SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number: 0-17232
CAPITAL RESERVE CORPORATION
(Name of small business issuer in its charter)
COLORADO 84-0888594
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
#11-1861 BEACH AVENUE, VANCOUVER, BRITISH COLUMBIA V6G 1Z1 CANADA
(Address of principal executive offices including zip code)
Issuer's telephone number, including area code: (604) 687-4828
Securities registered under Section 12(b) of the Exchange Act: NONE
Securities registered under Section 12(g) of the Exchange Act:
Title of class: CLASS A COMMON STOCK, NO PAR VALUE
COMMON STOCK PURCHASE WARRANTS
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to the filing requirements for the past 90 days. Yes X No
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB.[X]
Issuer's revenues for its most recent fiscal year. $(4,068)
Aggregate market value of the voting stock held by non-affiliates
of the registrant as of April 14, 1999: $0.00 (See Item 5)
Number of shares outstanding of registrant's Class A Common Stock, no par value,
as of April 14, 1999: 1,411,045
Documents incorporated by reference: NONE
Transitional Small Business Disclosure Format (check one): Yes__ No X
Exhibit index on consecutive page 10 Page 1 of 35 Pages
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
Capital Reserve Corporation (the "Company") was incorporated under the
laws of the State of Colorado on August 3, 1982, for the purpose of operating as
a financial services holding company.
Effective June 29, 1988, the Company acquired 100% of the outstanding
stock of First West Financial Services, Inc. and its subsidiary, First West Life
Insurance Company ("First West Life"), in exchange for 100,000 shares of the
Company's Common Stock with an estimated fair market value of $10.00 per share,
$931,304 cash, and a liability to the former shareholders of First West Life of
$459,000 (the "Exchange"). In addition, in connection with the acquisition of
First West Life, the Company agreed to pay the former shareholders of First West
Life an additional $150,000 ($50,000 to each of the three shareholders) if a
certain price ($20.00 per share) and marketability of the stock issued in the
Exchange was not attained at the end of two years after the date of the Exchange
(June 29, 1990). See Item 3. Legal Proceedings, Item 12. Certain Relationships
and Related Transactions, and Item 7. Financial Statements herein and the Notes
included therein. The Company also incurred acquisition costs of $26,585 for
legal and actuarial fees. This transaction was accounted for using the purchase
method of accounting. See "Sale of First West Life" below.
During the quarter ended September 30, 1988, the Company invested
$30,000 in 300,000 shares (100%) of the Class B common stock of Premier Capital
Investment Corporation, a Colorado corporation ("Premier"). The holders of the
shares of Class B common stock had the right to elect a majority of the Board of
Directors of Premier. On August 31, 1990, Premier completed a private offering
of its common stock and common stock purchase warrants, resulting in gross
proceeds of $1,272,500 and net proceeds of $1,235,738. It was proposed to use
such capital to acquire business opportunities, primarily in the financial
services industry. On June 10, 1992, the Company sold 2,500 shares of its
ownership of Premier Class B common stock and converted the remaining 297,500
shares of Class B common stock into 2,677,500 shares of Class A common stock of
Premier (approximately 34% of the total outstanding Class A common stock). See
Item 3. Legal Proceedings and Item 6. Management's Discussion and Analysis or
Plan of Operation.
Effective December 31, 1988, First West Financial Services, Inc. was
merged into the Company, and First West Agency, Inc., a subsidiary of First West
Life, was merged into Capital Reserve Marketing Corp., an existing wholly-owned
subsidiary of the Company. On August 1, 1996, Capital Reserve Marketing Corp.
changed its name to Wall Street Investment Corp.
During the quarter ended September 30, 1990, First West Life Insurance
Company of New Mexico ("FWLNM") was formed by First West Life as a wholly-owned
subsidiary. FWLNM applied for a certificate of authority to solicit life and
accident and health insurance on August 14, 1990. Final approval was received on
March 8, 1991. FWLNM offered the same kinds of insurance as First West Life.
Effective October 1, 1990, the Company implemented a 1-for-10 reverse
stock split of the Company's Class A Common Stock and changed the par value of
both the Class A Common Stock and Class B Preferred Stock from $.01 par value to
no par value. The share amounts stated herein have been adjusted to reflect this
reverse stock split.
On December 31, 1992, the Company sold 50.2% of its investment in the
common stock of First Guaranty Income Corporation ("FGI") (formerly Capital
Reserve Investment Corporation) to Premier for $1,760 of debt forgiveness.
Accordingly, the Company changed its method of accounting for its investment in
Premier and FGI to the equity method from that of consolidating the accounts of
Premier and FGI with the accounts of the Company. See Item 6. Management's
Discussion and Analysis or Plan of Operation.
2
<PAGE>
SALE OF FIRST WEST LIFE
On October 14, 1994, the Company sold the issued and outstanding
capital stock of First West Life to Old Reliance Insurance Company, an Arizona
domiciled insurance company ("Old Reliance") for $1,227,301 in cash. The
purchase price was the result of arm's length negotiation between the Company
and Old Reliance. Old Reliance is not affiliated with Capital Reserve, any of
its affiliates, or any director or officer of Capital Reserve. The sale of First
West Life included the sale of FWLNM. As a condition to closing, approvals were
obtained from the Department of Insurance for the States of Colorado, New
Mexico, and Arizona.
The Company determined that it could not maintain capital and surplus
requirements for First West Life and therefore sold First West Life for the best
price possible. An administrative proceeding was initiated in May 1993 before
the Division of Insurance for the State of Colorado against First West Life to
determine whether its license should be revoked or suspended. Among other
things, it was alleged that First West Life failed to meet the minimum capital
and surplus requirements required by statute for life insurance companies as of
March 31, 1993. On October 6, 1993, First West Life entered into a Confidential
Stipulation for Final Agency Order which allowed First West Life to increase its
capital and surplus over an extended period of time to meet statutory
requirements. Management of First West Life deemed this resolution to be
favorable to the Company.
RENTAL OPERATIONS AND WALL STREET INVESTMENT CORP.
During 1995 through June, 1996, the Company's primary business was the
rental of real property. On July 3, 1996, the Company sold its only property,
located at 7860 East Berry Place, Englewood, Colorado, for net proceeds of
$501,276.
At December 31, 1998, the Company had one wholly-owned subsidiary, Wall
Street Investment Corp. ("WSIC"). WSIC (as Capital Reserve Marketing Corp.)
formerly offered a cancer policy. The Company, through WSIC, had attempted to
start a financial consulting services company.
On October 22, 1997, WSIC entered into a sub-contracting agreement with
Columbia Financial Group ("Columbia") pursuant to which WSIC agreed to provide
public relations services in connection with Columbia's contract with Winner's
Internet Network, Inc. ("Winners"). In consideration for WSIC's services,
Columbia agreed to transfer to WSIC stock purchase warrants for 50,000 shares of
Winner's stock, with a purchase price of $2.50 per share, exercisable for 12
months. As of April 10, 1999, WSIC had not received the stock purchase warrants
from Columbia. Columbia transferred 10,000 shares of free trading Winner's
common stock to WSIC, but failed to make any subsequent transfers. As of April
10, 1999, the Company had sold all of the Winner's shares it received from
Columbia. The agreement with Columbia has been terminated and management does
not anticipate receiving any additional shares from Columbia.
