FORM 10-QSB
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
X Quarterly Report pursuant to Section 13 or 15(d) of the Securities
------ Exchange Act of 1934 for the fiscal quarter ended September 30, 2000.
Transition Report under Section 13 or 15(d) of the Securities Exchange
------ Act of 1934. For the transition period from _____ to _____.
Commission File No. 0-26669
Can-Cal Resources, Ltd.
--------------------------------------------------------------------------------
(Name of Small Business Issuer in its charter)
Nevada 88-0336988
--------------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
8221 Cretan Blue Lane, Las Vegas, NV 89128
--------------------------------------------- ------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, ( 702 ) 243 - 1849
--------- ------------------- --------------------
--------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13, or 15(d) of the Exchange Act after the distribution of
securities under a plan by a court.
Yes_____ No_____
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
Class Outstanding on September 30, 2000
---------------------------------- ---------------------------------------
Common Stock, Par Value $.001. 9,000,452
Transitional Small Business Disclosure Format (Check one): Yes_____ No X
------
1
<PAGE>
CAN-CAL RESOURCES, LTD.
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
CONTENTS
PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
INDEPENDENT ACCOUNTANTS' REPORT 3
FINANCIAL STATEMENTS:
Interim balance sheets 4
Interim statements of operations 5
Interim statements of changes in stockholders' deficit 6
Interim statements of cash flows 7
Notes to interim financial statements 8-12
INDEPENDENT ACCOUNTANTS'S REPORT ON SUPPLEMENTAL INFORMATION 13
SUPPLEMENTARY SCHEDULE:
Supplemental schedule I
-- Operating, general and administrative expenses 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS 15-18
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES 19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 19
Signatures 19
2
<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 September 30, 1999, and the condensed statements of operations for
the three and nine months ended September 30, 2000 and 1999, the condensed
statements of cash flows for the nine months ended September 30, 2000 and 1999,
and the condensed statement of changes in stockholders' equity for the nine
months ended September 30, 2000. These financial statements are the
responsibility of the company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters.
It is substantially less in scope than an audit conducted in accordance with
generally accepted auditing standards, the objective of which is the expression
of an opinion regarding the financial statements taken as a whole. Accordingly,
we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements for them to be in conformity
with generally accepted accounting principles.
We previously audited, in accordance with generally accepted auditing standards,
the balance sheet as of December 31, 1999, and the related changes in
stockholders' equity (deficit), and cash flows and statements of operations (not
presented herein); for the year then ended; and in our report dated March 2,
2000, we expressed an unqualified opinion on these financial statements. In our
opinion, the information set forth in the accompanying condensed balance sheet
as of December 31, 1999 and the condensed statement of changes in stockholders'
equity for the year then ended, is fairly stated in all material respects in
relation to the balance sheet and statement of changes in stockholders' equity
from which they have been derived.
MURPHY, BENNINGTON & CO.
/s/ Murphy, Bennington & Co.
Las Vegas, NV
November 3, 2000
3
<PAGE>
CAN-CAL RESOURCES, LTD.
BALANCE SHEETS
SEPTEMBER 30, 2000
(ROUNDED TO THE NEAREST HUNDRED, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
(UNAUDITED) (NOTE)
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash $ 207,500 $ 51,800
Notes receivable, related parties -- 44,700
Prepaid expenses -- 1,200
Note receivable 53,000 48,000
----------- -----------
Total current assets 260,500 145,700
PROPERTY AND EQUIPMENT, NET (NOTE 4) 70,300 61,400
OTHER ASSETS (NOTE 5) 107,200 95,300
NOTES RECEIVABLE, RELATED PARTY (NOTE 6) 47,200 --
LONG-TERM INVESTMENTS (NOTE 7) 586,100 586,100
----------- -----------
$ 1,071,300 $ 888,500
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable $ 9,500 $ 7,100
Accrued expenses 86,000 56,300
Notes payable, related parties (note 8) 124,800 14,800
Notes payable, current portion (note 9) 33,500 6,800
----------- -----------
Total current liabilities 253,800 85,000
NOTES PAYABLE, NET OF CURRENT PORTION -- 55,000
----------- -----------
253,800 140,000
----------- -----------
STOCKHOLDERS' DEFICIT:
Common stock, $.001 par value; authorized, 15,000,000 shares;
issued and outstanding, 9,000,452 shares 9,200 8,200
Preferred stock, $.001 par value; authorized, 10,000,000 shares;
none issued or outstanding -- --
Additional paid-in-capital 3,204,300 2,460,200
Accumulated deficit (2,396,000) (1,719,900)
----------- -----------
817,500 748,500
----------- -----------
$ 1,071,300 $ 888,500
=========== ===========
</TABLE>
Note: The balance sheet of December 31, 1999 has been derived from the audited
financial statements at that date.
