,100
Investment in S&S Joint Venture 19,000 19,000
---------- ----------
$ 586,100 $ 586,100
========== ==========
6. NOTES PAYABLE:
Notes payable at December 31, 2000 and 1999 consisted of the following:
2000 1999
---------- ----------
Note payable to lender; secured by 1st deed of trust; interest
at 8.00% per annum, matures July 31, 2001 $ 32,500 $ 55,000
Note payable to lender; unsecured; interest
at prime plus 1.00% per annum, matures September, 2000 - 5,100
Note payable to lender, unsecured; interest at prime plus
1.00% per annum, matures March, 2000 - 1,700
Note payable to lender; secured by 2nd deed of trust; interest at
16.00% per annum, matures November 24, 2005 300,000 -
---------- ----------
332,500 61,800
Less current portion 32,500 6,800
---------- ----------
$ 300,000 $ 55,000
========== ==========
43
CAN-CAL RESOURCES, LTD.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
7. NOTE PAYABLE, RELATED PARTIES:
Notes payable, related parties, at December 31, 2000 and 1999 consisted
of the following:
2000 1999
---------- ---------
Note payable to shareholder; unsecured; interest
at prime plus 1.00% per annum, due on demand $ 114,700 $ 14,800
Note payable to shareholder; unsecured; interest at
prime plus 1.00% per annum, due on demand 4,500 --
--------- ---------
$ 119,200 $ 14,800
========= =========
8. STOCKHOLDERS' EQUITY:
Common stock:
February 1, 1999, the Board of Directors approved the Sale of 62,500 shares
of Can-Cal common stock to a Board member.
On February 8, 1999 the Board approved the sale of 70,000 shares of Can-Cal
common stock to a Board member.
On March 1, 1999 the Board approved the issuance of 32,121 shares of
Can-Cal common stock in return for services rendered.
On March 15, 1999 the Board approved the sale of 86,000 shares of Can-Cal
common stock to various investors.
On March 17, 1999 the Board approved the issuance of 40,000 shares of
Can-Cal common stock in return for equipment.
On March 10, 1999 the Board approved the sale 295,500 shares of Can-Cal
common stock to various investors.
On April 1, 1999 the Board approved the sale of 1,000 restricted common
stock in return for equipment.
On July 21, 1999 the Board approved the sale of 357,500 shares of common
stock to various investors.
On August 24, 1999 the Board approved the sale of 274,000 shares of common
stock to various investors.
September 7, 1999 the Board approved the sale of 20,000 shares of common
stock to an investor.
On November 9, 1999, the board approved the issuance of 10,000 shares of
common stock to an investor.
44
CAN-CAL RESOURCES, LTD.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
8. STOCKHOLDERS' EQUITY (CONTINUED):
On February 27, 2000, the Board of Directors approved the sale of 500,000
shares of Can-Cal common stock to three of its directors (all of whom
reside in Canada), an offshore trust and another person affiliated with the
Company.
On July 3, 2000, the Board of Directors exercised the option to acquire
technology related to the extraction and processing of ore and, in
accordance with the agreement with the two owners of that technology,
issued 200,000 shares of Can-Cal's common stock to them.
On November 24, 2000, the Company borrowed $300,000 from a lender. As part
of the transaction, the Company issued 45,000 shares of its common stock as
a loan placement fee and granted the lender an option to purchase up to
300,000 shares of its common stock. On November 24, 2000, the lender
exercised its option in full and purchased 300,000 shares of Can-Cal's
common stock.
In July 2000 the Board of Directors authorized the sale of 74,009 shares of
its common stock to eight persons, all of whom reside outside the United
States. 46,670 shares were sold during the third quarter and the remaining
27,339 shares were sold during the fourth quarter. All of those shares were
issued on December 15, 2000.
9. STOCK OPTIONS:
The company has entered into an agreement with a consultant. If the Company
is producing or able to produce precious metals from the volcanic cinder
material, the Company will grant a three-year option to purchase up to
40,000 shares of its common stock. The exercise price shall be equal to the
closing price of the stock on January 8, 2001.
10. COMMITMENTS AND CONTINGENCIES:
Lease commitments:
Facilities:
The Company has entered into an interim agreement with an individual, to
lease a facility in Nye County, Nevada. The agreement stipulates rent of
$1,000 per month and includes a purchase option. At December 31, 2000, the
parties were finalizing the terms of the agreement.