As of April 10, 1999, WSIC was no longer conducting operations.
CURRENT OPERATIONS
As of the date of this report, the Company has no principal business
and the Company is seeking a merger or acquisition opportunity. The Company has
not identified any potential acquisition targets, but it is anticipated that in
the future the Company will engage in an extraordinary corporate transaction,
such as a merger, reorganization or liquidation. Any such transaction would
result in a change of the Company's business and/or corporate structure.
EMPLOYEES
As of December 31, 1998, the Company and its subsidiaries had no
full-time employees. Effective October, 6, 1998, the Company entered into a
Management Agreement with Glen C. Loder, an officer and director of the Company,
pursuant to which Mr. Loder has agreed to serve as President and Chairman of the
Board of Directors of the Company. In addition, Mr. Loder has agreed to provide
the Company with office space and necessary office equipment.
3
<PAGE>
The Company pays Mr. Loder a consulting fee of $5,000 per month in exchange for
his services, plus reimbursement of reasonable expenses. Mr. Loder devotes as
much of his time to the Company as is reasonably needed.
ITEM 2. DESCRIPTION OF PROPERTY.
As of April 20, 1999, the Company was using the offices of Mr. Loder, a
director and President of the Company, as its principal offices, as set forth in
the Management Agreement between the Company and Mr. Loder dated October 6,
1999. See Item 1. Description of Business - Employees.
ITEM 3. LEGAL PROCEEDINGS.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock traded on the over-the-counter market from
July 25, 1988 until April 4, 1997. From May 30, 1989 to July 13, 1992, the
Company's Common Stock was traded on NASDAQ, under the symbol "CRCOA". The range
of high and low bid prices for each fiscal quarter for 1998 and 1997, as
reported by the OTC Bulletin Board, is as follows:
<TABLE>
<CAPTION>
BID OR TRADE PRICES
1998 FISCAL YEAR HIGH LOW
<S> <C> <C>
Quarter Ending 03/31/98................................... N/A N/A
Quarter Ending 06/30/98................................... N/A N/A
Quarter Ending 09/30/98................................... N/A N/A
Quarter Ending 12/31/98................................... N/A N/A
<CAPTION>
1997 FISCAL YEAR HIGH LOW
<S> <C> <C>
Quarter Ending 03/31/97................................... $0.001 $0.001
Quarter Ending 06/30/97................................... $0.001 $0.001
Quarter Ending 09/30/97................................... N/A N/A
Quarter Ending 12/31/97................................... N/A N/A
</TABLE>
As of April 10, 1999, there were no market makers in the Company's
shares. The last reported trade by the OTC Bulletin Board was on
November, 19, 1996 at $ $0.015625 per share.
The above quotations reflect inter-dealer prices, without retail
mark-up, mark-down, or commission and may not necessarily represent actual
transactions.
As of April 12, 1999, there were 662 record holders of the Company's
Common Stock, including shares held by the Company as treasury shares.
During the last two fiscal years, no cash dividends have been declared
on the Company's Common Stock.
4
<PAGE>
RECENT SALES OF UNREGISTERED SECURITIES
From November 1998 through February 1999, the Company conducted a
private placement of shares of the Company's Class A Common Stock, no par value
(the "Shares") pursuant to Rule 506 of Regulation D. Sales were made to a total
of ten (10) Canadian citizens. A total of 865,000 shares were sold at a price of
$0.10 per share, for gross proceeds of $86,500. The Company paid commissions of
10% to persons assisting the Company with sales. As of December 31, 1998, Kerry
Loder, the son of Glen C. Loder, an officer and director of the Company, had
received commissions of $2,000 in connection with the sale of shares. See Item
12. Certain Relationships and Related Transactions.
The Company is in the process of offering rescission to the purchasers
of shares in the private placement based upon statements by the Company that it
would not pay commissions on sales of shares and that the Company would
terminate the offering if it had not received subscriptions for $50,000 by
December 31, 1998.
The Company did not sell the minimum subscription amount of $50,000 by
December 31, 1998, and did not terminate the offering by such date. The Company
continued to offer the shares and utilized funds from the sale of shares prior
to receiving the minimum subscription amount of $50,000. In addition, the
Company paid commissions of approximately 10% to persons selling shares in the
offering.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
GENERAL
The Company has essentially suspended all of its operations. Management
has disposed of most of the Company's assets and applied the proceeds from the
sale of those assets to decreasing the Company's outstanding liabilities. As of
the date of this report the Company had no source of income. The Company must
rely entirely upon the sale of stock to pay any expenses the Company incurs.
Therefore, the financial statements included in this report for the fiscal years
ended December 31, 1998 and 1997, are not necessarily indicative of the
Company's future operations.
LIQUIDITY
Cash flows from continuing operations during 1998 and 1997 reflect net
cash used of $(42,703) and $(278,176), respectively, while cash flows provided
by investing activities for the same periods were $25,412 and $57,549,
respectively.
At December 31, 1998, and 1997 the Company had working capital of
$(1,471) and $(9,996), respectively. Since the Company has no significant source
of revenue, working capital will continue to be depleted by operating expenses.
If the Company should generate an operating loss for 1999 comparable to the loss
incurred for 1998, it will have no cash or working capital remaining. See "
Results of Operations" below. The Company presently has no external sources of
cash.
During the last quarter of fiscal 1998 and the first quarter of fiscal
1999 the Company conducted a private placement of shares of the Corporation's
Class A Common Stock, no par value pursuant to Rule 506 of Regulation D. A total
of 865,000 shares were sold at a price of $0.10 per share, for gross proceeds of
$86,500.
ASSETS
At December 31, 1998 the Company had total assets of $11,517, compared
to total assets of $70,812 at December 31, 1997. This represents a decrease of
$59,295, which is attributable to the Company's loss for the fiscal year and the
sale of assets. As of the date of this report, management has disposed of most
of the Company's assets and applied the proceeds from the sale of those assets
to decreasing the Company's outstanding liabilities.
5
<PAGE>
RESULTS OF OPERATIONS
The Company has essentially suspended all of its operations. As of the
date of this report the Company had no source of income. The Company must rely
entirely upon the sale of stock to pay any expenses the Company incurs.
The Company's net operating loss for 1998 decreased by approximately
72% due to decreases in salaries, rent, insurance, entertainment, legal expenses
and depreciation. The Company's loss from continuing operations in 1998 was
$43,331, compared to a loss of $153,917 in 1997.
The Company's operating expenses were comprised primarily of consulting
expenses ($15,000); legal expenses ($6,981); accounting and actuarial expenses
($6,325); and office expenses ($3,620). Since the Company currently has no
source of revenue, the Company's working capital will continue to be depleted by
operating expenses.
Management is in the process of seeking a viable company to acquire or
with which to merge. Until such a company can be identified, the Company has no
source of income and no viable operations. There is no guaranty that management
will be able to locate any such company. If the Company is able to find a
suitable merger or acquisition candidate, any such merger or acquisition would
most likely result in our having to issue a substantial amount of stock to
consummate the transaction.