See accompanying notes and accountant's report.
4
<PAGE>
CAN-CAL RESOURCES, LTD.
STATEMENTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(ROUNDED TO THE NEAREST HUNDRED, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
---------------------------- ----------------------------
SEPTEMBER SEPTEMBER SEPTEMBER SEPTEMBER
30, 2000 30, 1999 30, 2000 30,1999
----------- ------------- ------------ -------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
SALES $ -- $ -- $ -- $ 3,700
COST OF GOODS SOLD -- -- -- --
----------- ----------- ----------- -----------
GROSS PROFIT -- -- -- 3,700
OPERATING EXPENSES,
GENERAL AND ADMINISTRATIVE 453,200 151,800 706,200 488,000
----------- ----------- ----------- -----------
LOSS FROM OPERATIONS (453,200) (151,800) (706,200) (484,300)
OTHER INCOME (EXPENSES):
Other income 4,500 -- 30,000 --
Interest income 3,200 3,600 8,000 7,300
Interest expense (3,500) (2,200) (7,900) (7,300)
----------- ----------- ----------- -----------
INCOME (LOSS) FROM CONTINUING OPERATIONS (449,000) (150,400) (676,100) (484,300)
----------- ----------- ----------- -----------
INCOME (LOSS) FROM DISCONTINUED OPERATIONS:
Income (loss) from discontinued
automobile salvage division -- -- -- 174,300
Gain on disposal of automobile
salvage division (net of taxes) -- -- -- 116,400
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ (449,000) $ (150,400) $ (676,100) $ (193,600)
=========== =========== =========== ===========
NET INCOME (LOSS) PER SHARE OF COMMON STOCK
AND COMMON STOCK EQUIVALENTS:
BASIC EPS
Net loss from continuing operations $ (0.05) $ (0.02) $ (0.08) $ (0.03)
=========== =========== =========== ===========
Weighted average shares outstanding 8,484,895 7,928,616 8,719,709 7,567,464
=========== =========== =========== ===========
DILUTED EPS
Net loss from continuing operations $ (0.05) $ (0.02) $ (0.08) $ (0.03)
=========== =========== =========== ===========
Weighted average shares outstanding 8,484,895 7,928,616 8,719,709 7,567,464
=========== =========== =========== ===========
</TABLE>
See accompanying notes and accountant's report.
5
<PAGE>
CAN-CAL RESOURCES, LTD.
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
NINE MONTHS ENDED SEPTEMBER 30,2000
(UNAUDITED)
(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, 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 1,248,621 1,200 572,600 -- -- 573,800
Foreign currency translation -- -- -- -- (11,800) (11,800)
Realized foreign currency translation loss -- -- -- -- 3,300 3,300
Net income (loss) for the year -- -- -- (322,100) -- (322,100)
----------- ----------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1999 8,253,782 8,200 2,460,200 (1,719,900) -- 748,500
Issuance of common stock 746,670 1,000 744,100 -- -- 745,100
Net income (loss) for the period -- -- -- (676,100) (676,100)
----------- ----------- ----------- ----------- ----------- -----------
BALANCE, SEPTEMBER 30, 2000 9,000,452 $ 9,200 $ 3,204,300 $(2,396,000) $ -- $ 817,500
=========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes and accountant's report.
6
<PAGE>
CAN-CAL RESOURCES, LTD.
STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(ROUNDED TO THE NEAREST HUNDRED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
----------------------------
SEPTEMBER 30, SEPTEMBER 30,
2000 1999
------------- -------------
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
NET LOSS $(676,100) $(193,600)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 21,100 12,700
Gain on disposal of facility -- (116,400)
Gain on foreign currency translation -- (3,300)
Bad debt expense -- 152,100
Undistributed earnings of affiliate -- (174,300)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (7,600) (5,500)
(Increase) decrease in prepaid expenses 1,200 500
(Increase) decrease in other assets (11,800) 100
Increase (decrease) in accounts payable and
other current liabilities 27,700 32,300
--------- ---------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (645,500) (295,400)
--------- ---------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of property and equipment (30,000) (57,400)
Proceeds from sale of facility -- 65,300
--------- ---------
NET CASH PROVIDED BY INVESTING ACTIVITIES (30,000) 7,900
--------- ---------
CASH FLOW FROM FINANCING ACTIVITIES:
Increase in related party debt 110,300 (65,300)
Principal payments on note payable (23,900) (40,600)
Proceeds from issuance of common stock 744,800 573,300
Proceeds from debt issuance -- 25,800
--------- ---------
NET CASH USED BY FINANCING ACTIVITIES 831,200 493,200
--------- ---------
NET CHANGE IN CUMULATIVE TRANSLATION ADJUSTMENT -- 5,800
NET INCREASE (DECREASE) IN CASH 155,700 211,500
CASH AT BEGINNING OF PERIOD 51,800 41,600
--------- ---------
CASH AT END OF PERIOD $ 207,500 $ 253,100
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
CASH PAID DURING THE YEAR FOR:
Interest $ -- $ 3,000
========= =========
Income taxes $ -- $ --
========= =========
</TABLE>
See accompanying notes and accountant's report.
7
<PAGE>
CAN-CAL RESOURCES, LTD.
NOTES TO FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
1. BASIS OF PRESENTATION OF FINANCIAL STATEMENTS:
These unaudited interim financial statements of Can-Cal Resources, Ltd have
been prepared in accordance with the rules and regulations of the
Securities and Exchange Commission. Such rules and regulations allow the
omission of certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles as long as the statements are not
misleading.
In the opinion of management, all adjustments necessary for a fair
presentation of these interim statements have been included and are of a
normal recurring nature. These interim financial statements should be
read in conjunction with the financial statements of the Company included
in its 1999 Annual Report on Form 10-KSB. Interim results are not
necessarily indicative of results for a full year.
In the course of its activities, the company has sustained continuing
operating losses and expects such losses to continue for the foreseeable
future. The company plans to continue to finance its operations with
stock sales and, in the longer term, revenues from sales. The company's
ability to continue as a going concern is dependent upon future stock
sales and ultimately upon achieving profitable operations.
2. BUSINESS ACQUISITIONS:
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.
8
<PAGE>
CAN-CAL RESOURCES, LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
4. PROPERTY AND EQUIPMENT:
Property and equipment at September 30, 2000 consisted of the following:
Machinery and equipment $ 84,900
18,400
Office equipment and furniture 12,400
----------
11,570
Less accumulated depreciation (45,400)
----------
$ 70,300
==========
Depreciation expense for the nine months ended September 30,2000 totaled
$21,100.
5. OTHER ASSETS:
Other assets at September 30, 2000 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
Non-destructive testing materials 10,500
Deposits 7,000
Mining claims 36,400
---------
$ 107,200
=========
6. NOTES RECEIVABLE (RELATED PARTIES):
Notes receivable, related parties, at September 30, 2000 consisted of the
following:
Note receivable from S&S Mining, Inc.,
a joint venture partner, unsecured,
interest imputed at 8%, due on demand $ 27,800
Note receivable from an individual,
unsecured, interest imputed
at 8%, due on demand 12,000
Accrued interest receivable 13,100
---------
52,900
Allowance for uncollectible accounts 5,700
---------
$ 47,200
=========
9
<PAGE>
CAN-CAL RESOURCES, LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
7. LONG-TERM INVESTMENTS:
Long-term investments at September 30, 2000 consisted of the following:
Pisgah property $ 567,100
Investment in S&S Mining joint venture 19,000
---------
$ 586,100
=========
8. NOTES PAYABLE, RELATED PARTIES:
Note payable, related parties, at September 30, 2000 consisted of the
following:
Note payable to shareholder; unsecured; interest
at prime plus 1.00% per annum, due on demand $ 120,300
Note payable to shareholder; unsecured; interest
at prime plus 1.00% per annum, due on demand 4,500
----------
$ 124,800
==========
9. NOTES PAYABLE:
Notes payable at September 30, 2000 consisted of the following:
Note payable to lender; secured by 1st deed of trust; $ 32,500
interest at 8.00% per annum, matures July 31, 2001
Note payable to lender; unsecured; interest 700
at prime plus 1.00% per annum, matures September, 2000
Note payable to lender; unsecured; interest
at prime plus 1.00% per annum; matures March, 2000 300
---------
33,500
Less current portion 33,500
---------
$ 0
=========
10
<PAGE>
CAN-CAL RESOURCES, LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
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 various investors.
