UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 2 TO
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL
BUSINESS ISSUERS UNDER SECTION 12(B) OR (G) OF THE
SECURITIES EXCHANGE ACT OF 1934
Can-Cal Resources, Ltd.
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(Name of Small Business Issuer in its charter)
Nevada 88-0336988
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1505 Blackcombe St., Bldg. 2, Unit #203, Las Vegas, NV 89128
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, ( 702 ) 240 - 6565
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Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
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Securities to be registered under Section 12(g) of the Act:
Common stock, par value $.001,
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(Title of class)
Preferred stock, par value $.001, non-voting, 5% cumulative
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(Title of class)
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ITEM 1. DESCRIPTION OF BUSINESS
(a) Business Development
(a)(1) Form and Year of Organization
Can-Cal Resources, Ltd., a Nevada corporation ("the Company"), was
originally incorporated in the state of Nevada 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 Company formed under the laws of
British Columbia, Canada ("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. Its name was changed to Can- Cal Resources, Ltd. on July
2, 1996. This transaction is believed to have been exempt pursuant to Section
3(a)(9) of the Securities Act of 1933.
This transaction occurred prior to present management's involvement
with the company. It is present management's understanding that shares of
British Pubs USA, Inc. were exchanged for shares of NWE held by its existing
shareholders exclusively where no commission or other enumeration was paid or
given directly or indirectly for soliciting such exchange. It is management's
understanding that after the exchange the shareholders of British Pubs USA were
identical to the shareholders of NWE.
(a)(2) Any Bankruptcy, Receivership or Similar Proceeding
None.
(a)(3) Any Material Reclassification, Merger, Consolidation, or Purchase or
Sale of a Significant Amount of Assets not in the Ordinary Course of Business
On December 3, 1997, the shareholders of Can-Cal approved the
acquisition of the assets of Aurum LLC ("Aurum"), a California limited liability
company, which consisted of the Volcanic Cinders property at Pisgah, California,
and the cancellation of indebtedness to Aurum, in exchange for 2,181,752
restricted shares of its common stock (see Item 7, Certain Relationship and
Related Transactions).
On January 29, 1999, the Company sold its Canadian subsidiary, Scotmar
Industries, Inc. (See Item 7, Certain Relationships and Related Transactions).
(b) Business of Issuer
The Company is a mining company in the exploration stage. Since about
May 1996, the Company has been devoting its resources to examining various
mineral properties prospective for precious metals and minerals and acquiring
those which it deems promising. It has determined that its focus is to attempt
to locate and acquire properties prospective for precious metals and minerals in
the southwestern United States, principally in the states of California,
Arizona, and Nevada. The Company owns, leases or has an interest in five
properties. All properties which the Company has reviewed, and those which it
has acquired, are "grass roots" properties, in that they are not known to
contain any proven or probable reserves of precious metals or minerals. The
Company also had been conducting testing of various materials utilizing
independent contractors, at the Tyro Mill (near Bullhead City, Arizona), but
does not own the property or much of the equipment located on the property. The
Company has been informed that the Bureau of Land Management has issued an order
which requires the immediate cessation of all mineral processing and related
activities at the Tyro Mill. See ITEM 3. Description of Properties, Processing
of Material - Tyro Mill. It appears, therefore, that the company may no longer
have the use of the Tyro Mill.
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However, the Company has done an extensive amount of preliminary
testing and assaying on four of its properties which indicate the existence of
precious metals on those 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 Company has performed in excess of 700 "in-house" assays on mineral
samples from those properties and has caused a significant number of assays to
be performed by independent assayers, which has principally consisted of
performing fire assays. The Company's policy is to acquire those properties
which its assaying, or assaying by others, indicate the presence of precious
metals. The Company contracts with persons who are experienced in performing
assays, but are not independent assayers, to conduct "in-house" assays using
equipment provided by the Company, on material from properties it is considering
acquiring or which it has acquired. It may also send samples of materials on
which it obtains the most promising assays to outside independent assayers for
assays. However, even if assays indicate the existence of precious metals, a
very substantial amount of additional testing and drilling is necessary to
determine whether a property contains a sufficient amount of precious metals to
constitute "reserves," and whether any such reserves are capable of economic
production.
On April 12 1999, the Company hired Terry Rice as its Vice-President -
Operations. Mr. Rice is a metallurgical engineer and has 24 years of experience
in the mining industry. Mr. Rice is in charge of all the Company's mining and
mineral operations. None of the Company's other officers or directors has had
any prior experience in mining. Until Mr. Rice was hired, the Company had been
relying upon consultants and other persons experienced in mining with whom the
Company had contracted with respect to the identity of properties to be
investigated, reviewed and tested for possible acquisition, in the actual
testing of the properties, and in the attempted production from mineralized
material and ores obtained from others. The Company will continue to use
consultants to aid in all phases of its evaluation of properties.
Ronald D. Sloan, the Company's President, has worked for the Company on
a full time basis since May 1996.
On March 2, 1999, the Company purchased a reverse circulation drill rig
capable of drilling to a depth of approximately 150 feet and began a drilling
program on the Owl Canyon properties. The Company is currently utilizing that
rig to drill exploratory holes on its properties, beginning with the Owl Canyon
properties owned and operated by the S & S Joint Venture, in which the Company
owns a 50% interest. The Joint Venture has also acquired a core drill rig and is
currently engaged in drilling exploratory holes in the Owl Canyon properties.
The Joint Venture, as of 1999, had drilled approximately 58 holes and is engaged
in assaying samples and analyzing results of the drilling. The Company has also
conducted blasting operations and is conducting a trenching program on the Owl
Canyon properties. See the "S & S Joint Venture." Following completion of the
drilling and trenching programs on the Owl Canyon properties, the Company
intends to conduct a drilling program on its Cerbat property.
On March 16, 1999, the Company purchased a newly developed
"concentrator" from its Canadian inventor which produces concentrates from loose
material on placer claims. The concentrator is capable of concentrating
approximately 50 tons of material per hour. The Company also purchased a truck
which it utilized to transport the concentrator from Washington state to its
properties, and will use in its operations. The Company intends to attempt to
produce precious metals from placer material on its properties and from placer
material or properties belonging to others. Placer material is an unconsolidated
deposit of sand and gravel laid down in river beds, flood plains, lakes or at
the base of mountain slopes and estuaries. The Company is in the initial phases
of concentrating placer material, utilizing the concentrator.
In the event that drilling and/or testing by the Company indicates the
presence of precious metals or minerals on a property which may be able to be
produced on an economic basis, and the cost of doing so and/or the expertise
needed is beyond the Company's capabilities, the Company intends to attempt to
form a joint venture with a larger mining company to develop and operate the
property, where the larger mining
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company would pay the exploratory and, if warranted, development costs.
Alternatively, the Company may attempt to sell a portion, or possibly all, of
that property to a larger mining company. There is no assurance that the Company
will be able to enter into any such arrangement.
The Company has been attempting to produce precious metals utilizing
the facilities of the Tyro Mill near Bullhead City, Arizona. In March 1999,
after several months of testing and processing various materials, the Company
produced 16.8 ounces of gold from concentrates obtained from a third party and
received $3,654.88 after paying refining costs and fees. The Company does not
consider the production of precious metals from those concentrates economic.
Through Scotmar Industries, Inc., a Canadian subsidiary, the Company
was also engaged in the business of purchasing damaged trucks from insurance
companies and dismantling the vehicles for the sale of guaranteed truck parts to
others. This business was not profitable.
(b)(1) On January 29, 1999, the Company sold Scotmar Industries, Inc., its
Canadian subsidiary, which was engaged in the business of purchasing damaged
trucks from insurance companies and dismantling the vehicles for the sale of
guaranteed truck parts for repair shops, collision repair shops, and the retail
public.
(b)(2) The Company has shipped two dore bars to a California refinery to
separate into precious metals for sale. The Company received $3,654.88 from the
sale of the 16.8 ounces of gold produced.
(b)(3) The Company has not publicly announced any new product(s) or service(s).
(b)(4) The evaluation and acquisition of precious metals, mining properties
and mineral properties is very highly competitive. There are numerous companies
involved in the mining and minerals business, virtually all of which are larger,
better capitalized, and have more experienced personnel than the Company.
Exploration for and production of minerals is highly speculative and
involves greater risks than exist in many other industries. Many exploration
programs do not result in the discovery of mineralization and any mineralization
discovered may not be of a sufficient quantity or quality to be profitably
mined. Also, because of the uncertainties in determining metallurgical
amenability of any minerals discovered, the mere discovery of mineralization may
not warrant the mining of the minerals on the basis of available technology.
The Company's decision as to whether any of the mineral properties it
now holds, or which it may acquire in the future, contain commercially mineable
deposits, and whether such properties should be brought into production, will
depend upon the results of the exploration programs and/or feasibility analysis
and the recommendation of engineers and geologists. The decision will involve
the consideration and evaluation of a number of significant factors, including,
but not limited to: 1. the ability to obtain all required permits; 2. costs of
bringing the property into production, including exploration and development or
preparation of feasibility studies and construction of production facilities; 3.
availability and costs of financing; 4. ongoing costs of production; 5. market
prices for the metals to be produced; and 6. the existence of reserves or
mineralization with economic grades of metals or minerals. No assurance can be
given that any of the properties the Company owns, leases or acquires contain
(or will contain) commercially mineable mineral deposits, and no assurance can
be given that the Company will ever generate a positive cash flow from
production operations on such properties.
Although many companies and individuals are engaged in the mining
business, including large, established mining companies, there is a limited
supply of minerals land available for claim staking, lease or other acquisition
in the southwestern United States, where the Company conducts its activities.
The Company may be at a competitive disadvantage in acquiring suitable mining
properties, since it must compete with these
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other individuals and companies, virtually all of which have greater financial
resources and larger staffs than the Company.
(b)(5) The Company has processed ores and mineralized materials and produced
a limited amount of precious metals on a testing basis. Those materials have
come from various sources, none of which is material to the Company.
(b)(6) The Company is not dependent upon one or a few major customers.
(b)(7) The Company holds no patents, trademarks, licenses, franchises,
concessions, or royalty agreements, and has no labor contracts.
(b)(8) Mining operations are subject to statutory and agency requirements
which address various issues, including:(i) environmental permitting and ongoing
compliance, including plans of operations which are supervised by the Bureau of
Land Management ("BLM"), the Environmental Protection Agency ("EPA") and state
and county regulatory authorities and agencies (e.g., state departments of
environmental quality) for water and air quality, hazardous waste, etc.; (ii)
mine safety and OSHA generally; and (iii) wildlife (Department of Interior for
migratory fowl, if attractive standing water is involved in operations). See
(b)(11) below. Application is being made by Twin Mountain Rock Venture to add
the company's name to certain permits issued by San Bernardino County and
agencies relating to the Company's Volcanic Cinders property in Pisgah,
California. That application is made pursuant to the provisions of the Mining
Lease Agreement. The Company anticipates that its name will be added to those
permits in due course. See Item 3, Description of Properties - Volcanic Cinders
Property - Mining Lease Agreement with Twin Mountain Rock Venture.
(b)(9) Because any mining operations of the Company would be subject to the
permitting requirements of one or more agencies, the commencement of any such
operations could be delayed, pending agency approval (or a determination that
approval is not required because of size, etc.), or the project might even be
abandoned due to prohibitive costs (for example, water treatment facilities for
mine water discharge might be too expensive to build).
Generally, the effect of governmental regulations on the Company cannot
be determined until a specific project is undertaken by the Company.
(b)(10) The Company has not expended funds on research and development
activities. The Company does not consider testing or assaying of material or
processing of material as research and development activities.
(b)(11) Federal, state and local provisions regulating the discharge of material
into the environment, or otherwise relating to the protection of the
environment, such as the Clean Air Act, Clean Water Act, the Resource
Conservation and Recovery Act, and the Comprehensive Environmental Response
Liability Act ("Superfund") affect mineral operations. For mining operations,
applicable environmental regulation includes a permitting process for mining
operations, an abandoned mine reclamation program and a permitting program for
industrial development and siting. Other non-environmental regulations can
impact mining operations and indirectly affect compliance with environmental
regulations. For example, a state highway department may have to approve a new
access road to make a project accessible at lower costs, but the new road itself
may raise environmental issues. Compliance with these laws, and any regulations
adopted thereunder, can make the development of mining claims prohibitively
expensive, thereby frustrating the sale or lease of properties, or curtailing
profits or royalties which might have been received therefrom. In 1997, the S &
S Joint Venture spent approximately $32,000 to clean up areas of the Owl Canyon
properties as requested by the BLM. This work has been completed. The Company
cannot anticipate what the further costs and/or effects of compliance with any
environmental laws might be.
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(b)(12) The Company's President, Ronald D. Sloan, and Terry Rice, its
Vice-President - Operations, are the Company's only full-time employees. The
Company contracts with other persons to perform services as independent
contractors. At the present time, independent contractors are performing a
variety of duties for the Company and the S & S Joint Venture, such as drilling,
building roads, assaying, and refabricating the Tyro Mill. The Company paid
approximately $47,900 to independent contractors in 1997 and $147,200 in 1998
and $74,200 for the six months ended June 30, 1999. The Company has no computer
operations that it believes will be affected by the year 2000 issue.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(a) Plan of Operation
The Company's plan of operation through July 2000 includes completing
the drilling and trenching programs at the S & S Joint Venture's properties, in
which it owns a 50% interest (see Item 3. below), determining whether those
properties contain precious metals, and if so, determining whether the property
contains a sufficient amount of precious metal which can be mined at a profit so
as to constitute "reserves" and, if so, the amount of those reserves. Reserves
are that part of a mineral deposit which could be economically and legally
extracted or produced at the time of the reserve determination. If the property
contains "reserves" in an amount sufficient to justify development, the Company
intends to attempt to joint venture or sell an interest in the property to a
larger mining company, on the condition that the larger mining company will
develop the property.
Following completion of the drilling and trenching programs at the Owl
Canyon properties, the Company intends to conduct a drilling program on its
Cerbat properties, which it leases with an option to purchase (see Item 3), to
determine the nature and extent of mineralization existing on the property.
Since the Company has not performed any drilling operations on that property, it
is as yet unable to state the nature and extent or cost of the drilling it will
undertake. This drilling program is expected to begin in the latter part of
1999.
The Company also intends to concentrate various placer material
available to it using its newly acquired "concentrator." The Company has
conducted a significant number of "in-house" assays on various placer materials
available to it and, based upon those assays, believes that the placer material
contains precious metals which the Company believes may exist in sufficient
amounts to be mined commercially. If the testing continues to be promising, the
Company may seek to claim other placer properties. However, since its
concentrating activities have only recently been initiated, there is no
assurance that precious metals exist in the placer material in commercial
quantities, or that the Company can produce it at a profit.
In addition, the Company intends to continue its current program of
testing Volcanic Cinders from its property at Pisgah, California, to determine
whether they contain any precious metals. It is working with third parties who
are performing tests on that material.
Since it appears that the Tyro Mill may no longer be available to the
Company, it may curtail the Company's testing of various ores, unless the
Company is able to obtain the use of other suitable testing facilities.
It is not anticipated that the Company will purchase (or sell) any
significant amount of equipment or other assets, or experience any significant
change in the number of personnel who work for the Company, during the 12 months
ending July 2000.
