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, 1999
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
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.)
335 25TH STREET, S.E., CALGARY, ALBERTA, CANADA T2A 7H8
(Address of principal executive offices including zip code)
Issuer's telephone number, including area code: (403) 204-0260
Securities registered under Section 12(b) of the Exchange Act: NONE
Securities registered under Section 12(g) of the Exchange Act:
Title of class: COMMON STOCK, NO PAR VALUE
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.
Issuer's revenues for its most recent fiscal year. $0.00
Aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 23, 2000: $ 7,383,378.80 (See Item 5).
Number of shares outstanding of registrant's Class A Common Stock, no par value,
as of March 23, 2000: 2,684,865
Exhibit Index on page 13.
Documents incorporated by reference: NONE
Transitional Small Business Disclosure Format (check one): Yes__ No X
Exhibit Index on page 13.
<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.
From 1988 through October 1994, the Company and its subsidiaries solicited
various life, accident and health insurance policies in the states of Colorado,
New Mexico and Arizona. In October 1994, the Company determined it could no
longer maintain capital and surplus requirements for its insurance operations.
From 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 for net
proceeds of $501,276.
In 1997, the Company, through its wholly-owned subsidiary, Wall Street
Investment Corp. (WSIC), attempted to start a financial consulting services
business. However, as of April 10, 1999, WSIC was no longer conducting
operations.
As of December 31, 1999, the Company had and, as of the date of this filing,
still has two (2) wholly-owned subsidiaries, WSIC and Capital Reserve Canada
Limited ("Capital Canada").
Capital Reserve Canada Limited was incorporated on December 8, 1999 and is in
the business of locating and acquiring oil and gas properties.
As of December 31, 1999, the Company had funded, by way of repayable loans,
$127,841 for the development of a heavy-oil upgrading technology. The Company
made these funds available to Texas T. Petroleum Ltd., a Colorado corporation,
of which Mr. James F. Marsh is president and a director; Mr. Marsh is also the
president and a director of Capital Reserve Canada. See Item 9. Directors,
Executive Officers, Promoters and Control Persons; Compliance with Section 16(a)
of the Exchange Act.
CURRENT OPERATIONS
The Company concluded two transactions during fiscal year 1999, as described
below.
Prior to the year ended December 31, 1999 the Company incorporated a wholly
owned subsidiary, Capital Reserve Canada Limited, an Alberta corporation
("Capital Canada"). In January 2000, Capital Canada acquired approximately
14,107 square feet of office and laboratory space in the City of Calgary
pursuant to a written lease agreement with a purchase option. The agreement is
more particularly described below. See Item 2. Description of Property.
Subsequent to the year ended December 31, 1999, Capital Canada sub-let a portion
of the laboratory and office space at a rate which will allow Capital Canada to
pay minimal rent for the space which they will occupy for their own business
purposes.
Subsequent to the year ended December 31, 1999, Capital Canada arranged a stand
by operating line of credit with the Alberta Treasury Branch ("ATB")in the
amount of $1,000,000 CDN (approximately $690,000 US based on then-prevailing
exchange rates) for the purpose of oil and gas acquisitions and operating
expenses. The line has an annual interest rate of prime plus one percent and an
annual standby fee of 1/2 of 1% of the amount not drawn down on the line of
credit.
Subsequent to the year ended December 31, 1999, Capital Canada acquired the
following interests in a producing oil and gas field in Alberta known as
Chestermere:
- - a 5% interest in the Cross 10-21 well;
-a 5% interest in three additional wells; and
- - a 5% interest in the Cross 10-21 Battery.
The cost of the acquisition was $900,000.00 CDN (approximately $621,000 U.S.) to
be paid in cash and the balance in shares of Common Stock of Capital Reserve
Corporation, at a deemed price of $0.50 U.S. per share. The shares have not
yet been issued. The cash payment was made from the draw down of
$300,000.00(approximately $207,000 U.S.) from the operating line of credit
provided by the ATB.
This acquisition will provide the basis of an initial oil and gas acquisition
upon which the Company can build its oil and gas division. The Company is
presently negotiating another acquisition of oil and gas assets. Management
expects, during the second quarter of fiscal year 2000, to acquire sufficient
oil and gas properties to generate revenues to meet the operating expenses of
the Company for the year 2000, including the interest expense associated with
the ATB line of credit.