On March 17, 1999 the Board approved the issuance of 40,000 shares of
Can-Cal common stock in return for equipment.
On March 10, 1999 the Board approved the sale 295,500 shares of Can-Cal
common stock to various investors.
On April 1, 1999 the Board approved the sale of 1,000 restricted common
stock in return for equipment.
On July 21, 1999 the Board approved the sale of 357,500 shares of common
stock to various investors.
On August 24, 1999 the Board approved the sale of 274,000 shares of common
stock to various investors.
On September 7, 1999 the Board approved the sale of 20,000 shares of common
stock to an investor.
On November 9, 1999 the board approved the issuance of 10,000 shares of
common stock to an investor.
On February 27, 2000, the Board of Directors approved the Sale of 500,000
shares of Can-Cal common stock to various investors.
On July 3, 2000, the Board of Directors approved the issuance of 200,000
shares of Can-Cal common stock in exchange for technology related to the
extraction and processing of ore.
On July 25, 2000, the Board of directors approved the sale of 46,670 shares
of Can-Cal common stock to various investors.
11
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CAN-CAL RESOURCES, LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
11. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The following table presents the carrying amounts and estimated fair value
of the Company's financial instruments at September 30, 2000:
<TABLE>
<CAPTION>
CARRYING FAIR
AMOUNT VALUE
------------- ----------
Financial assets:
<S> <C> <C>
Notes receivable $ 53,000 $ 53,000
Property and equipment 70,300 70,300
Other assets 107,200 107,200
Notes receivable - related parties 47,200 47,200
Long-term investments 586,100 586,100
Financial liabilities:
Note payable, related parties 124,800 124,800
Note payable 33,500 33,500
</TABLE>
The carrying amounts of cash, 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.
12. RESEARCH AND DEVELOPMENT:
During July, 2000, the Company entered into an agreement with two
individuals to obtain proprietary technology relative to the extraction
of precious metals. In consideration of this technology the Company
issued 200,000 shares of Can-Cal Resources, Ltd. common stock. Due to
uncertainty regarding the successful utilization of this process, a
$300,000 charge to mine exploration costs was taken during the quarter
ended September 30, 2000.
13. SUBSEQUENT EVENTS:
Subsequent to September 30, 2000 the Company entered into negotiations with
a lender to borrow approximately $300,000. Although the Company presently
has no binding agreement, negotiations are ongoing.
12
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT ON SUPPLEMENTAL INFORMATION
-----------------------------------------------------------
To the Board of Directors and Stockholders
Can-Cal Resources, Ltd.
Las Vegas, Nevada
Our report on our review of the basic financial statements of Can-Cal Resources,
Ltd. for the three and nine months ended September 30, 2000 appears on page one.
That review was made for the purpose of expressing limited assurance that there
are no material modifications that should be made to the financial statements in
order for them to be in conformity with generally accepted accounting
principles. The information included in the supplemental schedule of operating,
general and administrative expenses is presented only for supplemental analysis
purposes. Such information has been subjected to the inquiry and analytical
procedures applied in the review of the basic financial statements, and we are
not aware of any material modifications that should be made thereto.
MURPHY, BENNINGTON & CO.
/s/ Murphy, Bennington & Co.
Las Vegas, NV
November 3, 2000
13
<PAGE>
CAN-CAL RESOURCES, LTD.
SUPPLEMENTAL SCHEDULE I --
OPERATING, GENERAL AND ADMINISTRATIVE EXPENSES
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(ROUNDED TO THE NEAREST HUNDRED)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE THREE
MONTHS MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER SEPTEMBER SEPTEMBER SEPTEMBER
30, 2000 30, 1999 30, 2000 30, 1999
--------- ---------- ---------- ----------
OPERATING, GENERAL AND ADMINISTRATIVE
EXPENSES:
<S> <C> <C> <C> <C>
Mine exploration $370,800 $ 64,500 $454,500 $133,100
Travel and entertainment 22,200 11,800 58,500 19,600
Insurance 7,900 1,700 38,100 3,800
Office expense 12,200 4,100 26,200 10,100
Office rent 6,400 5,400 25,200 10,500
Consulting 7,800 21,800 22,600 89,200
Depreciation and amortization 7,900 5,400 21,100 12,800
Advertising and promotion 5,700 800 12,700 1,300
Accounting and legal 6,900 16,100 30,200 31,900
Telephone 1,900 1,300 7,700 3,500
Miscellaneous 1,900 18,400 6,300 19,000
Utilities 1,600 300 2,800 600
Bank charges -- 200 300 500
Bad debt expense -- -- -- 152,100
-------- -------- -------- --------
$453,200 $151,800 $706,200 $488,000
======== ======== ======== ========
</TABLE>
See accountants' report on supplementary information.