The Company believes it has sufficient funds to satisfy its cash
requirements through August 2000. Should it be necessary for the Company to
obtain additional funds, the Company may attempt to sell an
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interest in one or more of its properties borrow funds from outside sources. The
Company believes that it may be possible for it to borrow additional funds,
using its Volcanic Cinders property as collateral, but there are no loan
facilities in place to date.
(b) Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
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The following discussion and analysis should be read in conjunction
with the consolidated financial statements of the Company and the notes thereto,
included elsewhere in this Form 10-SB.
Can-Cal Resources, Ltd. (the "Company") holds an interest in four
mineral properties in the southwestern United States. None of these properties
have any proven or probable reserves and none of these properties is in
production. As of December 31, 1998, the Company had invested approximately
$826,000.00 in the Owl Canyon joint venture. However, as of December 31, 1997
the Company has determined that its investment was "impaired" and accordingly
has written down the value of its investment in S&S Joint Venture by $764,300 as
of that date. See Note 16 to the financial statements for the two years ended
December 31, 1998. Accordingly, expenditures on this property are expensed, not
capitalized. Other than its operation through Scotmar Industries, the Company
has dedicated its efforts and financial resources to attempting to locate and
acquire suitable properties and in conducting exploration and testing on those
properties. Consequently, the Company has no operating income or cash flow from
its mineral operations other than the receipt of $3,654.88 that it received in
May 1999 from the sale of gold obtained from processing ore obtained from
others.
December 31, 1998 Compared with December 31, 1997
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All the Company sales, cost of goods sold, gross profit, operating and
general administrative expenses, and loss from operations for 1998 resulted from
Scotmar Industries, Inc. The Company expensed all expenses related to its
mineral operations. For 1997, all of the Company's "sales" were from Scotmar.
Scotmar's results for 1997 and 1998 were as follows:
1998 1997
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Sales $ 97,720 $ 79,258
Cost of good sold 74,783 51,323
Gross profit 22,987 27,935
Net loss for the year (100,344) (90,130)
In addition, the Company loaned Scotmar, as of December 31, 1998,
$83,400.00. Since Scotmar was sold after December 31, 1998, the Company will be
devoting all its resources toward its mining activities.
The Company estimates that it has spent in excess of $60,000.00 during
the six months ending June 30, 1999 on testing various materials and related
activities utilizing the Tyro Mill. It appears that the mill may no longer be
available to the Company. See "Processing of Material - Tyro Mill". Therefore,
unless the Company obtains other suitable testing facilities, its expenditures
on testing should be significantly reduced. Correspondingly, its ability to test
materials "in house" for precious metals content would likely be reduced.
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Liquidity
The following table summarizes working capital and total assets
<TABLE>
<CAPTION>
Six Months Ended June 30, Fiscal Year Ended December 31,
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1999 1998 1997
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<S> <C> <C> <C>
Working Capital $ 162,400.00 $ 117,900.00 ($ 10,300.00)
Total Assets $ 987,000.00 $ 877,700.00 $ 866,000.00
</TABLE>
The Company's capital needs have been met by equity subscriptions and
loans from related parties (see Item 7. Certain Relationships and Related
Transactions and Notes 7 and 8 to the Financial Statements).
The Company believes it has sufficient working capital to fund its
ongoing exploration program and to meet its administrative and overhead expenses
anticipated over the next year. However, the Company will likely require
additional financing to fund further exploration. The amount of such additional
funding is not determinable as of this date. The Company does not expect to
receive any revenue from any of its properties in the foreseeable future. Debt
financing may be feasible using the Volcanic Cinders property as collateral, but
no loan facilities have been established to date, and such debt financing may
not be feasible.
The Company's financial success will be dependent upon the extent to
which it can discover mineralization, and the economic viability of developing
its mineral properties. Such development may take years to complete and the
amount of resulting income, if any, cannot be determined with any certainty.
The Company has no material commitments for capital expenditures.
ITEM 3. DESCRIPTION OF PROPERTIES
The Company owns or has an interest in five properties, one which it
owns in fee (the Volcanic Cinders property) and one which it leases with an
option to purchase (the Cerbat property). The remaining properties are
unpatented mining claims acquired through filings with the BLM. 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.
Unpatented claims are located upon federal public land pursuant to
procedure established by the General Mining Law. 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
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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 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 or under
the doctrine of extralateral rights.
The U.S. Congress has, in legislative sessions in recent years,
actively considered several proposals for major revision of the General Mining
Law, which governs mining claims and related activities on federal public lands.
If any of the recent proposals become law, it could result in the imposition of
a royalty upon production of minerals. It remains unclear whether the current
Congress will pass such legislation and, if passed, the extent such new
legislation will affect existing mining claims and operations. The effect of any
revision of the General Mining Law on the Company's operations cannot be
determined conclusively until such a revision is enacted.
THE S & S JOINT VENTURE'S OWL CANYON PROPERTY
As of September 13, 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. The Locator obtains a possessory right to any contained
minerals. The S & S Joint Venture has since increased its holdings to
approximately 1,600 acres of placer claims, of which 780 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. The property is
accessible by a road which consists of nine miles of paved surface and fourteen
miles of dirt surface. Pursuant to the terms of the Agreement, the Company and
the Schwarz family each have a 50% interest in the S & S Joint Venture which is
operated by the Management Committee, comprised of Mr. Sloan the Company's
president, and Ms. Robin Schwarz, a member of the Schwarz family. Pursuant to
the terms of the Joint Venture Agreement, the Company has been and is funding
the Joint Venture's operations. Any income from the Joint Venture will first be
paid to the Company to repay monies advanced to the Joint 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 shares of its common stock to the Schwarz
family, subject to investment restrictions. The shares may only be sold in
compliance with United States securities laws, including Rule 144. Appropriate
stop transfer instructions have been issued to the Company's transfer agent.
None of those shares have been sold. The shares were issued with "No Sale"
restrictions, all of which have expired, except that 100,000 of the shares
cannot be sold until after November 5, 1999. As of December 31, 1998, the
Company had a total investment of approximately $845,000 in the S & S Joint
Venture. However, the carry value of this investment is $19,000 on the Company's
books. See Note 16 to the financial statements for the two years ended December
31, 1998 for information on the impairment of this investment.
The S&S Joint Venture transaction was negotiated at arms length between
the Company and the Schwarz family. The Schwarz family insisted upon receiving
500,000 shares of the Company's common stock in exchange for a 50% interest in
their mining claims in Owl Canyon. The Company had numerous assays performed on
surface samples from the Owl Canyon property and determined that the Owl Canyon
property could have significant value. Therefore, the Company, as of September
13, 1996, entered into a Joint Venture Agreement with the Schwarz family which
provided that the Company issue 500,000 Can-Cal
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common shares in the name of the Schwarz family to be held in escrow pending
determination by Can-Cal, at its sole discretion, whether precious metals exist
on the Owl Canyon properties and whether it was economically feasible to produce
them. Can-Cal had until September 30, 1997 to make that determination. The
Company made the determination and delivered the 500,000 shares to the Schwarz
family. However, in addition to the restrictions imposed by the Securities Act
of 1933, the Schwarz family agreed that in no event could the shares be sold by
them earlier than in accordance with the following schedule:
May 5, 1998 200,000 shares
November 5, 1998 100,000 shares
May 5, 1999 100,000 shares
November 5, 1999 100,000 shares
There was no trading market for the Company's common stock when this
transaction was negotiated. None of the shares have been sold.
Since there was no trading in the shares of the Company when the
Company agreed to enter into the S&S Joint Venture, the shares issued to the
Schwarz family were, for financial statement purposes, valued at the book value
of the shares as of December 31,1996, which was $.038 per share, for a total
valuation for financial statement purposes of $19,000.
The Joint Venture has the following equipment and facilities, all of
which are used, but are operational: a refurbished 8-level screen classifier
which separates various grades of ores; five concentrate tables to obtain
concentrates from the "in-house" processed ore; a fire assay furnace so that the
Venture is able to assay ores and concentrates at its own facility without using
independent sources; a smelting furnace for the production of precious metals;
an impact mill which is used for crushing rock; a conveyor feeding system, built
for quantity, fed by a front end loader which was purchased in 1998 to process
mineralized material from lode mining claims; an additional screening system
constructed for the processing of placer material; several platforms designed
and constructed to access the furnaces and ore loading areas; two 400 lb.
capacity furnaces, (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 from four levels of the property; a self
contained trailer to facilitate the transportation of water to Owl Canyon; two
air compressors, one a portable for jack hammering on the hillside, the second
on a trailer for portability up and down the canyon; a core drill capable of
drilling to about 80' for further testing; equipment to construct a 7,500'
bucket line to transport head ore from the mountain to the mill site; and
rebuilt engines and new engines for the milling facility. A new generating power
plant has also been added. New roads have been constructed throughout the canyon
to allow accessibility to the various deposits. The Venture spent approximately
$32,000 to clean up all areas of the property to the BLM's satisfaction.
The Joint Venture retained Wilmarth & Associates, which is operated by
L. Wade Wilmarth, a registered geologist, to prepare a preliminary geologic
mapping report of the Owl Canyon properties. That report, dated January 21,
1998, contains the following description of the geological setting of the Owl
Canyon properties.
GEOLOGICAL SETTINGS
Geological units within the Silurian Hills consist of
Precambrian metamorphic and granitic rocks; approximately
11,000 feet of Precambrian clastic sedimentary rocks assigned
to the Pahrump Group; Paleozoic (?) recrystallized carbonate
rocks (Riggs Formation), Cretaceous (?) granitic rocks which
intrude older rocks; Tertiary volcanic and sedimentary rocks
and Cenozoic monolithologic megabreccia deposit consisting of
Paleozoic carbonate rocks
10
<PAGE>
derived from apparently, the Goodsprings Dolomite (which
occurs only within the northeast section of the Silurian
Hills) and Cenozoic fan gravels and terrace gravels. Terrace
gravels locally overlie the older rocks.
A relatively flat, locally domed faulted, thrust fault forms
the main structural element of the Silurian Hills. The fault,
termed the Riggs thrust, separates Precambrian rocks of the
Pahrump Group on the lower plate from Paleozoic rocks of the
Riggs Formation on the upper plate. Faulting the Riggs thrust
are significant and numerous north/south to near north/south
faults. Underlying the Riggs thrust are a "chaos" structure
and a "megabreccia" deposit. As noted in Reference 2, "The
chaos is a mass of large and small blocks generally lenticular
and elongate in shape and ranging in size from pods a few feet
in diameter to blocks hundreds of feet long." Each block is
bounded on all sides by surfaces of movement.
The Owl Canyon area and southerly adjacent terrain exhibits an
overall strike of approximately N70W for the canyon drainages
and immediate southerly ridge lines. To the north, Owl Canyon
exposes Paleozoic(?) dolomite rocks with remnant bedding.
Within Owl Canyon, Precambrian metasediments are exposed
locally throughout the canyon within bedded and recrystallized
dolomite rock. Along the northerly-facing ascending southern
canyon wall, in fault-contact between recrystallized dolomite
rocks are Precambrian metasediments and granitic rock. Capping
the immediate ridge, south of Owl Canyon are recrystallized
Paleozoic dolomite rocks. To the south descending from the
main ridge line, in fault contact with dolomite rocks, are
Precambrian granite and metamorphic rocks. Locally, quartzite
rock occurs throughout the rock sequence.
Structurally, described rock units are in fault contact
aligned primarily with the overall trend of Owl Canyon (N70W).
Pervasive faulting oriented near north/south to north/south
occurs throughout the Owl Canyon area and the southerly
terrain. Dominant closely spaced north/south trending faulting
occurs in the near central area of Owl Canyon where they
intersect with northwest trending faults. In this area,
vicinity of north/south faulting, the rocks are highly
fractured with secondary alteration zones due to migrating
hydrothermal fluids. The strike and dip of remnant bedding,
foliations and rock fabric parallel canyon and ridge
alignments. Dominant dip is to the south at moderate to steep
angles with an average near 45 degrees.
Mineralization of the mapped area appears to be related to
Tertiary(?) hydrothermal fluids migrating along north/south
oriented faulting and at the contact between metamorphic and
dolomite rocks. Along the southerly ridge adjacent to Owl
Canyon, metalliferous deposits along north/south oriented
fractures are prevalent near the central area of Owl Canyon.
Centrally, along the southern side of Owl Canyon, fault
contact areas exhibit localized zone alteration from migrating
hydrothermal fluids producing mineral-rich deposits (pyrite,
chalcopyrite, argentite(?) manganese, limonite sylvanite (?),
malachite, copper, lead, barite, scheelite, gold and silver
tellurides). Typically, hydrothermal deposits range in width
from approximately 18 inches to 3 feet.
11
<PAGE>
OWL CANYON ASSAYS
Although the Joint Venture has the capability to, and does, perform its
own fire assays, it has sent both samples and whole rocks taken from the surface
of the property to independent laboratories for fire assays. Most of the samples
from the lode claims have been sent to Cone Geochemical, Inc., Denver, Colorado,
an assay firm. 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 was 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. Cone Geochemical, Inc. reported the
following assay on that sample:
8FTSOQ 11-24 Owl Canyon 1.351 oz/ton gold/66.5 oz/ton silver
Wilmarth & Associates then selected four surface samples from
different areas of the lode claims which they sent to Cone Geochemical, Inc. for
fire assay. The results were as follows:
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
The Joint Venture also had another mining Company perform assays on
surface samples which it took from the surface of another area of its lode
claims. That mining Company reported the following results:
Owl Canyon ssq rock & crushed
(Super Quartz) 0.400 oz/ton gold/13.855 oz/ton silver
Super Quartz "Owl Canyon" 0.590 oz/ton gold/84.545 oz/ton silver
The Joint Venture also sent a surface sample to Dr. Ralph Pray, an
assayer, who reported the following results:
RRXX Owl Canyon 2.41 oz/ton gold/24.5 oz/ton silver
The Joint Venture has performed in excess of 500 "in-house"assays from
surface samples on its Owl Canyon lode claims, over 90% of which produced gold
and/or silver beads in varying sizes. Although the work to date indicated that
there are mineralized materials on the property, the extent, grade and ease of
processing of those materials has not been established.
12
<PAGE>
Following two years of extensive exploration work, testing, and
assaying on the claims, the management committee determined there is sufficient
evidence to continue further exploration of the property, including both lode
and placer areas. Following this determination, the Joint Venture acquired two
drill rigs, one reverse circulation rig, and one core rig, which are currently
drilling a series of exploratory holes. 58 exploratory holes have been drilled
to date in two small sections of the properties under the direction of the
geologists and others with whom the Company contracts. Samples were taken from
each hole for testing, assaying and analysis. This process is ongoing. In
addition, in April and May 1999, the Joint Venture conducted two blasting
operations in which it opened up areas of the property which it believes contain
a vein or veins with precious metal content. The material obtained from drilling
and blasting is currently being assayed and analyzed.
The Joint Venture is presently conducting a trenching program under the
supervision of Bruce Ballantyne, a mining consultant from Vancouver, British
Colombia. The Company is focusing on mapping of the entire Owl Canyon project
and will continue to take samples from various areas of the property for
independent analytical analysis and assay. The Company intends to have a report
prepared evaluating the Owl Canyon properties. This project should be completed
by the fall of 1999.