Subsequent to the year ended December 31, 1999, the Company completed its
private placement of securities begun in the fall of 1999. See Item 5. Recent
Sales of Unregistered Securities. This offering was over-subscribed and the
Company has offered the subscribers the opportunity to use subscription
funds to exercise options. The Company expects to raise a minimum of $1.5
million from the subscriptions during the second quarter of fiscal year 2000.
This funding will allow the Company to source other acquisitions.
EMPLOYEES
As of December 31, 1999, the Company and its subsidiaries had one (1)
full-time employee and one (1) part-time employee. Both employees are
responsible for the Company's and its subsidiaries' bookkeeping and accounting
needs.
ITEM 2. DESCRIPTION OF PROPERTY.
From April 20, 1999, until Mr. Loder's death in October 1999, the Company was
using the offices of Mr. Loder as its principal offices, as set forth in the
Management Agreement between the Company and Mr. Loder. Since that time, the
Company has used the law offices of Mr. W. Scott Lawler as its principal
offices. See Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange Act.
The Company's wholly-owned subsidiary, Capital Canada acquired approximately
14,107 square feet of office and laboratory space in Calgary, Alberta, Canada
pursuant to a written five (5) year lease agreement. Capital Canada will make
lease payments totaling $160,915 U.S> during the fiscal year ending December 31,
2000, and $178,094 U.S. each fiscal year thereafter. Capital Canada has the
right to renew the lease for an additional five (5) years following the initial
term. Capital Canada also has the right to purchase the premises (consisting of
total of approximately 22,507 square feet) at a price of $1,556,550 U.S. Such
option to purchase must be exercised by delivering written notice to the owner
of the building no later than June 30, 2000. In the event Capital Canada elects
to purchase the premises, fifty percent (50%) of six months of its basic rent
payments would be credited towards the purchase price. The portion of the
building currently not occupied by Capital Canada is subject to a lease
agreement between the landlord and Toshiba, to which the purchase of the
building would be subject. It is Capital Canada's understanding that such lease
is to expire in fiscal year 2000 but that the parties have agreed to extend the
lease for an additional five years. The landlord and Toshiba have also agreed
that Toshiba will surrender 1,835 square feet of its space in connection with
the renewal. Capital Canada and the landlord have agreed that Capital Canada
shall take over such 1,835 square feet of space.
Capital Canada has reached a verbal agreement to sublet 4,345 square feet of its
office space and 3,950 square feet of its laboratory facilities at the Calgary
facilities at the monthly rate of $12,500 U.S. Such agreement is currently
undetermined as to term, security deposits and other standard commercial terms
and conditions. However, such terms shall be finalized during the second
quarter of fiscal year 2000. Moreover, such sublease shall meet nearly all of
Capital Canada's total lease obligations during fiscal year 2000. In addition,
such sublease agreement shall remain in place in the event it elects to purchase
the premises.
It is Capital Canada's intention to exercise its option to purchase these
premises. It has begun discussions and negotiations with financial
institution(s)regarding financing for the purchase. (Note - all of the
aforementioned dollar amounts are based on the prevailing conversion rate of
exchange of Canadian dollars to US dollars on January 31, 2000.)
As of April 15, 2000, the Company's offices will be relocated to the premises
acquired by Capital Canada.
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.
From May 30, 1989 to July 13, 1992, the Company's Common Stock was traded on
NASDAQ, under the symbol "CRCOA". It then traded on OTC/BB until November 19,
1996, when it ceased trading. The Company's Common Stock recommenced trading on
the OTC/BB under the symbol "CRCWA" on February 4, 2000. No report of high and
low bid prices for the last two (2) fiscal years is included herein as there
was no trading and there were no market makers in the stock during that time.
As of March 24, 2000, there were three (3) market makers in the Company's
stock. The last available reported trade by the OTC /BB prior to the filing
of this report was March 24, 2000, at $2.75 per share.
As of March 28, 2000, there were 684 record holders of the Company's stock.
During the last two fiscal years, no cash dividends have been declared on the
Company's stock.
RECENT SALES OF UNREGISTERED SECURITIES
From November 1998 through February 1999, the Company conducted a private
placement of shares of the Company's Common Stock, no par value (the "Shares")
pursuant to Rule 506 of Regulation D promulgated by the Securities and Exchange
Commission (the "SEC") under the Securities Act of 1933 (the "1933 Act"). 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 $8,590.00 to persons assisting the Company with
sales. No other discounts or commissions were paid and no underwriters were
utilized.