Mining Claims:
The Company has a lease and purchase option agreement covering six patented
mining claims in the Cerbat Mountains, Hualapai Mining District, Mojave
County Arizona. The Company pays $1,500 per quarter as minimum advance
royalties. The Company has the option to purchase the property for $250,000
less payments already made.
45
CAN-CAL RESOURCES, LTD.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
10. COMMITMENTS AND CONTINGENCIES (CONTINUED):
Auto leases:
The Company entered into three operating leases for automobiles that expire
during the year 2000. The monthly lease payments currently total $1,274 per
month. Lease payments for the year ended December 31, 2000 totaled $
14,900.
The Company leases space for the operations of the Company under an
operating lease due to expire in March 2001.
Minimum future rental payments under these non-cancelable operating leases
for each of the next five years and in aggregate are as follows:
YEAR ENDING
DECEMBER 31,
-------------
2001 $ 15,900
2002 9,500
2003 3,700
2004 2,500
2005 --
Thereafter --
-----------
$ 31,600
===========
11. INCOME TAXES:
Deferred income taxes are provided for the temporary differences between
the financial reporting basis and the tax basis of the Company's assets and
liabilities. The temporary difference that gave rise to the deferred tax
asset is primarily as follows:
Net operating loss carry forward - December 31, 2000 $ 917,500
Net operating loss carry forward - December 31, 1999 322,100
Net operating loss carry forward - December 31, 1998 353,000
Net operating loss carry forward - December 31, 1997 1,044,700
-----------
2,637,300
Deferred tax assets 896,682
Total valuation allowance recognized for deferred tax assets (896,682)
-----------
Net deferred tax asset $ --
===========
46
CAN-CAL RESOURCES, LTD.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
12. ROYALTY REVENUES:
In May 1998 the Company entered into an agreement by which it would receive
a minimum royalty payment of $22,500 annually during the initial term of
the agreement. These payments have been recorded as unearned revenues in
the Company's accounts. During 2000 the Company determined that the
earnings process had been completed and recognized the royalty income for
the year ended December 31, 2000.
13. NEW ACCOUNTING STANDARD:
On January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130 ("SFAS 130") "Reporting Comprehensive Income", which
requires companies to report all changes in equity during a period, except
those resulting from investment by owners and distribution to owners. The
components for comprehensive income are as follows:
2000 1999
----------- ----------
Net income (loss) $ (917,500) $ (322,100)
Translation adjustment - 3,300
----------- ----------
Comprehensive income $ (917,500) $ (318,800)
=========== ==========
14. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The following table presents the carrying amounts and estimated fair value
of the Company's financial instruments at December 31, 2000:
CARRYING FAIR
AMOUNT VALUE
--------- ---------
Financial assets:
Loans receivable-related party $ 48,100 $ 48,100
Property and equipment 72,400 72,400
Other assets 53,700 53,700
Long-term investments 586,100 586,100
Financial liabilities:
Notes payable, related parties 119,300 119,300
Note payable 300,000 300,000
The carrying amounts of cash, accounts payable and accrued expenses
approximate fair value because of the short maturity of those instruments.
15. SUBSEQUENT EVENTS:
During the first quarter of 2001, the Board of Directors approved a salary
of $60,000 per year for the Company's president.
47
CAN-CAL RESOURCES, LTD.
SUPPLEMENTAL SCHEDULE I --
OPERATING, GENERAL AND ADMINISTRATIVE EXPENSES
YEARS ENDED DECEMBER 31, 2000 AND 1999
THREE MONTHS THREE MONTHS
ENDED ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2000 1999 2000 1999
------------ ------------- ------------- ------------
OPERATING, GENERAL AND
ADMINISTRATIVE EXPENSES:
Mine exploration $ 80,200 $ 19,100 $ 534,700 $ 152,200
Consulting 4,700 36,500 69,600 125,700
Travel and entertainment 6,800 9,500 65,300 29,100
Accounting and legal 29,100 13,700 59,300 45,600
Insurance 16,700 14,500 54,800 18,300
Bad debt expense 53,300 -- 53,300 152,100
Office expense 15,400 (600) 41,600 9,500
Office rent 8,700 5,500 33,900 16,000
Depreciation and amortization 9,900 6,000 31,000 18,800
Advertising and promotion 9,800 500 22,500 1,800
Lease expense 14,900 5,500 14,900 5,500
Miscellaneous 8,000 29,300 14,300 31,200
Telephone 1,600 3,500 9,300 7,000
Utilities 1,000 200 3,800 800
Repairs and maintenance 3,600 500 3,600 500
Bank charges -- - 300 500
------------ ------------- -------------- ------------
$ 263,700 $ 143,700 $ 1,012,200 $ 614,600
============ ============= ============== ============
See independent auditors' report
48
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors and Stockholders
Can-Cal Resources, Ltd.