THE CERBAT PROPERTY
On March 12, 1998, the Company entered into 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. The Company has paid $10,000 as the initial lease payments and is
obligated to pay the sum of $1,500 per quarter as minimum advance royalties. To
date, the Company has made all minimum advance royalty payments required. The
Company has the option to purchase the property for $250,000, less payments
already made. In the event the Company produces precious metals from the Cerbat
Property prior to the exercise of the Purchase Option, it is required to pay to
the lessor a production royalty of 5% of the gross returns received by the
Company from the sale or other disposition of metals produced. An exploratory
drilling program is scheduled for 1999 on the claims to determine the length of
the structures in existence on the property.
The Company has been informed that the property contains several mine
shafts of up to several hundred feet in length and tailing piles containing
thousands of tons of tailings. The Company has also been informed that the
Cerbat Property has not produced since the late 1800's. However, prior to its
entering into the Lease and Purchase Option Agreement, the Company received
assays of samples taken from tailings and near the entrance of the mine shafts,
as well as engineering reports from reputable assayers and engineers indicating
the presence of precious metals in what may be commercial amounts. The Company
also performed "in-house"assays on samples taken from the property, with similar
results. Extensive additional testing will be necessary to determine whether the
property contains any reserves.
CERBAT GEOLOGY
The Company's geologic information regarding the Cerbat claims comes
from a report prepared by a consulting engineer in 1943. The relevant
information contained in that report is as follows:
Veins:
The vein system of the Cerbat Group consists of two
parallel veins which are approximately 70 feet apart at the
New Discovery shaft on the Rolling Wave claim. The eastern
branch is, in my opinion, the southern exposure of the main
Cerbat vein on which the principal development work has been
done to a vertical depth of 250 feet. This is a strong
Mineralization outcropping at intervals for approximately 3000
feet in the Cerbat, Red Dog and Rolling Wave claims. The vein
is steeply dipping and varies in width from 4.5 feet in
13
<PAGE>
its most southerly exposure to an average of 5.5 feet in the
main workings of the Cerbat mine some 3000 feet to the north.
The vein material is limonite in a quartz gangue carrying
cerrusite with occasional bunches of very high grade galena.
The accompanying metals are gold and silver. The western
branch of these parallel veins shows only a short segment
exposed at and near the New Discovery shaft. The hanging wall
of this vein is well formed and sharply defined but the
footwall as exposed in the superficial workings of this shaft
is a series of short slips parallel to the strike of the vein,
N55W. They have created what is apparently a false wall which
is soft and "drumy" indicating a talcose condition.
Insufficient work has been done in the single short,
superficial drift to determine what extent these slips may
have affected the continuity of the ore both horizontally and
longitudinally. If the Cerbat workings had been available for
study a more definite conclusion could probably be reached.
The primary ore minerals in evidence are galena, sphalerite
and occasional small showings of pyrite.
Location:
The Cerbat Group of claims is located in the Hualapai
Mining District about 15 miles north from Kingman which is the
nearest railroad and supply point. The state highway from
Kingman to Boulder Dam and Las Vegas passes within four miles
of the property and a good County road connects the state
highway with the mine. The County road passes through the
Rolling Wave and Red Dog claims making transportation
available to the lower workings. An old road connects the New
Discovery shaft with the Cerbat workings near the crest of the
hill. Because of disuse this road needs some minor repairs to
effect truck transportation to the upper Cerbat workings. This
group of claims is favorably situated for trucking and
transportation purposes.
THE VOLCANIC CINDERS PROPERTY
During December 1997, the Company acquired fee title to the Volcanic
Cinders property at Pisgah, San Bernardino County, California. The property is
comprised of approximately 120 acres, containing a very large hill of volcanic
cinders, with easy road access from Interstate 40. Garvin Surveying Sciences, a
California based company, completed a survey of the property estimating
approximately 13,500,000 tons of volcanic cinders above the surface. The Company
has not verified any tonnage existing below the surface. Approximately 3,000,000
tons of the cinders have been screened and stockpiled. The following equipment
is located on the property: a large ball mill (which crushes the cinders), truck
loading pads, two buildings, large storage tanks, conveyors to load trucks, ore
silos and grizzly screening equipment. The Company has caused independent assays
to be performed for gold, silver, and platinum group metals. Those assays (fire
assay for gold and nickel sulfide assays for platinum group metals) indicated
only trace amounts of those metals. The Company has taken samples from 30
different locations on the surface of the cinder hill and performed "in-house"
assays. Of the samples, 28 proved positive for the existence of gold and silver
in varying, although small, amounts.
Mining Lease Agreement with Twin Mountain Rock Venture: In order to
generate cash for its operations, the Company, effective May 1, 1998, entered
into a Mining Lease Agreement on its Volcanic Cinders property with Twin
Mountain Rock Venture, a California general partnership ("Twin Mountain"), which
is an indirect subsidiary of Peter Kiewit & Sons, Inc. of Omaha, Nebraska. The
Agreement is for an Initial Term of ten years, with an option to allow Twin
Mountain to renew the Lease for an Additional Term of ten years. The Company has
agreed to make 600,000 tons of volcanic cinders available to Twin Mountain
during the Initial Term, and an additional 600,000 tons during the Additional
Term, which Twin Mountain will process and sell primarily as decorative rock.
The Agreement provides for minimum annual royalty payments by Twin Mountain of
$22,500 per year for the Initial Term and $27,500 per year for the Additional
Term. Twin Mountain is also obligated to pay the Company a monthly production
royalty for all material
14
<PAGE>
mined, processed, consumed, and/or sold or removed from the premises, calculated
as follows: i. the greater 5% of gross sales F.O.B. Pisgah Crater, or $.80 per
ton for material used for block material; and ii. 10% of gross sales F.O.B.
Pisgah Crater for all other material; and iii. Twin Mountain receives a credit
against the amount of any production royalty payment for minimum royalty
payments previously made. The Company received the initial payment of $22,500
from Twin Mountain upon execution of the Agreement. Twin Mountain has not yet
removed any material from the property and has indicated to the Company that it
is unlikely it will remove any such material for a period of about two years.
However, Twin Mountain does not have the right to remove or extract any precious
metals from the property. Twin Mountain has agreed to use its good faith efforts
to cause its mining permit, reclamation permit, and air quality permit to be
issued in the name of both Twin Mountain and the Company. This process is
currently underway. The addition of the Company's name to those permits will
save the Company significant effort and expense related to obtaining those
permits.
Financing Based on the Twin Mountain Lease Agreement: On February 12,
1998, in order to obtain additional funds for its operations, the Company
entered into a Loan Agreement with a lender in which the lender agreed to loan
the Company up to $150,000, subject to the Company entering into a Mining Lease
Agreement with Twin Mountain which was acceptable to the lender. The Mining
Lease Agreement with Twin Mountain was acceptable to the lender. That Agreement
was amended on June 1, 1998, to reduce the maximum amount of the loan to
$127,500. $25,000 was advanced to the Company by the lender on signing. The
lender has loaned the Company a total of $77,500 and the Company does not
anticipate that any additional amounts will be loaned. The loan bears interest
at the rate of 8% and is due and payable on July 31, 2001. As security for the
loan, the Company has granted the lender a first deed of trust on the Volcanic
Cinders property at Pisgah and has assigned all payments due it from Twin
Mountain to the lender until such time as the loan and interest are paid in
full. In May 1999, Twin Mountain made the second payment of $22,500 to the
lender pursuant to the assignment of payments.
On May 10, 1998, the Company sold 100,000 shares of its common stock to
James Dacyszyn, a citizen and resident of Canada, at $.45 per share ($45,000).
Mr. Dacyszyn was elected a director of the Company on February 8, 1999. Mr.
Dacyszyn had the option at the end of the year to return the 100,000 shares in
exchange for the Company's Promissory Note due one year from the date of
issuance, with interest at 8%, secured by a second mortgage on the Company's
Volcanic Cinders property. Mr. Dacyszyn has elected to retain his shares. The
price of $.45 per share was determined based on the approximate price at which
the Company's common shares were then trading in the marketplace.
Plasma Furnacing Testing: In the summer of 1998, the Company engaged in
a testing program in which the volcanic cinders were subjected to plasma
furnacing. The Company has submitted samples of volcanic cinders to a third
party which has informed the Company that it has developed a proprietary plasma
furnace, including proprietary plasma furnacing techniques. The Company does not
have access to the plasma furnace or any related technology. It is the Company's
general understanding, however, that, among other things, plasma furnacing
includes heating the cinders to extremely high temperatures, far in excess of
those utilized in conventional assay procedures, and then treating that material
utilizing proprietary techniques to separate any precious metals from the
cinders. The plasma furnacing was conducted exclusively by the third party to
whom the Company submits samples and from whom it receives the treated material.
The Company has caused treated material from the surface of the
Volcanic Cinders property and also from concentrates of its volcanic cinders
obtained from plasma furnacing to be analyzed by a highly experienced
independent assayer selected by it who utilizes Induced Coupled Plasma assaying
equipment. The analytical reports received to date from the assayer indicate the
presence of precious metals. However, all testing to date has been performed on
small quantities of the volcanic cinders, e.g., three ounce samples. These
analytical procedures are not equivalent to conventional fire assay tests. The
Company has been informed that the plasma furnacing equipment is still under
development and is not presently capable of
15
<PAGE>
treating large amounts of cinders. As a result, the Company has not been able to
have any of its volcanic cinder material plasma furnaced since the fall of 1998.
It is the Company's intention to use its best efforts to cause additional
testing to be conducted and, if possible, to cause greater amounts of its
volcanic cinders to be plasma furnaced to determine the presence of precious
metals in the materials. No precious metals have been produced from the volcanic
cinders and there is no assurance that any will be produced.
The Company has been advised orally by the developer of the plasma
furnacing technology and equipment that if the equipment is fully developed and
becomes operational, and if production results are successful, the Company will
be given the first opportunity to negotiate a long-term arrangement or acquire
the technology and related equipment. Any such arrangement would be subject to
appropriate due diligence. There is no assurance that the equipment will be
fully developed, become operational, or that it will achieve any production or
any such arrangement can be achieved.
Reductive Fusion Testing: In May 1999, the Company engaged a California
company which indicated that it had developed a proprietary Reductive Fusion
process to extract precious metals from materials containing those metals. The
Company had tests run on 90 gram samples of its volcanic cinders and
concentrates therefrom which had been treated by the Reductive Fusion Process.
The analytical results indicated the presence of precious metals. The Company
then had the California company process 400 lbs. of its volcanic cinders which
it had processed and obtained concentrates. Those concentrates are currently
being further processed and tested to determine whether, in fact, they contain
any precious metals and if they do contain any precious metals, whether they can
be extracted on an economic basis. There is no assurance that any precious
metals exist in the volcanic cinders, or that if they do exist, that they can be
profitably extracted. Additional tests are being made on cinders treated by this
reductive fusion process.
THE LIMESTONE PROPERTY
This property consists of 460 acres of lode claims on BLM property ,
which the Company regards as prospective for use in cement. The property is
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 Company is informed that
the property was previously mined by a cement company which discontinued its
mining operation around 1981. There are other companies currently mining
limestone deposits in the same general area. The Company has initiated
discussions with companies engaged in the cement business with respect to the
possible sale of the property to them, but has not yet reached any agreement to
do so. There is no assurance that those companies have any interest in acquiring
the property or that the Company will be able to reach any agreement to sell it.
The Company does not intend to attempt to mine the property itself.
HASSYAMPA PROPERTY
This property consists of 960 acres of placer claims on BLM property
near Tonapah, Arizona. The Company has spent approximately four months testing
and assaying this placer material which, in the Company's opinion, may contain
precious metals. However, further testing of the property will await finishing,
pending exploratory work on other properties the Company owns or is considering
acquiring.
PROCESSING OF MATERIAL - TYRO MILL
During 1996 and 1997, the Company utilized the facilities of the Tyro
Mill located near Bull Head City, Arizona to test and process certain materials
and conduct assaying and other related operations. In that connection, the
Company advanced a substantial amount of funds to Tyro, Inc., a Nevada
corporation ("Tyro"), which asserted that it owned or had the right to acquire
the Tyro Mill and equipment located thereon.
16
<PAGE>
Certain disputes arose between the Company and Tyro, which were resolved by an
agreement executed between the Company, Tyro, and its two owners, individually,
whereby Tyro and its two owners individually agreed to pay the Company the sum
of $65,000. That debt is secured by a financing statement on a substantial
amount of equipment at the Tyro Mill, including mixers, electronic equipment,
electrowinning equipment, pumps, tanks and related materials. The $65,000 was
due and payable on May 10, 1998. However, only $15,000 has been paid and the
balance of $50,000, plus interest, is currently in default.
On March 30, 1998, the Company instituted litigation against Tyro and
its two owners to collect the balance of the funds owed, plus interest, to which
each of the Defendants executed confessions of judgment. The Company has not
pursued the collection of the amounts owed as of this time, pending its
determination of the feasibility of utilizing the Tyro Mill in its operations
and possible negotiations with persons claiming an interest in the Mill site
and/or the equipment located thereon.
The Tyro Mill is located on BLM land. The Company has investigated the
ownership of the title to the claims to the property on which the Tyro Mill is
located and the equipment located thereon. While the issue is not free from
doubt, and will likely be contested, the Company believes that the proper owner
of the claims is someone other than Tyro. The Company had been negotiating with
that person to retain the use of the Tyro Mill, even if the ownership is
transferred to another party. Disputes may also exist regarding ownership of
certain equipment at the Tyro Mill.
The Company is informed that the Tyro Mill was constructed, beginning
in 1980-82, at a cost in excess of $3 million. Additional equipment has recently
been purchased by the Company and installed in order to accommodate incoming
material for processing purposes. The mill consists of a carbon and pulp factory
and includes buildings, a laboratory, five 33,000 gallon leach tanks with
agitation, numerous smaller tanks, an electrical plan, 120 thousand gallon water
storage tanks, a 4 inch water line approximately five miles in length from Lake
Mohave, an atomic absorption analyzer, a Northwest 20 ton crane, an Eimco filter
press, an Ametek belt filter, a jaw crusher, ball mills, an 8 yard 400 Hough
loader, furnaces, conveyors; electrowinning equipment, a primary crushing
circuit capable of crushing 80 tons per hour, four Chuga carbon pulp 3,000 pound
tanks, three 150 horsepower air compressors, a power line 4 1/2 miles long, and
two 500 KW power service transformers. The plant was designed to process a
capacity of 500 tons of ore per day.
Beginning in about May 1998, the Company obtained the use of the Tyro
Mill on a limited test basis to test various ores and mineralized material to
determine if they contained precious metals and, if so, whether they could be
extracted on an economic basis. The Company contracted with a third party which
provided a foreman, a person experienced in conducting various assaying
procedures and personnel capable of operating the equipment located at the mill
to conduct testing and processing. The Company utilized the facilities of the
Tyro Mill in producing the 16.8 ounces of gold it produced.