During 1999, the Company offered each of the purchasers of shares in the private
placement an opportunity to rescind their purchases based upon previous
statements by the Company that it would not pay commissions on sales of shares.
Each of the purchasers declined the Company's rescission offer.
In November 1999, the Company made two (2) private placements of shares of its
Common Stock to off-shore entities pursuant to Regulation S promulgated by the
SEC under the 1933 Act. One of the private placements was for 325,000 shares at
$0.10 per share, with the Company incurring commissions and offering expenses of
$3,250; the other private placement was for 113,820 units at $0.10 per unit. The
units sold under the latter placement consisted of one share and a warrant to
acquire a like number of additional shares of common stock at $1.00 per share.
No underwriter was utilized in either of these offerings.
During the third quarter of 1999, the Company offered for sale up to 2,000,000
units at $0.50 per unit, with each unit consisting of one share and a warrant to
acquire a like number of additional shares of common stock at $1.00 per share.
As at December 31, 1999, the Company had sold 130,000 units for $65,000 and
incurred $2,500 in commissions and offering expenses. The Company completed
this offering during the first fiscal quarter of 2000. This offering was over
subscribed and the Company has offered the subscribers the opportunity to use
subscription funds to exercise options. The Company expects to raise a minimum
of $1.5 million from the subscriptions during the second quarter of fiscal year
2000. This funding will allow the Company to source other acquisitions.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
GENERAL
During year ended 1999, the Company had no ongoing operations and was actively
seeking investment and acquisition opportunities in the oil and gas industry.
Through most of fiscal year 1998 and 1999, management 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 at the date of this report
the Company had only one source of income. See Item 1. Description of Business -
Current Operations. The Company conducted a number of financings during fiscal
year 1999 and made investments which will allow for further acquisitions by the
Company. Capital from equity issues or borrowings is required to fund future
operations. Therefore, the financial statements included in this report for the
fiscal years ended December 31, 1999 and 1998, are not necessarily indicative of
the Company's future operations.
LIQUIDITY
Cash flows from continuing operations during 1999 and 1998 reflect new cash used
of $310,818 and $42,703, respectively while cash flows provided by investing
activities for the same periods were zero and $25,412 respectively.
At December 31, 1999, and 1998 the Company had working capital of $7,656 and
$1,471, respectively. If the Company should generate an operating loss for 2000
comparable to the loss incurred for 1999, its working capital could be
negatively impacted. See "Results of Operations" below. However, the Company
anticipates that its recent acquisition of the Chestermere oil and gas
properties, along with other acquisitions it intends to make this fiscal year,
will generate sufficient revenues to meet operating expenses. See Item 1.
Description of Business - Current Operations. Moreover, the completion of its
private placement of 2,000,000 units during the first and second quarters of
fiscal year 2000 shall provide the Company with more than $1 million of cash for
working capital and acquisitions. See Item 5. Market for Common Equity and
Related Stockholder Matters - Recent Sales of Unregistered Securities. If the
Company's operating expenses for fiscal year 2000 are not significantly greater
than that of fiscal year 1999, the Company expects to have sufficient funds to
meet its cash and operating expense requirements.
During the last quarter of fiscal 1998, the Company conducted a private
placement of shares of the Company's Common Stock, no par value pursuant to Rule
506 of Regulation D. A total of 250,000 shares were sold at a price of $0.10 per
share, for gross proceeds of $25,000.00
During the first quarter of fiscal 1999, the Company sold a further 615,000
shares for at a price of $0.10 per share, for gross proceeds of $61,500.00.
During the fourth quarter of fiscal 1999, the Company raised additional proceeds
of $32,500.00 from an offering conducted pursuant to Regulation S promulgated by
the SEC under the 1933 Act ("Reg. S")and issued 325,000 shares of its common
stock. The Company further raised $11,382 under a Reg. S offering and issued
113,820 units at $0.10 per unit, each unit consisting of one share of common
stock and one warrant to acquire a like number of additional shares of common
stock at $1.00 per share.
During the last quarter of fiscal 1999, the Company conducted a private
placement of units pursuant to Rule 506 of Regulation D, each unit consisting
of one share and one warrant to acquire a like number of additional shares of
common stock at $1.00 per share. As at December 31, 1999, a total of 130,000
units were sold at a price of $0.50 per unit for gross proceeds of $65,000.00.
