25
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[x] QUARTERLY REPORT PURSUANT SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 2000
[ ] TRANSITION REPORT PURSUANT SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to _________
Commission file number 0-17232
CAPITAL RESERVE CORPORATION
(Exact name of small business issuer
as specified in its charter)
COLORADO 84-0888594
(State or other (IRS Employer
jurisdictionof Identification No.)
incorporation or organization)
335 25th STREET, S.E.
CALGARY, CANADA T2A 7H8
(Address of principal executive offices)
(403) 204-0260
(Issuer's telephone number)
NOT APPLICABLE
(Former name, former address and former fiscal year, if
changed since last report)
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 such filing requirements for the past 90
days.
Yes _X_ No __
State the number of shares outstanding of each of the
issuer's classes of common equity, as of the last
practicable date:
6,536,393 shares of common stock, no par value, as of
November 14, 2000.
Transitional Small Business Disclosure Format (check one):
Yes___ No _X_
PART I FINANCIAL INFORMATION
ITEM I FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated
financial statements have been prepared in accordance with
generally accepted accounting principles for interim
financial information and with the instructions for Form 10-
QSB and Rule 10-01 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by
generally accepted accounting principles for complete
financial statements. In the opinion of management, all
adjustments considered necessary for a fair presentation
have been included. All such adjustments are of a normal
recurring nature. Operating results for the nine month
periods ended September 30, 2000 and 1999 are not
necessarily indicative of the results that may be expected
for the year ending December 31, 2000. For further
information, refer to the consolidated financial statements
and footnotes thereto included in the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1999.
Page
Independent Auditors' Review 3
Consolidated Financial Statements
Balance Sheet 4
Statements of Operations 5
Statements of Stockholders' Equity 6
Statements of Cash Flows 7
Notes to Consolidated Financial Statements 8 to 11
Review Report of Independent Certified Public Accountants
Board of Directors - Capital Reserve Corporation
We have reviewed the accompanying balance sheet of Capital
Reserve Corporation as of September 30, 2000 and the related
statements of operations for the three and nine month
periods then ended and statement of cash flow for nine month
period ended September 30, 2000, in accordance with
Statements of Standards for Accounting and Review Services
issued by the American Institute of Certified Public
Accountants. All information included in these financial
statements is the representation of Capital Reserve
Corporation.
A review of interim financial statements consists
principally of inquiries of Company personnel responsible
for financial matters and analytical procedures applied to
financial data. It is substantially less in scope than an
audit conducted in accordance with generally accepted
auditing standards, the objective of which is the expression
of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material
modifications that should be made to the accompanying
financial statements in order for them to be in conformity
with generally accepted accounting principles.
Miller and MCCollum, CPA's
Lakewood, Colorado
November 14, 2000
CAPITAL RESERVE CORPORATION
Consolidated Balance Sheet
September 30, 2000
<TABLE>
<S> <C>
CURRENT ASSETS
Cash $14,128
Accounts Receivable 17,348
Loans Receivable 503,814
Prepaid Expense 39,757
Total Current Assets 575,047
LOANS RECEIVABLE - LONG TERM 1,406,583
FIXED ASSETS
Oil and Gas Leases 692,003
Buildings 2,090,011
Office Equipment and Computers
(Net of Accumulated Depreciation of $3,320 22,134
Total Fixed Assets 2,804,148
Total Assets 4,785,778
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable 57,002
Accrued Expenses 15,000
Current Portion of Long-Term Debt 156,850
Total Current Liabilities 228,852
Advances Payable 469,360
Shareholders' Deposits 212,970
Long-Term Debt 1,489,244
Total Liabilities 2,400,426
STOCKHOLDERS' DEFICIT (Notes 1, 4 and 5)
Class A Common Stock Authorized 20,000,000 Shares
of no par value; issued and outstanding
6,536,393 shares 6,094,069
Accumulated Deficit (3,708,717)
Total Stockholders' Equity 2,385,352
Total Liabilities and Stockholders' Equity 4,785,778
</TABLE>
Commitments and Contingencies - Note 2
The notes to these financial statements should be read in
conjunction with the
Audited Financial Statements for the fiscal year ended
December 31, 1999.