The Tyro Mill is not currently permitted. The Mill will require an
aquifer permit and an air quality permit, with a reclamation plan and bonding
and perhaps other permits from Arizona state agencies and the BLM (Bureau of
Land Management) an agency of the United States Government. The Company has been
informed by the person with whom it has been contracting to utilize the Tyro
Mill that on July 22, 1999 the BLM had rejected his Notice and Plan of Operation
for the Millsite claims covering the Tyro Mill and issued a Notice of
Noncompliance and Cessation Order which requires the immediate cessation of all
mineral processing and related activities at the Tyro Mill. That person has the
right to appeal the decision or submit an acceptable plan of operations. The
Company is informed that an appeal has been filed and is pending. At this time,
subject to the outcome of the appeal, it appears that the Company may no longer
be able to utilize the Tyro Mill. The Company is informed that the person
asserting rights to the Tyro Mill is attempting to convey his title to a
financially sound entity with the capability of obtaining full permitting.
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<PAGE>
SCOTMAR INDUSTRIES, INC., dba TRUCK CITY
Truck City, which was owned and operated by a wholly owned Canadian
subsidiary of the Company, Scotmar Industries, Inc., engaged in the business of
purchasing damaged trucks from insurance companies and dismantling the vehicles
for the sale of guaranteed truck parts to repair shops, collision repair shops
and the retail public. When Truck City was purchased, management decided to
convert it to the specialized field of General Motors trucks only. The Company
was prepared to sustain some losses until the conversion was complete. However,
the conversion required substantial additional funding. The Company determined
to sell Scotmar Industries because it believed that its available funds could be
better utilized in acquiring mineral and testing properties and because Scotmar
Industries would likely continue to incur losses unless and until it obtained
significant additional financing. On January 29, 1999, the Company sold Scotmar
Industries to an unaffiliated British Columbia Company (see Item 7. Certain
Relationships and Related Transactions).
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Set forth in the table below is the number of equity securities of the
Company beneficially owned by all officers and directors as of August 9, 1999.
There were 7,949,782 shares of common stock outstanding on that date. There are
no persons other than those listed below who, to the Company's knowledge, own
more than 5% of the Company's common shares.
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of
Title of Class Beneficial Owner Beneficial Owner Percent of Class
- -------------- ---------------- ---------------- ----------------
<S> <C> <C> <C>
Common stock, par Ronald D. Sloan*, 785,431 9.87%
value $.001 4312-212 Street,
Langley, B.C., Canada
Common stock, par John Brian Wolf, 3157 785,431 9.87%
value $.001 Silverthrone Drive,
Coquitlam, B.C.,
Canada
Common stock, par Barry E. Amies, 14198 290,071 3.64%
value $.001 Tamarack Drive,
Vernon, B.C., Canada
Common stock, par James Dacysyzn, #64,
value $.001 9703-41 Avenue, 572,500 7.20%
Edmonton, B.C.,
Canada
Common stock, par Terry Rice, 2512 -0- -0-
value $.001 Valentine Avenue,
Kingman, Arizona
86401
Common stock, par All Officers and 2,433,433 30.61%
value $.001 Directors as a group
<FN>
* Mr. Sloan's wife owns 100,000 shares of the Company's common stock.
Mr. Sloan disclaims any beneficial ownership in those shares.
</FN>
</TABLE>
18
<PAGE>
There are no arrangements which may result in a change in control of
the Company. There are no warrants or options outstanding to purchase any shares
of the Company.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS
Ronald Daniel Sloan, age 58, is President and Treasurer, and a Director
of the Company. 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, Mr. Sloan 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. He was elected President on May 2, 1996 and a Director on May 3, 1996.
Terry Rice, age 52, joined the Company in April 12, 1999 as Vice
President - Operations. Mr. Rice attended the University of Idaho from 1989
through 1994 and received a B. Sc. in metallurgical engineering in 1994. From
January 1975 through 1985, Mr. Rice worked with Intermountain Mineral Engineers,
Inc. as a metallurgist and mill foreman. He was responsible for metallurgical
reports and testing, lining out crews, and scheduling maintenance at
Intermountain's 250 tpd custom mill that milled for themselves, as well as
several other companies, including Bunker Hill and Independence. From
approximately 1985 through 1990, Mr. Rice worked for American Smelting and
Refining Company as an underground miner. He worked as raise, drift and stope
miner. As a result of an injury, he was unable to continue as an underground
miner and enrolled at the University of Idaho. From January 1990 through
December 1995, Mr. Rice worked part time for Pintlar Corporation, Citizens
Utilities, and the University of Idaho, doing computer drafting and driving a
truck while earning a degree at the University of Idaho. From January 1995
through July 1998, Mr. Rice worked for Addwest Minerals, Inc. at its Gold Road
Mine as a metallurgist, mill superintendent, and environmentalist. He was
responsible for metallurgical testing, daily and monthly metallurgical and mill
reports, the mill budget, purchasing, scheduling maintenance, environmental
sampling and reporting, lab and mill supervision, selling gold, and coordinating
the mill with the mine at a 500 tpd CIP mill. From July 1998 through December
1998, Mr. Rice worked at Martha Mine in Oregon and prepared a feasibility study
on opening a small mine and mill.
Brian John Wolfe, age 46, is Secretary and a Director of the Company.
He was elected Secretary on May 2, 1996 and a Director on May 3, 1996. 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.
Barry E. Amies, age 55, has been Vice President and a Director of the
Company since October 14, 1998. 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.
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James Dacyszyn, age 68, was elected as a Director of the Company on
February 8, 1999. 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 brings his
experience in materials engineering, including drill testing and engineering
evaluation of fine grained soils, sands and gravels.
Messrs. Sloan and Wolfe may be deemed promoters of the Company in its
present business and operations.
ITEM 6. EXECUTIVE COMPENSATION
No Officer or Director of the Company, other than Mr. Rice, receives
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. Mr. Sloan, a resident of Vancouver,
British Columbia, spends virtually all of his time at the Company's properties
and is reimbursed for the costs of maintaining an apartment in Las Vegas (which
also serves as the Company's executive office).
The Company does not have any stock option or similar plan. In the
event the Company's financial condition becomes adequate to provide for the
payment of other compensation, the Company will consider the issue at that time.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Acquisition of Assets From Aurum LLC
During 1997, the Company's operations were financed in part by funds
loaned by Aurum LLC ("Aurum"), a California limited liability Company. Messrs.
Sloan and Wolfe, Directors of the Company, each owned 36% of Aurum. As of
October 27, 1997, Aurum had loaned $315,045.98 to the Company. The Company was
unable to repay those funds because it has been using all its available funds in
connection with its mining activities, principally the S & S Joint Venture.
In October 1997, the Directors of the Company, including Messrs. Sloan
and Wolfe, determined that it would be in the Company's best interests to
acquire the Pisgah Volcanic Cinders property from Aurum, as well as to seek
cancellation of the Company's indebtedness to Aurum and seek possible additional
financing from Aurum on an equity, as opposed to the debt, basis.
The Company determined that by acquiring the Pisgah Volcanic Cinders
property and cancellation of its indebtedness for stock, it would become debt
free, and it would give the Company a significant positive book value and would
make it far more likely that it would be able to obtain financing to continue
its exploration on the S & S Joint Venture property (Owl Canyon), as well as
test the Pisgah Volcanic Cinders property.
Aurum indicated it believed that it could sell its Volcanic Cinders
property, which it acquired from the Burlington Northern Santa Fe Foundation on
December 19, 1996, for a price in excess of its cost. However, Aurum agreed, in
order to facilitate the transaction and to insure its fairness to the Company,
to sell the Pisgah Volcanic Cinders property to the Company at its out-of-pocket
cost of $553,716.94, plus legal fees and related costs of $25,755.59 incurred in
acquiring the property, for a total acquisition cost of $579,472.53, cancel the
indebtedness of $315,045.98, for a total cost of $894,518.51, and not charge the
Company any interest for the use of funds that it had invested in the Volcanic
Cinders property or the money it had loaned
20
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the Company. In addition, Aurum agreed to use its best efforts to provide
additional equity financing to the Company in amounts that the Company may
reasonably request.
It was determined by the Directors to value the Company's restricted
shares issued to Aurum at $.41 per share and that, therefore, based on the total
cost of $894,518.51, a total of 2,181,752 shares of the Company's common stock
would be issued to Aurum. The shares were valued at $0.41 to reflect all aspects
of the transaction, including the fact that the shares were valued at a discount
to the price at which shares had traded in the marketplace because of the
investment restrictions. However, the valuation of $.41 per share may be
considered to be arbitrary. The Company's book value per share as of December
31, 1996, was approximately $.038 per share. The Board of Directors also took
into account the following factors: Its interest in the S & S Joint Venture and
other operations; the fact that the Company would obtain cancellation of all its
indebtedness to Aurum (which would leave the Company debt free) and obtain the
Pisgah Volcanic Cinders property, which was deemed to have significant potential
value and which the Company believed could be used as collateral for additional
financing; the belief that this transaction would make it more likely to attract
additional financing; the fact that trading in the Company stock had been
limited for an extended period of time; and the fact that the shares issued to
Aurum would be a long-term investment and illiquid and could not be sold for a
considerable period of time, and then only in very limited amounts.
The Directors, including Messrs. Sloan and Wolfe, unanimously passed a
resolution to this effect and, on October 27, 1997, an agreement was entered
into with Aurum providing for the acquisition of the Pisgah Volcanic Cinders
property by the Company and cancellation of the $315,045.98 of indebtedness by
the Company to Aurum in exchange for 2,181,752 shares of the Company's common
stock subject to investment restrictions, and Aurum agreeing to use its best
efforts to provide additional equity financing as reasonably requested by the
Company by purchasing additional restricted shares of the Company's common stock
at the same price. This transaction was submitted to and approved by the
Company's shareholders at the Company's annual meeting on December 3, 1997. The
Company has not requested Aurum to provide any additional equity financing.
Following shareholder approval of this transaction, Aurum distributed the shares
to the owners of its beneficial interests. Messrs. Sloan and Wolfe each received
785,431 shares. All shares are subject to investment restrictions and Rule 144.
None of the shares distributed have been sold.
Scotmar Industries, Inc.
On February 13, 1997, Scotmar Industries, Inc.("Scotmar") was acquired
by the Company from Mr. Sloan's wife and son-in-law, both citizens and residents
of Canada, for 200,000 shares of the Company's common stock, which are subject
to investment restrictions. None of those shares have been sold. Scotmar, a
Canadian Company operating under the name of Truck City, engaged in the business
of purchasing damaged trucks from insurance companies and dismantling the
vehicles for the sale of guaranteed truck parts to repair shops, collision
repair shops, and the retail public. It was the intention of management to
expand Truck City by opening new outlets which would specialize in specified
product lines. The Company advanced a total of $84,820 to Scotmar to finance its
operations. Mr. Sloan's wife and son-in-law advanced a total of $132,000 to
Scotmar. However, the operations of Scotmar proved to be unsuccessful. Effective
January 29, 1999, the Company sold Scotmar to an unaffiliated person for
$65,300. In order to consummate this sale and avoid bank foreclosure, Mr.
Sloan's wife paid approximately $16,500 of Scotmar's bank loans and was
reimbursed at the initial closing. It is anticipated that substantially all the
balance of the proceeds will be used to pay Scotmar's obligations.
The purchase price the Company paid for Scotmar was based on oral
indications of interest received by Scotmar from third parties to acquire it for
approximately $100,000 U.S. The Company utilized a value of $.50 U.S. for its
shares in making this acquisition.
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<PAGE>
Loans by Ronald D. Sloan
As of June 30, 1999, Mr. Sloan had loaned the Company an aggregate of
$31,483 to finance its operations. The loan is unsecured, due on demand, and
bears interest at 1% over prime.
Purchases of Stock From the Company
Barry E. Aimes has made the following purchases of stock from the
Company.
<TABLE>
<CAPTION>
Date Number of Shares Price
---- ---------------- -----
<S> <C> <C>
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
</TABLE>
Mr. Dacyszyn made the following purchases of stock from the Company:
<TABLE>
<CAPTION>
Date Number of Shares Price
---- ---------------- -----
<S> <C> <C>
05-10-98 100,000 $.45 per share
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
</TABLE>
The prices paid by Messrs. Aimes and Dacyszyn were based on the prices
at which shares were trading in the marketplace less a discount because the
shares were subject to investment restrictions. All shares purchased are subject
to investment restrictions contained in Regulation S and Rule 144. All shares
were sold by the Company to obtain funds to finance its operations.
ITEM 8. LEGAL PROCEEDINGS
On March 30, 1998, the Company filed a lawsuit in the District Court
for Clark County, Nevada, against Tyro, Inc., a/k/a Tyro Precious Metals
Processing Center, et al, seeking to collect the $50,000, plus interest and
attorneys fees, for breach of an agreement to pay that amount to Can-Cal. Each
of the Defendants has executed a Confession of Judgment. The Company has not yet
filed the Confession of Judgment in Court or taken any further action to collect
the amounts owed, pending its determination of whether the Tyro Mill can be
legally operated and the feasibility of utilizing the Tyro Mill in its
operations. See Item 3. Description of Properties, Processing of Material - Tyro
Mill. In the Company's opinion, the amounts owed it are fully collectible.
ITEM 9. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTER
The Company's common stock is traded on the NASDAQ OTC Electronic
Bulletin Board under the trading symbol CCRE.
The following table sets forth in United States dollars the high and
low bid quotation for such shares. Such bid quotations reflect inter-dealer
prices, without retail mark-up, mark-down, or commissions, and do not
necessarily represent actual transactions. The source of the following
information is the National Association of Securities Dealers, Inc.'s NASDAQ
Electronic Bulletin Board.
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COMMON STOCK
- ------------
1997 LOW HIGH
---- --- ----
First Quarter No trades No trades
Second Quarter No trades No trades
Third Quarter $1.375 $1.625
Fourth Quarter $0.321 $2.63
1998 LOW HIGH
---- --- ----
First Quarter $0.375 $0.930
Second Quarter $0.406 $1.125
Third Quarter $0.375 $1.00
Fourth Quarter $0.281 $0.600
1999 LOW HIGH
---- --- ----
First Quarter $0.375 $0.812
Second Quarter $0.406 $1.875
Third Quarter (Through Sept. 22) $0.75 $4.125
Penny Stock Rules: The Securities and Exchange Commission has
promulgated rules pursuant to the Securities Exchange Act of 1934 which may
adversely affect the market for the Company's common stock. The Company's common
stock is a "penny stock," as that term is defined by both statute and rule.
Generally, a penny stock is a security that:
o is priced under five dollars;
o is not traded on a national stock exchange or on NASDAQ (the NASD's
NASD's automated quotation system for actively traded stocks);
o may be listed in the "pink sheets" or the NASD OTC Bulletin Board;
o is issued by a company that has less than $5 million in net
tangible assets and has been in business less than three
years, or by a Company that has under $2 million in net
tangible assets and has been in business for at least three
years, or by a Company that has revenues of $6 million in
three years.
The penny stock rules approval procedure and related rules may have a
negative effect on the market and the market price for the Company's common
stock. In order to approve a person's account for transactions in penny stocks,
a broker-dealer must first obtain from the person information concerning the
person's financial situation, investment experience, and investment objectives
(Rule 15g-9(b)(1)). The broker-dealer is to use this information to make a
reasonable determination that transactions in penny stocks are suitable for the
person, and that the person (or the person's independent adviser) has sufficient
knowledge and experience in financial matters that the person or the adviser
reasonably may be expected to be capable of evaluating the risks of transactions
in penny stocks (Rule 15g-9(b)(2)).
