SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
Under the Securities Act of 1933
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
Telephone: (403) 204-0260
(Address, including zip code and telephone number, including
area code, of registrant's principal executive offices)
W. SCOTT LAWLER, ESQ.
PRESIDENT AND GENERAL COUNSEL
CAPITAL RESERVE CORPORATION
335-25TH STREET S.E.
CALGARY, ALBERTA T2A 7H8
(403) 204-0260
(Name, address, including zip code and telephone number,
including area code, of agent for service)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
From time to time after the effective date of this
Registration Statement.
If any of the securities being registered on this form are
to be offered on a delayed or continuous basis pursuant to
Rule 415 under the Securities Act of 1933, other than
securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X].
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following
box and list the Securities Act registration statement
number of the earlier effective registration statement for
the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following
box and list the Securities Act registration statement
number of the earlier effective registration statement for
the same offering. [ ]
If delivery of the prospectus is expected to be made
pursuant to Rule 434, check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Title of Each Proposed
Class of Amount Proposed Aggregate Amount of
Securities to be Offering Offering Registration
Registered Price1 Price1 Fee
<S> <C> <C> <C> <C>
Common Stock, 2,000,000 $3.00 $4,000,000 $1,056.00
no par value
Common stock, 3,030,644 $2.004 $6,061,288 $1,600.00
no par value2
Common stock, 213,000 $2.004 $ 426,000 $ 112.46
no par value3
</TABLE>
1. Estimated solely for purposes of calculating the
registration fee in accordance with Rule 457(c) under the
Securities Act of 1933.
2. Represents common stock to be registered on behalf of
Selling Shareholders.
3. Issuable upon exercise of warrants issued to certain
Selling Shareholders. See, "Selling Shareholders".
4. This price is based on latest sales price of the stock
on the market. Actual offering price shall be based upon
market price at time of offering.
The information in this preliminary prospectus (this
"Prospectus") is not complete and may be changed. We may
not sell these securities nor may offers to buy be accepted
prior to the time the Registration Statement filed with the
Securities and Exchange Commission becomes effective. This
Prospectus is not an offer to sell nor does it seek an offer
to buy these securities in any jurisdiction where the offer
or sale is not permitted.
Subject to Completion, dated September 20, 2000
CAPITAL RESERVE CORPORATION
Up to a maximum of 2,000,000 common shares.
3,030,644 common shares being registered on behalf of Selling
Shareholders.
213,000 common shares underlying warrants being registered on behalf of
certain Selling Shareholders
We shall receive proceeds from the sale of the 2,000,000 shares of common
stock offered hereby after paying commissions of six to ten percent (6-10%)
and before estimated expenses of $45,000.
We will not receive any cash or other proceeds in connection with the sale
of shares of common stock offered by the Selling Shareholders (the
"Selling Shareholders") except to the extent that any of the outstanding
warrants for 213,000 shares of common stock are exercised.
The Selling Shareholders may sell the shares as detailed in the section
entitled "Plan of Distribution".
The Securities and Exchange Commission (the "SEC") may deem
each Selling Shareholder to be an underwriter under the U.S.
federal Securities Act of 1933 (the "Securities Act").
Our common stock is quoted on the NASD's OTC Bulletin Board
("OTC/BB") under the symbol "CRCWA". On September 15, 2000, the
closing sales price of our common stock on the OTC/BB was $1.875.
YOU SHOULD CONSIDER THE RISK FACTORS WE DESCRIBE STARTING ON
PAGE 7 BEFORE INVESTING IN OUR COMMON STOCK.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE
SECURITIES OR DETERMINED WHETHER THIS PROSPECTUS IS TRUTHFUL
OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
PROSPECTUS SUMMARY 5
ABOUT CAPITAL RESERVE CORPORATION 5
THE OFFERING 5
FORWARD LOOKING STATEMENTS 6
RISK FACTORS 7
WHERE YOU CAN FIND MORE INFORMATION 9
USE OF PROCEEDS 10
DETERMINATION OF OFFERING PRICE 10
DILUTION 11
SELLING SHAREHOLDERS 11
PLAN OF DISTRIBUTION 15
LEGAL PROCEEDINGS 15
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS 15
DESCRIPTION OF CAPITAL STOCK 18
INTERESTS OF NAMED EXPERTS & COUNSEL 19
DESCRIPTION OF BUSINESS 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION 21
DESCRIPTION OF PROPERTY 25
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 26
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 27
EXECUTIVE COMPENSATION 28
FINANCIAL STATEMENTS 32
INDEMNIFICATION OF DIRECTORS AND OFFICERS 56
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION 59
LEGAL OPINION 59
RECENT SALES OF UNREGISTERED SECURITIES 59
EXHIBITS AND REPORTS ON FORM 8-K. 60
UNDERTAKINGS 61
SIGNATURES 63
<PAGE>
PROSPECTUS SUMMARY
The following summary contains basic information about this
offering. It likely does not contain all the information
that is important to you. For a more complete understanding
of this offering, we encourage you to read this entire
document and the documents we have referred you to.
ABOUT CAPITAL RESERVE CORPORATION
Capital Reserve Corporation intends to become a recognizable
company in the oil and gas industry. At present, Capital
Reserve Corporation is primarily involved in the review of
exploration and development targets to build its oil and gas
asset base. Capital Reserve Corporation has also made an
initial investment in a technology whose applications are
specifically tied to the oil and gas industry. Capital
Reserve Corporation's business plan is to position itself
in projects which will significantly increase its asset
base.
Capital Reserve's principal executive offices are located
at 335-25th Street S.E., Calgary, Alberta T2A 7H8 and the
telephone number at that location is (403) 204-0260. As
used in this prospectus, the terms "we", "us", "our" and
"the Company" mean Capital Reserve Corporation, a Colorado
corporation, and its subsidiaries and predecessors, unless
the context indicates otherwise.
THE OFFERING
The Offering Capital Reserve Corporation is
offering up to 2,000,000 shares
of common stock at $
per share. There is no minimum
offering amount.
Resales by Selling Shareholders We are registering 3,243,644
common shares on behalf of
Selling Shareholders (including
warrants for 213,000 shares of
common stock). We will not
receive any cash or
other proceeds from the Selling
Shareholders' sale of their
common shares. We are not
selling any common shares on
behalf of Selling Shareholders.
We have no control or affect on
these Selling Shareholders.
See "Selling Shareholders."
Common Shares Outstanding Prior
to this Offering 6,136,393
Common Shares to be Outstanding
After this Offering (assuming
exercise of the Warrants) 8,349,393
Percent of Outstanding Common
Shares Offered by Selling
Shareholders 52.9 %
Gross Proceeds after
Maximum Offering __________________
Use of Proceeds from Sale of
Common Shares Capital Reserve intends to use
the funds from the sale of its
common stock primarily for
operating capital, acquisitions and
exploration and development in the
oil and gas industry. See "Use of
Proceeds."
Market For Common Stock The Company's common stock
trades on the Over-the-Counter
Bulletin Board under the ticker
symbol "CRCWA".
Risk Factors An investment in Capital
Reserve Corporation has
material risks, such as
uncertainty of future financial
results, liquidity dependent on
additional capital and debt
financing, and risks related to
our operations. See "RISK
FACTORS".
Transfer Agent
Our transfer agent is: Computershare
12039 West Alameda Parkway
Lakewood, Colorado 80228
(303) 984 - 4000
FORWARD LOOKING STATEMENTS
This registration statement includes or incorporates by
reference forward-looking statements that reflect our
current view of future events and financial performance.
These forward-looking statements are subject to numerous
risks and uncertainties, including those factors discussed
elsewhere in or incorporated by reference into this
prospectus, the prospectus supplement, any pricing
supplement and our other filings with the SEC.