CAPITAL RESERVE CORPORATION
Consolidated Statement of Operations
Nine Months Ended September 30, 2000
<TABLE>
For the Three Months For the Nine Months
Ended September 30 Ended September 30
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Revenue
Oil and Gas Revenue $ 41,013 $ - $52,955 $-
Operating Costs 26,740 - 33,831 -
Gross Profit 14,273 - 19,124 -
Rental Income 32,629 - 101,134 -
Cost of Goods Sold 25,835 - 65,739 -
Gross Profit 6,794 - 35,395 -
Interest Income 24,527 - 50,206 -
Expenses
General and
Administrative 49,284 26,354 430,892 80,455
Total Expenses 49,284 26,354 430,892 80,455
Income (Loss) Before
Income Taxes (3,690) (26,354) (326,167) (80,455)
Income Taxes - - - -
Net Income (Loss) (3,690) (26,354) (326,167) (80,455)
Net Income (Loss) Per
Common Share $(0.00) (0.02) (0.08) (0.06)
</TABLE>
The notes to these financial Statements should be read in
conjunction with the
Audited financial Statements for the fiscal year ended
December 31, 1999.
CAPITAL RESERVE CORPORATION
Consolidated Statements of Stockholders' Equity
Nine Months Ended September 30, 2000 and 1999
<TABLE>
<S> <C> <C> <C> <C> <C>
Class A Stock Class B Stock
Common Preferred
Shares Amount Shares Amount Accumulated
Deficit
December 546,045 3,138,102 250,000 50,000 (3,166,302)
31, 1997
Issuance 250,000 20,060 - - -
of Common
Stock,
Net of
Offering
Costs of
$4,940
Net - - - - (43,331)
(Loss)
December 796,045 3,158,162 250,000 50,000 (3,209,633)
31, 1998
Conversion 200,000 50,000 (250,000) (50,000) -
of Class B
Preferred
Stock
Into
Common
Stock
Issuance 1,183,820 166,732 - - -
of Common
Stock,
Net of
Offering
Costs of
$3,650
Net - - - - (172,917)
(Loss)
December 2,179,865 3,374,894 - - (3,382,550)
31, 1999
Issuance 817,050 408,525 - - -
of Common
Stock to
Acquire
Oil and
Gas
Leases
Issuance 2,348,235 1,796,820
of Common
Stock,
Net of
Offering
Costs of
$64,800
Issuance 775,513 98,098
of Shares
for
Services
Rendered
Warrants 415,732 415,732
Exercised
Net - - - - 326,167
Income
(Loss)
6,536,395 6,094,069 - - (3,708,717)
</TABLE>
The notes to these financial statements should be read in
conjunction with the Audited Financial Statements for the
fiscal year ended December 31, 1999.
CAPITAL RESERVE CORPORATION
Consolidated Statements of Cash Flows
<TABLE>
For the Nine
Months Ended
September 30
<S> <C> <C>
2000 1999
Cash From Operating Activities:
Net Income (Loss) From Continuing Operations $(326,167) $(80,455)
Reconciling Adjustments
Depreciation and Amortization 7,303 -
Issuance of Shares for Services 98,098
Acquisition of Property 408,525
Changes in Operating Assets and Liabilities
Accounts Receivable 115,518 (72,000)
Loans Receivable (972,897) -
Prepaid Expenses and Deposits 8,656 -
Accounts Payable and Accrued Expenses 180,860 13,662
Net Cash Flows from Operating Activities (480,104) (138,793)
Cash From Investing Activities:
Acquisition of Oil and Gas Properties (692,002) -
Acquisition of Property and Equipment (2,119,448) -
Proceeds from (Payments to) Advances
Payable 314,360 70,000
Proceeds from Investor Deposits 212,970 -
Net Cash Flows From Investing Activities (2,284,120) 70,000
Cash From Financing Activities:
Long Term Debt 1,489,244 -
Issuance of Common Stock 1,339,852 61,500
Offering Costs (64,800) (3,650)
Net Cash Flows from Financing Activities 2,764,296 57,850
Net Change in Cash and Cash Equivalents 72 (10,943)
Cash at Beginning of Period 14,056 11,517
Cash at End of Period $14,128 $ 574
</TABLE>
The notes to these financial statements should be read
in conjunction with the Audited Financial Statements for the
fiscal year ended December 31 1999.
CAPITAL RESERVE CORPORATION
Notes to Consolidated Financial Statements
September 30, 2000
Note 1 - Management's Statement
In the opinion of management, the accompanying unaudited
consolidated financial statements contain all adjustments
(all of which are normal and recurring in nature) necessary
to present fairly the financial position of Capital Reserve
Corporation as of September 30, 2000, and the results of
operations for the three months and nine months ended
September 30, 2000 and 1999 and cash flows for the nine
months ended September 30, 2000, and 1999. The Notes to
Consolidated Financial Statements, which are contained in
the Form 10-KSB for the period ending December 31, 1999,
should be read in conjunction with these consolidated
financial statements.