The broker-dealer is then required to deliver to the person a written
statement setting forth the basis on which the broker-dealer made the
determination regarding suitability of penny stock transactions (Rule
15g-9(b)(3)(i)). A manually signed and dated copy of this written statement must
be obtained from the person by the broker-dealer (Rule 15g-9(b)(4)).
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<PAGE>
The written statement is to explain, in highlighted format, that it is
unlawful for the broker-dealer to effect a transaction in a penny stock subject
to the provisions of Rule 15g-9(a)(2) unless the broker-dealer has received from
the person, prior to the transaction, a written agreement to the transaction
(Rule 15g-9(b)(3)(ii)).
Also in highlighted format, immediately preceding the customer
signature line, the written statement must explain that the broker-dealer is
required to provide the person with the written statement and that the person
should not sign and return the written statement if it does not accurately
reflect the person's financial situation, investment experience, and investment
objectives (Rule 15g-9(b)(3)(iii)).
(b) Holders
The Company has approximately 251 shareholders of record.
(c) Dividends
The Company has never paid any dividends. There are no legal
restrictions which limit the Company's ability to pay dividends but, based on
its present financial situation, it is extremely unlikely to do so in the near
future.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES
In the last three years, the Company has sold unregistered securities
as set forth below. No underwriters were involved in these transactions. All of
the shares were sold in 1997, 1998 and 1999 at prices which reflected a discount
from the then prevailing market prices; the discount reflected the restricted
status of the shares. When shares were issued for property or services, in each
instance the valuation of the property or services was based on the board of
directors determination of the value received for the shares.
1999: During 1999, the Company sold an aggregate of 905,500 shares of
its common stock in Canada to citizens and residents of Canada. Of those shares,
62,500 shares were sold on February 18, 1999 to Amies Holdings Ltd., a company
owned by Barry E. Amies, an Officer and Director of the Company, for $.40 per
share, for a total price of $25,000. On May 14, 1999, 15,000 shares were sold to
Amies Holding, Ltd. for $.50 per share for a total price of $7,500.00. On June
22, 1999, 50,000 shares were sold to Aimes Holding Ltd. for $.50 per share for a
total price of $25,000.00.
On February 18, 1999, the Company sold 70,000 shares to James Dacyszyn,
a Director of the Company, for $.40 per share, for a total price of $28,000 and
on May 14, 1999, sold an additional 100,000 shares to Mr. Dacyszyn at $.50 per
share, for a total price of $50,000 and on June 22, 1999 sold 60,000 shares to a
Canadian company owned by Mr. Dacyszyn for $.50 per share for a total price of
$30,000.00. 40,000 shares, valued at $.50 per share, were issued to a Canadian
citizen and resident as payment for a Ford one ton diesel truck on or about
March 17, 1999. The remaining shares were sold for $.50 per share. All
purchasers are residents and citizens of Canada and the offers and sales were
made in Canada. All the purchasers were relatives, friends and/or business
associates of officers and directors of the Company.
For the transactions set forth above, the Company relied on the
exemption provided by Regulation S promulgated pursuant to the Securities Act of
1933. All shares issued are subject to the investment restrictions of Rule 144
and the provisions of Regulation S. The certificates are legended and
appropriate instructions have been issued to the Company's transfer agent. The
shares may be resold only pursuant to an effective registration statement under
the Securities Act of 1933 or pursuant to an exemption from registration.
In 1998, the Company contracted with an organization to perform
services in connection with the Company's at the Tyro Mill. That organization
requested that the Company pay 25% of the monies due it by
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<PAGE>
issuing the Company's common stock, subject to investment restrictions. That
organization requested that shares due it be distributed directly to persons who
performed the services. On April 19, 1999, the Company issued 32,121 shares of
its common stock to five individuals, all of whom are U.S. persons. Robin
Schwarz, an owner of the S & S Joint Venture, received 8,000 shares. All those
persons are fully familiar with the Company's properties and operations. Each of
those persons as worked on the Company's properties and/or tested material from
those company's properties for at least one year. They are fully familiar with
the Company's properties, assay results, testing results and with the materials
from the Company's properties. Each of those persons has many years of
experience in the mining business. Shares were issued to those persons at their
request.
On April 1, 1999, the Company issued 1,000 shares of its common stock
valued at $.50 per share to a U.S. person in partial payment for a computer and
software equipment. That person has a long term relationship with the Schwarz
family and is familiar with the Company's properties and operations. On March
15, 1999, the Company sold 6,000 shares of its common stock to two U.S. persons,
a husband and wife, at $.50 per share for a total purchase price of $3,000.
Those persons are personal friends of James Dacysyzn, a Director of the Company,
and were furnished with information regarding the Company. They are accredited
investors.
All shares are subject to investment restrictions. The certificates are
legended and appropriate instructions have been issued to the Company's transfer
agent. The shares may be resold only pursuant to an effective registration
statement under the Securities Act of 1933 or pursuant to any exemption from
registration. The Company relied upon the exemption from registration provided
by Section 4(2) of the Securities Act of 1933, for the transactions stated in
the preceding two paragraphs.
1998: During 1998, the Company sold a total of 557,509 shares, for a
total consideration of $211,800. All but one of the purchasers are citizens and
residents of Canada and the sales were made in Canada. Of those shares, 300,000
were sold to James Dacyszyn, who was subsequently elected a director of the
Company. 100,000 shares were sold to Mr. Dacyszyn on or about May 10, 1998, at a
price of $.45 per share, for a total price of $45,000. The remaining 200,000
shares were sold to Mr. Dacyszyn on or about December 24, 1998, at $.35 per
share, for a total consideration of $70,000. 65,000 shares were sold to Amies
Holdings, Ltd., on or about October 29, 1998, at a price of $.50 per share, for
a total consideration of $32,500, and an additional 38,571 shares were sold to
Amies Holdings on or about December 24, 1998, at a price of $.35 per share, for
a total price of $13,499.85. 109,450 shares were sold at a price of $.40 per
share, in September and/or October of 1998. On or about December 10, 1998,
22,049 shares were sold to two individuals who are citizens and residents of
Canada, at a price of $.41 U.S. per share. Each of the purchasers is a relative,
friend and/or business associate of the officers and directors of the Company.
On or about December 10, 1998, 2,439 shares were sold to a U.S. person for a
price of $.41 per share, for a total purchase price of $1,000. That person is a
close friend of the Schwarz family, which owns 50% of the S & S Joint Venture
and asked to purchase shares.
With respect to all offers and sales of shares to persons who are
residents and citizens of Canada, stated in the preceding paragraph, the Company
relied on the exemption provided by Regulation S. All shares are issued subject
to investment restrictions and Regulation S. The certificates are legended and
appropriate instructions have been issued to the Company's transfer agent. The
shares may be resold only pursuant to an effective registration statement under
the Securities Act of 1933 or pursuant to an exemption from registration.
None of those shares have been sold.
With respect to the one U.S. person who purchased 2,439 shares at $.41
U.S. per share, those shares are subject to investment restrictions and Rule
144. The certificate evidencing ownership of those shares is legended and
appropriate instructions have been issued to the Company's transfer agent. That
person is familiar with the Company and its properties and its business and
operations. The Company relied upon the
25
<PAGE>
exemption from registration provided by Section 4(2) of the Securities Act of
1933. The shares may be resold only pursuant to an effective registration
statement under the Securities Act of 1933 or pursuant to an exemption from
registration. None of the shares issued have been sold.
1997: In January 1997, the Company issued 200,000 shares of its common
stock in exchange for all the outstanding shares of Scotmar Industries, Inc., a
British Columbia corporation. Mr. Sloan's wife and son-in-law were the only
shareholders of Scotmar and each received 100,000 shares of the Company's common
stock. Both are citizens and residents of Canada. The shares issued are subject
to investment restrictions and Rule 144. The shares may only be resold pursuant
to an effective registration statement or pursuant to an exemption from
registration. The Company relied on the exemption provided by Regulation S
promulgated pursuant to the Securities Act of 1933. None of those shares have
been sold.
In October 1997, the Company exercised its option to acquire a 50%
interest in the S & S Joint Venture and, in consideration for the acquisition of
that 50% interest, issued 500,000 shares of its common stock to six members of
the Schwarz family, all of whom are U.S. persons. In issuing those shares, the
Company relied on the exemption from registration provided by Section 4(2) of
the Securities Act of 1933. The Securities are legended and appropriate
instructions have been issued to the Company's transfer agent. The shares may be
resold only pursuant to an effective registration statement or pursuant to an
exemption from registration. None of those shares have been sold.
On December 3, 1997, the Company issued 2,181,752 shares of its common
stock to Aurum LLC, a California limited liability company. Messrs. Sloan and
Wolfe, officers and directors of the Company, each owed 36% of the beneficial
interest in Aurum. All shares are subject to investment restrictions and Rule
144. The shares may be resold only pursuant to an effective registration
statement under the Securities Act of 1933 or pursuant to an exemption from
registration. The Company relied on the exemption provided by Section 4(2) of
the Securities Act of 1933. None of the shares issued have been sold. (See Item
7. Certain Relationships and Related Transactions).
On December 4, 1997, the Company issued 40,000 shares and 2,000 shares
respectively of its common stock to two individuals in consideration for
rendering geologic assaying and related services to the Company in connection
with its mining properties, particularly the S & S Joint Venture. Both
individuals were fully familiar with the Company, its properties and all other
material matters relating to its operations. The person to whom 40,000 shares
were issued is a U.S. person who spent months at the Owl Canyon property and was
actively engaged in surveying, testing and assaying activities on Owl Canyon. He
also recommended the filing of additional claims. The person to whom the 2,000
shares were issued is a citizen and resident of Canada. He is a personal friend
of Ronald D. Sloan and performed services for the Company on the Owl Canyon
property. All shares issued are subject to investment restrictions and Rule 144.
With respect to the issuance of shares to the Canadian citizen, the Company
relied on the exemption provided by Regulation S. With respect to the issuance
of shares to the U.S. person, the Company relied upon the exemption from
registration provided by section 4(2) of the Securities Act of 1933. The
certificates are legended and appropriate instructions have been issued to the
Company's transfer agent. The shares may be resold only pursuant to an effective
registration statement under the Securities Act of 1933 or pursuant to an
exemption from registration. None of those shares have been sold.
In September and/or October 1997, the Company sold 77,108 shares of its
common stock to 24 persons, 16 of whom were citizens and residents of Canada and
eight of whom were U.S. persons. 59,528 shares were sold to Canadian citizens
and residents for $44,641. 16,180 shares were issued to U.S. persons for $12,244
and services valued at $3,053. The value of the shares was determined by
applying a discount to the price at which shares were trading in the
marketplace, to reflect the fact that the shares were subject to investment
restrictions. All certificates evidencing ownership of the shares are legended
and subject to the provisions of Rule 144. Appropriate instructions have been
issued to the Company's transfer agent. The
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<PAGE>
shares may be resold only pursuant to an effective registration statement under
the Securities Act of 1933 or pursuant to an exemption from registration. The
Company relied on the exemption from registration provided by Regulation S for
the sales to the Canadians. One of the U.S. persons was Aylward Schwarz, an
owner of the S & S Joint Venture. The other U.S. persons are friends of the
Schwarz family. Each of those persons became aware of the Schwarz family's
relationship with the Company and the fact that the Company owns a 50% interest
in the Owl Canyon property and asked to purchase shares. One person received
1,500 shares for fabricating services rendered on the S & S Joint Venture's Owl
Canyon properties. In November 1997, the Company issued 5,475 shares to
individuals for services. Robin Schwarz, an owner of the S & S Joint Venture,
received 2,975 shares. 2,000 and 500 shares respectively were issued to two
persons who performed other services for the Company. One person also received
the 1,500 shares for fabricating services. Both of those persons requested
shares of the Company's common stock. Those persons were familiar with the
Company's properties and operations. For the sales to U.S. persons, the Company
relied on the exemption from registration provided by Section 4(2) of the
Securities Act of 1933. The shares may be resold only pursuant to an effective
registration statement under the Securities Act of 1933 or pursuant to an
exemption from registration. None of those shares have been sold.
1996: From approximately May to September 1996, the Company sold
1,576,190 shares of its common stock for total proceeds of $639,249. All those
shares were offered and sold in Canada to persons who were Canadian citizens and
residents who were relatives, friends and business associates of officers and
directors of the Company. To the Company's knowledge, there was no trading of
the Company's shares until the third quarter of 1997. The offer and sale of
those shares were made in reliance on the exemption from registration provided
by Regulation S promulgated pursuant to the Securities Act of 1933. Appropriate
instructions were given to the Company's transfer agent.
ITEM 11. DESCRIPTION OF SECURITIES
(a) Common or Preferred Stock
There are no preemptive rights to subscribe to shares of either common
or preferred stock of the Company. All common shares are entitled to one vote
per share. There are no cumulative voting provisions. Common shares are entitled
to dividends when and if declared by the Board of Directors. The preferred
shares are 5% non-voting, cumulative preferred shares. No preferred shares have
been issued.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Articles of Incorporation provide in relevant part, as
follows:
Twelfth, no director or officer of the Corporation shall be personally
liable to the Corporation or any of its stockholders for damages for breach of
fiduciary duty as a director or officer involving any act or omission of any
such director or officer; provided, however, that the foregoing provision shall
not eliminate or limit the liability of a director or officer (i) for acts or
omissions which involve intentional misconduct, fraud or a knowing violation of
law, or (ii) the payment of dividends in violation of Section 78.300 of the
Nevada Revised Statutes. Any repeal or modification of this Article by the
stockholders of the Corporation shall be prospective only, and shall not
adversely affect any limitation on the personal liability of a director or
officer of the Corporation for acts or omissions prior to such repeal or
modification.
Article V of the Company's By-Laws provide as follows:
1. The Corporation shall indemnify any and all of its Directors and
Officers, and its former Directors and Officers, or any person who may have
served at the Corporation's request as a Director or Officer of another
corporation in which it owns shares of capital stock or of which it is a
creditor, against
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<PAGE>
expenses actually and necessarily incurred by them in connection with the
defense of any action, suit or proceeding in which they, or any of them, are
made parties, or a party, by reason of being or having been Director(s) or
Officer(s) of the corporation, or of such other corporation, except, in relation
to matters as to which any such Director or Officer or former Director or
Officer or person shall be adjudged in such action, suit or proceeding to be
liable for negligence or misconduct in the performance of duty. Such
indemnification shall not be deemed exclusive of any other rights to which those
indemnified may be entitled, under By-Law, agreement, vote of stockholders or
otherwise.
The Nevada Corporation Laws, N.R.S. 78.751, provides as follows:
1. A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit of proceeding, whether civil, criminal, administrative or investigative,
except an action by or in the right of the corporation, by reason of the fact
that he is or was a director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses, including attorneys' fees, judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with the action, suit or proceeding if he acted in good faith and in
a manner which he reasonably believed to be in or not opposed to the best
interest of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, does not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and that, with respect to any criminal action or
proceeding, he had reasonable cause to believe that his conduct was unlawful.