These risks and uncertainties could cause actual results or
events to differ materially from anticipated or historical
results. You can identify forward-looking statements by our
use of words like "anticipate," "believe," "budget,"
"estimate," "expect," "forecast," "intend," "may," "plan,"
"predict," "project," "should", "could" and similar
expressions. Any statement that is not a historical fact is
a forward-looking statement. We caution you not to place
undue reliance on these forward-looking statements, whether
as a result of new information, future events or otherwise.
RISK FACTORS
The following is a summary of some of the significant risks
relating to the projects of the Company and the Company.
The following should not be interpreted as a representation
that the matters referred to herein are the only risks
facing the Company, nor should the reference to the risks
herein be deemed a representation that such risks are of
equal magnitude. If any of the following risks actually
occur, our business, financial condition or results of
operations could be materially adversely affected.
RISKS RELATING TO OUR BUSINESS:
The Registrant's Business
The Company intends to become a recognizable company in the
oil and gas industry. At present, the Company is primarily
involved in the review of exploration and development
targets to build its oil and gas asset base. The Company has
also made an initial investment in the CPJ Technology whose
applications are specifically tied to the oil and gas
industry. Capital Reserve's mandate is to position itself in
projects which will significantly increase its asset base.
There can be no assurance that management will be able to
achieve these goals. Moreover, at the present time, the CPJ
Technology's commercial applications have not yet been
proven. In addition, the Company has not finalized its
agreements for the acquisition of a portion of the ownership
of this technology.
Lack of Operating History
We do not have an operating history upon which an evaluation
of our prospects can be based, therefore, our prospects must
be considered in light of the risks, expenses and
difficulties frequently encountered by small companies
seeking to identify and fund business opportunities which
may have substantial risk of failure. We need to add more
employees and associates to our staff who have experience in
the industries which we expect to target to develop the
Company. To address these risks, we must, among other
things, attract, retain and motivate qualified personnel.
We have no assurance that we will be able to meet the
challenge of managing an operating business or of attracting
the required experienced personnel to operate our business.
Lack of Recent Profits from Operations
We have incurred losses and anticipate continued losses in
the future. As of December 31, 1999 we had an accumulated
deficit of $3,382,550, and as of June 30, 2000, we had an
accumulated deficit of $3,705,027, based on our unaudited
financial statements. We have not yet achieved profitability
and expect to continue to incur net losses until we
recognize sufficient revenues from cash flow from oil and
gas operations, cash flow from real estate investments or
our investment in a proprietary, oil and gas related
technology, referred to as the "CPJ Technology". See,
"Management's Discussion and Analysis or Plan of Operation -
General". We can give no assurance that we will achieve or
sustain profitability.
No Assurance of Adequate Capital
We cannot be assured that we will have sufficient revenues
from operations to cover operating expenses, and there is no
assurance that the Company will generate future revenues
from operations sufficient to cover its administrative
expenses and sustain planned growth. In the event that
additional capital is required, there can be no assurance
that the Company can successfully raise such additional
funds.
No Assurance of Return on Investment
Even if the Company is successful in locating suitable
acquisitions or merger candidates and completing such
transactions, there can be no assurance that the investors
will receive from the Company amounts equal to their
investment in the Company. Given the substantial risk of
"shell" corporations, such as ours, the revenues from
operations may be insufficient to provide the return of any
portion of the investors investments. No investment should
be made by a person who is not in a position to lose the
entire amount of their investment.
No Assurance of Cash Distributions
There is no assurance that the Company will realize any
revenues so that cash will be available for payments or
dividends on the Company's shares. The Company intends to
retain future earnings, if any, to provide funds for the
operations of its business and, accordingly does not
anticipate paying any cash dividends on the Common Shares in
the foreseeable future, and there can be no assurance that
the Company will ever declare or pay dividends on its Common
Stock.
Relationships of Management
The officers and directors of the Company are or may be
officers and directors of affiliates of the Company and/or
officers and directors of other corporate entities, which
are not affiliates of the Company. Such affiliates or non-
affiliates may be involved in business enterprises similar
to those conducted by the Company.
Legal Representation
The Company's in-house General Counsel provides legal advice
to the Company with regards to certain matters. The
Company's in-house General Counsel is also an officer and
director of the Company. Other legal firms may provide
legal services in the future to the Company and its officers
and directors. Possible representation of both the Company
and the officers and directors of the Company and its
affiliates may result in conflicts of interest for such
counsel. It is expected that the Company would retain
independent counsel only in the event that litigation arises
between the Company and its officers and directors and
affiliates and any entities represented by non-independent
counsel.
Marketability of Oil and Gas Affected by Many External
Factors
As a significant portion of the Company's projected revenue
stream will depend on revenues obtained from oil and gas
operations, it is necessary to note that in general the
marketability of oil and gas can be affected by numerous
external factors beyond the control of the Company and/or
its customers. These factors include market fluctuations,
the world price of oil, the supply and demand for gas, the
deregulation of gas prices, the proximity to and capacity of
oil and gas pipelines and processing equipment, and
government regulations, including regulations relating to
prices, taxes, royalties, land tenure, allowable production
and the import and export of oil and gas and environmental
protection. The effect of these factors on the Company's
project cash flows cannot be accurately predicted.
Environmental Laws Relating to the Protection of the
Environment
The Company may become subject to extensive laws and
regulations relating to the protection of the environment.
Violators of these laws and regulations may be subject to
substantial fines, criminal sanctions or third party
lawsuits and may be required to install costly remedial
equipment or in some cases curtail operations. It may be
necessary to obtain certain permits or to post bonds with
notices to several governmental agencies including the
applicable environmental agency. Such licenses, bonds and
special work permits may require additional capital from the
Company. The amounts required will vary and cannot be
determined at this time.
Lack of Public Market
The Company's Common Stock is quoted on the NASD Over-the-
Counter Bulletin Board ("OTC Bulletin Board"). Quotations
on the OTC Bulletin Board reflect inter-dealer prices,
without retail mark-up, markdown or commission and may not
reflect actual transactions. Although the Company's Common
Stock is quoted on the OTC Bulletin Board, the Common Stock
may be subject to certain rules adopted by the Securities
and Exchange Commission that regulate broker-dealer
practices in connection with transactions in "penny stocks".
Penny stocks generally are securities with a price of less
than $5.00 (other than securities registered on certain
national exchanges or quoted on the Nasdaq system, provided
that the exchange or system provides current price and
volume information with respect to transaction in such
securities). The penny stock rules require broker-dealers,
prior to a transaction in a penny stock not otherwise exempt
from the rules, to deliver standardized risk disclosure
documents prepared by the Securities and Exchange Commission
that provides information about penny stocks and the nature
and level of risks in the penny stock market. The broker-
dealer must also provide the customer with current bid and
offer quotations for the penny stock.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports and other
information with the SEC. You can read and copy these
materials at the SEC's public reference room at 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the SEC's
regional offices located at Seven World Trade Center, New
York, New York 10048 and at 500 West Madison Street, 14th
Floor, Chicago, Illinois 60661. You can obtain information
about the operation of the SEC's public reference room by
calling the SEC at 1-800-SEC-0330. The SEC also maintains a
Web site that contains information we file electronically
with the SEC, which you access over the Internet at
http://www.sec.gov.
USE OF PROCEEDS
The Company is registering 2,000,000 shares of its common
stock in this Registration Statement which will be sold by
the Company at certain times that it deems to be in its best
interests. Assuming successful completion of the offering,
the Company shall receive net proceeds of $
, after payment of commissions that will range between six
percent and ten percent. The commission amount would only
be payable if a broker-dealer is engaged. If the Company
raises significantly less than the maximum amount, it will
be able to pay operational expenses but will have less
working capital to affect any further acquisitions. The
Company shall utilize the net proceeds from the sale of its
common stock as described below. The proceeds are to be
utilized over a six-month period.