The Independent Auditors' Report and Note 8 of the Notes to Financial
Statements accompanying this report state that substantial doubt has been raised
about the Company's ability to continue as a going concern. The Company's
present business operations do not generate sufficient revenues to cover its
operating expenses. The Company would have to obtain other business operations
or severely reduce its operating expenses to remain viable, and there can be no
assurance that the Company will be able to do so.
ITEM 7. FINANCIAL STATEMENTS.
Please refer to pages beginning with F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
Not Applicable.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
The following table sets forth the names and ages of all directors and
executive officers of the Company as of the date of this report, indicating all
positions and offices with the Company held by each such person:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Glen C. Loder 64 Chairman of the Board, President, Treasurer and Class B
Director.
Sharon M. Patmore 58 Secretary and Class B Director
</TABLE>
Sharon M. Patmore is the wife of Glen C. Loder.
Class A directors are elected by the holders of the Company's Class A
Common Stock. As a class, the holders of the Common Stock have the right to
elect one less than a majority of the directors. Class B directors are elected
by the holders of the Company's Class B Preferred Stock. As a class, the holders
of Preferred Stock have the right to elect a majority of the directors.
Cumulative voting for directors is not permitted in either Class. The term of
office of both
6
<PAGE>
Class A directors and Class B directors of the Company ends at the next annual
meeting of the Company's shareholders or when the successors are elected and
qualify. The annual meeting of shareholders is specified in the Company's bylaws
to be held on the fourth Friday in August of every year and the last annual
meeting was held on August 27, 1993. The term of office of each officer of the
Company ends at the next annual meeting of the Company's Board of Directors,
expected to take place immediately after the next annual meeting of
shareholders, or when his successor is elected and qualifies. Except as
otherwise indicated below, no organization by which any officer or director
previously has been employed is an affiliate, parent, or subsidiary of the
Company.
GLEN C. LODER has been the Chairman of the Board of Directors of the
Company, President and Treasurer since October 6, 1998. Mr. Loder's principal
occupation is as a promoter. Mr. Loder is self-employed through Western
Depository Corp. whose address is the same as the Company's.
SHARON M. PATMORE has been a director of the Company and the Secretary
since October 6, 1998. Ms. Patmore is the sole employee and President of Sharon
Patmore Agencies, which is located at the same address as the Company. Ms.
Patmore's responsibilities with Sharon Patmore Agencies include sales and
corporate management. Ms. Patmore is the common law wife of Glen C. Loder.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
No directors, officers, or beneficial owners of more than ten percent
of securities of the Company reported to the Company any transactions involving
the securities during the fiscal year ended December 31, 1998. Accordingly,
there is no disclosure of any such transactions contained in this report.
ITEM 10. EXECUTIVE COMPENSATION.
The following table sets forth information for the Chief Executive
Officer ("CEO") of the Company, Ralph W. Newton, Jr. No disclosure need be
provided for any executive officer, other than the CEO, whose total annual
salary and bonus for the last completed fiscal year did not exceed $100,000.
Accordingly, no other executive officers of the Company are included in the
table.
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
ANNUAL COMPENSATION AWARDS PAYOUTS
SECURITIES
OTHER RESTRICTED UNDERLYING
NAME AND ANNUAL STOCK OP- ALL OTHER
PRINCIPAL COMPEN- AWARD(S) TIONS/SARS LTIP COMPEN-
POSITION YEAR SALARY($) BONUS($) SATION ($) ($) ($) PAYOUTS ($) SATION ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Glen C. 1998 -0- -0- 15,000 -0- -0- -0- -0-
Loder,
Chairman,
President
and
Treasurer
(1)<F1>
Ralph W. 1998 -0- -0- -0- -0- (3)<F3> -0- -0-
Newton, Jr. 1997 $26,000 -0- -0- -0- -0- -0- -0-
Chairman 1996 $100,000 -0- -0- -0- -0- -0- -0-
and Presi
dent (2)<F2>
<FN>
<F1>
(1) Pursuant to the Management Agreement between the Company and Glen C.
Loder dated October 6, 1998. See Item 12. Certain Relationships and
Related Transactions.
<F2>
(2) Ralph W. Newton resigned effective October 6, 1998, pursuant to the
terms of the Stock Purchase Agreement between Mr. Newton, Patricia L.
Newton and Glen C. Loder. See Item 12. Certain Relationships and
Related
7
<PAGE>
Transactions. On February 3, 1999, Mr. and Mrs. Newton sold their
140,000 shares of Class B Preferred Stock to Mr. Loder, giving Mr.
Loder control over the Company's Board of Directors. See Item 12.
Certain Relationships and Related Transactions and Item 9. Directors,
Executive Officers, Promoters and Control Persons; Compliance with
Section 16(a) of the Exchange Act.
<F3>
(3) The Company has issued options to Ralph W. Newton and Patricia L.
Newton to acquire up to 200,000 shares of the Company's Common Stock at
a price of $0.25 per share on or before February 3, 2001. See Item 10.
Executive Compensation - Options.
</FN>
</TABLE>
The Company does not pay non-officer directors for their services as
such, with the exception of Mr. Loder (See Item 1. Description of Business -
Employees) nor does it pay any director's fees for attendance at meetings. Direc
tors are reimbursed for any expenses incurred by them in their performance as
directors.
OPTIONS
On February 3, 1999, the Company issued stock options to Ralph W.
Newton and Patricia L. Newton to acquire up to 200,000 shares of the Company's
Common Stock at a price of $0.25 per share on or before February 3, 2001 (the
"Options"). Patricia L. Newton is the wife of Ralph W. Newton. The Options were
issued in connection with the Stock Purchase Agreement between the Newtons and
Glen C. Loder, the President and CEO of the Company. See Item 12. Certain
Relationships and Related Transactions. The value of the Options has not been
included in the Executive Compensation Table, above, because i) the Options were
issued during 1999, and ii) there is no established value for the shares of
Common Stock. Therefore, the value of the Options is unknown.
STOCK OPTION PLANS
The Company has adopted an Incentive Stock Option Plan ("ISOP") and
Non-Qualified Stock Option Plan ("Non-Qualified Plan"). Both the ISOP and the
Non-Qualified Plans permit the Board of Directors or a committee of directors
(the "Committee") to grant stock options to key management employees of the
Company. Such individuals will be selected from employees (excluding directors
who are not full-time employees of the Company) who have techni cal, managerial,
supervisory, or professional responsibilities.
It is intended that all options granted under the ISOP will qualify as
incentive stock options under Section 422A of the Internal Revenue Code of 1986,
as amended. Options for up to 18,000 shares of Common Stock may be issued under
the ISOP. If any such options are issued, they may be exercised at a price that
is not less than 110% of the fair market value of the stock on the day the
option is granted.
Options granted under the Non-Qualified Plan which are presently
exercisable, are not intended to qualify as incentive stock option plans under
the Internal Revenue Code of 1986, as amended. The aggregate number of shares of
Common Stock which may be subject to options under the Non-Qualified Plan is
18,000. If any such options are issued, they are to be exercised at a price of
$5.00 per share.