2. A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses, including amounts paid in
settlement and attorneys' fees actually and reasonably incurred by him in
connection with the defense or settlement of the action or suit if he acted in
good faith and in a manner which he reasonably believed to be in or not opposed
to the best interests of the corporation. Indemnification may not be made for
any claim, issue or matter as to which such a person has been adjudged by a
court of competent jurisdiction, after exhaustion of all appeals therefrom, to
be liable to the corporation or for amounts paid in settlement to the
corporation, unless and only to the extent that the court in which the action or
suit was brought or other court of competent jurisdiction determines upon
application that in view of all the circumstances of the case, the person is
fairly and reasonably entitled to indemnity for such expenses as the court deems
proper.
3. To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections 1 and 2, or in defense of
any claim, issue or matter therein, he must be indemnified by the corporation
against expenses, including attorneys' fees, actually and reasonably incurred by
him in connection with the defense.
4. Any indemnification under subsections 1 and 2, unless ordered by a
court or advanced pursuant to subsection 5, must be made by the corporation only
as authorized in the specific case upon a determination that indemnification of
the director, officer, employee or agent is proper in the circumstances.
The determination must be made:
(a) By the stockholders;
28
<PAGE>
(b) By the board of directors by majority vote of a quorum consisting
of directors who were not parties to the act, suit or proceeding;
(c) If a majority vote of a quorum consisting of directors who were not
parties to the act, suit or proceeding so orders, by independent legal counsel
in a written opinion; or
(d) If a quorum consisting of directors who were not parties to the
act, suit or proceeding cannot be obtained, by independent legal counsel in a
written opinion.
5. The articles of incorporation, the bylaws or an agreement made by
the corporation may provide that the expenses of officers and directors incurred
in defending a civil or criminal action, suit or proceeding must be paid by the
corporation as they are incurred and in advance of the final disposition of the
action, suit or proceeding, upon receipt of an undertaking by or on behalf of
the director or officer to repay the amount if it is ultimately determined by a
court of competent jurisdiction that he is not entitled to be indemnified by the
corporation. The provisions of this subsection do not affect any rights to
advancement of expenses to which corporate personnel other than directors or
officers may be entitled under any contract or otherwise by law.
6. The indemnification and advancement of expenses authorized in or
ordered by a court pursuant to this section:
(a) Does not exclude any other rights to which a person seeking
indemnification or advancement of expenses may be entitled under the articles of
incorporation or any bylaw, agreement, vote of stockholders or disinterested
directors or otherwise, for either an action in his official capacity or an
action in another capacity while holding his office, except that
indemnification, unless ordered by a court pursuant to subsection 2 or for the
advancement of expenses made pursuant to subsection 5, may not be made to or on
behalf of any director or officer if a final adjudication establishes that his
acts or omissions involved intentional misconduct, fraud or a knowing violation
of the law and was material to the cause of action.
(b) Continues for a person who has ceased to be a director, officer,
employee or agent and inures to the benefit of the heirs, executors and
administrators of such a person.
ITEM 13. FINANCIAL STATEMENTS
The Financial Statements follow.
In the opinion of the management of the Company, the financial
statements as of June 30, 1999 and June 30, 1998 contain all adjustments
(consisting of only normal recurring accruals) necessary to fairly present the
financial position of the Company as of those dates, the results of operations
for the six months ended June 30, 1999 and June 30, 1998, and the cash flows for
the six months ended June 30, 1999 and June 30, 1998.
29
<PAGE>
CAN-CAL RESOURCES, LTD.
REPORT ON AUDITS OF CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
30
<PAGE>
CAN-CAL RESOURCES, LTD.
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
CONTENTS
PAGE
INDEPENDENT AUDITORS' REPORT 1
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated balance sheets 2
Consolidated statements of operations 3
Consolidated statements of changes in stockholders' deficit 4
Consolidated statements of cash flows 5
Notes to consolidated financial statements 6-15
INDEPENDENT AUDITOR'S REPORT ON SUPPLEMENTAL INFORMATION 16
SUPPLEMENTARY SCHEDULE:
Supplemental schedule I-- Consolidated operating,
general and administrative expenses 17
31
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Can-Cal Resources, Ltd.
Las Vegas, Nevada
We have audited the accompanying consolidated balance sheets of Can-Cal
Resources, Ltd. (a Nevada corporation) and subsidiary as of December 31, 1998
and 1997, and the related consolidated statements of operations, changes in
stockholders' equity, and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits. We did not audit the financial
statements of Scotmar Industries, Inc., a wholly owned subsidiary, which
statements reflect total assets of $88,900 and $137,500 as of December 31, 1998
and 1997, respectively, and total revenues of $97,700 and $79,300, respectively,
for the years then ended. Those statements were audited by other auditors whose
report has been furnished to us, and in our opinion, insofar as it relates to
the amounts included for Scotmar Industries, Inc., is based solely on the
reports of the other auditors.
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 of the balance sheet provide a reasonable basis for
our opinion.
In our opinion, based on our audits and the reports of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Can-Cal Resources, Ltd. and
subsidiary as of December 31, 1998 and 1997, and the results of their operations
and their cash flows for the year then ended in conformity with generally
accepted accounting principles.
MURPHY, BENNINGTON & CO.
/s/ Murphy, Bennington & Co.
Las Vegas, NV
May 14, 1999
32
<PAGE>
CAN-CAL RESOURCES, LTD.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
(ROUNDED TO THE NEAREST HUNDRED, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ASSETS 1998 1997
------------ ------------
CURRENT ASSETS:
<S> <C> <C>
CASH $ 41,600 $ 14,200
ACCOUNTS RECEIVABLE 6,900 7,700
NOTES RECEIVABLE, RELATED PARTIES (NOTE 3) 41,600 38,100
INVENTORY 72,500 116,100
PREPAID EXPENSES 6,600 5,700
OTHER CURRENT ASSETS 100 300
----------- -----------
TOTAL CURRENT ASSETS 169,300 182,100
PROPERTY AND EQUIPMENT, NET (NOTES 1 AND 4) 27,000 20,400
OTHER ASSETS (NOTE 5) 95,300 65,000
LONG-TERM INVESTMENTS (NOTE 6) 586,100 598,500
----------- -----------
$ 877,700 $ 866,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
BANK LINE OF CREDIT $ 12,400 $ 35,000
ACCOUNTS PAYABLE 12,800 8,500
ACCRUED EXPENSES 26,200 --
DUE TO RELATED PARTIES -- 148,900
----------- -----------
TOTAL CURRENT LIABILITIES 51,400 192,400
NOTE PAYABLE, (NOTE 7) 77,500 --
NOTES PAYABLE, RELATED PARTIES (NOTE 8) 243,500 35,600
----------- -----------
372,400 228,000
----------- -----------
COMMITMENTS (NOTE 10) -- --
STOCKHOLDERS' DEFICIT:
COMMON STOCK, $.001 PAR VALUE; AUTHORIZED, 15,000,000 SHARES;
ISSUED AND OUTSTANDING, 7,005,161 SHARES 7,000 6,400
PREFERRED STOCK, $.001 PAR VALUE; AUTHORIZED, 10,000,000 SHARES;
NONE ISSUED OR OUTSTANDING -- --
ADDITIONAL PAID-IN-CAPITAL 1,887,600 1,676,400
CUMULATIVE TRANSLATION ADJUSTMENT 8,500 --
ACCUMULATED DEFICIT (1,397,800) (1,044,800)
----------- -----------
505,300 638,000
----------- -----------
$ 877,700 $ 866,000
=========== ===========
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</FN>
</TABLE>
33
<PAGE>
CAN-CAL RESOURCES, LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998 AND 1997
(ROUNDED TO THE NEAREST HUNDRED, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
SALES $ 97,700 $ 79,300
COST OF GOODS SOLD 74,800 148,900
----------- -----------
GROSS PROFIT 22,900 (69,600)
OPERATING, GENERAL AND ADMINISTRATIVE EXPENSES 384,400 214,700
IMPAIRMENT OF S&S MINING CO. INVESTMENT -- 764,300
----------- -----------
384,400 979,000
LOSS FROM OPERATIONS (361,500) (1,048,600)
OTHER INCOME (EXPENSES):
Other income 5,700 3,900
Interest income 6,600 --
Interest expense (3,800) --
----------- -----------
NET INCOME(LOSS) $ (353,000) $(1,044,700)
=========== ===========
NET INCOME (LOSS) PER SHARE OF COMMON STOCK AND COMMON STOCK EQUIVALENTS:
BASIC EPS
Net loss from continuing operations $ (0.05) $ (0.25)
=========== ===========
Weighted average shares outstanding 6,546,149 4,103,115
=========== ===========
DILUTED EPS
Net loss from continuing operations $ (0.05) $ (0.25)
=========== ===========
Weighted average shares outstanding 6,546,149 4,103,115
=========== ===========
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</FN>
</TABLE>
34
<PAGE>
CAN-CAL RESOURCES, LTD.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
YEARS ENDED DECEMBER 31, 1998 AND 1997
(ROUNDED TO THE NEAREST HUNDRED, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Additional Cumulative Total
paid-in Accumulated translation stockholders'
Common Stock capital Deficit adjustment equity
------------------------- ------------ ------------ ----------- ------------
Shares Amount
----------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1996 3,441,217 $ 3,400 $ 625,000 $ (498,000) $ -- $ 130,400
Adjustment of accumulated deficit (Note 11) -- -- -- 497,900 -- 497,900
----------- ----------- ----------- ----------- ----------- -----------
BALANCE DECEMBER 31, 1996, AS RESTATED 3,441,217 3,400 625,000 (100) -- 628,300
Issuance of common stock (Note 9) 500,000 500 18,500 -- -- 19,000
Issuance of common stock (Note 9) 200,000 200 81,800 -- -- 82,000
Issuance of common stock (Note 9) 2,181,752 2,200 892,300 -- -- 894,500
Issuance of common stock 124,683 100 58,800 -- -- 58,900
Net income (loss) for the year -- -- -- (1,044,700) -- (1,044,700)
----------- ----------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1997 6,447,652 6,400 1,676,400 (1,044,800) -- 638,000
Issuance of common stock 557,509 600 211,200 -- -- 211,800
Foreign currency translation adjustment -- -- -- -- 8,500 8,500
Net income (loss) for the year -- -- -- (353,000) -- (353,000)
----------- ----------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1998 7,005,161 $ 7,000 $ 1,887,600 $(1,397,800) $ 8,500 $ 505,300
=========== =========== =========== =========== =========== ===========
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</FN>
</TABLE>
35
<PAGE>
CAN-CAL RESOURCES, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998 AND 1997
(ROUNDED TO THE NEAREST HUNDRED)
<TABLE>
<CAPTION>
1998 1997
---------- ------------
<S> <C> <C>
Cash flows from operating activities:
$(353,000) $(1,044,700)
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
LOSS FROM IMPAIRMENT OF THE S&S MINING COMPANY INVESTMENT -- 764,300
DEPRECIATION 5,900 4,000
BAD DEBT EXPENSE -- 1,700
CHANGES IN OPERATING ASSETS AND LIABILITIES:
(INCREASE) DECREASE IN ACCOUNTS RECEIVABLE 800 (36,100)
(INCREASE) DECREASE IN INVENTORIES 43,600 16,400
(INCREASE) DECREASE IN PREPAID EXPENSES (800) (1,900)
(INCREASE) DECREASE IN OTHER ASSETS (41,900) --
INCREASE (DECREASE) IN ACCOUNTS PAYABLE AND
OTHER CURRENT LIABILITIES 29,400 (300)
--------- -----------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (316,000) (296,600)
--------- -----------
CASH FLOW FROM INVESTING ACTIVITIES:
CAPITAL EXPENDITURES RELATED TO INVESTMENT PROPERTY -- 319,300
PURCHASE OF PROPERTY AND EQUIPMENT (14,500) --
PROCEEDS FROM SALE OF ASSETS 2,100 (14,000)
--------- -----------
NET CASH PROVIDED BY INVESTING ACTIVITIES (12,400) 305,300
CASH FLOW FROM FINANCING ACTIVITIES:
INCREASE IN RELATED PARTY DEBT 50,800 --
PRINCIPAL PAYMENTS ON NOTE PAYABLE (24,600) --
PROCEEDS FROM ISSUANCE OF COMMON STOCK 191,800 --
PROCEEDS FROM DEBT ISSUANCE 129,300 --
--------- -----------
NET CASH USED BY FINANCING ACTIVITIES 347,300 --
NET CHANGE IN CUMULATIVE TRANSLATION ADJUSTMENT 8,500 --
NET INCREASE (DECREASE) IN CASH 27,400 8,700
CASH AT BEGINNING OF YEAR 14,200 5,500
--------- -----------
CASH AT END OF YEAR $ 41,600 $ 14,200
========= ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
CASH PAID DURING THE YEAR FOR:
Interest $ 3,800 $ --
========= ===========
Income taxes $ -- $ --
========= ===========
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</FN>
</TABLE>
36
<PAGE>
CAN-CAL RESOURCES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997
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,
through its wholly owned subsidiary, Scotmar Industries, Inc., a
Canadian corporation, is engaged in the precious metal processing
industry, automobile parts salvage, and other investment
opportunities.
The consolidated financial statements include the accounts of the
Company and Scotmar Industries, Inc. All material intercompany
transactions have been eliminated in consolidation.
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.
Inventories:
Inventories are stated at the lower of cost or market on the
first-in, first-out basis.
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.
37
<PAGE>
CAN-CAL RESOURCES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998 AND 1997
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 Langley, British
Columbia, Canada and Las Vegas, NV, USA..
The company and its subsidiary maintain multiple cash balances at
financial institutions located in Langley, British Columbia, Canada
and Las Vegas, NV, USA. The accounts at the institutions in the USA
are insured by the Federal Deposit Insurance Corporation ("FDIC") up
to $100,000. As of December 31, 1998, the Company and its subsidiary
had no funds 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.
Provision is made for taxes on unremitted earnings of related companies
to the extent that such earnings are not deemed to be permanently
invested.
The Company and its wholly owned subsidiary file separate income tax
returns.
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.
Foreign currency translation:
Assets and liabilities of the Company's Foreign operations are
translated into U.S. dollars at the exchange rate in effect at the
balance sheet date, and revenue and expenses are translated at the
average exchange rate for the period. Translation gains or losses of
the Company's foreign subsidiary are not included in net income but
are reported as a separate component of stockholders' equity. The
functional currency of the subsidiary is the primary currency in
which the subsidiary operates. The Company typically does not enter
into foreign exchange transactions to hedge balance sheet and
intercompany balances against movements in foreign exchange rates.
38
<PAGE>
CAN-CAL RESOURCES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998 AND 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
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.
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. BUSINESS ACQUISITIONS:
In accordance with accounting principles associated with a
transaction where the acquired company has been acquired by a
development stage company and the acquired company is considered a
promoter in founding and organizing the business, the acquired
business assets will be recorded at the historical cost basis of the
predecessor. If the transaction is accounted for in a manner similar
to a pooling of interest, the accompanying financial statements have
been restated to include the accounts of the pooled companies as if
they had always been combined. If the transaction is accounted for in
a manner similar to a purchase, the net assets of the acquired
company have been recorded as net proceeds from an issuance of stock,
and the results of operations will be included with the results of
the Company following the date of acquisition.
39
<PAGE>
CAN-CAL RESOURCES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998 AND 1997
2. BUSINESS ACQUISITIONS (CONTINUED):
Scotmar Industries, Inc.