For the purposes of consolidation the exchange rate of
0.6663 from Canadian to U.S. dollars has been applied as at
September 30, 2000. Any transactions completed prior to
September 30, 2000 are accounted at the then prevailing
exchange rate as at the date of the transaction.
Organization
The Company was incorporated in Colorado in 1982, and
operated as an insurance agency and a life insurance
company. The insurance business was sold in 1994.
The Company had minimal operating revenues after the sale of
its life insurance company and rental property. Management
attempted to start a financial consulting and public
relations business. The Company entered into its first
consulting agreement in January 1997, which expired in 1998.
The Company virtually had no operations from the end of 1998
until late 1999. During that time, the Company attempted to
locate appropriate acquisition or merger candidates. In
1999, the Company's principal place of business moved to
Canada. In November 1999, the Company formed a wholly-owned
subsidiary, Capital Reserve Canada Limited, an Alberta
corporation ("Capital Canada"), to locate and acquire
producing oil and gas assets in Canada.
Operations
Lease Agreement/Acquisition of Commercial Property: During
the quarter ended March 31, 2000, Capital Canada entered
into a five-year lease agreement for 14,107 square feet of
office and laboratory space in Calgary, Alberta. The lease
agreement included an option to purchase the building on or
before July 31, 2000. The building is a total of 22,507
square feet and the purchase price is $1,522,800. Capital
Canada gave notification to the landlord of its intent to
purchase the building on June 30, 2000. Under the terms of
the purchase option, the landlord will apply 50% of the
basic rent paid for a period of six months to the purchase
price. The landlord, Capital Canada and the Company agreed
to extend the closing date to August 31, 2000. The Company
applied for and obtained financing of $1,079,040
($1,600,000CDN) to close the purchase during the quarter.
Ended September 30, 2000.
The transaction closed successfully on August 31, 2000. As
at September 30, 2000 the Company had entered into three
five-year, non-cancelable lease arrangements with two un-
related corporations and Capital Canada to lease all
rentable square footage totaling 22,145.5 square feet.
Rentable square footage includes both office and laboratory
facilities. Subsequent to entering into a lease arrangement
with the Company, Capital Canada entered into three sublease
arrangements with respect to 3,813.4 square feet of rentable
square footage. The Company expects to see revenues from
these lease arrangements of approximately $10,232 per month,
net of monthly financing obligations and operating costs.
See below, "Note 2 - Commitments and Contingencies".
During the quarter ended September 30, 2000 the Company
signed an offer to purchase a second commercial building
with a purchase price of $183,232. Subsequent to quarter
end the offer was accepted and closing has been set as
December 1, 2000. The Company anticipates it will pay cash
obtained from accounts receivable, which come due prior to
the date of closing, for the full purchase price.
Oil and Gas Acquisition: During the quarter ended March 31,
2000, Capital Canada also acquired a 5% percent working
interest in producing oil and gas leases and a processing
facility located in Alberta, known as Chestermere, for total
cash and stock consideration of $612,787 ($900,000 CDN).
The Company agreed to issue a total of 817,050 shares of
common stock at $0.50 per share and paid a cash payment of
$204,262.
The cash portion of the consideration was raised from a
$689,900 ($1 million CDN) credit facility provided by
Alberta Treasury Branch to Capital Canada.
During the quarter ended September 30, 2000 the Company
entered into a Farmout Agreement and Casing Point Agreement
with Hancock Enterprises whereby the Company is required to
pay a 5% cost interest in a well known as the Freedom Dome
Well located in Rosebud County, Montana to earn a 4% net
revenue interest in the drill spacing unit before payout and
a 3.5% net revenue interest after payout, as well as a 3.5%
working interest in the balance of 1,766.73 acres. In
addition, the Company is required to pay a 5% cost interest
in a well known as the Pioneer Well located in Garfield
County, Montana to earn a 0.58928% working interest in the
Tyler formation only, subject to total lease overriding
royalties of 19.1%. The Company also purchased a 4% working
interest in 54,237.57 acres for $18.00 per acre. To the
quarter ended September 30, 2000 the Company had expended a
total of $34,805 towards the dry hole costs for the Pioneer
and Freedom Dome wells.