Las Vegas, Nevada
We have reviewed the accompanying condensed balance sheet of Can-Cal Resources,
Ltd., as of June 30, 2001, and the condensed statements of operations for the
three and six months ended June 30, 2001 and 2000, the condensed statements of
cash flows for the six months ended June 30, 2001 and 2000, and the condensed
statement of changes in stockholders' equity for the six months ended June 30,
2001. These financial statements are the responsibility of the company's
management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements for them to be in conformity
with generally accepted accounting principles.
We previously audited, in accordance with generally accepted auditing standards,
the balance sheet as of December 31, 2000, and the related changes in
stockholders' equity (deficit), and cash flows and statements of operations (not
presented herein); for the year then ended; and in our report dated February 18,
2001, we expressed an unqualified opinion on these financial statements. In our
opinion, the information set forth in the accompanying condensed balance sheet
as of December 31, 2000 and the condensed statement of changes in stockholders'
equity for the year then ended, is fairly stated in all material respects in
relation to the balance sheet and statement of changes in stockholders' equity
from which they have been derived.
MURPHY, BENNINGTON & CO.
/s/ Murphy, Bennington & Co.
Las Vegas, NV
July 31, 2001
49
CAN-CAL RESOURCES, LTD.
BALANCE SHEETS
JUNE 30, 2001
(ROUNDED TO THE NEAREST HUNDRED, EXCEPT SHARE DATA)
JUNE 30, DECEMBER 31,
2001 2000
------------ ------------
(UNAUDITED) (NOTE)
ASSETS
CURRENT ASSETS:
Cash $ 133,700 $ 510,800
Notes receivable, related parties (note 2) 54,900 48,100
Note receivable 53,000 53,000
----------- -----------
Total current assets 241,600 611,900
PROPERTY AND EQUIPMENT, NET (NOTE 3) 61,900 72,400
OTHER ASSETS (NOTE 4) 57,400 53,700
LONG-TERM INVESTMENTS (NOTE 5) 586,100 586,100
----------- -----------
$ 947,000 $ 1,324,100
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable $ 17,100 $ 51,300
Accrued expenses 59,900 26,300
Checks written against future deposits -- 14,200
Note payable, current portion (note 6) 10,000 32,500
----------- -----------
Total current liabilities 87,000 124,300
NOTE PAYABLE, NET OF CURRENT PORTION (NOTE 6) 300,000 300,000
NOTE PAYABLE - RELATED PARTIES (NOTE 7) 110,500 119,200
----------- -----------
497,500 543,500
----------- -----------
STOCKHOLDERS' DEFICIT:
Common stock, $.001 par value; authorized, 15,000,000
shares; issued and outstanding, 9,372,791 shares 9,400 9,400
Preferred stock, $.001 par value; authorized, 10,000,000
shares; none issued or outstanding -- --
Additional paid-in-capital 3,408,600 3,408,600
Accumulated deficit (2,968,500) (2,637,400)
----------- -----------
449,500 780,600
----------- -----------
$ 947,000 $ 1,324,100
=========== ===========
Note: The balance sheet of December 31, 2000 has been derived from the audited
financial statements at that date.
See accompanying notes and accountant's report.
50
CAN-CAL RESOURCES, LTD.
STATEMENTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 2001 AND 2000
(ROUNDED TO THE NEAREST HUNDRED, EXCEPT SHARE DATA)
THREE MONTHS ENDED SIX MONTHS ENDED
---------------------------- -----------------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
2001 2000 2001 2000
----------- ------------ ------------ ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
SALES
Mining revenue $ 100 $ -- $ 100 $ --
Royalty revenue 22,500 22,500 --
----------- ----------- ----------- -----------
22,600 -- 22,600 --
COST OF GOODS SOLD -- -- -- --
----------- ----------- ----------- -----------
GROSS PROFIT 22,600 -- 22,600 --
OPERATING EXPENSES,
GENERAL AND ADMINISTRATIVE 156,700 148,100 328,400 253,500
----------- ----------- ----------- -----------
LOSS FROM OPERATIONS (134,100) (148,100) (305,800) (253,500)
OTHER INCOME (EXPENSES):
Other income 800 15,100 800 25,500
Interest income 5,200 3,800 8,000 4,800
Interest expense (19,200) (2,700) (34,100) (4,400)
----------- ----------- ----------- -----------
INCOME (LOSS) FROM CONTINUING
OPERATIONS (147,300) (131,900) (331,100) (227,600)
----------- ----------- ----------- -----------
PROVISION FOR INCOME TAXES -- -- -- --
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ (147,300) $ (131,900) $ (331,100) $ (227,600)
=========== =========== =========== ===========
NET INCOME (LOSS) PER SHARE OF COMMON
STOCK AND COMMON STOCK EQUIVALENTS:
BASIC EPS
Net income (loss) $ (0.02) $ (0.02) $ (0.04) $ (0.03)
=========== =========== =========== ===========
Weighted average shares outstanding 9,372,791 8,758,782 9,372,791 8,587,115
=========== =========== =========== ===========
DILUTED EPS
Net income (loss) $ (0.02) $ (0.02) $ (0.04) $ (0.03)
=========== =========== =========== ===========
Weighted average shares outstanding 9,372,791 8,758,782 9,372,791 8,587,115
=========== =========== =========== ===========
See accompanying notes and accountant's report.
51
CAN-CAL RESOURCES, LTD.
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
SIX MONTHS ENDED JUNE 30, 2001
(UNAUDITED)
(ROUNDED TO THE NEAREST HUNDRED, EXCEPT SHARE DATA)
ADDITIONAL CUMULATIVE TOTAL
PAID-IN ACCUMULATED TRANSLATION STOCKHOLDER
COMMON STOCK CAPITAL DEFICIT ADJUSTMENT EQUITY
----------------------- ----------- ------------ ------------ ------------
SHARES AMOUNT
--------- -----------
BALANCE, DECEMBER 31, 1998 7,005,161 $ 7,000 $ 1,887,600 $(1,397,800) $ 8,500 $ 505,300
Issuance of common stock 1,248,621 1,200 572,600 -- -- 573,800
Foreign currency translation -- -- -- -- (11,800) (11,800)
Realized foreign currency -- -- -- -- 3,300 3,300
translation loss
Net income (loss) for the year -- -- -- (322,100) -- (322,100)
--------- ----------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1999 8,253,782 8,200 2,460,200 (1,719,900) -- 748,500
Issuance of common stock 1,119,009 1,200 948,400 -- -- 949,600
Net income (loss) for the year -- -- -- (917,500) -- (917,500)
--------- ----------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 2000 9,372,791 9,400 3,408,600 (2,637,400) -- 780,600
Net income (loss) for the period -- -- -- (331,100) -- (331,100)
--------- ----------- ----------- ----------- ----------- -----------
BALANCE, JUNE 30, 2001 9,372,791 $ 9,400 $ 3,408,600 $(2,968,500) $ -- $ 449,500
========= =========== =========== =========== =========== ===========
See accompanying notes and accountant's report.
52
CAN-CAL RESOURCES, LTD.
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2001 AND 2000
(ROUNDED TO THE NEAREST HUNDRED)
SIX MONTHS ENDED
--------------------------
JUNE 30, JUNE 30,
2001 2000
----------- -----------
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
NET LOSS $(331,100) $(227,600)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 13,000 13,200
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (1,800) --
(Increase) decrease in prepaid expenses (2,000)
(Increase) decrease in other assets (3,700) (12,200)
Increase (decrease) in accounts payable and
other current liabilities (14,800) 23,600
--------- ---------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (338,400) (205,000)
--------- ---------
CASH FLOW FROM INVESTING ACTIVITIES:
Other investing activities -- (5,000)
Purchase of property and equipment (2,500) (26,900)
--------- ---------
NET CASH PROVIDED BY INVESTING ACTIVITIES (2,500) (31,900)
CASH FLOW FROM FINANCING ACTIVITIES:
Increase in related party debt (8,600) 107,700
Principal payments on note payable (22,600) (22,600)
Proceeds from issuance of common stock -- 375,000
Proceeds from debt issuance (5,000) --
--------- ---------
NET CASH USED BY FINANCING ACTIVITIES (36,200) 460,100
NET INCREASE (DECREASE) IN CASH (377,100) 223,200
CASH AT BEGINNING OF PERIOD 510,800 51,800
--------- ---------
CASH AT END OF PERIOD $ 133,700 $ 275,000
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
CASH PAID DURING THE YEAR FOR:
Interest $ -- $ --
========= =========
Income taxes $ -- $ --
========= =========
See accompanying notes and accountant's report.