Gross Proceeds __________
less commissions __________
less offering expenses $ 45,000
Net Proceeds __________
Acquisition Costs $1,800,000
Exploration and Development $2,805,000
Working Capital $ 750,000
The securities of the Selling Shareholders offered pursuant
to this Registration Statement and Prospectus are for the
benefit of such Selling Shareholders. The Company is not
selling common stock on behalf of the Selling Shareholders
and has no control or effect on the 3,130,644 common shares
and the 213,000 common shares underlying the warrants of
certain of these Selling Shareholders. The warrants have an
exercise price of $1.00 per share (the "Warrants").
Therefore, the Company will not share in or receive any part
of the proceeds realized on the sale of any of the 3,130,644
shares offered by the Selling Shareholders.
Any proceeds received from the exercise of the Warrants
shall be utilized for general working capital requirements.
DETERMINATION OF OFFERING PRICE
The Offering Price will be determined by the prevailing
market price at the time of the sales by the Selling
Shareholders. The Shares offered by the Company hereunder
shall be priced at a later date. This Registration
Statement shall be amended at the time that the offering
price for such shares is determined.
DILUTION
Our net tangible book value at December 31, 1999 was $0.00
per share of common stock due to the fact that at such time
the Company was in a deficit position in shareholders'
equity on its financial statements. As of June 30, 2000,
our net tangible book value, on an unaudited basis, was
$0.20 per share of common stock. Net tangible book value
per share of common stock is determined by dividing our
tangible net worth, which is tangible assets less
liabilities, by the total number of shares of our common
stock outstanding. Common shares outstanding following
completion of the 2,000,000 shares offered by the Company
and the issuance of the 213,000 shares upon exercise of the
Warrants will be 8,342,726. The dilutive effect per share
as of the latest date of our unaudited financial statements
(June 30, 2000) will be a decrease from $0.20 per share to $
per share.
SELLING SHAREHOLDERS
The Selling Shareholders may sell their common stock in one
or more transactions (which may include "block" transactions
in the Over-the-Counter market), in negotiated transactions
in a combination of such methods of sales, at fixed prices
which may be changed, at market prices prevailing at the
time of sale, at prices related to such prevailing market
prices or at negotiated prices. The Selling Shareholders
may effect such transactions by selling the common stock and
the shares underlying the warrants directly to purchasers,
or may to or through agents, dealers or underwriters
designated from time to time, and such agents, dealers or
underwriters may receive compensation in the form of
discounts, concessions or commissions from the Selling
Shareholders and/or the purchaser(s) of the common shares
for whom they may act as agent or to whom they may sell as
principals, or both. The Selling Shareholders and any
agents, dealers or underwriters that act in connection with
the sale of the common shares might be deemed to be
Aunderwriters@ within the meaning of Section 2(11) of the
Securities Act of 1933, and any discount or commission
received by them and any profit on the resale of the common
shares as principal might be deemed to be underwriting
discounts or commissions under the Securities Act of 1933.
The Company is not aware of any current or future plans,
proposals arrangements or understandings by any Selling
Shareholders to distribute their Shares to their respective
outstanding shareholders or partners.
The Company is not aware of any plans, arrangements or
understandings by any Selling Shareholders to sell their
Shares to any particular individual(s) or to use such Shares
to satisfy contractual obligations.
The Company will receive no portion of the proceeds from the
sale of the Shares by the Selling Shareholders and will pay
some of the costs relating to the registration of this
Offering (other than any fees and expenses of counsel for
the Selling Shareholders). Any commissions, discounts or
other fees payable to a broker, dealer, underwriter, agent
or market maker in connection with the sale of any of the
Shares will be paid by the Selling Shareholders.
This offering by Selling Shareholders will remain
outstanding until all common shares are sold or until
terminated by the selling shareholders. On behalf of the
Selling Shareholders, we are registering 3,130,644 common
shares currently outstanding and shares underlying warrants
that are held by certain Selling Shareholders. The
percentage owned prior to and after the offering reflects
all of the then-outstanding common shares. The amount and
percentage owned after the offering assumes the sale of all
of the common shares being registered on behalf of the
Selling Shareholders.
Following is a list of Selling Shareholders whose shares are
being registered and offered by this Registration Statement,
which list includes each Selling Shareholder's name, any
position or natural relationship with the Company or any of
its predecessors or affiliates during the past three (3)
years, the amount of securities owned by each Selling
Shareholder prior to the offering, the amount to be offered
for the Selling Shareholder account and the amount and
percentage (if more than one percent) of the class to be
owned after the offering is complete, including the
Company's offering and issuance of 2,000,000 shares
hereunder.
<TABLE>
<CAPTION>
Name Position/Relat # of # of # of % of
ionship to the Shares Shares Shares Class
Company (last owned Offered owned owned after
Owned 3 years) prior to by Sell after Offering
Offering ing Offering
Share
Holder
<S> <C> <C> <C> <C> <C>
Allison Stephanson None 20,000 20,000 0 0
293020 B.C. Ltd. None 4,000 4,000 0 0
555344 B.C. Ltd. None 13,333 13,333 0 0
724500 Alberta Ltd. None 3,333 3,333 0 0
Allen Menning None 6,666 6,666 0 0
American
International
Investors Ltd. None 20,000 20,000 0 0
Andre Arrata None 6,666 6,666 0 0
Art Willms None 3,334 3,334 0 0
Astral
Enterprises Inc. None 13,334 13,334 0 0
Barbara Romano None 6,666 6,666 0 0
Beaufort
Corporation None 130,000 130,000 0 0
Brian Carey None 3,334 3,334 0 0
Fern McMillan None 1,334 1,334 0 0
Charlotte Village
Limited None 13,334 13,334 0 0
Chung S. Yue None 33,334 33,334 0 0
Clint Stewart None 6,666 6,666 0 0
Colin Lynch None 4,000 4,000 0 0
Collin Harris None 6,666 6,666 0 0
David Romano None 6,666 6,666 0 0
Deborah Louise
Kennedy None 13,333 13,333 0 0
Derek Boniecki None 6,666 6,666 0 0
N. Desmond Smith None 33,334 33,334 0 0
Dinesh Dattani None 20,000 20,000 0 0
Dirk Lohrisch None 1,334 1,334 0 0
Don Byers None 33,334 33,334 0 0
Dorothy Cassidy None 1,667 1,667 0 0
Douglas Danforth None 4,000 4,000 0 0
DSK Consulting
Ltd. None 13,334 13,334 0 0
Dwayne Lashyn None 13,334 13,334 0 0
EBM Investments Inc. None 33,334 33,334 0 0
Ed Chynoweth None 6,666 6,666 0 0