Acquisition of Residential Property: In connection with the
Consulting Agreement agreed to between the Company and its
President, Mr. W. Scott Lawler (see " - Consulting
Agreements" below), the Company purchased a home in the City
of Calgary for Mr. Lawler's personal use. The purchase
price of the home was $550,015 ($815,000CDN). The Company
assumed a variable interest rate mortgage from Alberta
Treasury Branch in the amount of $384,554 amortized over 25
years. On May 1, 2005, the loan can either be repaid or
renewed with the interest rate converted to the then
prevailing rate. Title to such property is in the name of
the Company. Mr. Lawler provided funds to the Company in
the amount of $167,842 to pay for the down payment and all
closing costs associated with the purchase. The funds were
provided in the form of a subscription for shares of the
Company's common stock. See "Note 3 - Private Placements of
Common Stock." The monthly payments of principal and
interest are $2,636, which Mr. Lawler is obligated to make,
along with all payments for property taxes, property
insurance and maintenance.
If and when the property is sold, the Company will receive
any and all gains (and/or losses) from such sale, less the
cost of any pre-approved improvements to the property paid
for by Mr. Lawler. However, Mr. Lawler has the option of
acquiring title to the property (and thus all resulting
gains or losses) by: (a) assuming or paying off the
Company's mortgage; and (b) surrendering to the Company the
167,842 shares of common stock obtained from the Company in
a private placement. See "Note 3 - Private Placements of
Common Stock."
Consulting Agreement
As of April 24, 2000, the Company entered into a Consulting
Agreement with its President and a member of its Board of
Directors, Mr. W. Scott Lawler, pursuant to which Mr. Lawler
agreed to relocate to Calgary, Alberta, Canada, to work at
the Company's facilities in Calgary and devote more
substantial time to the operations of the Company. The term
of the Consulting Agreement is two (2) years, with an option
on Mr. Lawler's part to extend for one (1) additional year.
Mr. Lawler will receive an annual salary of $75,000.00, plus
stock options (at terms yet to be determined) and automatic
annual salary increases of fifteen percent (15%). As a
further inducement to Mr. Lawler to move to Calgary on the
Company's behalf, the Company purchased a home for Mr.
Lawler's personal use. In turn, Mr. Lawler is responsible
for all payments on the mortgage, for property insurance,
for property taxes and for maintenance. Mr. Lawler provided
the down payment and the closing costs associated with the
purchase. See " - Acquisition of Residential Property"
above.
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 the Company
and its wholly-owned subsidiary, Capital Reserve Canada
Limited. All significant inter-company 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 from two (2) to five (5) years.
Treasury Stock
Treasury stock has been treated as common stock redeemed and
canceled consistent with the Colorado Revised Statutes.
Earnings (Loss) Per Share
Earnings (loss) per share of common stock is computed based
on 4,105,390 and 1,363,737 weighted average number of common
shares outstanding during the nine (9) month periods ended
September 30, 2000 and 1999, respectively. Fully diluted
earnings per share are not presented because they are anti-
dilutive.
Note 2 - Commitments and Contingencies
During the quarter the Company purchased a commercial
property for a total purchase price of $1,522,800. The
Company applied for and obtained a mortgage with a five-year
term, amortized over 15 years at an interest rate of 8.6%
per annum with respect to a principal amount of $1,079,040
(CDN$1,600,000) to close the purchase. In addition,
operating costs associated with the commercial property are
estimated to be $4.16 (CDN $6.25) per square foot for a
total of $92,222 annually with respect to total rentable
square footage of 22,145.5 square feet. The following table
outlines minimum monthly obligations with respect to this
purchase, including operating costs, with remaining terms in
excess of one year:
2001 $217,825
2002 $217,825
2003 $217,825
2004 $217,825
2005 $217,825
See "Note 1 - Operations - Lease Agreement/Acquisition of
Commercial Property"
Note 3 - Private Placement of Common Stock
During the fiscal year ended December 31, 1999, the Company
offered for sale up to 2,000,000 units of common stock
pursuant to Rule 506 promulgated by the Securities and
Exchange Commission under the Securities Act of 1933 at
$0.50 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 June 30, 2000, the
offering was over-subscribed and the Company had received a
total of $1,412,415 in subscription deposits (net of
refunded subscriptions). The Company elected to exercise
its right under the terms of the offering to accept only a
portion of each subscriber's subscription, and to allow each
of them to apply the un-accepted portion towards the
purchase price of the warrants issuable with the accepted
portion of their subscriptions. As at June 30, 2000, the
offering was fully subscribed and subscribers had elected to
exercise a total of 415,730 warrants. During the quarter
ended September 30, 2000 the Company issued all remaining
shares and warrants subscribed under the offering. The
total net proceeds to the Company from this offering,
including $415,730 from the exercise of warrants and net of
commissions and finders fees, was $1,350,930.