53
CAN-CAL RESOURCES, LTD.
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2001 AND 2000
1. BASIS OF PRESENTATION OF FINANCIAL STATEMENTS:
These unaudited interim financial statements of Can-Cal Resources, Ltd.
have been prepared in accordance with the rules and regulations of the
Securities and Exchange Commission. Such rules and regulations allow the
omission of certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles as long as the statements are not misleading.
In the opinion of management, all adjustments necessary for a fair
presentation of these interim statements have been included and are of a
normal recurring nature. These interim financial statements should be read
in conjunction with the financial statements of the Company included in its
2000 Annual Report on Form 10-KSB. Interim results are not necessarily
indicative of results for a full year.
In the course of its activities, the Company has sustained continuing
operating losses and expects such losses to continue for the foreseeable
future. The Company plans to continue to finance its operations with stock
sales and, in the longer term, revenues from sales. The Company's ability
to continue as a going concern is dependent upon future obtaining financing
and ultimately upon achieving profitable operations.
2. NOTES RECEIVABLE (RELATED PARTIES):
Notes receivable, related parties, at June 30, 2001 consisted of the
following:
Note receivable from S&S Mining, Inc., a joint venture partner, unsecured,
interest imputed at 8%, due on demand $ 27,800
Note receivable from an individual, unsecured, interest imputed
at 8%, due on demand 12,000
Note receivable from an individual, unsecured, interest imputed
at 6%, due on demand 5,000
Accrued interest receivable 15,700
---------
60,500
Allowance for uncollectible accounts (5,600)
---------
$ 54,900
=========
54
CAN-CAL RESOURCES, LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SIX MONTHS ENDED JUNE 30, 2001 AND 2000
3. PROPERTY AND EQUIPMENT:
Property and equipment at June 30, 2001 consisted of the following:
Machinery and equipment $ 97,600
Transportation equipment 18,400
Office equipment and furniture 14,200
----------
130,200
Less accumulated depreciation (68,300)
----------
$ 61,900
==========
Depreciation expense for the six months ended June 30, 2001 totaled
$13,000.
4. OTHER ASSETS:
Other assets at June 30, 2001 consisted of the following:
Note receivable from Tyro, Inc., and principals, a corporation, secured by
equipment, interest accrued at 6% per annum, due on demand $ 53,300
Deposits 6,800
Non destructive testing materials 14,200
Mining claims 36,400
----------
110,700
Allowance for uncollectible notes (53,300)
----------
$ 57,400
==========
5. LONG-TERM INVESTMENTS:
Long-term investments at June 30, 2001 consisted of the following:
Pisgah property $ 567,100
Investment in S&S Mining joint venture 19,000
----------
$ 586,100
==========
55
CAN-CAL RESOURCES, LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SIX MONTHS ENDED JUNE 30, 2001 AND 2000
6. NOTES PAYABLE:
Note payable at June 30, 2001 consisted of the following:
Note payable to lender; secured by 1st deed of trust; interest at $ 10,000
8.00% per annum, matures July 31, 2001
Note payable to lender; secured by 2nd deed of trust; interest at
16.00% per annum; matures November 24, 2005 300,000
----------
310,000
Less current portion (10,000)
----------
$ 300,000
==========
The Company did not make the interest payment of $24,000 due on May 24,
2001 to the lender which holds the second deed of trust on the Pisgah
property. The Company also did not make the final principal payment of
$10,000 due on July 31, 2001 to the lender which holds the first trust deed
on the Pisgah Property. See Note 8 for further details.
7. NOTE PAYABLE, RELATED PARTIES:
Notes payable, related parties, at June 30, 2001 consisted of the
following:
Note payable to shareholder; unsecured; interest at prime plus
1.00% per annum; due on demand $ 110,500
==========
8. RELATED PARTY TRANSACTIONS:
The Board of Directors approved a resolution to pay an officer compensation
of $5,000 per month. At June 30, 2001 $15,000 had been paid to this
individual.