ASSETS
As at December 31, 1999 the Company had total assets of $195,336 compared to
total assets of $11,517 at December 31, 1998. This represents an increase of
$183,819 which is attributable to the Company's financing activities for the
fiscal year and the investments made by the Company. The Company has funded a
project for the upgrading of heavy oil to light crude oil which is under
development by Texas T Petroleum Ltd. by way of repayable loans totaling
$127,841. The Company incorporated a Canadian wholly owned subsidiary, Capital
Reserve Canada Limited. The subsidiary entered into a lease agreement and an
option to purchase a commercial building located in the Province of Alberta,
Canada and paid a deposit against the lease which is reflected on the balance
sheet in the amount of $33,910 as a prepaid expense. The remaining assets are
cash of $14,057, accounts receivable of $5,028 and prepaid expenses of $14,500.
RESULTS OF OPERATIONS
As of the date of this filing the Company has limited sources of income. During
1999, the Company relied entirely upon the sale of stock to pay its expenses.
Management expects that its acquisition of the Chestermere property, along with
other acquisitions it intends to make this fiscal year, will generate sufficient
revenues to meet operating expenses. See Item 1. Description of Business -
Current Operations.
The Company's net operating loss for 1999 increased by approximately 399% due to
increases in salaries, rent, entertainment, acquisition reviews, legal expenses
and consulting fees. The Company's loss from continuing operations in 1999 was
$172,917, compared to a loss of $43,331 in 1998.
The Company's operating expenses were comprised primarily of consulting expenses
$94,940; legal expenses $32,099; accounting and actuarial expenses $4,975: and
office expenses $40,893. Since the Company currently has only one source of
revenue (i.e. the Chestermere property), the Company's working capital could be
negatively impacted in fiscal year 2000 by operating expenses. However, the
Company's recent private placement of securities will provide sufficient cash to
meet its cash and operating expense requirements. See "Liquidity" above.
Management is in the process of seeking a viable project to acquire or with
which to merge. During the year ended December 31, 1999 the Company reviewed
several potential acquisitions but did not finalize any agreements. Until such
an acquisition or merger can be identified, the Company has only one source of
income and no other viable operations. There is no guaranty that management
will be able to locate any such acquisition or merger. If the Company is able
to find a suitable merger or acquisition 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.
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:
NAME AGE POSITION
W. Scott Lawler 38 President and Director; and
Director of Capital Reserve Canada
Limited
Sharon M. Patmore 58 Secretary and Director
James F. Marsh 77 President and Director of
Capital Reserve Canada Limited
The Company's directors are elected by the holders of the Company's Common
Stock. Cumulative voting for directors is not permitted. The term of office of
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.
W. SCOTT LAWLER has been President and a director of the Company since November
1, 1999 and a director of Capital Canada since its inception. Mr. Lawler is an
attorney and is admitted in the States of California and Utah. Mr. Lawler
received a Bachelor's Degree in business management in 1984 from Brigham Young
University and his Juris Doctorate degree from U.S.C. Law Center in 1988. Mr.
Lawler was admitted to the California State Bar in 1988 and the Utah State Bar
in 1995. Mr. Lawler has been the principal of Lawler & Associates, specializing
in corporate and securities matters, since 1995.
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.
JAMES F. MARSH has been President and a director of Capital Canada since its
inception on December 8, 1999. In addition to his military accomplishments, Mr.
Marsh, B.SC., M.B.A., Brig. Gen. (Ret'd.) has served as chairman, president and
director of numerous public and private companies for over 30 years. Mr. Marsh
presently specializes in start-up corporations and corporate re-structures. Mr.
Marsh has successfully managed mineral exploration for both junior and senior
mining companies and junior oil and gas exploration projects. Mr. Marsh is also
a retired construction executive and developer who spent several years in the
commercial building industry as an architect. Since 1996, Mr. Marsh has been
the president of Texas T. Petroleum Ltd., a Colorado oil and gas corporation.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely upon a review of Forms 3 and 4 and all amendments thereto furnished
to the Company during the most recent fiscal years and Forms 5 and amendments
thereto furnished to the Company with respect to its most recent fiscal year,
the Company is not aware of any person who, at any time during the fiscal years
was a director or officer of the Company that failed to filed on a timely basis
reports required by Section 16(a) of the Securities Exchange Act of 1934.