In connection with the purchase of real estate discussed
above (See "Note 1 - Operations - Acquisition of Residential
Property"), the Company's President, Mr. W. Scott Lawler
provided the Company with funds in the aggregate amount of
$167,842. These funds were used by the Company to cover the
down payment and closing costs associated with such
purchase. Subsequent to the quarter ended June 30, 2000,
the Company and Mr. Lawler agreed that such funds would be
used by the Company as subscription proceeds from Mr. Lawler
to purchase 167,482 shares of the Company's common stock at
$1.00 per share. The shares are to be issued pursuant to
the exempt from registration found in Rule 506 promulgated
by the Securities and Exchange Commission under the
Securities Act of 1933. The net proceeds to the Company
realized from this offering was $167,842, as this offering
was made without the use of any agent or salesman and was
conducted without any costs, commissions or finders' fees.
On September 25, 2000, the Company along with Synergy
Technologies Corporation and its subsidiaries, Carbon
Resources Limited and Lanisco Holdings Limited, entered into
an Amended and Restated Technology Transfer Agreement with
Dr. Pierre Jorgensen. Dr. Jorgensen is the inventor of a
heavy oil upgrading technology for which the Company has
provided development funds. The terms of the original
acquisition of this technology provided Dr. Jorgensen with
sixty-five percent of the royalties earned on the technology
until he received an aggregate of $1 million US at which
time the rate would be reduced to thirty-five percent. Also,
title to the technology was to remain in trust and not be
delivered until Dr. Jorgensen had reached the $1 million
payout. The terms of this amended and restated agreement
provide Dr. Jorgensen with only five percent of the net
proceeds realized from the licensing and/or sublicensing of
the technology, along with 500,000 shares of common stock of
the Company and 500,000 shares of common stock of Synergy
Technologies Corporation. See "Note 4 below". Moreover, the
title to the technology was immediately released to Lanisco
Holding Limited.
Note 4 -Loans Receivable & Loans Receivable - Long Term
Loans Receivable of $503,814 represents the current portion
of monies advanced to various unrelated corporations. These
amounts bear interest calculated on the daily outstanding
principal at 2% above prime rate and have terms of three
years from date of the loan. Repayment terms are annually
on the last day of each year. $183,103 of this amount is
the current portion of the total funds of $1,419,692
advanced to Texas T Petroleum, Ltd. with respect to the
development of a proprietary heavy oil upgrading technology.
Loans Receivable - Long Term of $1,406,583 represents the
long term portion of monies advanced to various
corporations. These amounts bear interest calculated on the
daily outstanding principal at 2% above prime rate and have
terms of three years from the date of the loans. Repayment
terms are annually on the last day of each year. Included
in this amount are funds advanced to Texas T Petroleum, Ltd.
with respect to the development of a proprietary heavy oil
upgrading technology totaling $299,089 and $937,500 which
amount represents the issuance of 500,000 shares of the
Company on behalf of Texas T Petroleum, Ltd. at a deemed
value of $1.875 per share. See "Note 3 - Private Placement
of Common Stock" above.
Note 5 -Long Term Debt
The Company's subsidiary, Capital Canada has a $674,400 ($1
million CDN) demand revolving bank term facility with a
Canadian banking institution. Under the terms of the
agreement, the facility is initially capped at $199,890
($300,000 CDN) and will increase pending successful closing
of certain oil and gas leases currently under review. This
capped amount has been drawn upon and represents $199,890 of
the amount of long-term debt reflected on the consolidated
balance sheet of the Company. The loan bears interest at
the Bank of Canada prime rate plus 1% payable on the last
day of each month. The revolving credit facility is subject
to an annual review and specifies no repayment terms
provided certain covenants related to the facility are met.
As collateral security the Company's subsidiary, has pledged
a $3,372,000 ($5 Million CDN) floating charge debenture over
all of its assets.
During the quarter the Company purchased a commercial
property for a total purchase price of $1,522,800. The
Company applied for and obtained a mortgage with a five-year
term, amortized over 15 years at an interest rate of 8.6%
per annum with respect to a principal amount of $1,079,040
(CDN$1,600,000) to close the purchase. Monthly payments of
interest and principal are $10,467 ($15,709 CDN).
Note 6 - Advances Payable
Advances Payable of $469,360 are advances from various
unrelated parties that bear no interest and have no stated
terms of repayment. This amount includes $368,060 advanced
by an unrelated corporation with respect to the purchase of
a commercial property during the quarter ended September 30,
2000.
Note 7 - Recent Accounting Pronouncements
In June of 1998, the FASB issued Statement of Accounting
Standards No. 133 ("SFAS 133"), "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 established
accounting and reporting standards for derivative
instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. It
requires that an entity recognize all derivatives as either
assets or liabilities on the balance sheet at their value.