9. SUBSEQUENT EVENTS:
On August 7, 2001 the Company entered into a Forbearance agreement with the
lender that holds the 2nd deed of trust. The Forbearance Agreement provides
that the $24,000 interest payment due May 24, 2001 shall be added to the
principal of the loan and paid on or before November 24, 2001. Further, the
lender has the option of purchasing restricted common shares of the company
in lieu of the $24,000. The lender must exercise this option on or before
November 20, 2001.
On August 10, 2001 the Company entered into a Forbearance Agreement with
the lender that holds the 1st deed of trust. The agreement provides that
interest due on the $10,000 principal balance shall be added to the
principal and shall be paid on or before June 1, 2002. An interest payment
is due on December 1, 2001.
56
CAN-CAL RESOURCES, LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SIX MONTHS ENDED JUNE 30, 2001 AND 2000
10. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The following table presents the carrying amounts and estimated fair value
of the Company's financial instruments at June 30, 2001:
CARRYING FAIR
AMOUNT VALUE
----------- ----------
Financial assets:
Notes receivable-related party $ 54,900 $ 54,900
Note receivable 53,000 53,000
Property and equipment 61,900 61,900
Other assets 57,400 57,400
Long-term investments 586,100 586,100
Financial liabilities:
Notes payable, related parties 110,500 110,500
Note payable 310,000 310,000
The carrying amounts of cash, prepaid expenses, accounts payable and
accrued expenses approximate fair value because of the short maturity of
those instruments.
The fair value of note payable is based upon the borrowing rates currently
available to the Company for bank loans with similar terms and average
maturities.
57
CAN-CAL RESOURCES, LTD.
SUPPLEMENTAL SCHEDULE I -
OPERATING, GENERAL AND ADMINISTRATIVE EXPENSES
THREE AND SIX MONTHS ENDED JUNE 30, 2001 AND 2000
(UNAUDITED)
(ROUNDED TO THE NEAREST HUNDRED)
THREE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30, ENDED JUNE 30, ENDED JUNE 30,
2001 2000 2001 2000
-------------- --------------- -------------- ---------------
OPERATING, GENERAL AND ADMINISTRATIVE
EXPENSES:
Mine exploration $ 21,100 $ 50,900 $ 80,400 $ 82,900
Consulting 57,100 9,300 90,500 14,800
Travel and entertainment 18,100 18,800 41,700 27,000
Accounting and legal 5,000 6,100 8,000 23,300
Insurance 12,500 14,500 20,600 30,200
Office expense 12,400 10,500 30,800 14,000
Office rent 8,000 9,500 15,900 18,800
Depreciation and amortization 6,600 7,300 13,000 13,200
Advertising and promotion 2,100 6,200 3,300 7,000
Lease expense 2,800 6,700 4,400 9,300
Miscellaneous 3,400 2,000 5,100 4,400
Telephone 3,400 4,000 6,100 5,800
Utilities 2,800 900 4,300 1,200
Repairs and maintenance 1,300 1,300 4,200 1,300
Bank charges 100 100 100 300
--------------- --------------- -------------- ---------------
$ 156,700 $ 148,100 $ 328,400 $ 253,500
=============== =============== ============== ===============
See accountants' report.
58
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The bylaws provide that directors and officers shall be indemnified by the
corporation against expenses incurred in connection with the defense of any
action, suit or proceeding in which they are made parties by reason of being or
having been directors or officers of the corporation, except in relation to
matters as to which they are adjudged in such matter to be liable for negligence
or misconduct in the performance of duty. Such indemnification is not exclusive
of any other rights to which those indemnified may be entitled by agreement,
vote of stockholders, or otherwise. In addition, the Nevada Corporation Act
permits indemnification of directors and officers against such expenses.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Estimated expenses in connection with the issuance and distribution of the
securities being registered:
Securities and Exchange Commission registration fee....................$ 988
National Association of Securities Dealers, Inc. examination fee....... n/a
Accounting ............................................................ 2,000
Legal fees and expenses................................................ 25,000
Printing .............................................................. 300
Blue Sky fees and expenses (excluding legal fees)...................... 1,000
Transfer agent ........................................................ n/a
Escrow agent........................................................... n/a
Miscellaneous.......................................................... 5,712
Total..................................................................$ 35,000
The Registrant will pay all of these expenses.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES. In the 36 months ending
December 31, 2000, and the period from January 1, 2001 through October 4, 2001,
the registrant has sold the following unregistered securities:
A. 1998.
(1) For cash: 837,509 restricted common shares for $360,780:
703,571 shares to directors and family companies
at $.35 to .45 per share; and 133, 938 shares to
three Canadian citizens and one U.S. citizen at
$.40 to $.41 per share. Regulation S exemption
from registration for the Canadians, section
4(2) for U.S. citizen.