14
<PAGE>
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, negative test results, 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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(A) PLAN OF OPERATION
During the quarter ended September 30, 2000 and continuing thereafter, the
Company significantly expanded its precious metal extractive techniques,
procedures and methodology program of testing volcanic cinder material from its
patented mineral claims at Pisgah, California. The purpose of the program is to
determine the nature and extent of precious metals contained in the volcanic
cinder material and to verify the feasibility and the possible commercial
viability of the various extractive technologies tested.
These extractive testing programs are carried out on behalf of the Company
pursuant to a "Care and Custody" program by Bruce Ballantyne, the Company's
independent geologist and geochemist consultant. All tests have to date been
conducted on small amounts of the volcanic cinder material. Under this program
the volcanic cinder material has been selected and collected from the property.
The sample preparation and composition of the samples used in the extraction
testing are in Mr. Ballantyne's care and custody and control. The precious
metal-bearing material obtained from the repeated extraction testing "runs" of
the various precious metal extraction methods is sent by Mr. Ballantyne to
recognized and certified analytical laboratories. These laboratories determine
by chemical assay methods the existence of and the content of the various
precious metals in the extracted material. They report their assay results to
the Company in certified analytical reports. To date the Company has received
repeated confirmation from these independent laboratories indicating that gold,
silver and platinum group elements (PGE's) are present in, and may be able to be
extracted from, the material. These results from a variety of methods have
resulted in an expanded program of testing under the direction of Mr.
Ballantyne, which the Company plans to continue.
In addition to the chemical determination of the presence of precious
metals in the material, the Company contracted detailed mineralogical study of
precious metal-bearing minerals and their associations
15
<PAGE>
in the volcanic cinders. These extensive studies conducted at the Universite
Libre de Bruxelles and the Colorado School of Mines used microscropical methods
to document and identify and confirm the presence of minerals and native metal
grains and alloys of gold, silver, platinum and palladium (precious metals) in
the material. Scanning Electron Microscope (SEM) and Electron Microprobe (EMP)
both equipped with Energy Dispersive Systems (EDS) were used to describe,
measure, determine and illustrate via imaging, gold, silver and PGE's bearing
minerals, metals and alloys. These mineralogical results confirmed the existence
of precious metal minerals in the material. These detailed mineralogical studies
also assisted in the modification of extraction process method testing.
The Company has caused extractive processes to be conducted and is further
examining those which appear to be most successful in extracting precious metal
products which are:
(a) Smelting of varying weights of "head ore" material at various temperatures
in a variety of furnace- types using a variety of fluxes and precious metal
in quart collectors.
(b) Various acid digestion precious metal extractions of "head ore" material.
Filtration of resultant "pregnant" precious metal bearing solutions with
subsequent "dropping" of contained precious metals from these solutions
using methods such as solvent extraction, electrowinning and wet chemical
methods.
(c) Various precious metal chemical-leaching extractions of "head ore"
material. Filtration of the resultant "pregnant" precious metal-bearing
solutions with subsequent "dropping" of the contained precious metals.
The precious metal bearing products have been prepared in a variety of
products such as dore bars, buttons and beads, powders, salts, sponges and fire
assay cupellation beads. They were subsequently sent by Bruce Ballantyne to
refineries and to certified analytical laboratories for fire assay and/or wet
chemical ICP to determine the precious metal content and composition analyses.
Extractive testing results obtained to date from the independent laboratories
has indicated that the Company has repeatedly extracted precious metals
including gold, silver and PGE's using "laboratory bench-top" sample weights of
the "head ore" material.
As part of the Company's plan of operation a 500-pound composite sample of
material has been collected, homogenized and prepared into a finely ground
sample under the direction and supervision of Bruce Ballantyne. Portions of this
sample are being extraction tested to ascertain if this fine grinding of the
cinders will enhance precious metal extraction and recovery as compared to the
previously successful test "runs" on coarser "head ore" material.