On February 13, 1997 the Company issued 200,000 shares of common stock,
in exchange for all of the issued and outstanding common stock of
Scotmar Industries, Inc.
3. NOTES RECEIVABLE (RELATED PARTIES):
Notes receivable, related parties, at December 31, 1998 consisted of
the following:
Note receivable from S&S Joint Venture,
a joint venture partner, unsecured,
interest imputed at 8%, due on demand $ 28,000
Note receivable from an individual,
unsecured, interest imputed
at 8%, due on demand 12,000
Accrued interest receivable 7,200
-----------
47,200
Allowance for uncollectible accounts 5,600
-----------
$ 41,600
===========
4. PROPERTY AND EQUIPMENT:
Property and equipment at December 31, 1998 consisted of the following:
Machinery and equipment $ 36,100
Transportation equipment 27,800
Office equipment and furniture 3,800
-----------
67,700
Less accumulated depreciation (40,700)
-----------
$ 27,000
===========
Depreciation expense for the year ended December 31, 1998 totaled
$5,900.
40
<PAGE>
CAN-CAL RESOURCES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998 AND 1997
5. OTHER ASSETS:
Other assets at December 31, 1998 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 5,600
Mining claims 36,400
-----------
$ 95,300
===========
6. LONG-TERM INVESTMENTS:
Long-term investments at December 31, 1998 consisted of the following:
Pisgah property $ 567,100
Investment in S&S Joint Venture 19,000
-----------
$ 586,100
===========
7. NOTE PAYABLE:
Note payable at December 31, 1998 consisted of the following:
Note payable to lender; secured by
1st deed of trust; interest at
8% per annum; matures July 31, 2001 $ 77,500
===========
8. NOTES PAYABLE, RELATED PARTIES:
Notes payable, related parties, at December 31, 1998 consisted of the
following:
Note payable to shareholder; unsecured; interest
at prime plus 1.00% per annum, due on demand $ 43,800
Note payable to shareholder; unsecured; interest
at prime plus 1.00% per annum, due on demand 127,100
Note payable to shareholder; unsecured; interest
at prime plus 1.00% per annum, due on demand 34,000
Note payable to shareholder; unsecured; interest at
prime plus 1.00% per annum, due on demand 38,600
-----------
$ 243,500
===========
41
<PAGE>
CAN-CAL RESOURCES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998 AND 1997
9. STOCKHOLDERS' EQUITY:
COMMON STOCK:
On September 13, 1996, the Board of Directors approved the issuance of
500,000 shares of Can-Cal common stock along with a cash payment of
$100,000 in exchange for a 50% interest in S&S Joint Venture.
Additionally, the Company agreed to loan the joint venture up to
$48,000.
OnFebruary 13, 1997 the Board approved the acquisition of Scotmar
Industries, Inc. 200,000 shares of Can-Cal common stock were issued
in return for all of the issued and outstanding stock of the acquired
company.
On October 27, 1997 the Board approved the issuance of 2,181,752
restricted common shares to ARUM, LLC to repay an existing debt of
approximately $315,045.98 and to purchase a property located in San
Bernadino County, California, known as the Pisgah property.
During November, 1997 the Board approved the sale of 124,683 restricted
common shares to various investors.
During December, 1997 the Board approved the issuance of 42,000
restricted common shares in return for services rendered.
In July, 1998 the Board approved the issuance 122,000 restricted common
shares to various investors.
In October, 1998 the Board approved the sale of 172,450 restricted
common shares to various investors.
During December, 1998 the Board approved the sale of 263,059 restricted
common shares to various investors.
10. COMMITMENTS:
Lease commitments:
The Company leases property for the operations of the subsidiary under
an operating lease due to expire June 30, 2001.The lease may be
renewed at the option of the company for a period of three years.
Lease payments for the year ended December 31, 1998 totaled $44,400.
Minimum future rental payments for operating leases for the next five
fiscal year ends are as follows:
42
<PAGE>
CAN-CAL RESOURCES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998 AND 1997
10. COMMITMENTS (CONTINUED):
Lease commitments (continued):
YEAR ENDING
DECEMBER 31,
-----------------
1999 $ 49,000
2000 50,000
2001 26,000
Thereafter --
-----------
$ 125,000
===========
Auto leases:
The Company entered into two operating leases for automobiles that
expire during the year 2000. The monthly lease payments currently
total $300 per month. Lease payments for the year ended December 31,
1998 totaled $10,900.
Minimum future rental payments for operating leases for the next five
fiscal year ends are as follows:
YEAR ENDING
DECEMBER 31,
-------------
1999 $ 7,400
2000 4,800
Thereafter -
-----------
$ 12,200
===========
11. PRIOR PERIOD ADJUSTMENT:
Subsequent to the issuance of the 1996 financial statements,
development stage accumulated deficit of the corporation was
reclassified as an increase in the investment in S&S Mining, a
development stage joint venture of which Can-Cal Resources, Ltd. is a
50% venture partner.
The restatement of accumulated deficit for 1996 is as follows:
Accumulated deficit, as previously reported $ (498,000)
Increase in long-term investments 497,900
-------------
Accumulated deficit, as restated $ (100)
=============
43
<PAGE>
CAN-CAL RESOURCES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998 AND 1997
12. INCOME TAXES:
Deferred income taxes are provided for the temporary differences
between the financial reporting basis and the tax basis of the
Company and subsidiary's assets and liabilities. The temporary
difference that give rise to the deferred tax asset is primarily as
follows:
Net operating loss carry forward - December 31, 1998 $ 353,000
Net operating loss carry forward - December 31, 1997 1,044,700
------------
1,397,000
Deferred tax assets 475,300
Total valuation allowance recognized
for deferred tax assets (475,300)
------------
Net deferred tax asset $ 0
============
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:
1998 1997
------------- --------------
Net income (loss) $ (353,000) $ (1,044,700)
Translation adjustment 8,500 -
------------ --------------
Comprehensive income $ 344,500 $ (1,044,700)
============ ==============
14. TRANSLATION ADJUSTMNENT:
Balance, Beginning of year $ 0
Aggregate adjustment resulting from
translation of financial
statements into U.S. Dollars,
and gains and losses on certain 8,500
hedge transactions and intercompany balances
--------------
Income taxes relating to translation adjustment -
--------------
$ 8,500
==============
15. SUBSEQUENT EVENTS:
On January 29, 1999 the Company completed the divestiture of its wholly
owned subsidiary, Scotmar Industries, Inc., to 545538 B.C. Ltd., a
Canadian corporation for approximately $65,300 and forgiveness of
Scotmar Industries, Inc. payable to the Company.
44
<PAGE>
CAN-CAL RESOURCES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998 AND 1997
16. WRITE DOWN OF ASSETS:
The Company's investment in S&S Joint Venture was determined to be
impaired under the criteria established by SFAS No. 121, Accounting
for Impairment of Long-Lived Assets. This determination was primarily
based on the absence of data indicating the presence of reserves of
mineralized material on the subject properties held by the S&S Joint
Venture. Without such data, the economic viability of the properties
is not determinable . As a result, the Company adjusted the carrying
value of long term investments, at December 31, 1997, to the
estimated fair value resulting in an impairment loss of $764,300.
17. 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, 1998:
CARRYING FAIR
AMOUNT VALUE
----------- -----------
Financial assets:
Loans receivable-related party $ 41,600 $ 41,600
Inventory 72,500 72,500
Property and equipment 27,000 27,000
Other assets 95,300 95,300
Long-term investments 586,100 586,100
Financial liabilities:
Notes payable, related parties 243,500 243,500
Note payable 77,500 77,500
The carrying amounts of cash, trade receivables, prepaid expenses,
other current assets, accounts payable and accrued expenses
approximate fair value because of the short maturity of those
instruments.
The fair value of bank line of credit is based upon the borrowing rates
currently available to the Company for bank loans with similar terms
and average maturities.
18. YEAR 2000 COMPLIANCE:
Historically, certain computerized systems have had two digits rather
than four digits to define the applicable year, which could result in
recognizing a date using "00" as the year 1900 rather than the year
2000. This could result in major failures or miscalculations and is
generally referred to as the "Year 2000 issue."
The Company has reviewed, and continues to review, possible effects of
this issue on its financial and operating systems. Review of external
dependencies has revealed that the Company will be exposed to
disruption if there is widespread and prolonged interruption of
electricity, water, and telecommunications services.
The costs the company may incur to solve the Year 2000 problem are
based on management's estimates. However, there can be no assurance
that these estimates will be achieved and the osts of solving the
Year 2000 problem could differ significantly from mangement's
estimates.
45
<PAGE>
INDEPENDENT AUDITORS' REPORT ON SUPPLEMENTAL INFORMATION
To the Board of Directors and Stockholders
Can-Cal Resources, Ltd.
Las Vegas, Nevada
Our report on the audits of the basic consolidated financial
statements of Can-Cal Resources, Ltd. for the years ended December
31, 1998 and 1997, appears on page one. These audits were made for
the purpose of forming an opinion on the basic consolidated financial
statements taken as a whole. The supplemental schedule of
consolidated operating, general and administrative expenses are
presented for purposes of additional analysis and are not a required
part of the basic consolidated financial statements. Such information
has been subjected to the auditing procedures applied in the audit of
the basic consolidated financial statements and, in our opinion, is
fairly stated in all material respects in relation to the basic
consolidated financial statements taken as a whole.
MURPHY, BENNINGTON & CO.
/s/ Murphy, Bennington & Co.
Las Vegas, NV
May 14, 1999
46
<PAGE>
CAN-CAL RESOURCES, LTD
SUPPLEMENTAL SCHEDULE I -
CONSOLIDATED OPERATING, GENERAL AND ADMINISTRATIVE EXPENSES
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
OPERATING, GENERAL AND ADMINISTRATIVE EXPENSES:
<S> <C> <C>
Consulting $ 147,200 $ 47,900
Office Rent 56,000 39,800
Wages and benefits 44,400 41,900
Exploration 30,300 -
Accounting and legal 24,800 9,900
Telephone 13,200 19,600
Travel 11,800 11,800
Office expense 11,700 5,900
Lease expense 10,900 3,600
Repairs and maintenance 7,900 3,200
Bank charges 6,900 5,600
Depreciation expense 5,900 4,000
Advertising and promotion 3,900 1,800
Insurance 3,700 2,800
Supplies 3,000 6,500
Utilities 1,900 1,300
Miscelaneous 900 7,500
Bad debt expense - 1,600
--------- ---------
$ 384,400 $ 214,700
========= =========
</TABLE>
47
<PAGE>
CAN-CAL RESOURCES, LTD.
REPORT ON REVIEW OF INTERIM FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998
48
<PAGE>
CAN-CAL RESOURCES, LTD.
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998
CONTENTS
PAGE
INDEPENDENT ACCOUNTANTS' REPORT 1
FINANCIAL STATEMENTS:
Interim balance sheets 2
Interim statements of operations 3
Interim statements of changes in stockholders' deficit 4
Interim statements of cash flows 5
Notes to interim financial statements 6-10
49
<PAGE>
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, 1999, and the condensed statements of operations for the
three and six months ended June 30, 1999 and 1998, the condensed statements of
cash flows for the six months ended June 30, 1999 and 1998, and the condensed
statement of changes in stockholders' equity for the six months ended June 30,
1999. 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 consolidated balance sheet as of December 31, 1998, and the related changes
in stockholders' equity (deficit), and cash flows and consolidated statements of
operations (not presented herein); for the year then ended; and in our report
dated May 14, 1999, we expressed an unqualified opinion on these consolidated
financial statements. In our opinion, the information set forth in the
accompanying condensed consolidated balance sheet as of December 31, 1998 and
the condensed consolidated statement of changes in stockholders' equity for the
year then ended, is fairly stated in all material respects in relation to the
consolidated balance sheet and consolidated statement of changes in
stockholders' equity from which they have been derived.
MURPHY, BENNINGTON & CO.
/s/ Murphy, Bennington & Co.
Las Vegas, NV
August 8, 1999
50
<PAGE>
CAN-CAL RESOURCES, LTD.
BALANCE SHEETS
JUNE 30, 1999
(ROUNDED TO THE NEAREST HUNDRED, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
1999 1998
------------- ------------
(UNAUDITED) (NOTE)
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash $ 183,800 $ 41,600
Accounts receivable -- 6,900
Notes receivable, related parties 44,600 41,600
Inventory -- 72,500
Prepaid expenses 800 6,600
Other current assets -- 100
----------- -----------
Total current assets 229,200 169,300
PROPERTY AND EQUIPMENT, NET 72,800 27,000
OTHER ASSETS 98,900 95,300
LONG-TERM INVESTMENTS 586,100 586,100
----------- -----------
$ 987,000 $ 877,700
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Bank line of credit $ -- $ 12,400
Accounts payable 8,800 12,800
Accrued expenses 58,000 26,200
Due to related parties -- --
----------- -----------
Total current liabilities 66,800 51,400
NOTE PAYABLE, NET OF CURRENT PORTION 75,800 77,500
NOTES PAYABLE, RELATED PARTIES 31,500 243,500
----------- -----------
174,100 372,400
----------- -----------
STOCKHOLDERS' DEFICIT:
Common stock, $.001 par value; authorized, 15,000,000
shares; issued and outstanding, 7,592,282 shares 7,700 7,000
Preferred stock, $.001 par value; authorized, 10,000,000
shares; none issued or outstanding -- --
Additional paid-in-capital 2,246,300 1,887,600
Cumulative translation adjustment -- 8,500
Accumulated deficit (1,441,100) (1,397,800)
----------- -----------
812,900 505,300
----------- -----------
$ 987,000 $ 877,700
=========== ===========
<FN>
Note: The balance sheet of December 31, 1998 has been derived from the audited financial statements at that date.
See accompanying notes and accountant's report.
</FN>
</TABLE>
51
<PAGE>
CAN-CAL RESOURCES, LTD.
STATEMENTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998 (ROUNDED TO THE NEAREST
HUNDRED, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
---------------------------- --------------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1999 1998 1999 1998
------------- ------------- ------------ -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
SALES $ 3,700 $ -- $ 3,700 $ --
COST OF GOODS SOLD -- -- -- --
----------- ----------- ----------- -----------
GROSS PROFIT 3,700 -- 3,700 --
Operating expenses,
general and administrative 81,200 17,000 336,200 72,000
----------- ----------- ----------- -----------
LOSS FROM OPERATIONS (77,500) (17,000) (332,500) (72,200)
OTHER INCOME (EXPENSES):
Other income -- -- -- --
Interest income 3,300 -- 3,600 3,300
Interest expense (2,700) -- (5,100) (1,900)
----------- ----------- ----------- -----------
INCOME(LOSS) FROM CONTINUING OPERATIONS (76,900) -- (334,000) (70,800)
----------- ----------- ----------- -----------
INCOME (LOSS) FROM DISCONTINUED OPERATIONS:
Income (loss) from discontinued
automobile salvage division -- (17,000) 174,300 (30,200)
Gain on disposal of automobile
salvage division (net of taxes) 116,400 -- 116,400 --
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ 39,500 $ (34,000) $ (43,300) $ (101,000)
=========== =========== =========== ===========
NET INCOME (LOSS) PER SHARE OF COMMON
STOCK AND COMMON STOCK EQUIVALENTS:
BASIC EPS
Net loss from continuing operations $ 0.01 $ (0.01) $ (0.01) $ (0.01)
=========== =========== =========== ===========
Weighted average shares outstanding 7,312,701 6,514,318 7,242,805 6,480,985
=========== =========== =========== ===========
DILUTED EPS
Net loss from continuing operations $ 0.01 $ (0.01) $ (0.01) $ (0.01)
=========== =========== =========== ===========
Weighted average shares outstanding 7,312,701 6,514,318 7,242,805 6,480,985
=========== =========== =========== ===========
<FN>
See accompanying notes and accountant's report.