This statement, as amended by SFAS 137, is effective for
financial statements for all fiscal quarters to all fiscal
yeas beginning after June 15, 2000. The Company does not
expect the adoption of this standard to have a material
impact on its results of operations, financial position or
cash flows, as the Company currently does not engage in any
derivative or hedging activities.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
GENERAL
Capital Reserve Corporation (the "Company") was
incorporated under the laws of the State of Colorado on
August 3, 1982. The Company is in the business of
investments in oil and gas projects and real estate.
As of September 30, 2000, the Company has one (1)
wholly-owned subsidiary, Capital Reserve Canada Limited, an
Alberta corporation ("Capital Canada"). Capital Canada was
incorporated on December 8, 1999 and is in the business of
locating and acquiring oil and gas properties. The Company's
other subsidiary, Wall Street Investments Corp. had no
activity for the last two (2) years and was dissolved
earlier this year.
On March 1, 2000, the Company's wholly-owned
subsidiary, Capital Canada, entered into an Asset Purchase
Agreement (the "Asset Agreement") with Stone Canyon
Resources Ltd., an Alberta corporation ("Stone Canyon").
Pursuant to the Asset Agreement, Capital Canada acquired all
of the interests held by Stone Canyon in certain producing
oil and gas leases and a processing facility located in
Alberta, Canada, known as Chestermere. The purchase price
for this acquisition was $612,787 ($900,000 CDN) which was
paid as follows: $204,262 ($300,000 CDN) in cash and
$408,525 ($600,000 CDN) in shares of common stock of the
Company, valued at $0.50 US per share which per share price
was converted to Canadian dollars by the average of US
dollar buy and sell rates of the end of business on the date
immediately preceding the closing of the Asset Agreement.
The closing was held on March 21, 2000. The Company issued
817,050 shares in connection with this transaction on June
8, 2000.
As of September 30, 2000, the Company had funded, by
way of repayable loans, $1,419,692 for the development of a
heavy-oil upgrading technology. Included in this amount is
$937,500 with respect to the issuance of 500,000 shares of
the common stock of the Company to the inventor of the heavy-
oil upgrading technology, on behalf of Texas T Petroleum
Ltd. (See "ITEM. 5 OTHER INFORMATION" below. 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 Canada. Texas T Petroleum Ltd.
holds an option to purchase up to fifty percent (50%) of the
outstanding shares of the owner of the heavy oil technology,
Carbon Resources Limited, a Cyprus corporation ("Carbon
Resources"). The heavy oil technology is a proprietary,
patented technology believed to be able to reduce by up to
seventy percent (70%) the costs associated with upgrading
heavy crude oil to light crude oil. In order to exercise
the option and acquire the shares of Carbon Resources, Texas
T must fund a total of $900,000. As at September 30, 2000,
Texas T had funded $884,023, which is secured by an
assignment of Texas T's option to acquire an interest in the
technology. Subsequent to the quarter Texas T Petroleum
fulfilled its obligation to fund $900,000 and acquired a 50%
interest in Carbon Resources. Concurrently, the Company
completed a private placement of 2,000,000 Units of Texas T
Petroleum at $0.50 per Unit, each Unit consisting of one
share and one share purchase warrant entitling the holder to
purchase one additional share at $1.00 per share for a
period of two years.
As of June 30, 2000, the Company had also funded to
Stone Canyon, by way of repayable loans, $430,814 for
working capital to allow for development of a gas-to-liquids
technology. The loan accrues interest at the rate of 2%
over prime. During the quarter September 30, 2000, Stone
Canyon repaid the principal amount of such loan plus all
accrued interest thereon.
During the quarter ended September 30, 2000 the Company
advanced $320,711 to Ocean Exploration Limited. The loan
accrues interest at a rate of 2% over prime and is unsecured
with no specific terms of repayment.
During the quarter ended September 30, 2000 the Company
entered into a Farmout Agreement and Casing Point Agreement
with Hancock Enterprises whereby the Company is required to
pay a 5% cost interest in a well known as the Freedom Dome
Well, located in Rosebud County, Montana to earn a 4% net
revenue interest in the drill spacing unit before payout and
a 3.5% net revenue interest after payout, as well as a 3.5%
working interest in the balance of 1,766.73 acres. In
addition, the Company is required to pay a 5% cost interest
in a well known as the Pioneer Well located in Garfield
County, Montana to earn a 0.58928% working interest in the
Tyler formation only, subject to total lease overriding
royalties of 19.1%. The Company also purchased a 4% working
interest in 54,237.57 acres for $18.00 per acre. To the
quarter ended September 30, 2000 the Company had expended a
total of $34,805 towards the dry hole costs for the Pioneer
and Freedom Dome wells.