As of the date of this Annual Report, no options have been granted
under either plan.
Under both Plans, the Board of Directors grants options only to
individuals who, in the judgment of the Committee, have made significant
contributions to the Company. There is no formula for determining the number of
options to be granted under the Plans. Options are anticipated to be granted on
the basis of annual performance reviews. Any grants of options will reflect the
Committee's judgment (in its sole discretion) of the relative value of the
contribution of the grantee in respect to such matters as revenue production and
expense control.
COMPENSATION OF DIRECTORS
Effective October, 6, 1998, the Company entered into a Management
Agreement with Glen C. Loder, an officer and director of the Company, pursuant
to which Mr. Loder has agreed to serve as President and Chairman of the Board
8
<PAGE>
of Directors of the Company. The Company pays Mr. Loder a consulting fee of
$5,000 per month in exchange for his services, plus reimbursement of reasonable
expenses. During 1998, Mr. Loder earned $15,000, of which $5,000 is still owed
to Mr. Loder, and has been accounted for as Accounts Payable - Related Party, on
the Company's Balance Sheet. See Item 7. Financial Statements.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The following table sets forth information, as of April 12, 1999, with
respect to the beneficial ownership of the Company's Common Stock and Preferred
Stock by each person known by the Company to be the beneficial owner of more
than five percent of the outstanding Common Stock and Preferred Stock, by each
of the Company's officers and directors, and by the officers and directors of
the Company as a group. Information is also provided regarding beneficial
ownership of Common Stock if the Preferred Stock is converted to Common Stock
(at a ratio of .8 shares of Common Stock for every share of Preferred Stock):
<TABLE>
<CAPTION>
IF ALL SHARES OF PREFERRED
STOCK ARE CONVERTED TO COM-
COMMON STOCK PREFERRED STOCK MON STOCK (1)
NUMBER OF PERCENT OF NUMBER OF PERCENT OF NUMBER OF PERCENT OF
BENEFICIAL OWNER SHARES CLASS (2) SHARES CLASS (3) SHARES CLASS (4)
<S> <C> <C> <C> <C> <C> <C>
Glen C. Loder -0- -- 140,000 (5) 56.0% 112,000 7.0%
#11-1861 Beach Avenue
Vancouver, British Columbia
V6G 1Z1, CANADA
Harding, Shultz & Downs -0- -- 74,125 29.7% 59,300 3.7%
800 Lincoln Square
121 South 13th Street
Lincoln, Nebraska 68501
Ralph W. Newton and 200,000 12.4% -0- -- 200,000 11.0%
Patricia L. Newton (6)
One Cleek Way
Littleton, Colorado 80123
Officers and Directors as a -0- -- 140,000 56.0% 112,000 7.0%
group (2 persons)
- ---------------
<FN>
<F1>
(1) As of the date of this Annual Report, no shares of Preferred Stock have
been converted.
<F2>
(2) Based on 1,411,045 shares of Common Stock outstanding.
<F3>
(3) Based on 250,000 shares of Preferred Stock outstanding.
<F4>
(4) Based on 1,611,045 shares of Common Stock outstanding, which assumes
the conversion of all shares of Preferred Stock at a ratio of .8 shares
of Common Stock for every share of Preferred Stock.
<F5>
(5) Sharon M. Patmore is the wife of Glen C. Loder. Mr. Loder has sole
voting and dispositive power with respect to his 140,000 shares of
Preferred Stock. For this reason, the shares of Mr. Loder have not been
attributed to Ms. Patmore.
<F6>
(6) On February 3, 1999, the Company issued stock options to Ralph W.
Newton and Patricia L. Newton to acquire up to 200,000 shares of the
Company's Common Stock at a price of $0.25 per share on or before
February 3, 2001 (the "Options"). Patricia L. Newton is the wife of
Ralph W. Newton. The Options were issued in connection with the Stock
Purchase Agreement between the Newtons and Glen C. Loder, the President
and CEO of the Company. See Item 12. Certain Relationships and Related
Transactions. The value of the Options has not been included in the
Executive Compensation Table, above, because i) the Options were issued
during 1999, and ii) there is no established value for the shares of
Common Stock. Therefore, the value of the Options is unknown.
</FN>
</TABLE>
CHANGES OF CONTROL
Management is in the process of seeking a viable company to acquire or
with which to merge. Until such a company can be identified, the Company has no
source of income and no viable operations. There is no guaranty that management
will be able to locate any such company. If the Company is able to find a
suitable merger or acquisition
9
<PAGE>
candidate, any such merger or acquisition would most likely result in the
Company having to issue a substantial amount of stock to consummate the
transaction.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
On October 6, 1998, Ralph P. Newton, Jr., and Patricia L. Newton, the
wife of Ralph P. Newton, Jr., entered into a Stock Purchase Agreement to sell
their combined 140,000 shares of Class B Preferred Stock to Glen C. Loder. At
the time of the transaction, Mr. Newton was a director and President of the
Company. Mr. Loder paid the Newtons $40,000 for the shares ($0.35 per share).
Pursuant to the terms of the Stock Purchase Agreement, the Company
conducted a private placement of 865,000 shares of the Company's Class A Common
Stock, no par value (the "Shares"), pursuant to Rule 506 of Regulation D at a
price of $0.10 per share. The first $40,000 from the sale of the Shares was paid
by the Company to Mr. Loder. On February 3, 1999, Mr. Loder paid the Mr. and
Mrs. Newton $40,000 to complete the acquisition of their shares. Mr. Loder also
has caused the Company to grant the Newtons stock options, pursuant to which the
Newtons may acquire up to 200,000 shares of the Company's Class A Common Stock
at a price of $0.25 per share on or before February 3, 2001.
In connection with the agreement by Mr. and Mrs. Newton to sell their
shares, Mr. Newton and Linda M. Opfer resigned as officers and directors of the
Company. On October 6, 1998, Mr. Loder was appointed as the President, Treasurer
and a director, and Sharon M. Patmore was appointed as the Secretary and a
director of the Company.
From November 1998 through February 1999, the Company conducted a
private placement of shares of the Company's Class A Common Stock, no par value
(the "Shares") pursuant to Rule 506 of Regulation D. A total of 865,000 shares
were sold at a price of $0.10 per share, for gross proceeds of $86,500. The
Company paid commissions of 10% to persons assisting the Company with sales.