B. 1999.
(1) For cash: 925,500 restricted common shares for $429,500:
367,500 to directors and family companies at
$.40 to $.50 per shares; 518,000 shares to
Canadian citizens at $.50 per share; and 6,000
shares to two U.S. citizens at $.50 per share.
Regulation S exemption from registration for
Canadian citizens; section 4(2) for U.S.
citizens.
59
(2) For assets: 40,000 shares at $.50 to a Canadian citizen for
a truck; and 1,000 shares to a U.S. citizen for
computer software. Regulation S for Canadian
citizen' section 4(2) for U.S. citizen.
(3) For Services: 32,121 restricted common shares at $.50 per
share for $16,061 of services from a
nonaffiliate vendor, in section 4(2)
transaction, five U.S. citizens received stock.
Regulation S for Canadian citizens. Section 4(2)
for U.S. citizens. No commission paid.
C. 2000.
(1) For cash: 919,009 restricted common shares for $640,664:
300,000 shares at $.75 per share to directors
and family companies, under Regulation S (for
Canadians and family companies) and a U.S.
citizen employee under section 4(2); 200,000
shares to offshore trust at $.75 per share under
Regulation S; 300,000 shares to lender on
exercise of option (in connection with loan
agreement) at $.5156 per share, plus another
45,000 shares as loan fee to this lender, under
Regulation S; and 74,009 shares at $1.50 per
share to seven Canadian citizens and one Italian
citizen, under Regulation S. D. 2001: (1) For
cash: (fourth quarter 2001) 82,888 restricted
common shares for $60,916 ($0.50 to $1.50 per
share, per share), on four separate transactions
to four Canadian residents under Regulation S
exemption. The price for 5,000 shares was $1.50
per share; for 30,000 shares, $.75 per share;
for 27,888 shares, $.75 per share; and for
20,000 shares, $.50 per share. All such prices
were determined by a discount from the market
price of the stock at the time of the
transaction.
(2) For services: 75,757 restricted common shares to Dutchess
Private Equities Fund L.P., 227,272 restricted
common shares to Dutchess Advisors, Ltd., as
inducements for execution of Investment
Agreement between issuer and Dutchess Fund and
DRH Investment Company, LLC. 303,030 restricted
common shares to May Davis Group, Inc., a
securities broker-dealer, as a placement fee in
connection with the Investment Agreement. 37,000
shares to Joseph B. LaRocco, attorney for
Dutchess Fund and DRH Investment Company, LLC in
connection with the Investment Agreement, for
legal services to such entities, which the
issuer agreed to pay pursuant to the Investment
Agreement.
200,000 restricted common shares to National
Financial Communications Corp., plus options for
an additional 200,000 shares of common stock,
exercisable until September 15, 2004 at $1.00
per share. The company has a public relations
agreement with NFC.
No general solicitation or advertising was used in the preceding
transactions, and all investors supplied information which the issuer believed
qualified such investors as sophisticated investors or accredited investors.
Stop transfer instructions were issued to the issuer's transfer agent for the
securities as "restricted" under rule 144.
60
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE.
SEQUENTIAL
EXHIBIT NO. TITLE OF EXHIBIT PAGE NO.
Exhibit 3.0 Articles of Incorporation................................[1]
Exhibit 3.1 Amendment to the Articles of Incorporation...............[1]
Exhibit 3.2 By-Laws..................................................[1]
Exhibit 5.0 Opinion re legality (with consent) ........................*
Exhibit 10.0 Joint Venture Agreement between Robin Schwarz,
Aylward Schwarz, S&S Mining, a Nevada corporation,
and Can-Cal Resources, Ltd...............................[1]
Exhibit 10.1 Mining Lease Agreement between
Can-Cal Resources, Ltd. and Twin Mountain
Rock Venture dated May 1, 1998...........................[1]
Exhibit 10.2 Loan Agreement between Owen Sequoia, Inc.
and Can-Cal Resources, Ltd...............................[1]
Exhibit 10.3 Amendment to Loan Agreement dated June 9, 1998...........[1]
Exhibit 10.4 Second Amendment to Loan Agreement ......................[1]
Exhibit 10.5 Deed of Trust, Security Agreement,
Financing Statement, and Fixture Filing
with Assignment of Rents.................................[1]
Exhibit 10.6 Lease and Purchase Option Agreement dated
March 12, 1998 between Arthur James Good
and Wanda Mae Good and Can-Cal Resources, Ltd............[1]
Exhibit 10.7 Left blank - no exhibit filed.