However, the Company has noted that there appears to be certain beneficial
owners of more than ten percent (10%) of the Company's common stock that have
failed to file on a timely basis such required reports.
ITEM 10. EXECUTIVE COMPENSATION.
The following table sets forth information for the individuals who served as
the chief executive officer ("CEO") of the Company during any portion of the
last three (3) fiscal years. 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 $100,000. Accordingly, no other executive
officers of the Company are included in the table.
<TABLE>
ANNUAL COMPENSATION LONG TERM COMPENSATION
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AWARDS PAYOUTS
Securities
Other Restricted Underlying
Name and Annual Stock Options/ All Other
Principal Compen- Award(s) SARS LTIP Compen-
Position Year Salary($) Bonus($) Sation ($) ($) ($) Payouts ($) Sation ($)
W. Scott
Lawler 1999 -0- -0- -0- -0- -0- -0- -0-
(1) FN1:
Glen C. 1999 -0- -0- 61,200 -0- -0- -0- -0-
Loder, 1998 -0- -0- 15,000 -0- -0- -0- -0-
Chairman,
President
and
Treasurer
(2) FN2:
Ralph W. 1998 -0- -0- -0- -0- (4) F4: -0- -0-
Newton, Jr. 1997 $26,000 -0- -0- -0- -0- -0- -0-
Chairman
and President (3) FN 3:
</TABLE>
FN
F1:
(1) The Company has agreed to issue to Mr. Lawler a monthly restricted
stock award of 5,000 shares of common stock in exchange for his services as
president and director of the Company. For the period ending as of this report,
Mr. Lawler earned 15,000 shares. As of the date of this filing, no such shares
have actually been issued to Mr. Lawler. Mr. Lawler also receives compensation
for his services as legal counsel to the Company. See Item 12. Certain
Relationships and Related Transactions.
F2:
(2) Pursuant to the Management Agreement between the Company and Glen C.
Loder dated October 6, 1998. See Item 12. Certain Relationships and Related
Transactions.
F3:
(3) 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 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.
F4:
(4) 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.
The Company does not pay non-officer directors for their services as such, nor
does it pay any director's fees for attendance at meetings. Directors 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 there was no established value for
the shares of Common Stock in 1999 since the Company's shares did recommence
trading on OTC/BB until February 4, 2000. Therefore, the value of the Options is
unknown as compensation for the fiscal year ended 1999.
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 technical, 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 had agreed to serve as President and Chairman of the Board of Directors of
the Company. The Company paid Mr. Loder a consulting fee of $5,000 per month in
exchange for his services, plus reimbursement of reasonable expenses. During
1999, Mr. Loder was paid $61,200 for consulting fees (of which $11,200 was
advanced prior earned and was written-off by the Company as a result of Mr.
Loder's passing). Mr. Loder was also reimbursed $11,628.70 for other
administrative costs and expenses.
As a condition of his agreement to serve as both President a member of the Board
of Directors of the Company, Mr. Lawler, starting in October 1999, earns 5,000
restricted shares of common stock per month. In 1999, Mr. Lawler earned 15,000
shares; however, as of the date of this filing, no such shares have been issued.
Mr. Lawler also receives compensation for his legal services to the Company.
See Item 12. Certain Relationships and Related Transactions.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth information, as of March 27, 2000, with respect
to the beneficial ownership of the Company's Common Stock by each person known
by the Company to be the beneficial owner of more than five percent of the
outstanding Common Stock, by each of the Company's officers and directors, and
by the officers and directors of the Company as a group. The Company converted
all 250,000 outstanding shares of its Class B Preferred Stock in the last
quarter of 1999 in accordance with the election of the holders of a majority of
such shares. The holders of shares of Class B Preferred Stock received a total
of 200,000 shares of Class A Common Stock for their 250,000 preferred shares of
Class B or a conversion of .8 to 1. Information is also provided regarding
beneficial ownership of Common Stock if all outstanding warrants are exercised
and additional shares of Common Stock are issued:
<TABLE>
COMMON STOCK
<S> <C> <C>
NUMBER OF PERCENT OF
BENEFICIAL OWNER SHARES CLASS (1)
Ralph W. Newton and 200,000 6.93%
Patricia L. Newton (2)
One Cheek Way
Littleton, Colorado 80123
Grotto Holdings 325,000 12.10%
25 Regent Street
Belize City, Belize, Cent. Am.