Kerry Loder, the son of Glen C. Loder, an officer and director of the Company,
had received commissions of $2,000 in connection with the sale of shares.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
<TABLE>
(a) Exhibits:
<CAPTION>
REGULATION CONSECUTIVE
S-B NUMBER EXHIBIT PAGE NUMBER
<S> <C> <C>
2.1 Stock Purchase Agreement dated July 29, 1994 (1)<F1> N/A
3.1 Articles of Incorporation, as amended (2)<F2> N/A
3.2 Amended Bylaws (9)<F9> N/A
4.1 Form of Warrant Agreement (3)<F3> N/A
10.1 Stock Exchange Agreement dated April 29, 1988, between the Company N/A
and the selling shareholders of First West Financial Services, Inc. and First
West Life Insurance Company (4)<F4>
10.2 Supplemental Agreement dated June 17, 1988, between the Company and N/A
the selling shareholders of First West Financial Services, Inc. (4)<F4>
10.3 Order of John Kezer, Insurance Commissioner of the State of Colorado N/A
dated June 29, 1988 (4)<F4>
10.4 Supplemental Agreement (A) dated June 21, 1988, between the
Company N/A and the selling shareholders of First West
Financial (4)<F4>
10
<PAGE>
<CAPTION>
REGULATION CONSECUTIVE
S-B NUMBER EXHIBIT PAGE NUMBER
<S> <C> <C>
10.5 Promissory Note payable to Joseph T. Flynn, Dennis G. Haley, and Donald N/A
Yee (5)<F5>
10.6 Promissory Note payable to the Company from Joseph T. Flynn and N/A
Jacqueline M. Flynn (5)<F5>
10.7 Real estate conveyance documents for purchase of 7860 E. Berry Place (6)<F6> N/A
10.8 Stock Purchase Agreement with Philip A. Bates dated December 1, 1993 N/A
(7)<F7>
10.9 Settlement Agreement and Mutual General Release by and between Joseph N/A
T. Flynn, Jacqueline M. Flynn, Capital Reserve Corporation, and Ralph
Newton (8)<F8>
10.10 Contract to Buy and Sell Real Estate for sale of 7860 East Berry Place. N/A
(10)<F10>
10.11 Settlement Agreement (11)<F11> N/A
10.12 Sub-Contracting Agreement with Columbia Financial Group (12)<F12> N/A
10.13 Management Agreement with Mr. Loder 27
27 Financial Data Schedule 34
- ----------------------------
<FN>
<F1>
(1) Incorporated by reference to the Exhibits filed with the Company's Form 8-K dated October 14, 1994.
<F2>
(2) Incorporated by reference to the Exhibits previously filed with the
Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1990.
<F3>
(3) Incorporated by reference to the Exhibits filed with the Company's
Registration Statement on Form S-18, Registration No. 33-21118-D.
<F4>
(4) Incorporated by reference to the Exhibits filed with the Company's Form 8-K dated June 30, 1988.
<F5>
(5) Incorporated by reference to the Exhibits previously filed with the
Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1988, as amended by Form 8 Amendment No. 1, dated May 15, 1989.
<F6>
(6) Incorporated by reference to the Exhibits previously filed with the
Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1991.
<F7>
(7) Incorporated by reference to the Exhibits previously filed with the
Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1993.
<F8>
(8) Incorporated by reference to the Exhibits previously filed with the
Company's Quarterly Report on Form 10- QSB for the quarter ended June
30, 1996.
<F9>
(9) Incorporated by reference to the Exhibits previously filed with the
Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1994.
<F10>
(10) Incorporated by reference to the Exhibits previously filed with the
Company's Quarterly Report on Form 10- QSB for the quarter ended
September 30, 1996.
11
<PAGE>
<F11>
(11) Incorporated by reference to the Exhibits previously filed with the
Company's Annual Report on Form 10- KSB/A Amendment No. 1 for the
fiscal year ended December 31, 1996.
<F12>
(12) Incorporated by reference to the Exhibits previously filed with the
Company's Quarterly Report on Form 10- QSB for the quarter ended
September 30, 1997.
</FN>
</TABLE>
(b) The following reports on Form 8-K were filed during the last
quarter of the period covered by this report:
1. Form 8-K dated October 6, 1998 reporting the Stock
Purchase Agreement between Mr. Loder, Mr. Newton and
Mrs. Newton, under Item 1. Changes in Control of the
Registrant.
12
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CAPITAL RESERVE CORPORATION
Dated: April 14, 1999 By:/S/GLEN C. LODER
Glen C. Loder, President
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
/S/GLEN C. LODER April 14, 1999
Glen C. Loder, Chairman of the Board of
Directors and President (Principal Executive,
Financial and Accounting Officer)
/S/SHARON M. PATMORE April 14, 1999
Sharon M. Patmore, Director and Secretary
20397.1
13
<PAGE>
FINANCIAL STATEMENTS
AND
INDEPENDENT AUDITORS' REPORT
CAPITAL RESERVE CORPORATION
December 31, 1998
F-1
<PAGE>
C O N T E N T S
PAGE
Independent Auditors' Report F-3
Consolidated Financial Statements
Balance Sheet F-4
Statements of Operations F-5
Statements of Stockholders' Equity F-6
Statements of Cash Flows F-7
Notes to Consolidated Financial Statements F-8 to F-13
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Capital Reserve Corporation
We have audited the accompanying consolidated balance sheet of Capital
Reserve Corporation as of December 31, 1998, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
two years in the period ended December 31, 1998. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit 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 presentations.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Capital Reserve Corporation
as of December 31, 1998, and the results of its operations and its cash flows
for each of the two years in the period ended December 31, 1998, in conformity
with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the financial statements,
the Company incurred a net loss from operations of $43,331 for 1998 and it has
incurred substantial net losses for each of the past two years. As of December
31, 1998, the Company had no source of operating revenues. These factors and the
others discussed in Note 8, raise substantial doubt about the Company's ability
to continue as a going concern. The financial statements do not include any
adjustments relating to the recoverability and classification of recorded
assets, or the amounts and classification of liabilities that might be necessary
in the event the Company cannot continue in existence.