Eileen Stelting None 9,334 9,334 0 0
Elaine Fales None 1,334 1,334 0 0
Elston Johnston None 13,334 13,334 0 0
Famourios
Vendouris None 4,000 4,000 0 0
Fred Alexander
Prof. Corp. None 6,666 6,666 0 0
Garnet Ferguson None 3,333 3,333 0 0
Gary Wotton None 2,666 2,666 0 0
Geoffrey Saxton None 20,000 20,000 0 0
George Christou None 3,333 3,333 0 0
George Eger None 2,666 2,666 0 0
Glen Stelting None 13,333 13,333 0 0
Harold Pederson None 13,334 13,334 0 0
Harvey Nahirny None 20,000 20,000 0 0
Jared Fales None 134 134 0 0
Jeanette Eger None 2,666 2,666 0 0
Jennifer Fallow None 867 867 0 0
John Kreviazuk None 6,666 6,666 0 0
Kerri Wotton None 1,333 1,333 0 0
Larry Dziwenka None 3,334 3,334 0 0
Laura Romano None 6,666 6,666 0 0
Marten Gravel None 4,000 4,000 0 0
Maureen Hawkins None 6,666 6,666 0 0
Michael Buna None 667 667 0 0
Miliro Services
Limited None 13,500 13,500 0 0
Noble House
Investments
Inc. None 6,666 6,666 0 0
Patricia Hawkins None 6,000 6,000 0 0
Peabody Financial
Ltd. None 6,666 6,666 0 0
Revival Resources
Ltd. None 50,000 50,000 0 0
Robert Achtymichuk None 1,667 1,667 0 0
Rod Burns None 2,666 2,666 0 0
Shaun Lucas None 666 666 0 0
Stephen Petts None 2,666 2,666 0 0
Thomas J. Taylor None 6,666 6,666 0 0
Tom Ringoir None 33,334 33,334 0 0
Tyler Cran None 6,666 6,666 0 0
Star Investments
LLC None 13,334 13,334 0 0
Victor Kellough None 6,666 6,666 0 0
586180 Alberta Ltd. None 13,334 13,334 0 0
655835 Alberta Ltd. None 66,666 66,666 0 0
Allan Frame None 3,334 3,334 0 0
Leslie Haworth None 6,666 6,666 0 0
Doug Steer None 6,666 6,666 0 0
Elaine Kennedy None 6,666 6,666 0 0
Gabe Hoffart None 5,334 5,334 0 0
Gabrielle Wallack None 6,666 6,666 0 0
Garrett Greene None 17,334 17,334 0 0
Hugo Kotar None 3,333 3,333 0 0
Jason Gurandiano None 20,000 20,000 0 0
Joe Gormley None 10,000 10,000 0 0
John Feeley None 6,666 6,666 0 0
John Lagourgue None 6,666 6,666 0 0
John Stavros
Theodoropoulis None 6,666 6,666 0 0
Joseph Copon None 3,334 3,334 0 0
Keith Bekker None 3,334 3,334 0 0
Keith Williams None 4,000 4,000 0 0
Ken Buna None 667 667 0 0
Maximilian Griesser None 10,000 10,000 0 0
Douglas Raspberry None 20,000 20,000 0 0
Gaba Ventures None 100,000 100,000 0 0
James MacKay None 4,500 4,500 0 0
Adrianne Damgaard None 40,000 40,000 0 0
Ralph W. Thompson None 20,000 20,000 0 0
Kevin Petford None 2,000 2,000 0 0
Lorenzo Ferri None 6,666 6,666 0 0
Michael James None 13,334 13,334 0 0
Scott Fleurie None 4,000 4,000 0 0
Sharon Parker None 3,334 3,334 0 0
Sommerset
Holdings Inc. None 6,666 6,666 0 0
Terry Sklavenitis None 13,333 13,333 0 0
Jean Dan Management None 11,100 11,100 0 0
Scott Koyich None 10,667 10,667 0 0
447017 B.C. Ltd. None 59,744 59,744 0 0
CMJ Consulting Ltd. None 10,000 10,000 0 0
Kelly Warrack None 900 900 0 0
Terry Eger None 6,820 6,820 0 0
Nicole Kotar None 4,000 4,000 0 0
Sunshine Pacific
Corporation None 50,000 50,000 0 0
Marilyn Murphy None 60,000 60,000 0 0
Lorraine Jones None 20,000 20,000 0 0
Bahamian Overseas
Investment Fund
Sociedad None 316,002 235,000 81,002 1.0%
Caribbean Overseas
Investments
Limited None 417,420 320,000 97,140 1.2%
Buccaneer Holdings
Inc. None 429,502 200,000 229,502 2.8%
Ocean Exploration
Limited None 396,827 381,007 15,820 0%
Karl Cernovitch None 10,000 10,000 0 0
Ralph Newton President 100,000 100,000 0 1.4%
1982-1998
</TABLE>
PLAN OF DISTRIBUTION
The Company hereby offers up to 2,000,000 shares of its
common stock at a price per share to be determined at a
later date. The Company is offering the shares on a "direct
participation" basis by W. Scott Lawler, the Company's
President and a member of its Board of Directors, the
Company's other Officers and Directors, the Company's
promoters, and other affiliates of the Company and possibly
selected broker dealers.
Selected broker-dealers and others assisting in the sale and
shall receive a sales commission of up to 10% for any shares
sold by them. The Company reserves the right to withdraw,
cancel or reject any offer in whole or in part. The shares
offered by the Company hereunder shall not be sold to
insiders, control persons or affiliates of the Company.
The Company has made no plans, proposals, arrangements or
understandings with any potential sales agent with respect
to participating in the distribution of our securities.
When, in the future, assuming such participation develops,
the registration statement will be amended to identify such
persons.
Offering period. The offering by the Company hereunder
will terminate on or before March 1, 2001. In the Company's
sole discretion, it can extend its offering of common shares
for up to thirty (30) day periods, but in no event later
than June 30, 2001. In the case of the Selling Shareholders,
the offering of their Shares shall continue until the Shares
are sold.
LEGAL PROCEEDINGS
The Company is not involved in any legal proceedings as of
the date of this prospectus.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
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 39 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
qualified. 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 on December 8, 1999. 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. 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 restructures. 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.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth information, as of July 7,
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 of the 2,000,000 shares offered by the Company
hereunder are sold and if all outstanding warrants are
exercised and the underlying 213,000 additional shares of
Common Stock are issued:
COMMON STOCK
NUMBER OF CURRENT PERCENT PERCENT OF
BENEFICIAL OWNER SHARES OF CLASS (1) CLASS AFTER
COMPLETION
OF OFFERING
Grotto Holdings 325,000 5.3% 3.9%
25 Regent Street
Belize City, Belize,
Cent. Am.
Buccaneer Holdings Ltd. 429,502 7.0% 5.1%
25 Regent Street
Belize City, Belize,
Cent. Am.
Bahamian Overseas 316,002 5.2% 3.8%
Investment Fund
Sociedad
P.O. Box N-4825
Nassau, Bahamas
Caribbean Overseas
Investments Ltd. 417,140 6.8% 5.0%
25 Regent St.,
Belize City, Belize
Central America
Ocean Exploration Ltd.
25 Regent St.,
Belize City,
Belize, Central
America 396,827 6.5% 4.8%
Stone Canyon
Resources Ltd.
335 25th Street, S.E.
Calgary, Alberta 817,050 13.3% 9.8%
W. Scott Lawler 193,964 3.2% 2.3%
335-25th St., S.E.
Calgary, Alberta
T2A 7H8
Sharon Patmore -0- - --
#11-1861 Beach Ave.
Vancouver, British
Columbia V6G 1Z1
Canada
Officers and
Directors as a 193,964 3.2% 2.4%
Group (2 persons)
(1) Based on 6,136,393 shares of Common Stock outstanding.
CHANGES OF CONTROL
Management is in the process of seeking a viable company
to acquire or with which to merge. Until such company
can be identified, the Company has only limited sources
of income. 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.
DESCRIPTION OF CAPITAL STOCK
The total number of shares of all classes of stock that
the Company is authorized to issue is 20,000,000 shares
of common stock, no par value. The Company had
6,136,393, shares of common stock outstanding as of
August 7, 2000.