Buccaneer Holdings Ltd. 450,000 16.76%
25 Regent Street
Belize City, Belize, Cent. Am.
Bahamian Overseas 435,000 16.20%
Investment Fund
Sociedad
P.O. Box N-4825
Nassau, Bahamas
W. Scott Lawler -0- --
2200 Sunrise Blvd.
Suite 240
Gold River, Calif. 95670
Sharon Patmore -0- --
#11-1861 Beach Ave.
Vancouver, British Columbia
V6G 1Z1 Canada
Officers and Directors as a -0- --
group (2 persons)
- ---------------
FN:
F1:
(1) Based on 2,684,865 shares of Common Stock outstanding.
F2:
(2) 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 been
included in Item 10. "Executive Compensation" based on the fact that there was
no established value for the shares of Common Stock in 1999 since the Company's
shares did recommence trading on OTC/BB until February 4, 2000. Therefore, the
value of the Options is unknown as compensation for the fiscal year ended 1999.
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 only one
source of income and no other 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 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 $8,590 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.
During fiscal year 1999, the Company has funded to Texas T Petroleum Ltd.
("Texas T"), a Colorado corporation, the amount of $127,841 towards the
development of a heavy oil upgrading technology. Such funding has been made by
way of repayable loans. Mr. Marsh, who is the president and a director of
Capital Canada, is also the president and a director of Texas T.
Mr. Lawler has served as legal counsel for the Company since June 1999. Mr.
Lawler is compensated at a combined hourly rate of $220.00, of which $170.00 per
hour is payable in cash and $50.00 is payable in stock calculated at the average
value of the Company's common stock for the particular month. Such arrangement
shall terminate at the end of the April 2000 has Mr. Lawler has agreed to taken
the position of in-house Corporate Counsel for the Company and receive monthly
salaried compensation.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
REGULATION
S-B NUMBER EXHIBIT REFERENCE
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 N/A
Company 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 N/A
Company and the selling shareholders of First West Financial
Services, Inc. (4) F4:
10.3 Order of John Kezer, Insurance Commissioner of the State N/A
of Colorado dated June 29, 1988 (4) F4:
10.4 Supplemental Agreement (A) dated June 21, 1988, between the N/A
Company and the selling shareholders of First West Financial (4) F4:
10.5 Promissory Note payable to Joseph T. Flynn, Dennis G. Haley, N/A
and Donald Yee (5) F5:
10.6 Promissory Note payable to the Company from Joseph T. Flynn N/A
and Jacqueline M. Flynn (5) F5:
10.7 Real estate conveyance documents for purchase of 7860 N/A
E. Berry Place (6) F6:
10.8 Stock Purchase Agreement with Philip A. Bates dated December N/A
1, 1993(7) F7:
10.9 Settlement Agreement and Mutual General Release by and between N/A
Joseph 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 N/A
Berry Place. (10) F10:
10.11 Settlement Agreement (11) F11: N/A
10.11 Sub-Contracting Agreement with Columbia Financial Group(12) N/A
F12:
10.13 Management Agreement with Mr. Loder (13) F13: N/A
10.14 Lease Agreement dated January 15, 2000 by and between
Capital Reserve Canada Limited and 319835 Alberta Ltd. Filed herewith
10.15 Purchase and Sale Agreement dated March 1, 2000 by and
between Capital Reserve Canada Limited and Stone Canyon Resources
Limited Filed herewith
23 Consent letter of Miller & McCollom Filed herewith
27 Financial Data Schedule Filed herewith
- ------------------
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.
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.
F13:
(13) 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,
1998.
(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 26, 1999, reporting the death of the Company's
former president and Chairman of the Board, Mr. Kelly Loder, and the appointment
of Mr. W. Scott Lawler as President and a member of the Board of Directors under
Item 5. Other Events.
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: March 29, 2000
By:/s/ W. SCOTT LAWLER
W. Scott Lawler, 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/ W. SCOTT LAWLER March 29, 2000
W. Scott Lawler, President and Member of the Board of Directors
(Principal Executive, Financial and Accounting Officer)
/s/SHARON M. PATMORE March 29, 2000
Sharon M. Patmore, Director and Secretary
<PAGE>
FINANCIAL STATEMENTS
AND
INDEPENDENT AUDITORS' REPORT
CAPITAL RESERVE CORPORATION
December 31, 1999
F-1
<PAGE>
</TABLE>
<TABLE>
C O N T E N T S
<S> <C>
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
</TABLE>
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, 1999, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of
the two years in the period ended December 31, 1999. 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 statements 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, 1999, and the results of its operations and
its cash flows for each of the two years in the period ended December 31,
1999, 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 $172,917 for
1999 and it has incurred substantial net losses for each of the past two
years. As of December 31, 1999, 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
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.