/S/MILLER AND MCCOLLOM
Denver, Colorado
March 31, 1999
F-3
<PAGE>
CAPITAL RESERVE CORPORATION
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
ASSETS
CURRENT ASSETS
Cash and cash equivalents (Note 1) $ 11,517
Total current assets 11,517
------------
Total assets $ 11,517
============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable $ 4,614
Accounts payable - related party (Note 2) 8,374
------------
Total current liabilities 12,988
------------
COMMITMENTS AND CONTINGENCIES (Note 3)
STOCKHOLDERS' DEFICIT (Notes 1, 4 and 5)
Class A common stock - authorized 20,000,000 shares
of no par value; issued and outstanding
796,045 shares 3,158,162
Class B preferred stock - authorized 250,000 shares
of no par value; issued and outstanding
250,000 shares 50,000
Accumulated deficit (3,209,633)
------------
Total stockholders' deficit (1,471)
------------
Total liabilities and stockholders' deficit $ 11,517
============
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
CAPITAL RESERVE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31,
-------------------------
1998 1997
----------- ------------
Revenue
Insurance residuals $ 2,692 $ 17,938
Interest and dividends 28 1,776
Investment gain (losses) (2,294) 27,565
Loss on sale of fixed assets (13,813) (13,397)
Other 9,319 19,888
----------- ------------
Total revenues (4,068) 53,770
----------- ------------
Expenses
General and administrative (Notes 2 and 3) 39,263 207,687
----------- ------------
Total expenses 39,263 207,687
----------- ------------
(Loss) before income taxes (43,331) (153,917)
Income taxes - -
----------- ------------
Net (loss) $ (43,331) $ (153,917)
=========== ============
Net (loss) per common share (Note 1)
Continuing operations $ (.05 ) $ (.28)
=========== ============
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
<TABLE>
CAPITAL RESERVE CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998, AND 1997
<CAPTION>
Class A Class B
Stock Stock
Common Preferred
------------------------- ------------------------
Accumulated
Shares Amount Shares Amount Deficit
<S> <C> <C> <C> <C> <C>
December 31, 1996 546,045 $ 3,138,102 250,000 $ 50,000 $(3,012,385)
Net (loss) - - - - (153,917)
----------- ------------- ---------- ----------- --------------
December 31, 1997 546,045 3,138,102 250,000 50,000 (3,166,302)
Issuance of common
stock net of
offering
cost of $4,940 250,000 20,060 - - -
Net (loss) - - - - (43,331)
----------- ------------- ---------- ----------- --------------
December 31, 1998 796,045 $ 3,158,162 250,000 $ 50,000 $(3,209,633)
=========== ============= ========== =========== ==============
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
CAPITAL RESERVE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
--------------------------
1998 1997
------------ ------------
Operating activities:
Net (loss) from continuing operations $ (43,331) $ (153,917)
------------ ------------
Reconciling adjustments
Depreciation and amortization 964 9,947
Loss on equipment sales 13,813 13,397
(Gain) loss on investments 2,294 (27,565)
Partnership loss 11,175 -
Changes in operating assets and liabilities
Current assets 351 76,840
Accounts payable and accrued liabilities (27,969) (196,878)
------------ ------------
Total adjustments 628 (124,259)
------------ ------------
Net cash (used for) continuing operations (42,703) (278,176)
------------ ------------
Investing activities:
Purchase of investments (1,893) (47,545)
Proceeds from sale of investments 21,462 96,703
Purchase of property and equipment - (8,109)
Proceeds from sale of equipment 5,843 16,500
------------ ------------
Net cash (used for) provided by
investing activities 25,412 57,549
------------ ------------
Financing activities:
Issuance of common stock 25,000 -
Offerring costs (4,940)
------------ ------------
Net cash (used for) financing activities 20,060 -
------------ ------------
Net change in cash and cash equivalents 2,769 (220,627)
Cash and cash equivalents at beginning of year 8,748 229,375
------------ ------------
Cash and cash equivalents at end of year $ 11,517 $ 8,748
============ ============
The accompanying notes are an integral part of these statements.
F-7
<PAGE>
CAPITAL RESERVE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of Capital Reserve Corporation
(CRC) is presented to assist in understanding the Company's financial
statements. The financial statements and notes are representations of the
Company's management who is responsible for their integrity and objectivity.
These accounting policies conform to generally accepted accounting principles
and have been consistently applied in the preparation of the financial
statements.
ORGANIZATION
The Company was incorporated in Colorado in 1982, and operated an insurance
agency and a life insurance company. The insurance business was sold in 1994.
The life insurance agency was retained, but is currently inactive.
The Company has minimal operating revenues after the sale of its rental
property. Management had attempted to start a financial consulting and public
relations business. The Company entered into its first consulting agreement in
January 1997. (See Note 9.) Management is also exploring various other future
business opportunities.
USE OF ESTIMATES
The preparation of the Company's financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in these financial statements
and accompanying notes. Actual results could differ from those estimates.
BASIS OF CONSOLIDATION
The consolidated financial statements include CRC, and its wholly owned
subsidiary, Wall Street Investment Corporation (Wall Street). All significant
intercompany accounts and transactions have been eliminated.
DEPRECIATION
Depreciation has been provided in amounts sufficient to relate the costs of
depreciable assets to operations over their estimated useful lives principally
on the straight-line method. Real estate is depreciated over thirty to
thirty-nine years, and other property is depreciated over three to seven years.
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all highly
liquid debt instruments with an original maturity of three months or less to be
cash equivalents.
F-8
<PAGE>
CAPITAL RESERVE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
MARKETABLE SECURITIES
The Company's securities investments that are bought and held principally for
the purpose of selling them in the near term are classified as trading
securities. Trading securities are recorded on the balance sheet in current
assets at their fair value as quoted by the broker. The change in fair value
during the year is included in earnings.
TREASURY STOCK
Treasury stock has been treated as common stock redeemed and cancelled,
consistent with the Colorado Revised Statutes.
EARNINGS (LOSS) PER SHARE
Earnings (loss) per share of common stock is computed based on 796,045 and
546,045 weighted average number of common shares outstanding during the years
ended December 31, 1998, and 1997 respectively. Fully diluted earnings per share
are not presented because they are anti-dilutive.
NOTE 2 - TRANSACTIONS - RELATED PARTY
CHANGE IN CONTROL
On October 6, 1998, Glen C. Loder entered into an agreement with Ralph W.
Newton, Jr., the former president and director of the Company, and
Patricia L. Newton, Mr. Newton's wife to purchase their ownership of
140,000 Class B Preferred Stock for $40,000 plus options to purchase up to
200,000 shares of the Company's common stock at a price of $.25 per share
which Mr. Loder will cause the Company to issue. The option was issued in
1999. Mr. Loder agreed to cause the Company to engage in a private
placement of its common stock, of which the first $40,000 raised would be
used to pay a management fee to Mr. Loder. Mr. Loder then used the
management fee to pay the purchase price. This amount was paid in 1999.
(See Note 5.)
On October 6, 1998, the Company entered into a management agreement with Mr.
Loder. The agreement provides that Mr. Loder shall serve as Chairman of the
Board of Directors and President of the Company, until terminated by the Company
or Mr. Loder. Under the terms of the agreement, Mr. Loder will receive $5,000
per month plus expenses.
During 1997, the Company sold an automobile to a former officer of the Company
and recognized a loss on this transaction.
F-9
<PAGE>
CAPITAL RESERVE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1998
NOTE 3 - COMMITMENTS AND CONTINGENCIES
The Company leased office space under a non-cancellable operating lease which
was to expire July 1998. In December 1997, the Company and the landlord agreed
to terminate the lease on February 28, 1998. Rent expense for the years ended
December 31, 1998, and 1997 was $2,806 and $15,757.
NOTE 4 - STOCKHOLDERS' EQUITY
The holders of the shares of Class A common stock and Class B preferred stock
are entitled to one vote per share, and each class shares equally in any
dividends declared. Neither class of stock has preemptive rights. In the event
of dissolution or liquidation of the Company, the holders of shares of Class A
common stock shall be paid a liquidation price of $.10 per share before any
assets are distributed to the holders of shares of Class B preferred stock. Any
remaining amount shall be distributed pro rata to the holders of shares of both
Class A common stock and Class B preferred stock. The holders of shares of Class
B preferred stock shall have the right to elect a conversion into .8 share of
Class A common stock (with appropriate adjustment of the conversion ratio for
any stock splits, stock dividends, or recapitalization) at the option of the
holders of the majority of the Class B preferred stock.