COMMON STOCK
The holders of common stock are entitled to one vote per
share on all matters voted on by our stockholders,
including the election of directors, except as may be,
in the future, provided in any resolutions adopted by
our board of directors with respect to any series of
preferred stock. Except as otherwise required by law or
provided in any resolution adopted by the board of
directors with respect to any series of preferred stock,
the holders of shares of common stock exclusively
possess all voting power of our stockholders. Subject
to any preferential rights of any outstanding series of
preferred stock, the holders of common stock are
entitled to those dividends as may be declared from time
to time by the Board of Directors from funds available
for dividends.
INTERESTS OF NAMED EXPERTS & COUNSEL
None of the experts or counsel named in the prospectus are
affiliated with the Company or its wholly-owned subsidiary,
Capital Reserve Canada Ltd., except Mr. W. Scott Lawler, who
is a member of the Board of Directors and President of
Capital Reserve and a member or the Board of Directors of
Capital Reserve Canada Ltd., as well as legal counsel. Mr.
Lawler will receive no direct or indirect interest in the
Company as a result of this Registration Statement, nor will
he receive any continued income as a result of this
Registration Statement.
DESCRIPTION OF BUSINESS
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 and in July 2000 was
dissolved.
As of the date of this filing, the Company has one (1)
wholly-owned subsidiary, Capital Reserve Canada Limited
("Capital Canada").
Capital Canada was incorporated in the Province of
Alberta, Canada, on December 8, 1999 and is in the business
of locating and acquiring oil and gas properties.
As of June 30, 2000, the Company had funded, by way of
repayable loans, $505,806 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
Canada. See "Directors, Executive Officers, Promoters and
Control Persons".
CURRENT OPERATIONS
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 "Description of Property".
During the quarter ended March 31, 2000, Capital Canada
arranged a stand-by operating line of credit with the
Alberta Treasury Branch ("ATB") in the amount of
approximately $690,000 ($1,000,000 CDN 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 the Bank of Canada prime rate plus one
percent (1%) and an annual standby fee of 2 of 1% of the
amount not drawn down on the line of credit.
During the quarter ended March 31, 2000, 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 approximately $621,000.00
($900,000 CDN) paid in cash and 817,050 shares of common
stock of the Company, at a deemed price of $0.50 U.S. per
share. The cash payment was made from the draw down of
$207,000.00 ($300,000 CDN) from the operating line of credit
provided by the ATB.
This initial acquisition will provide the basis upon which
the Company can build its oil and gas division. The Company
is presently negotiating other acquisitions of oil and gas
assets.
The Company also has acquired office and laboratory
facilities which produce monthly rental income, and receives
interest income on its investment in a heavy oil upgrading
technology.
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 of
commissions and finders fees, was $1,350,930.
EMPLOYEES
As of June 30, 2000, the Company and its subsidiary had one
(1) full-time employee and two (2) part-time employees. The
tasks and duties undertaken by the Company's employees
include managerial, legal counseling, accounting and review
of oil and gas prospects.
REPORTS TO SECURITY HOLDERS
The Company is a publicly reporting company under the
Securities Exchange Act of 1934 and as such is required to
file periodic reports with the SEC, including but not
limited to annual reports, quarterly reports and current
reports. Copies of all materials the Company files with the
SEC may be read and copied at the SEC's Public Reference
Room at 450 Fifth Street, N.W., Washington, D.C. 20549.
Information on the operation of the Public Reference Room
may be obtained by calling the SEC at 1-800-SEC-0330. The
SEC also maintains an Internet site that contains, proxy and
information statements, and other information regarding
issuers that file electronically with the SEC; the address
of that site is http://www.sec.gov. The Company also
maintains some information on its web site located at
http://www.capreservecorp.com.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
GENERAL
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 June 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.
On March 1, 2000, Capital Canada entered into an Asset
Purchase Agreement (the "Asset Agreement") with Stone Canyon
Resources Ltd., an Alberta corporation, ("SCR"). Pursuant
to the Asset Agreement, Capital Canada acquired all of the
interests held by SCR 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 June 30, 2000, the Company had funded, by way of
repayable loans, $505,806 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
Canada. Texas T Petroleum Ltd. holds an option to purchase
up to fifty percent (50%) of the outstanding shares of
Carbon Resources Limited, a Cyprus corporation ("CRL"). CRL
holds the rights to a proprietary patented technology
believed to be able to reduce by up to seventy percent (70%)
of the costs associated with upgrading heavy crude oil to
light crude oil. In order to exercise the option and
acquire the shares Texas T must fund a total of $900,000
towards development of the technology. As at June 30, 2000,
Texas T had funded $860,022 of such obligation .
As of June 30, 2000, the Company had also funded to SCR, by
way of repayable loans, $430,814 for working capital to
allow for development of a gas-to-liquids technology. The
loans accrued interest at the rate of 2% over prime.
Subsequent to the quarter ended June 30, 2000, SCR repaid
the principal amount of such loan, plus all accrued
interest thereon in the amount of $12,540.
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 three (3) sources of income. See
"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 borrowing is
required to fund future operations. Therefore, the unaudited
financial statements included in this report for the period
ended June 30, 2000 and audited financial statements 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 net 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.
Cash flows from continuing operations during the periods
ended June 30, 2000 and June 30, 1999 reflect net cash used
of $712,007 and $68,041, respectively.
At December 31, 1999, and 1998 the Company had working
capital of $7,656 and $1,471, respectively. The Company's
working capital at June 30, 2000, was $359,473 as compared
to $2,278 at June 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, working capital could be depleted by
operating expenses. 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 $88,287 at June 30, 2000, as compared to
$16,548 at June 30, 1999.
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 $11,382.00 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.
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.
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. As at
December 31, 1999 the Company had 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.
As at June 30, 2000 the Company had total assets of
$2,374,997, compared to total assets of $18,826
at June 30, 1999. This represents an increase of
$2,356,171, which is attributable to the Company's
acquisition of certain oil and gas assets, the funding of
loans to Texas T (see above " - General"), and the
acquisition of certain real estate property (see below
"CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS").
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. For the six (6)
months ended June 30, 2000, the Company had total revenues
of $106,126. Comparatively, for the six months ended June
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 $14,195,
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.
Most of the monthly rental income ($12,500 of a total of
$14,195) is associated with a five (5) year written sublease
agreement. The Company has two (2) other written sublease
agreements (one that expires in April 2001 and the other
expires in January 2005), which have in the aggregate
monthly rental income of $1,700. The Company incurred cost
of goods sold associated with the rental income for this
quarter in the amount of $24,385, which amount represents a
pro rata portion of the Company's obligations under its
lease. While the income from the first sublease meets the
Company's monthly obligations under its lease agreement,
there is no assurance that these relationships will continue
beyond their current and respective terms.
As the result of the sale of its securities in a private
placement, which was commenced in fiscal year 1999 (see
"RECENT SALES OF UNREGISTERED SECURITIES"), the Company
received $754,705 in gross proceeds during the quarter ended
June 30, 2000, and $1,412,415 in gross proceeds for the six
(6) month period ended June 30, 2000.
The Company intends to remain involved in Texas T's funding
of the development of a heavy-oil upgrading technology,
which is believed to reduce the costs of upgrading heavy
crude to light crude oil by 70%. Texas T's funding of such
technology will result in ownership of fifty percent (50%)
of the entity that owns such technology, Carbon Resources
Limited. As of June 30, 2000, the Company has funded
$505,806. The Company's continued involvement in this
project will require the Company to provide additional
funds. The amount of such additional funds has not been
determined at this time.
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 this project and also its operating
expenses.
The Company's net operating loss for 1999 increased by
approximately 399% over the previous years loss 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 net
loss from continuing operations for the six (6) months ended
June 30, 2000, was $322,477 compared to $54,101 for the same
period in the previous year.