During the quarter the Company purchased a commercial
property in which its corporate headquarters are located,
for a total purchase price of $1,522,800. The Company
applied for and obtained a mortgage with a five-year term,
amortized over 15 years at an interest rate of 8.6% per
annum with respect to a principal amount of $1,079,040
(CDN$1,600,000) to close the purchase. As at September 30,
2000 the Company had entered into three five-year, non
cancelable lease arrangements with two un-related
corporations and Capital Canada to lease all rentable square
footage totaling 22,145.5 square feet. Rentable square
footage includes both office and laboratory facilities.
Subsequent to entering into a lease arrangement with the
Company, Capital Canada entered into three sublease
arrangements with respect to 3,813.4 square feet of rentable
square footage. The Company expects to see revenues from
these lease arrangements of approximately $10,232 per month,
net of monthly financing obligations and operating costs.
During the quarter ended September 30, 2000 the Company
signed an offer to purchase a second commercial building
with a purchase price of $183,232. Subsequent to quarter
end the offer was accepted and closing has been set as
December 1, 2000. The Company anticipates it will pay cash
obtained from accounts receivable, which come due prior to
the date of closing for the full purchase price.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital at September 30, 2000,
was $346,195 as compared to ($24,076) at September 30, 1999.
A majority of the Company's current assets are in the form
of accounts receivable and loans receivable. Since the
Company does not have extensive sources of revenue,
operating expenses could deplete working capital.
Furthermore, if the Company should generate an operating
loss for the current year comparable to the loss incurred
for the year ended December 31,1999, a substantial portion
of the Company's remaining cash and working capital will be
depleted. The Company had current liabilities of $228,852
at September 30, 2000, as compared to $96,650 at September
30, 1999.
RESULTS OF OPERATIONS
The Company had total revenues of $204,294 for the nine
(9) months ended September 30, 2000. Comparatively, for the
nine months ended September 30, 1999, the Company had no
revenues. The Company's revenues from the current quarter
were not sufficient to meet its total operational expenses.
The Company's sources of revenue are limited to monthly
rental income of $28,384 (commencing September 1, 2000),
interest income of approximately $8,000 per month and less
than $3,000 per month from a 5% working interest in oil and
gas leases and a process facility, known as Chestermere.
The monthly rental income is derived from two lease
agreements, both expiring in August 2005 (excluding a third
lease with Capital Canada - see "PART II, ITEM 5. OTHER
INFORMATION" below) and three sublease agreements which
expire one in April 2001 and two in August 2005. Lease and
sublease agreements have aggregate rental income of $10,232
per month, net of operating expenses. The Company incurred
cost of goods sold associated with the rental income for
this quarter in the amount of $25,835, which amount
represents a pro rata portion of the Company's obligations
under its lease. The Company anticipates it will derive
annual net revenues from this commercial property of
approximately $122,784, which should assist the company in
meeting other monthly obligations.
The Company has shown on its statements of operations
as interest income the amount of interest that has accrued
on the promissory notes it holds from Texas T Petroleum
Ltd., Stone Canyon and Ocean Exploration Limited during the
quarter ended September 30, 2000. $18,263 has accrued on the
note from Texas T Petroleum and $4,247 has accrued on the
note from Ocean Exploration. $2,017, which had accrued from
Stone Canyon, was paid in full during the quarter.
As the result of the sale of its securities in a
private placement, which was commenced in fiscal year 1999
(see "ITEM 2. CHANGES IN SECURITIES"), the Company received
$1,412,415 in gross proceeds for the nine (9) month period
ended September 30, 2000.
The Company intends to remain involved in Texas T's
funding of the development of a heavy-oil upgrading
technology. See, "ITEM 2. MANAGEMENT'S DISCUSSION AND
ANALYSIS OR PLAN OF OPERATION - GENERAL" above. As of
September 30, 2000, the Company has funded a total of
$1,419,692 towards development of this technology. The
Company's continued involvement in this project will require
the Company to provide additional funds.
The Company, most likely, will need to attempt to raise
additional funds from equity sales, borrowings, joint
ventures or merger/acquisition candidates to meet the
funding needs of its projects and also its operating
expenses.
General and administrative expenses for the nine (9)
months ended September 30, 2000 were $430,892 compared to
$80,455 for the same period in the previous year.
The net loss from continuing operations for the nine
(9) months ended September 30, 2000, was $326,167 compared
to $80,455 for the same period in the previous year.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not Applicable.