NOTE 5 - PRIVATE PLACEMENT OF COMMON STOCK
The Company offerred for sale up to 5,000,000 shares of its Class A common stock
at $0.10 per share. The offering provided for a $50,000 minimum on a best
efforts basis through its officers and directors on such sales. As of December
31, 1998, the Company had sold 250,000 shares for $25,000 and incurred $4,940 in
commission and offering expense. As of March 1999, the Company had sold a total
of 865,000 shares. The Company used the proceeds of the stock sales prior to
meeting the $50,000 minimum as provided for the private placement summary and
therefore certain buyers have the right to rescind their purchase of stock.
F-10
<PAGE>
CAPITAL RESERVE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1998
NOTE 6 - INCOME TAXES
There is no federal or state income tax expense related to the continuing
operations of the Company for the years ended December 31, 1998, and 1997.
Capital loss carryforwards of $20,000 were used for 1997 and 1996.
The Company has loss carryforwards as follows:
Net
Capital Operating
Losses Losses
------------ ------------
Expiration Years
1999 $ 1,100,000 $ -
2000-2004 - 900,000
2005-2009 - 200,000
2010 - 200,000
2011 - 400,000
2012 - 150,000
2013 - 43,000
------------ ------------
$ 1,100,000 $ 1,893,000
============ ===========
As discussed in Note 2, the Company had a change in ownership in 1999. This
change could limit the amount of net operating losses that could be utilized by
the Company.
The net deferred tax assets due to loss carryforwards are as follows:
1998 1997
------------ ------------
Deferred tax asset $1,070,000 $1,055,000
Valuation allowance (1,070,000) (1,055,000)
------------ ------------
$ - $ -
============ ============
F-11
<PAGE>
CAPITAL RESERVE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1998
NOTE 7 - FINANCIAL INSTRUMENTS
MARKETABLE SECURITIES
The carrying amount of marketable trading securities in common stocks is equal
to their fair value. Cost, for purposes of calculating gains or losses, is
determined by specific identification.
1998 1997
---------- -----------
Investment (losses) gains are detailed as follows:
Realized gains (losses) on common stock $ (2,294) $ 24,384
Increase in unrealized gains (losses)
on common stock - 3,181
---------- -----------
Investment gains (losses) $ (2,294) $ 27,565
========== ===========
OTHER INVESTMENTS
The carrying amount of other investments approximates fair value as estimated by
management.
NOTE 8 - GOING CONCERN
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplates continuation of the
Company as a going concern. However, the Company has sustained substantial
operating losses in recent years. In addition, the Company has no sources of
operating revenues as of December 31, 1998. Management is currently looking for
an operating company to merge with and raising funds by selling stock via a
private placement. (See Note 5.)
NOTE 9 - SUBCONTRACTING AGREEMENT
On October 22, 1997, Wall Street entered into a sub-contracting agreement with
Columbia Financial Group (Columbia) pursuant to which Wall Street has agreed to
provide public relations services in connection with Columbia's contract with
Winner's Internet Network, Inc. (Winners). In consideration for Wall Street's
services, Columbia has agreed to transfer to Wall Street stock purchase warrants
for 50,000 shares of Winner's stock, with a purchase price of $2.50 per share,
exercisable for 12 months. The Company has not received the stock purchase
warrants from Columbia. Columbia has transferred 10,000 shares of free trading
Winner's common stock to Wall Street. Columbia must also transfer an additional
6,000 shares of Winner's common stock to Wall Street, at a rate of 1,000 shares
every thirty days, beginning December 6, 1997.
F-12
<PAGE>
CAPITAL RESERVE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1998
NOTE 9 - SUBCONTRACTING AGREEMENT, CONTINUED
Wall Street has received only 10,000 shares of Winner's Common Stock, the
agreement was terminated and the Company later sold the stock.
NOTE 10 - YEAR 2000 COMPLIANCE
The only software program the Company utilizes is a general ledger program. The
Company does not anticipate any compliance problems with its software programs
or vendors.
F-13
<PAGE>
Exhibit 10.13
Management Agreement with Mr. Loder
27
<PAGE>
MANAGEMENT AGREEMENT
THIS AGREEMENT, dated as of the 6th day of October, 1998, by and between Capital
Reserve Corporation, a Colorado corporation (the "Company"), and Glen Loder, an
individual (the "Consultant").
WHEREAS, the Consultant has experience and expertise in the financial industry
and corporate management; and
WHEREAS, the Consultant is a member of the Company's board of directors; and
WHEREAS, the Company desires to secure the services and employment of the
Consultant on behalf of the Company immediately and the Consultant is willing to
perform services as a Consultant to the Company until the Consultant's
employment with the Company shall be terminated in accordance with the terms of
this Agreement;
NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants
and agreements of the parties contained herein, the parties hereto agree as
follows:
1. EMPLOYMENT CONDITIONS. The Company agrees to employ the Consultant as
its President and Chairman of the Board of Directors, and the
Consultant agrees to accept such employment, on the terms provided in
this Agreement.
2. DUTIES AND RESPONSIBILITIES.
a) During the term of this Agreement, the Consultant shall serve
as Chairman of the Board of Directors of the Company and,
additionally, as President of the Company.
b) The Consultant shall provide office space and necessary office
equipment to the Company as part of Consultant's services.
c) The Consultant, in all capacities, shall report to the Board
of Directors of the Company.
d) The Consultant shall perform those duties and
responsibilities, commensurate with the Consultant's skills
and experience, and as designated by the Board of Directors of
the Company.
----- -----
28
<PAGE>
e) During the Employment Term, the Consultant agrees to devote
such time and attention to the business and affairs of the
Company as the Consultant deems necessary and to use the
Consultant's best efforts to perform faithfully and
efficiently such responsibilities.
3. TERM OF AGREEMENT. The Consultant's services shall be available to the
Company from October 6, 1998, until terminated by the Consultant or the
Company.
4. WHERE SERVICES ARE TO BE PERFORMED. The Consultant's services will be
performed at the Consultant's offices and the Consulting Fee, as
defined in Section 5, shall include any charges for the use of the
office space and associated equipment. The Consultant may perform
services at such other places that are appropriate and are mutually
agreed to by Consultant and the Company.
5. COMPENSATION. The Company will pay the Consultant a consulting fee of
Five Thousand United States dollars (US$5,000) per month (the
"Consulting Fee"). The Consulting Fee shall be payable at the end of
each month in which the Consultant furnishes services pursuant to this
Agreement.
6. PER DIEM EXPENSES; REIMBURSEMENT OF TRAVEL EXPENSES. The Company will
reimburse the Consultant for reasonable expenses incurred by the
Consultant pursuant to this Agreement, including expenses for travel
required in connection with the furnishing of services under this
Agreement. Reimbursement of expenses shall be made on the basis of
itemized statements submitted by the Consultant and including, whenever
possible, actual bills, receipts, or other evidence of expenditures.
7. CONSULTANT AN INDEPENDENT CONTRACTOR. The Consultant will furnish the
Consultant's services as an independent contractor and not as an
employee of the Company or of any company affiliated with the Company.