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.
and SCR during the quarter ended June 30, 2000. $14,566 has
accrued on the note from Texas T Petroleum Ltd. and $10,525
has accrued on the note from SCR.
The Company's operating expenses for 1999 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
limited sources of revenue, the Company's working capital
could be negatively impacted in fiscal year 2000 by
operating expenses. General and administrative expenses for
the six (6) months ended June 30, 2000 were $381,608
compared to $54,101 for the same period in the previous
year.
Management is in the process of seeking a viable project to
acquire or with which to merge. Until such an acquisition
or merger can be identified, the Company has limited sources
of income. 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.
DESCRIPTION OF PROPERTY
In January, 2000 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 provides 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 $1,552,275 ($2.2 million CDN).
On June 30, 2000, Capital Canada gave notification to the
landlord of its intent to purchase the building. The
landlord and the Company agreed to extend the closing date
of the purchase to August 31, 2000 and agreed that the
Company would purchase the building. The Company executed
mortgage documents with a local lender to provide $1.1
million($1.6 million CDN) toward the purchase price of the
building. The Company used working capital for the reminder
of the purchase price. The Company, at the closing, received
a credit applied to the purchase price in the amount equal
to fifty percent (50%) of six months of Capital Canada's
basic rent payments. The closing took place on August 31,
2000.
The Company has entered into head lease agreements with
three (3) tenants that occupy space in the building. One of
such agreements was between the landlord and Toshiba, which
was assigned to the Company upon the purchase of the
building. The Toshiba lease generates $50,632 ($73,416 CDN)
in annual lease payments plus operating costs estimated at
$6.25 per square foot. This lease expires in July 2005.
The second head lease agreement is with Synergy Technologies
Corporation for 4,345 square feet of office space and 3,950
square feet of laboratory facilities for a term of five
years The Synergy lease generates $150,000 in annual lease
payments, plus operating costs estimated at $6.25 per square
foot. This lease expires in August 2005.
The third head lease agreement is with Capital Canada for
2,784 square feet of office space and lab space for a term
of five (5) years. The lease generates $22,855 ($33,410
CDN) in annual lease payments plus operating costs estimated
at $6.25 per square foot.
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.
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.
In connection with the Consulting Agreement agreed to
between the Company and its President, Mr. W. Scott Lawler,
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. 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.
In connection with the purchase of real estate discussed
above, 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, which as of this filing have not been
issued, 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.
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.
Quarter High Low
1 Quarter 2000 ended
3/31/00 2.75 1.75
2 Quarter 2000 ended
6/30/00 3.50 1.75
*This quarter's records are limited to the period commencing
February 4, 2000.
As of August 18, 2000, there were eight (8) market makers
in the Company's stock. The last available reported trade
by the OTC/BB prior to the filing of this report was
September 15, 2000 at $1.875.
As of July 9, 2000, there were 867 record holders of the
Company's stock.
During the last two fiscal years, no cash dividends have
been declared on the Company's stock.
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 $100,000. Accordingly, no other executive officers of
the Company are included in the table.
<TABLE>
<CAPTION>
AWARDS PAYOUTS
Securities
Other Restricted Underlying All
Annual Stock Options/ Other
Name and Compen- Award(s) SARS LTIP Compen
Principal Position Year Salary($) (Bonus)($) sation($) ($) ($) Payouts($) sation($)
-------------------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
W. Scott Lawler 2000 25,000 -0- -0- -0- -0- -0- -0-
W. Scott Lawler (1) 1999 -0- -0- -0- -0- -0- -0- -0-
Glen C. Loder
Chairman
President
& Treasurer (2) 1999 -0- -0- 61,200 -0- -0- -0- -0-
Glen C. Loder
Chairman
President
& Treasurer (2) 1998 -0- -0- 15,000 -0- -0- -0- -0-
</TABLE>
(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 December 31, 1999, Mr. Lawler earned 15,000 shares.
As of the date of this filing, Mr. Lawler earned an additional
40,000 shares; however, none of such shares have actually been
issued to Mr. Lawler. Mr. Lawler also receives cash compensation
for his services as President of the Company in the amount of
$6,250 per month. See "Certain Relationships and Related
Transactions".
(2) Pursuant to the Management Agreement between the Company and
Glen C. Loder dated October 6, 1998. See "Certain Relationships
and Related Transactions".
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"). The Options include
standard anti-dilution rights which will cause the purchase price
to be reduced as a result of the Company selling shares of common
stock at a price lower than purchase price of the shares issuable
upon exercise of 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 "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").
The ISOP permits the Board of Directors or a committee of
directors (the "Committee") to grant stock options to 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
500,000 shares of Common Stock may be issued under the ISOP.
As of the date of this Annual Report, all 500,000 options have
been granted under the Plan.
Under the Plan, 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 to the operations of the
Company.
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 but prior to his death in October 1999, Mr.
Loder was paid $61,200 for consulting fees (of which $11,200 was
advanced prior to being 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. As of the date of this filing, Mr. Lawler earned
55,000 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 "Certain Relationships and
Related Transactions".
FINANCIAL STATEMENTS
Please refer to pages beginning with F-1.
INDEPENDENT AUDITORS' REPORT
CAPITAL RESERVE CORPORATION
December 31, 1999
F-1
<PAGE>
C O N T E N T S
Page
Independent Auditors' Report F-3
Consolidated Financial Statements
Balance Sheet F-4
Statements of Operations F-5
Statements of Stockholders' Equity F-6
Statements of Cash Flows F-7
Notes to Consolidated Financial Statements F-8 to F-13
F-2
<PAGE>
Independent Auditors' Report
Board of Directors
Capital Reserve Corporation
We have audited the accompanying consolidated balance sheet
of Capital Reserve Corporation as of December 31, 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 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>
<CAPTION>
Year Ended December 31,
1999 1998
---------- ---------
<S> <C> <C>
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>
<CAPTION>
Class A Class B
Stock Stock
Common Preferred
----------------------- ---------------------- Accumulated
Shares Amount Shares Amount Deficit
---------- ----------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
December 31, 1996 546,045 $ 3,138,102 250,000 $ 50,000 $ (3,012,385)
Net (loss) - - - - (153,917)
---------- ----------- ---------- ---------- ------------
December 31, 1997 546,045 3,138,102 250,000 50,000 (3,166,302)
Issuance of common
stock, net of offering
cost of $4,940 250,000 20,060 - - -
Net (loss) - - - - (43,331)
---------- ----------- ---------- ---------- ------------
December 31, 1998 796,045 3,158,162 250,000 50,000 (3,209,633)
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>
<CAPTION>
Year Ended December 31,
1999 1998
---------- ---------
<S> <C> <C>
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.
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)
========
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.