The Company is conducting this expanded testing program to determine the
most suitable method of extracting precious metal products and to determine
whether they can be extracted in commercial quantities.
Any precious metals produced during these larger sample weight "batch test
runs" will be tested for precious metal content and composition by certified
independent bullion assay laboratories and refineries. The analytical data
produced by this program testing will, if successful, provide information
necessary to determine the commercial viability of any production. If it is
determined that production may be feasible and economical the testing will
provide information required for production circuit sizing, building and
installation of a pilot production facility. No such determination has been made
to date.
The Company has leased a facility in Nye County, Nevada with an option to
purchase, which it considers adequate for its testing program and, if
successful, pilot production. The facility contains certain equipment that the
Company can utilize. The facility consists of approximately 20 acres and has the
following structures and equipment, which are all included in the lease and
purchase price: Furnished laboratory
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building, mobile home, furnaces, analytical equipment, leaching tanks,
extraction equipment, leaching tanks and chemicals. However, the Company will be
required to obtain additional equipment. The Company is currently determining
what additional equipment it will require. The Company estimates that the cost
of the additional equipment will range from $35,000 to $50,000.
Although the Company has only entered into an Interim Agreement with the
owner of the facility, the parties are in the process of drafting the definitive
documentation and the Company believes that a final agreement will be
satisfactorily concluded. The terms of the Interim Agreement are as follows: The
Company will lease the facility for four months at a rent of $1,000 per month.
The Company has paid the first two months rent and is moving into the facility
and preparing it for the testing program. The Company has an option for four
months to purchase the facility including all equipment and supplies for an
amount to be negotiated, but which the Company believes will be in the area of
$100,000.
The Company will have to obtain the necessary permits to operate the
facility, even on a limited basis. While it is expected that permits would be
issued in due course (as the proposed operation is similar in some respects to
gold recovery plants elsewhere in the area), permitting delays could be
encountered.
The permitting authorities include the Nevada state and county agencies,
which have authority over mining operations under state and local laws, and also
have delegated authority from the Environmental Protection Agency for the
various federal statutes and agency rules which apply to mining/processing
operations.
On July 3, 2000 the Company entered into an agreement with an entity
referred to as CAL002, in which the company acquired an option to acquire
certain processes and fluxes designed to extract precious metals. As part of the
agreement the Company engaged in extensive testing utilizing those processes and
fluxes. That testing was conducted in the entity's facilities and utilized their
equipment. As a result of its testing the Company exercised its option to
acquire the processes and fluxes and issued 200,000 shares of its common stock
as consideration.
As a result of the Company's expanded testing and extraction programs on
the Volcanic Cinders material and the indicated results of precious metals from
Pisgah Cinders material by a variety of methods, the Company has dedicated
virtually all of its efforts to the Pisgah property programs. The Company is
also working with other persons experienced in extractive procedures and the
extraction and processing of precious metals and is testing different extractive
procedures and techniques.
However, in an effort to further evaluate the blasting and trenching
program conducted at the Owl Canyon property in 1999, the Company retained Mr.
James P. Robinson, a consulting geologist to conduct a fifteen day detailed
structural and geologic mapping survey. This study has been completed and a
geologic report filed with the Company. The report includes surface geologic and
structural maps at 1" = 50 feet and extrapolated cross sections of the four
silver-gold mineralized zones examined in 1999. Mr. Robinson concluded that the
Papa Hill zone is a viable exploration target and he recommended a 10
hole-drilling program to depths of 200 - 300 feet to adequately test the
mineralized target. The three other mineralized zones as defined appear to have
structural features, which are narrow or truncated and thus less attractive as
bulk tonnage gold-bearing jasperoid deposits. Because of the Company's focus and
exploitation of the Pisgah Hill Volcanic Cinder property, and the unfavorable
exploration environment the Board has decided not to pursue any further
exploration at Owl Canyon or seek third party participation for the property at
this time.
Further geologic and exploration work at the Cerbat and Erosion properties
has not been initiated and the Company does not intend to conduct further
exploration on those properties in the near future.
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(B) LIQUIDITY AND CAPITAL RESOURCES AND RESULTS OF OPERATIONS
As of September 30, 2000, the Company's working capital was $6,700. Working
capital as of June 30, 2000 was $113,900. Working capital at September 30, 2000
included $69,000 in proceeds from sale of restricted stock in the third quarter
and approximately $110,000 loaned to the Company by officers and directors
during the nine months ended September 30, 2000.