ITEM 2. CHANGES IN SECURITIES
On July 22, 1999, the Company commenced a private
placement offering, pursuant to Rule 506 promulgated by the
Securities and Exchange Commission under the Securities Act
of 1933, of up to 2,000,000 of its units, with each unit
comprised of one share of common stock and a warrant to
purchase an additional share for $1.00. As of March 31,
2000, the offering was over-subscribed and the Company had
received $1,412,415 in subscription deposits. During the
quarter ended June 30, 2000, the Company elected to exercise
its right under the terms of the offering to accept only a
portion of each subscriber's subscription, and to allow each
of them to apply the un-accepted portion towards the
purchase price of the warrants issuable with their
subscriptions to date. As a result, the subscribers had
elected to exercise a total of 415,730 warrants. The total
proceeds to the Company from this offering, including
$415,730 from the exercise of warrants, and net commissions
and finders fees, was $1,350,930.
On March 21, 2000, the Company's wholly-owned
subsidiary, Capital Canada, purchased an interest in certain
oil and gas producing leases and a process facility located
in Alberta, Canada, known as Chestermere. As part of the
consideration for this purchase, the Company, on June 8,
2000, issued 817,050 shares of it's common stock. See,
"ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION - GENERAL".
On September 25, 2000, the Company agreed to issue to
Dr. Pierre Jorgensen 500,000 shares in return for his
agreement to reduce his royalty on the heavy oil upgrading
technology from sixty-five percent to 5%. Such agreements
were part of an Amended and Restated Technology Transfer
Agreement entered into by the parties. The shares were
valued at $1.875 per share or $937,500 in total. See,
"ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION - GENERAL".
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
Not Applicable
ITEM 5. OTHER INFORMATION
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. The lease agreement
provided that Capital Canada would make lease payments
totaling $160,520 during the fiscal year ending December 31,
2000, and $177,617 each fiscal year thereafter. Capital
Canada also had the right to purchase the premises
(consisting of a total of approximately 22,507 square feet)
at a price of $1,522,800. On June 30, 2000, Capital Canada
gave notification to the landlord of its intent to purchase
the building. The landlord, the Company and Capital Canada
agreed to extend the closing date of the purchase to August
31, 2000. The transaction closed successfully on August 31,
2000. The original lease agreement that Capital Canada
entered into in January 2000 was amended to put the Company
in the place of "lessor" and reduce the originally acquired
square footage. As at September 30, 2000, the Company had
entered into three lease agreements, each with a five-year,
non-cancelable term with two un-related corporations.
Pursuant to such leases (including the one with Capital
Canada) all rentable square footage totaling 22,145.5 square
feet is currently leased. Rentable square footage includes
both office and laboratory facilities.
Subsequent to entering into the amended lease
agreement with the Company, Capital Canada entered into
three sublease agreements with respect to 3,813.4 square
feet of rentable square footage. These agreements cover all
of the space that Capital Canada leased from the Company.
The Company has monthly mortgage obligations,
inclusive of operating costs, for the purchased commercial
property totaling $18,152. As a result of current lease and
sublease arrangements, the Company expects to see revenues
from these lease arrangements of approximately $10,232 per
month, net of the aforementioned monthly financing
obligations and operating costs.
ITEM 5. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits and Index of Exhibits - see Exhibit Index
below.
b. Reports on Form 8-K - None.
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
CAPITAL RESERVE CORPORATION
Date: November 13, 2000
By: _/s/ W. SCOTT LAWLER______
Name: W. Scott Lawler
Title: President
By:_/s/ SHARON PATMORE_____
Name: Sharon Patmore
Title: Secretary-Treasurer
EXHIBIT INDEX
REGULATION
S_B NUMBER EXHIBIT REFERENCE
3.1 Articles of
Incorporation, as
amended
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, 1990
3.2 Amended Bylaws
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
10.1 Management Agreement
with Mr. Loder
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,
10.2 Lease Agreement
dated January 15,
2000
incorporated by
between Capital Reserve Canada Limited reference to
Exhibit
and 319835 Alberta Ltd.
10.14 previously
Company's Annual
Report on Form 10-
KSB for the fiscal
year ended December
31, 1999
10.3 Purchase and Sale Agreement dated
March 1, 2000 by and between Capital Reserve
Incorporated by
Canada Limited and Stone Canyon Resources Exhibits
previously
Limited
Files with the
Company's Annual
Report on Form 10-
KSB for the fiscal
year ended December
31, 1999
27 Financial Data
Schedule
Filed herewith