CAPITAL RESERVE CORPORATION
Consolidated Balance Sheet
June 30, 2000
ASSETS
CURRENT ASSETS
Cash $ 25,275
Accounts receivable 96,590
Loans receivable 293,445
Prepaid expense 32,450
----------
Total current assets 447,760
----------
LOANS RECEIVABLE - LONG TERM 699,477
----------
FIXED ASSETS
Oil and gas leases 623,420
Buildings 549,636
Leasehold improvements (net of accumulated 30,247
depreciation of $2,535)
Office equipment and computers (net of accumulated 24,457
depreciation of $1,684)
----------
Total fixed assets 1,227,760
----------
Total assets $2,374,997
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 26,330
Accrued expenses 15,058
Current portion of long-term debt 46,899
----------
Total current liabilities 88,287
----------
Advances payable 86,750
Shareholders' deposits 573,179
Long-term debt 539,976
----------
Total liabilities 1,288,192
----------
STOCKHOLDERS' DEFICIT (Notes 1, 4 and 5)
Class A common stock - authorized 20,000,000 shares
of no par value; issued and outstanding 5,313,922 4,791,832
shares
Accumulated deficit (3,705,027)
----------
Total stockholders' equity 1,086,805
----------
Total liabilities and stockholders' equity $2,374,997
==========
CAPITAL RESERVE CORPORATION
Consolidated Statements of Operations
Six Months Ended June 30, 2000 and 1999
<TABLE>
<CAPTION>
For the Three
Months For the Six Months
Ended June 30 Ended June 30
-------------------- ---------------------
2000 1999 2000 1999
-------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Revenue
Oil and gas revenue $ 11,942 $ - $ 11,942 $ -
Operating costs 7,091 - 7,091 -
-------- ---------- ---------- ---------
Gross Profit 4,851 - 4,851 -
-------- ---------- ---------- ---------
Rental income $ 43,505 - 68,505 -
Cost of goods sold 24,385 - 39,904 -
-------- ---------- ---------- ---------
Gross Profit 19,120 - 28,601 -
-------- ---------- ---------- ---------
Interest income 25,091 - 25,679 -
Expenses
General and 193,014 26,730 381,608 54,101
administrative
-------- ---------- ---------- ---------
Total expenses 193,014 26,730 381,608 54,101
-------- ---------- ---------- ---------
Income (Loss) before (143,952) (26,730) (322,477) (54,101)
income taxes
Income taxes - - - -
---------- ---------- ---------- ---------
Net income (loss) $ (143,952) $ (26,730) $ (322,477) $ (54,101)
========== ========== ========== =========
Net income(loss) per
common share $ (.04) $ (.02) $ (.10) $ (.04)
========== ========== ========== =========
</TABLE>
CAPITAL RESERVE CORPORATION
Consolidated Statements of Stockholders' Equity
Six Months Ended June 30, 2000, and 1999
<TABLE>
<CAPTION>
Class A Class B
Stock Stock
Common Preferred
----------------------- ---------------------- Accumulated
Shares Amount Shares Amount Deficit
---------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
December 31, 1997 546,045 250,000 50,000 3,138,102 (3,166,302)
Issuance of common
stock, net of
offering cost of 250,000 20,060 - - -
$4,940
Net (loss) - - - - (43,331)
---------- ----------- ---------- ---------- -----------
December 31, 1998 796,045 250,000 50,000 3,158,162 (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)
----------- ---------- ---------- ---------- -----------
December 31, 1999 2,179,865 - - (3,382,550) 3,374,894
Issuance of common
stock to acquire
oil and gas leases 817,050 408,525 - - -
Issuance of
common stock, net
of offering cost
of $64,800 1,541,494 910,315 - - -
Issuance of shares for
services rendered 775,513 98,098 - - -
Net income (loss) - - - - (322,477)
----------- ---------- ---------- ---------- -----------
5,313,922 $4,791,832 - $ - $(3,705,027)
=========== ========== ========== ========== ===========
</TABLE>
CAPITAL RESERVE CORPORATION
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
For the Six Months
Ended June 30,
2000 1999
---------- ----------
<S> <C> <C>
Cash From Operating Activities:
Net income (loss) from continuing
operations $ (322,477) $ (54,101)
Reconciling adjustments
Depreciation and amortization 4,236 -
Issuance of shares for services 98,098 -
Acquisition of property 408,525 -
Changes in operating assets and
liabilities
Accounts receivable 36,279 (17,500)
Loans receivable (992,923) -
Prepaid expenses and deposits - 15,960
Accounts payable and accrued expenses 40,295 3,560
---------- ----------
Net cash flows from operating
activities (712,007) (68,041)
---------- ----------
Cash From Investing Activities:
Acquisition of oil and gas properties (623,420) -
Acquisition of property and equipment (608,576) -
Proceeds from (payments to) advances
payable (68,250) -
Proceeds from investor deposits - 573,179
---------- ----------
Net cash flows from investing
activities (727,067) -
---------- ----------
Cash From Financing Activities:
Long term debt - 539,976
Issuance of common stock 61,500 975,117
Offering costs (64,800) (3,650)
---------- ----------
Net cash flows from financing
activities 1,450,293 57,850
---------- ----------
Net change in cash and cash equivalents 11,219 (10,191)
Cash at beginning of period 14,056 11,517
---------- ----------
Cash at end of period $ 25,275 $ 1,326
========== ==========
</TABLE>
CAPITAL RESERVE CORPORATION
Notes to Consolidated Financial Statements
June 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 June 30, 2000, and the
results of operations for the three months and six months
ended June 30, 2000 and 1999 and cash flows for the six
months ended June 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
.67440 from Canadian to U.S. dollars has been applied as
at June 30, 2000. Any transactions completed prior to
June 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
$1,552,275. 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 have agreed to extend the
closing date to August 31, 2000. The Company has applied
for financing of $1,079,040 ($1,600,000CDN) to close the
purchase. In consideration for the extension to August
31, 2000 the Company placed the down payment of $378,876
($559,722 CDN) in trust and agreed to a penalty of $67,440
($100,000.00CDN) should it fail to close on or before
August 31, 2000. For the purposes of this statement,
there has been no accrual made against commitments and
contingencies to reflect the option to purchase. See
below, "Note 2 - Commitments and Contingencies". As at
June 30, 2000 Capital Canada had sublet approximately
9,633 square feet of the building to three tenants under
sublease arrangements resulting in monthly payments of
$14,195.
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.
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 3,242,570 and 1,339,691 weighted average number of common
shares outstanding during the six (6) month periods ended
June 30, 2000 and 1999, respectively. Fully diluted
earnings per share are not presented because they are anti-
dilutive.
Note 2 - Commitments and Contingencies
Effective January 15, 2000, the Company's wholly-owned
subsidiary, Capital Canada, an Alberta corporation, entered
into a five-year non-cancellable operating lease which
provides for monthly lease payments, including operating
costs, of $14,801. Minimum future rental payments under
this lease with remaining terms in excess of one year are as
follows.
2001 $177,617
2002 $177,617
2003 $177,617
2004 $177,617
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. As at June 30, 2000 a
total of 744,238 common shares remained reserved for issue
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.
Note 4 -Loans Receivable & Loans Receivable - Long Term
Loans Receivable of $293,445 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.
Loans Receivable - Long Term of $699,477 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.
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 $202,320
($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 $202,320 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.
Note 6 - Advances Payable
Advances Payable of $86,750 are advances from various
unrelated parties that bear no interest and have no stated
terms of repayment.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
INDEMNIFICATION OF DIRECTORS AND OFFICERS
INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Model Business Corporation Act of the State of Colorado
("CMBCA") provides, in general, that a corporation shall
have the power to indemnify any person who was or is a party
or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than
an action by or in the right of the corporation), because
the person is or was a director or officer of the
corporation. Such indemnity may be against expenses
(including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by the
person in connection with such action, suit or proceeding,
if the person acted in good faith and in a manner the person
reasonably believed to be in or not opposed to the best
interests of the corporation and if, with respect to any
criminal action or proceeding, the person did not have
reasonable cause to believe the person's conduct was
unlawful.
The CMBCA provides, in general, that a corporation shall
have the power to indemnify any person who was or is a party
or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of
the corporation to procure a judgment in its favor because
the person is or was a director or officer of the
corporation, against any expenses (including attorneys'
fees) actually and reasonably incurred by the person in
connection with the defense or settlement of such action or
suit if the person acted in good faith and in a manner the
person reasonably believed to be in or not opposed to the
best interests of the corporation.