No representation will be made by either party to anyone that the
Consultant is other than an independent contractor. The Consultant is
not entitled to any medical coverage, life insurance, participation in
the Company's savings plan, or other benefits afforded to the Company's
regular employees, or those of the Company's affiliated companies.
Loder Management Agreement - page 2 ----- -----
29
<PAGE>
8. CONSULTANT NOT TO ENGAGE IN CONFLICTING ACTIVITIES. During the time of
this Agreement, the Consultant will not enter into any activity,
employment, or business arrangement that conflicts with the Company's
interests or the Consultant's obligations under this Agreement. In view
of the sensitive nature of the Consultant's status, the Company or the
Consultant shall have the option of terminating this Agreement at any
time if a conflict of interest exists or is imminent. The Consultant
will advise the Company of the Consultant's position with respect to
any activity, employment, or business arrangement contemplated by the
Consultant that may be relevant to this Paragraph. For this purpose,
the Consultant agrees to disclose any such plans to the Company prior
to implementation.
9. PROPRIETARY AND CONFIDENTIAL INFORMATION. The Consultant will treat as
proprietary and confidential any information belonging to the Company,
the Company's affiliated companies, or any third parties, disclosed to
Consultant in the course of the Consultant's services. The Consultant
shall not disclose or transfer any such information to any other person
or entity without the Company's prior approval. Any documents or
information otherwise provided to the Consultant shall be returned to
the Company upon termination of this Agreement.
10. INSIDE INFORMATION--SECURITIES LAWS VIOLATIONS. In the course of the
performance of the Consultant's duties, it is expected that the
Consultant will receive information that is considered material inside
information within the meaning and intent of the federal securities
laws, rules, and regulations. The Consultant will not disclose this
information, directly or indirectly, or use such information as a basis
for advice to any other party concerning any decision to buy, sell, or
otherwise deal in the Company's securities or those of any of the
Company's affiliated companies.
11. NONASSIGNABILITY; SUCCESSORS. This Agreement is personal and,
notwithstanding anything contained in this Agreement, neither this
Agreement nor any right or interest of the Consultant hereunder shall
be subject to voluntary or involuntary alienation, assignment or
transfer, without the Company's prior written consent. This Agreement
shall inure to the benefit of and be binding upon the Company and its
successors.
Loder Management Agreement - page 3 ----- -----
30
<PAGE>
12. ENTIRE AGREEMENT; SEVERABILITY. This Agreement constitutes the entire
agreement between the parties hereto in respect of the employment of
Gene Loder, the "Consultant", by the Company and supersedes any and all
other written, implied or oral agreements and understandings with
respect to the subject matter of this Agreement. The provisions herein
shall be regarded as severable. Any term or provision of this Agreement
which is invalid or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the
remaining terms or provisions of this Agreement in any other
jurisdiction. If any provision of this Agreement is so broad as to be
unenforceable or invalid, such provision shall be interpreted to be
only so broad as is enforceable and valid.
13. WARRANTY THAT AGREEMENT DOES NOT CONTEMPLATE CORRUPT
PRACTICES--DOMESTIC OR FOREIGN. Consultant represents and warrants that
(a) all payments under this Agreement constitute compensation for
services performed and (b) this Agreement and all payments, and the use
of the payments by Consultant, do not and shall not constitute an
offer, payment, or promise, or authorization of payment of any money or
gift to an official or political party of, or candidate for political
office in, any jurisdiction within or outside the United States. These
payments may not be used to influence any act or decision of an
official, party, or candidate in his, her, or its official capacity, or
to induce such official, party, or candidate to use his, her, or its
influence with a government to affect or influence any act or decision
of such government to assist Client in obtaining, retaining, or
directing business to Client or any person or other corporate entity.
As used in this Paragraph, the term "official" means any officer or
employee of a government, or any person acting in an official capacity
for or on behalf of any government; the term "government" includes any
department, agency, or instrumentality of a government.
14. GOVERNING LAW. The validity, construction, performance and enforcement
of this Agreement shall be governed by the laws of the State of
Colorado.
15. NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given if delivered in
person or sent by certified mail, return receipt requested, postage
prepaid, addressed as follows:
If to Company: #11-1861 Beach Avenue
Vancouver, British Columbia V6G 1Z1
Canada
Loder Management Agreement - page 4 ----- -----
31
<PAGE>
If to Consultant: #11-1861 Beach Avenue
Vancouver, British Columbia V6G 1Z1
Canada
or to such other addresses as the party to whom notice is to be given
may, from time to time, designate in writing delivered in a like
manner; provided that notices of changes of address shall be effective
only upon receipt thereof. Notice given by mail as set forth above
shall be deemed delivered on the fifth day following the date the same
is postmarked.
16. MODIFICATION AND WAIVERS. No provision of this Agreement may be
modified, altered or amended except by an instrument in writing that is
executed by the parties hereto and makes specific reference to this
Agreement. No waiver by either party hereto of any breach by the other
party hereto of any provision of this Agreement shall be deemed a
waiver of any other provision of this Agreement. No failure by either
party to enforce any provision of this Agreement shall be deemed a
waiver of the right to subsequently enforce any provision of this
Agreement.
17. HEADINGS. The headings contained herein are solely for the purpose of
reference, are not part of this Agreement and shall not in any way
affect the meaning or interpretation of this Agreement.
18. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original but all
of which together shall constitute one and the same instrument.
19. ARBITRATION. Any controversy or claim arising out of or relating to
this Agreement, the breach thereof or the transactions contemplated
hereby shall be settled by binding arbitration in Denver, Colorado in
accordance with the then prevailing rules of the American Arbitration
Association and judgment upon the award rendered by the arbitrator may
be entered in any court having jurisdiction. The prevailing party in
any such matter shall also be entitled to an award of reasonable
attorneys' fees and costs.
Loder Management Agreement - page 5 ----- -----
32
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by
authority of its Board of Directors, and the Consultant has hereunto set his
hand, the day and year first above written.
"Company"
CAPITAL RESERVE CORPORATION,
a Nevada Corporation
By:/s/GLEN LODER
Glen Loder, Director
"Consultant"
/s/GLEN LODER
Glen Loder
Loder Management Agreement - page 6
33
<PAGE>
Exhibit 27
Financial Data Schedule
34
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET, CONSOLIDATED STATEMENTS OF OPERATIONS, CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY, CONSOLIDATED STATEMENTS OF CASH FLOWS, AND
THE NOTES THERETO, WHICH MAY BE FOUND ON PAGES F-1 THROUGH F-13 OF THE COMPANY'S
FORM 10-KSB FOR THE PERIOD ENDED DECEMBER 31, 1998, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 11,517
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 11,517
<PP&E> 0
<DEPRECIATION> 964
<TOTAL-ASSETS> 11,517
<CURRENT-LIABILITIES> 12,988
<BONDS> 0
0
50,000
<COMMON> 3,158,162
<OTHER-SE> (3,209,633)
<TOTAL-LIABILITY-AND-EQUITY> (1,471)
<SALES> 0
<TOTAL-REVENUES> (4,068)
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 39,263
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (43,331)
<INCOME-TAX> 0
<INCOME-CONTINUING> (43,331)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (43,331)
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