Exhibit 10.8 Quit Claim Deed from Aurum, LLC to
Can-Cal Resources, Ltd...................................[1]
Exhibit 10.9 Agreement between Tyro, Inc., Dean Willman,
Roland S. Ericsson, and Can-Cal Resources, Ltd...........[1]
61
SEQUENTIAL
EXHIBIT NO. TITLE OF EXHIBIT PAGE NO.
Exhibit 10.10 - 10.12 Left blank - no exhibit filed.
Exhibit 10.13 Agreement between Can-Cal Resources, Ltd.,
Cameron Miller and James R. Ardoin, dated
December 6, 1999.........................................[2]
Exhibit 10.14 Loan Agreement between First Colony Merchant,
Tobian Trading Limited and Can-Cal Resources, Limited
(f/y 2000 loan, second lender on Pisgah property)........[3]
Exhibit 10.15 Deed of Trust Security Agreement, Financial
Statement and Fixture Filing with Assignment of Rents....[3]
Exhibit 10.16 Option Agreement with Lender.............................[3]
Exhibit 10.17 Written notice to exercise option........................[3]
Exhibit 10.18 Agreement between Can-Cal Resources, Ltd, and
Consultant Bruce Ballantyne..............................[3]
Exhibit 10.19 Forbearance Agreement with Lender
(first lender on Pisgah property)........................[4]
Exhibit 10.20 Forbearance Agreement with Lender
(second lender on Pisgah property).......................[4]
Exhibit 10.21 Investment Agreement (Dutchess Private Equities
Fund and DRH Investment Company, LLC .....................66
Exhibit 10.22 Registration Rights Agreement
(for Investment Agreement transaction)...................120
Exhibit 10.23 Escrow Agreement (for future transactions
under Investment Agreement) .............................137
Exhibit 10.24 National Financial Communications Corp.
Consulting Agreement (Public Relations Agreement)........144
Exhibit 23.0 Consent of Independent Auditors
(Murphy, Bennington & Co.)...............................151
Exhibit 23.1 Consent of Counsel........................................*
62
* To be filed by amendment.
[1] Incorporated by reference from the like numbered exhibit from the
company's Form 10-SB filed on July 9, 1999.
[2] Incorporated by reference from the like-numbered exhibit from the
company's Form 10-KSB for the fiscal year ended December 31, 1999.
[3] Incorporated by reference from the like-numbered exhibit from the
company's Form 10-KSB for the fiscal year ended December 31, 2000.
[4] Incorporated by reference from the like-numbered exhibit from the
company's Form 10-QSB for the quarter ended June 30, 2001.
63
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of Las
Vegas, Nevada, on October 25, 2001.
CAN-CAL RESOURCES, Ltd.
(Registrant)
Date: October 25, 2001. By: /s/ Ronald D. Sloan
------------------------------------------
Ronald D. Sloan, President and Treasurer
and Chief Financial Officer, and Director
Date: October 25, 2001 By: /s/ John Brian Wolfe
------------------------------------------
John Brian Wolfe, Director
Date: October 25, 2001 By: /s/ James Dacyszyn
------------------------------------------
James Dacyszyn, Director
Date: October 25, 2001 By: /s/ Barry E. Amies
------------------------------------------
Barry E. Amies, Director
64
--------------------
PROSPECTUS
--------------------
_______________, 2001
No dealer, salesman or other person is authorized to give any information
or make any information or make any representations not contained in the
prospectus with respect to the offering made hereby. This prospectus does not
constitute an offer to sell any of the securities offered hereby in any
jurisdiction where, or to any person to whom it is unlawful to make such an
offer. Neither the delivery of this prospectus nor any sale made hereunder
shall, under any circumstances, create an implication that there has been no
change in the information set forth herein or in the business of our company
since the date hereof.
65