The CMBCA provides, in general, that a corporation shall
have the power to purchase and maintain insurance on behalf
of any person who is or was a director or officer of the
corporation against any liability asserted against the
person in any such capacity, or arising out of the person's
status as such, whether or not the corporation would have
the power to indemnify the person against such liability
under the provisions of the law.
The Company's Articles of Incorporation (incorporated by
reference herein) provides for indemnification of directors,
officers and other persons as follows:
The Corporation shall indemnify, to the extent permitted by
law, any director, officer, agent, fiduciary or employee of
the Corporation against any claim, liability or expense
arising against or incurred by such person as a result of
actions reasonably taken by him at the direction of the
Corporation. The Corporation shall further have the
authority to the full extent permitted by law to indemnify
its directors, officers, agents, fiduciaries and employees
against any claim, liability or expense arising against or
incurred by them in all other circumstances and to maintain
insurance providing such indemnification.
THE COMPANY'S BY-LAWS (INCORPORATED BY REFERENCE HEREIN)
PROVIDES THAT:
AUTHORITY TO INDEMNIFY. Each person who was or is made a
party or is threatened to be made a party to or is otherwise
involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative, because he is or
was a director of the Corporation or is or was serving at
the request of the Corporation as a director, officer,
partner, trustee, employee, fiduciary or agent of another
domestic or foreign corporation or other person or of an
employee benefit plan (hereinafter an "Indemnitee"), whether
the basis of such proceeding is alleged action in an
official capacity as a director while serving as a director
shall be indemnified against liability.
ADVANCE OF EXPENSES TO DIRECTORS. The Corporation may pay
for or reimburse the reasonable expenses incurred by a
director who is a party to a proceeding in advance of final
disposition of the proceeding if: (1) the Indemnitee
furnishes to the Corporation a written affirmation of the
director's good faith belief that he or she has met the
standard of conduct described in Section 6.2 of the
Corporation's Bylaws; (2) the Indemnitee furnishes to the
Corporation a written undertaking, executed personally by
or on behalf of such Indemnitee, to repay the advance if it
is ultimately determined that he or she did not meet the
standard of conduct; and (3) a determination is made that
the facts then known to those making the determination would
not preclude indemnification under Section 6.4 of the
Corporations Bylaws.
MANDATORY INDEMNIFICATION OF DIRECTORS. The Corporation
shall indemnify a person who was wholly-successful, on the
merits or otherwise, in the defense of any proceeding to
which the person was a party because the person is or was a
director, against reasonable expenses incurred by him or her
in connection with the proceeding.
INSURANCE. The Corporation may purchase and maintain
insurance on behalf of a person who is or was a director,
officer, employee, fiduciary or agent of the Corporation or
who, while a director, officer, employee fiduciary or agent
of the Corporation, is or was serving at the request of the
Corporation as a director, officer, partner, trustee,
employee, fiduciary, or agent or another domestic or foreign
corporation, or other person or of an employee benefit plan,
against liability asserted against or incurred by the person
in that capacity or arising from his or her status as a
director, officer, employee, fiduciary or agent whether or
not the Corporation would have power to indemnify the person
against the same liability under Sections 6.2, 6.3 or 6.7 of
the Corporation's Bylaws. Any such insurance may be
procured from any insurance company designated by the board
of directors, whether such insurance company is formed under
the laws of this or any other jurisdiction of the United
States or elsewhere, including any insurance company in
which the Corporation has an equity or any other interest
through stock ownership or otherwise.
INDEMNIFICATION OF OFFICERS, EMPLOYEES, FIDUCIARIES AND
AGENTS OF THE CORPORATION. (a) An officer is entitled to
mandatory indemnification under the section above titled
"Mandatory Indemnification of Directors" and is entitled to
apply for court-ordered indemnification under Section 6.5 of
the Corporation's Bylaws, in each case to the same extent as
a director; (b) the Corporation may indemnify and advance
expenses to an officer, employee, fiduciary or agent of the
Corporation to the same extent as to a director; and (c) the
Corporation may also indemnify and advance expenses to an
officer, employee, fiduciary or agent who is not a director
to a greater extent than is provided in the Bylaws, if not
inconsistent with public policy, and if provided for by
general or specific action of its board of directors or
shareholders or by contract.
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The Company has agreed to pay all expenses associated with
the preparation and filing of this registration statement,
including registration fees, transfer agent's fees, printing
and engraving fees and legal and accounting fees. The
Selling Shareholders shall be responsible for any
commissions or selling fees incurred in connection with the
sale of the securities registered under this registration
statement.
LEGAL OPINION
W. Scott Lawler, the Company's President and General
Counsel, will issue an opinion about the legality of only
the shares of common stock offered by the Company.
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 Securities 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.
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 of common stock 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 its common stock. See, "MANAGEMENT'S
DISCUSSION AND ANALYSIS OR PLAN OF OPERATION B GENERAL".
EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
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 Incorporated by reference
with Mr. Loder to the Exhibits previously
filed with the Company's
Annual Report on Form 10-KSB
for the fiscal year ended
December 31, 1998
10.2 Lease Agreement dated Incorporated by reference
January 15, 2000 by and reference to Exhibit 10.14
between Capital Reserve Canada previously filed with
Limited and 319835 Alberta Ltd. Company's Annual Report on
Form 10-KSB for the fiscal
year ended December 31, 1999
10.3 Purchase and Sale Agreement Incorporated by reference
dated March 1, 2000 by and to the Exhibits filed with
between Capital Reserve filed with Company's
Canada Limited and previously Annual Report on Form
Stone Canyon Resources Limited 10-KSB for the fiscal
year ended December 31, 1999
23. Consent letter of Miller Filed herewith
& McCollom
27. Financial Data Schedule Filed herewith
--------------------------
(b) The following reports on Form 8-K were filed
during the last quarter of the period covered by this
report.
None.
UNDERTAKINGS
The Company undertakes that it shall
(1) File, during any period in which it offers or
sells securities, a post-effective amendment to this
Registration Statement to:
(i) Include any prospectus required by Section 10(a)(3) of
the Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in
the information in the Registration Statement; and
notwithstanding the forgoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was
registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the
form of prospectus filed with the Commission pursuant to
Rule 424(b) promulgated under the Securities Act if, in the
aggregate, the changes in the volume and price represent no
more than a 20% change in the maximum aggregate offering
price set forth in the ACalculation of Registration Fee@
table in the effective Registration Statement.
(iii) Include any additional or changed material information
on the plan of distribution.
(2) For determining liability under the Securities Act,
treat each post-effective amendment as a new registration
statement of the securities offered, and the offering of the
securities at that time to be the initial bona fide
offering.
(3) File a post-effective amendment to remove from
registration any of the securities that remain unsold at the
end of the offering.
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: , 2000 /s/ W. SCOTT LAWLER
------------------------------
By: 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 , 2000
-----------------------------
W. Scott Lawler, President and
Member of the Board of Directors
(Principal Executive, Financial
and Accounting Officer)
/s/ SHARON M. PATMORE
----------------------------- , 2000
Sharon M. Patmore, Director and Secretary
INDEX OF EXHIBITS FILED HEREWITH
REGULATION
S-B NUMBER EXHIBIT REFERENCE
---------- ------------------------ ----------------------
23 Consent letter of Filed Electronically
Miller & McCollom
27 Financial Data Schedule Filed Electronically
EXHIBIT 23
To the Board of Directors of Capital Reserve Corporation
We hereby consent to the use in this Form SB-2 of our report
dated March 22, 2000 relating to the consolidated financial
statements of Capital Reserve Corporation and consolidated
subsidiaries, and our Review Report for June 30, 2000.
MILLER AND MCCOLLOM
Denver, Colorado
September 20, 2000