The Company had no operating income or cash flow from its mining operations
for the three-month period ended September 30, 2000. The Company sustained a
loss from operations of $449,000 for the three month period ended September 30,
2000, compared to a loss of $150,400 for the three month period ended September
30, 1999. $300,000 of the loss for the period ending September 30, 2000 was
accounted for by expensing the 200,000 shares of common stock issued by the
Company to acquire certain processes and fluxes for the treatment of ores and
extraction of precious metals (See note 12 to the financial statements).
During the three month period ended September 30, 2000, mine exploration
costs increased to $370,800 from $133,100 for the three-month period ended
September 30, 1999. $300,000 of the mine exploration cost was accounted for by
expensing the 200,000 shares of common stock as indicated above. The remaining
$70,800 of mine exploration costs account for expenses incurred in testing the
various processes and fluxes, consulting fees paid to Bruce Ballantyne and assay
expenses. These expenses are attributable to the Company's accelerated testing
programs on its volcanic cinders. Accounting and legal expenses decreased to
$6,900 from $16,100. The decrease was due to the costs incurred in 1999 of
becoming a reporting company and legal fees in connection therewith. Consulting
costs decreased to $7,800 from $21,800 as a result of fewer requirements for
independent consultants. Travel and entertainment costs increased to $22,200
from $11,800. This increase was due to the lease of an additional vehicle,
increased travel costs and auto operating expenses. Insurance costs increased
from $1,700 to $7,900 as a result of additional insurance coverage obtained by
the Company. Miscellaneous expenses decreased from $18,400 to $1,900. The
decrease was accounted for by focusing on the Pisgah property project.
Unless the Company is able to establish the economic viability of its
mining properties, the Company will continue writing off its expenses of
exploration and testing of its properties. Therefore, losses will continue
unless the Company locates and delineates reserves. If that occurs, The Company
may capitalize certain of those expenses. There is no assurance that this will
occur.
As a result of the Company's greatly expanded and accelerated program for
testing its volcanic cinders material during the quarter ended September
30,2000, and continuing thereafter, the Company has expended its funds much
faster than it had anticipated. The Company anticipates that, as long as results
appear to warrant it, it will attempt to continue its high level of testing and
assaying and will attempt to produce precious metals from its volcanic cinder
material. Therefore, the Company requires additional funds to continue
conducting those operations and possibly expand those operations. The Company
presently is negotiating a loan in the approximate amount of $300,000, and may
also (or in the alternative) seek private equity financing. The anticipated loan
terms would be $300,000, with interest at 16% per annum secured by a second deed
of trust on the Company's Pisgah Volcanic Cinders property and an assignment of
rents on that property. In addition, if the Company exercises its option to
purchase the facility in Nye County, Nevada, it will execute a first deed of
trust as additional collateral. The Company anticipates that the loan will be
for a period of 5 years, with interest payable semi-annually. The loan may be
prepaid any time without penalty. In addition the Company will issue 45,000
shares of its common stock, subject to investment restrictions, as a placement
fee, and grant the lender a 5-year option to purchase 300,000 shares of its
common restricted stock at a price equal to the 50% of the lowest market price
of its stock during the month preceding exercise.
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PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
In the quarter ended September 30, 2000, the Company sold 46,670 shares of
restricted common stock for $69,000 ($1.50 per share) to seven Canadian
residents pursuant to the exemption from 1933 Act registration provided by
Regulation S adopted by the Securities and Exchange Commission. The offering
price reflected a discount from the market price at the time of the offering.
All shares are restricted from resale for one year; resale's thereafter only
will be permitted in accordance with Rule 144. No Underwriters or brokers were
involved in the offer and sale of the securities, which were placed by officers
and directors of the Company.
In addition, the Company issued 200,000 shares of its common stock to two
individuals, both U.S. Residents, (100,000 shares each), as consideration for
the acquisition of certain proprietary processes and fluxes. Those shares are
restricted securities. 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.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
No. Description Page No.
--- ----------- -------
11 Computation of Earnings Per Share.......................20
23 Consent of Independent Accountants......................21
27 Financial Data Schedule.................................22
(b) Reports on Form 8-K. There were no reports filed by the Company on
Form 8-K during the quarter ended September 30, 2000.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CAN-CAL RESOURCES LTD.
(REGISTRANT)
Date: November 13, 2000 By: / s / Ronald D. Sloan
-----------------------------------
RONALD D. SLOAN, President
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