</FN>
</TABLE>
52
<PAGE>
CAN-CAL RESOURCES, LTD.
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
SIX MONTHS ENDED JUNE 30,1999
(UNAUDITED)
(ROUNDED TO THE NEAREST HUNDRED, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ADDITIONAL CUMULATIVE TOTAL
PAID-IN ACCUMULATED TRANSLATION STOCKHOLDER
COMMON STOCK CAPITAL DEFICIT ADJUSTMENT EQUITY
------------------------- ----------- ----------- ----------- -----------
SHARES AMOUNT
----------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1996 3,441,217 $ 3,400 $ 625,000 $ (498,000) $ -- $ 130,400
Adjustment of accumulated deficit -- -- -- 497,900 -- 497,900
----------- ----------- ----------- ----------- ----------- -----------
BALANCE DECEMBER 31, 1996, AS RESTATED 3,441,217 3,400 625,000 (100) -- 628,300
Issuance of common stock 500,000 500 18,500 -- -- 19,000
Issuance of common stock 200,000 200 81,800 -- -- 82,000
Issuance of common stock 2,181,752 2,200 892,300 -- -- 894,500
Issuance of common stock 124,683 100 58,800 -- -- 58,900
Net income (loss) for the year -- -- -- (1,044,700) -- (1,044,700)
----------- ----------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1997 6,447,652 6,400 1,676,400 (1,044,800) -- 638,000
Issuance of common stock 557,509 600 211,200 -- -- 211,800
Foreign currency translation adjustment -- -- -- -- 8,500 8,500
Net income (loss) for the year -- -- -- (353,000) -- (353,000)
----------- ----------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1998 7,005,161 7,000 1,887,600 (1,397,800) 8,500 505,300
Issuance of common stock 587,121 700 358,700 -- -- 359,400
Foreign currency translation adjustment -- -- -- -- (11,800) (11,800)
Realized foreign currency translation loss -- -- -- 3,300 3,300
Net income (loss) for the period -- -- -- (43,300) -- (43,300)
----------- ----------- ----------- ----------- ----------- -----------
BALANCE, JUNE 30, 1999 7,592,282 $ 7,700 $ 2,246,300 $(1,441,100) $ -- $ 812,900
=========== =========== =========== =========== =========== ===========
<FN>
See accompanying notes and accountant's report.
</FN>
</TABLE>
53
<PAGE>
CAN-CAL RESOURCES, LTD.
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(ROUNDED TO THE NEAREST HUNDRED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
------------------------
JUNE 30, JUNE 30,
1999 1998
----------- -----------
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
NET LOSS $ (43,300) $(101,000)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 7,300 1,100
Gain on disposal of facility (116,400) --
Loss on foreign currency translation 3,300
Bad debt expense 150,100 --
Undistributed earnings of affiliate (174,300) 30,200
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (3,300) 9,300
(Increase) decrease in prepaid expenses 500 --
(Increase) decrease in other assets (3,400) (37,000)
Increase (decrease) in accounts payable and
other current liabilities 33,000 30,000
--------- ---------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (146,500) (67,400)
--------- ---------
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures related to investment property -- (2,300)
Purchase of property and equipment (57,400)
Proceeds from sale of facility 65,300 --
--------- ---------
NET CASH PROVIDED BY INVESTING ACTIVITIES 7,900 (2,300)
CASH FLOW FROM FINANCING ACTIVITIES:
Increase in related party debt (65,300) (9,700)
Principal payments on note payable (39,000) (18,700)
Proceeds from issuance of common stock 359,300 104,100
Proceeds from debt issuance 25,800 --
--------- ---------
NET CASH USED BY FINANCING ACTIVITIES 280,800 75,700
NET INCREASE (DECREASE) IN CASH 142,200 6,000
CASH AT BEGINNING OF PERIOD 41,600 14,200
--------- ---------
CASH AT END OF PERIOD $ 183,800 $ 20,200
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
CASH PAID DURING THE YEAR FOR:
Interest $ -- $ 3,800
========= =========
Income taxes $ -- $ --
========= =========
<FN>
See accompanying notes and accountant's report.
</FN>
</TABLE>
54
<PAGE>
CAN-CAL RESOURCES, LTD.
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1999
1. BASIS OF PRESENTATION OF FINANCIAL STATEMENTS:
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 1998 Annual Report on Form 10-SB. Interim
results are not necessarily indicative of results for a full year.
2. BUSINESS ACQUISITIONS:
In accordance with accounting principles associated with a transaction
where the acquired company has been acquired by a development stage
company and the acquired company is considered a promoter in founding
and organizing the business, the acquired business assets will be
recorded at the historical cost basis of the predecessor. If the
transaction is accounted for in a manner similar to a pooling of
interest, the accompanying financial statements have been restated to
include the accounts of the pooled companies as if they had always
been combined. If the transaction is accounted for in a manner
similar to a purchase, the net assets of the acquired company have
been recorded as net proceeds from an issuance of stock, and the
results of operations will be included with the results of the
Company following the date of acquisition.
Scotmar Industries, Inc.
On February 13, 1997 the Company issued 200,000 shares of common stock,
in exchange for all of the issued and outstanding common stock of
Scotmar Industries, Inc.
3. DISCONTINUED OPERATIONS:
In January 1999, the Company adopted a plan to discontinue the
operations of Scotmar Industries, Inc. ("Scotmar"). The disposition
of Scotmar was substantially completed by January 31, 1999. Net
assets of the discontinued operation at December 31, 1998 were
$88,922. The income from discontinued operations for the one month
ended January 31, 1999 includes forgiveness of debt of $152,100 and
loss from operations of $27,800.
55
<PAGE>
CAN-CAL RESOURCES, LTD.
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1999
4. NOTES RECEIVABLE (RELATED PARTIES):
Notes receivable, related parties, at June 30, 1999 consisted of the
following:
Note receivable from S&S Mining, Inc.,
a joint venture partner, unsecured,
interest imputed at 8%, due on demand $ 28,000
Note receivable from an individual,
unsecured, interest imputed
at 8%, due on demand $ 12,000
Accrued interest receivable 10,200
-----------
50,200
Allowance for uncollectible accounts 5,600
-----------
$ 44,600
===========
5. PROPERTY AND EQUIPMENT:
Property and equipment at June 30, 1999 consisted of the following:
Machinery and equipment $ 81,700
Office equipment and furniture 4,000
------------
85,700
Less accumulated depreciation (12,900)
------------
$ 72,800
============
Depreciation expense for the year ended June 30,1999 totaled $7,300.
6. OTHER ASSETS:
Other assets at June 30, 1999 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 5,600
Mining claims 40,000
-----------
$ 98,900
===========
7. LONG-TERM INVESTMENTS:
Long-term investments at June 30, 1999 consisted of the following:
Pisgah property $ 567,100
Investment in S&S Mining joint venture 19,000
-----------
$ 586,100
===========
56
<PAGE>
CAN-CAL RESOURCES, LTD.
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1999
8. NOTE PAYABLE:
Note payable at June 30, 1999 consisted of the following:
Note payable to lender; secured
by 1st deed of trust; interest at
8% per annum; matures July 31, 2001 $ 75,800
===========
9. NOTES PAYABLE, RELATED PARTIES:
Notes payable, related parties, at June 30, 1999 consisted of the
following:
Note payable to shareholder; unsecured; interest
at prime plus 1.00% per annum, due on demand $ 31,500
===========
10. STOCKHOLDERS' EQUITY:
COMMON STOCK:
On 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 variousinvestors.
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.
57
<PAGE>
CAN-CAL RESOURCES, LTD.
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1999
11. 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:
June 30,1999
-------------
Net income (loss) $ (43,300)
Translation adjustment (11,000)
-------------
Comprehensive income $ (54,300)
=============
12. TRANSLATION ADJUSTMENT:
Balance, Beginning of year $ 8,500
Aggregate adjustment resulting from
translation of financial statements
into U.S. Dollars, and gains and losses
on certain hedge transactions and
intercompany balances (11,800)
Realized loss on foreign currency translation 3,300
-----------
$ 0
===========
13. 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, 1999:
CARRYING FAIR
AMOUNT VALUE
------------ ---------
Financial assets:
Notes receivable-related party $ 44,600 $ 44,600
Property and equipment 72,800 72,800
Other assets 98,900 98,900
Long-term investments 586,100 586,100
Financial liabilities:
Notes payable, related parties 31,500 31,500
Note payable 75,800 75,800
The carrying amounts of cash, trade receivables, prepaid expenses,
other current assets, accounts payable and accrued expenses
approximate fair value because of the short maturity of those
instruments.
The fair value of bank line of credit is based upon the borrowing rates
currently available to the Company for bank loans with similar terms
and average maturities.
58
<PAGE>
CAN-CAL RESOURCES, LTD.
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1999
14. YEAR 2000 COMPLIANCE:
Historically. certain computerized systems have had two digits rather
than four digits to define the applicable year, which could result in
recognizing a date using "00" as the year 1900 rather than the year
2000. This could result in major failures or miscalculations and is
generally referred to as the "Year 2000 issue."
The Company has reviewed, and continues to review, possible effects of
this issue on its financial and operating systems. Review of external
dependencies has revealed that the Company will be exposed to
disruption if there is widespread and prolonged interruption of
electricity, water, and telecommunications services.
The total cost to the Company of these Year 2000 problem related
activities is not anticipated to be material. The costs the Company
may incur to solve the Year 2000 problem are based on management's
estimates. However, there can be no assurance that these estimates
will be achieved and the costs of solving the Year 2000 problem could
differ significantly from management's estimates.
59
<PAGE>
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
(a) (1) (i) David E. Coffey, who was the Company's auditor for its
financial statements for the year ended December 31, 1996, declined to continue
as the Company's auditor for subsequent years. Mr. Coffey represented to the
Company that he was a sole practitioner with an active practice of auditing
small companies and was unable to audit the Company's financial statements for
subsequent years in view of his schedule and the Company's growing operations.
(ii) The principal accountant's report on the financial statements for
1997 and 1998 did not contain an adverse opinion or disclaimer of opinion and
was not modified as to uncertainty, audit scope or accounting principles.
(iii) Mr. Coffey's inability to continue as the Company's auditor was
accepted by the Board of Directors.
(iv) (A.) There were no disagreements with Mr. Coffey on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedure.
(a) (2) The accounting firm of Murphy, Bennington & Co., CPAs, was
engaged to audit Can-Cal's financial statements on approximately February 15,
1998. No other Accountants were appointed during 1997 or 1998.
(a) (3) The Company has provided Mr. Coffey with a copy of the
disclosures it is making in response to this item. Mr. Coffey's letter addressed
to the Commission is Exhibit 16 hereto.
FORWARD LOOKING STATEMENTS
- --------------------------
Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934 provide a "safe harbor" for forward looking
statements that are based on current expectations, estimates and projections,
and management's beliefs and assumptions. Words such as "believes," "expects,"
"intends," "plans," "estimates," "may," "attempt," "will," "goal," "promising,"
or variations of such words and similar expressions are intended to identify
such forward-looking statements. These statements are not guarantees of future
performance and involve certain risks and uncertainties which are difficult or
impossible to predict. Therefore, actual outcomes and results may differ
materially from what is expressed or forecasted in such forward- looking
statements. The Company undertakes no obligation to update publicly any
forward-looking statement whether as a result of new information, future events
or otherwise.
Such risks and uncertainties include, but are not limited to, the
availability of ore, the existence of precious metals in the ore available to
the Company in an amount which permits their production on an economic basis;
the Company's ability to drill holes and properly test and assay samples, and
its ability to locate and acquire mineral properties which contain sufficient
grades of precious metals and/or minerals; the Company's ability to sell a
portion or all of any of its properties to larger mining companies, to enter
into agreements with larger mining companies to explore and possibly develop its
properties, to produce precious metals on a commercial basis, the prices of
precious metals, obtaining a mill or refinery to extract precious metals on an
economic basis, the Company's ability to maintain the facilities it currently
utilizes; obtain permitting requirements for any mining and milling operations
and pay the costs thereof; have good title to claims and equipment, and the
Company's ability to obtain financing necessary to maintain its operations.
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SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the Registrant caused this Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
Can-Cal Resources, Ltd.
Registrant
DATE: September 24, 1999 By: /s/ Ronald D. Sloan
-------------------------- ------------------------------
President
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EXHIBITS
Sequential
Exhibit No. Title of Exhibit Page No.
- ----------- ---------------- ----------
Exhibit 3.0 Articles of Incorporation....................................*
Exhibit 3.1 Amendment to the Articles of Incorporation...................*
Exhibit 3.2 By-Laws......................................................*
Exhibit 10.0 Joint Venture Agreement between Robin Schwarz,
Aylward Schwarz, S&S Mining, a Nevada corporation,
and Can-Cal Resources, Ltd...................................*
Exhibit 10.1 Mining Lease Agreement between
Can-Cal Resources, Ltd.
and Twin Mountain Rock Venture dated May 1, 1998.............*
Exhibit 10.2 Loan Agreement between Owen Sequoia, Inc.
and Can-Cal Resources, Ltd...................................*
Exhibit 10.3 Amendment to Loan Agreement dated June 9, 1998...............*
Exhibit 10.4 Second Amendment to Loan Agreement ..........................*
Exhibit 10.5 Deed of Trust, Security Agreement,
Financing Statement, and Fixture Filing
with Assignment of Rents.....................................*
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...................................*
Exhibit 10.7 Agreement between Can-Cal Resources, Ltd.
and Aurum, LLC dated October 27, 1997........................*
Exhibit 10.8 Quit Claim Deed from Aurum, LLC
to Can-Cal Resources, Ltd....................................*
Exhibit 10.9 Agreement between Tyro, Inc., Dean Willman,
Roland S. Ericsson, and Can-Cal Resources, Ltd...............*
Exhibit 10.10 Complaint filed in District Court for
Clark County, Nevada on March 30, 1998.......................*
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Sequential
Exhibit No. Title of Exhibit Page No.
- ----------- ---------------- ----------
Exhibit 10.11 Confession of Judgment executed by Tyro, Inc.,
Dean Willman, and Roland S. Ericsson.........................*
Exhibit 10.12 Agreement between Can-Cal Resources, Ltd.,
545538 B.C., Ltd., a body incorporated
under the laws of the Province of British Columbia,
and Ronald Daniel Sloan dated January 29, 1999...............*
Exhibit 11.0 Statement re: Computation of per share earnings..............*
Exhibit 16.0 Letter from David E. Coffey on
change of certifying accountant..............................*
Exhibit 23.0 Consent of Independent Auditors,
Murphy, Bennington & Co......................................*
Exhibit 27 Financial Data Schedule......................................*
* Previously filed.
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