Denver, Colorado
March 22, 2000
F-3
<PAGE>
CAPITAL RESERVE CORPORATION
Consolidated Balance Sheet
December 31, 1999
<TABLE>
ASSETS
<S> <C>
CURRENT ASSETS
Cash and cash equivalents $ 14,057
Accounts receivable 5,028
Prepaid expense 48,410
Total current assets 67,495
Advances receivable 127,841
Total assets $ 195,336
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable $ 47,992
Advances payable 27,500
Total current liabilities 75,492
Advances payable 127,500
Total liabilities 202,992
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
2,179,865 shares 3,374,894
Class B preferred stock - authorized 250,000 shares
of no par value -
Accumulated deficit (3,382,550)
Total stockholders' deficit (7,656)
Total liabilities and stockholders' deficit $ 195,336
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
CAPITAL RESERVE CORPORATION
Consolidated Statements of Operations
<TABLE>
Year Ended December 31,
<S> <C> <C>
1999 1998
Revenue
Insurance residuals $ - $ 2,692
Interest and dividends - 28
Investment gain (losses) - (2,294)
Loss on sale of fixed assets - (13,813)
Other - 9,319
Total revenues - (4,068)
Expenses
General and administrative (Notes 2 and 3) 172,917 39,263
Total expenses 172,917 39,263
(Loss) before income taxes (172,917) (43,331)
Income taxes - -
Net (loss) $ (172,917) $ (43,331)
Net (loss) per common share (Note 1) $ (.12) $ (.05)
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
CAPITAL RESERVE CORPORATION
Consolidated Statements of Stockholders' Equity
Years Ended December 31, 1999, and 1998
<TABLE>
Class A Class B
Stock Stock
Common Preferred
<S> <C> <C> <C> <C> <C>
Accumulated
Shares Amount Shares Amount Deficit
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)
Conversion of Class B
preferred stock into
common stock 200,000 50,000 (250,000) (50,000) -
Issuance of common
stock, net of offering
cost of $3,650 1,183,820 166,732 - - -
Net (loss) - - - - (172,917)
2,179,865 $ 3,374,894 - $ - $ 3,382,550
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
CAPITAL RESERVE CORPORATION
Consolidated Statements of Cash Flows
<TABLE>
Year Ended December 31,
<S> <C> <C>
1999 1998
Operating activities:
Net (loss) from continuing operations $ (172,917) $ (43,331)
Reconciling adjustments
Depreciation and amortization - 964
Loss on equipment sales - 13,813
(Gain) loss on investments - 2,294
Partnership loss - 11,175
Changes in operating assets and liabilities
Accounts receivable, advances
and prepaid expenses (181,279) 351
Accounts payable and accrued liabilities 43,378 (27,696)
Total adjustments (137,901) 628
Net cash (used for) continuing operations (310,818) (42,703)
Investing activities:
Purchase of investments - (1,893)
Proceeds from sale of investments - 21,462
Proceeds from sale of equipment - 5,843
Net cash (used for) provided by
investing activities - 25,412
Financing activities:
Issuance of common stock 170,382 25,000
Advances payable 146,626 -
Offering costs (3,650) (4,940)
Net cash (used for) financing activities 313,358 20,060
Net change in cash and cash equivalents 2,540 2,769
Cash and cash equivalents at beginning of year 11,517 8,748
Cash and cash equivalents at end of year $ 14,057 $ 11,517
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
CAPITAL RESERVE CORPORATION
Notes to Consolidated Financial Statements
December 31, 1999
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 life
insurance company and 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 which terminated in 1998.
(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) and Capital
Reserve Canada Limited (Limited). 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, 1999
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 1,416,780 and
796,045 weighted average number of common shares outstanding during the years
ended December 31, 1999, and 1998 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 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. Mr. Loder ceased his involvement with the Company in
1999.
F-9
<PAGE>
CAPITAL RESERVE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1999
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. Effective January 15, 2000,
Limited entered into a five-year non-cancelable operating lease which provides
for monthly lease payments of $14,841 (converted at 0.6918 per Canadian Dollar).
Rent expense for the years ended December 31, 1999, and 1998 was $4,500 and
$2,806. Minimum future rental payments under non-cancelable operating leases
having remaining terms in excess of one year are as follows.
<TABLE>
<C> <C>
2000 $ 160,915
2001 178,094
2002 178,094
2004 178,094
2005 178,094
$ 873,291
</TABLE>
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
both Class A common stock and Class B preferred stock. The holders of shares of
Class B preferred stock 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. All outstanding shares
of Class B preferred stock was converted by November 17, 1999.
Note 5 - Private Placement of Common Stock
In 1998 the Company offered 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. During
1998 and 1999, the Company had sold 865,000 shares for $86,500 and incurred
$8,590 in commission and offering expense. 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 buyer have the right to rescind their
purchase of stock. No stock buyers requested their shares be redeemed and have
executed acknowledgements waiving redemption. Additionally, the Company sold
325,000 shares for $32,500 and incurred $3,250 in commission and offering
expenses, and 113,820 units for $11,382 under two Reg S filings. The units
each consist of one share and one warrant to acquire a like number of additional
shares of common stock at $1.00 per share.
F-10
<PAGE>
CAPITAL RESERVE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1999
Note 5 - Private Placement of Stock, continued
During the third quarter of 1999, the Company offered for sale up to 2,000,000
units of its Class A common stock at $.50 per unit, each unit consisting of one
share and one warrant to acquire a like number of additional shares of common
stock at $1.00 per share. As of December 31, 1999, the Company had sold
130,000 units for $65,000 and incurred $2,500 in commission and offering
expense.
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, 1999, and 1998. The
Company has loss carryforwards as follows:
<TABLE>
<S> <C> <C>
Net
Capital Operating
Losses Losses
Expiration Years
2001 $ 63,519 $ 37,270
2005 - 181,518
2006 - 212,657
2007 - 202,026
2008 - 206,233
2009 - 99,304
2010 - 28,000
2011 - 46,977
2012 - 219,745
2015 - 416,031
2016 - 171,408
2017 - 40,523
2018 - 172,917
$ 63,519 $ 2,034,609
</TABLE>
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:
<TABLE>
<S> <C> <C>
1999 1998
Deferred tax asset $ 1,177,000 $ 1,070,000
Valuation allowance (1,177,000) (1,070,000)
$ - $ -
</TABLE>
F-11
<PAGE>
CAPITAL RESERVE CORPORATION
Notes to Consolidated Financial Statements, Continued
December 31, 1999
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.
<TABLE>
<S> <C>
1998
Investment (losses) gains are detailed as follows:
Realized gains (losses) on common stock $ (2,294)
Increase in unrealized gains (losses)
on common stock -
Investment gains (losses) $ (2,294)
</TABLE>
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, 1999. 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, 1999
Note 9 - Subscontracting 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>
INDEX OF EXHIBITS FILED HEREWITH
REGULATION
S-B NUMBER EXHIBIT REFERENCE
10.14 Lease Agreement dated January 15, 2000 by and between
Capital Reserve Canada Limited and 319835 Alberta Ltd. P
10.15 Purchase and Sale Agreement dated March 1, 2000 by and
between Capital Reserve Canada Limited and Stone Canyon Resources
Limited P
23 Consent letter of Miller & McCollom Filed herewith
27 Financial Data Schedule Filed herewith
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Form 10-KSB of
Capital Reserve Corporation of our report dated March 22, 2000, relating to the
consolidated financial statements of Capital Reserve Corporation and
Subsidiaries as of December 31, 1999.
/s/ Miller and McCollom
Miller and McCollom
Denver, Colorado
March 29, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CAPITAL
RESERVE CORPORATION'S FINANCIAL STATEMENTS FOR THE PERIOD ENDED DECEMBER 31,
1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 14,057
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 67,495
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 195,336
<CURRENT-LIABILITIES> 75,492
<BONDS> 0
0
0
<COMMON> 3,374,894
<OTHER-SE> (3,382,550)
<TOTAL-LIABILITY-AND-EQUITY> 195,336
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 172,917
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (172,917)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (172,917)
<EPS-BASIC> (0.12)
<EPS-DILUTED> 0
</TABLE>
