<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
Annual Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Fiscal Year Ended: December 31, 1998
Commission File No. 0-25658
Kalan Gold Corporation
(Exact Name of Small Business Issuer as specified in its charter)
Colorado 84-1357927
--------------- --------------------------
(State or other (IRS Employer File Number)
jurisdiction of
incorporation)
Tower II, Suite 100,
12835 E. Arapahoe Road
Englewood, Colorado 80112
------------------------- ----------
(Address of principal executive offices) (zip code)
(303) 706-1606
--------------
(Registrant's telephone number, including area code)
Securities to be Registered Pursuant to Section 12(b) of the Act: None
Securities to be Registered Pursuant to Section 12(g) of the Act:
Common Stock, $0.00001 per share par value
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes: X No:
----- -----
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is contained in this form and no disclosure will be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB. [ ]
State issuer's revenues for its most recent fiscal year $-0-.
The aggregate market value of the voting stock of the Registrant held by
non-affiliates as of December 31, 1998 was approximately $2,000,000.
The number of shares outstanding of the Registrant's common stock, as of
the latest practicable date, April 7, 1999, was 7,990,999.
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
<PAGE>
Documents incorporated by reference are found in Item 13.
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
(a) GENERAL DEVELOPMENT OF BUSINESS
Kalan Gold Corporation (the "Company" or the "Registrant"), is a
Colorado corporation. The principal business address is Tower II, Suite 100,
12835 E. Arapahoe Road, Englewood, Colorado 80112. Its phone number is (303)
706-1606.
The Company was originally incorporated under the laws of the State of
Colorado on September 19, 1985 as a gas exploration company under the name
Knight Natural Gas, Inc. On January 1, 1993, the Company entered into the
development stage.
The Company has had no operations since 1989. On November 1, 1994, the
Company did a one-for-twenty reverse split of its common stock and began
searching for an acquisition candidate. On August 26, 1996, the Company
entered into an acquisition of certain defined assets and liabilities of
Sedcore Exploration Company Limited ("Sedcore") in exchange for 5,000,000
common shares of the Company. On August 27, 1996, the Company entered into an
additional acquisition of certain additional defined assets of Sedcore in
exchange for 8,500,000 common shares of the Company. This second acquisition
was rescinded on December 30, 1996 and the shares returned to treasury and
canceled.
The Company's name was changed to "KALAN GOLD CORPORATION" in November,
1996.
As of December 31, 1998, the Company had a total of 7,990,999 common
shares issued and outstanding. The Company has not been subject to any
bankruptcy, receivership or similar proceeding.
(b) NARRATIVE DESCRIPTION OF THE BUSINESS
GENERAL
From December, 1989 until the acquisition of the Sedcore assets, the
Company has had no activities. The Company currently has no operations and is
in the development stage. Since 1989, the Company has carried no inventories
or accounts receivable. No independent market surveys have ever been
conducted to determine demand for the Company's products and services, since
the Company has never had any products or services which it has provided to
anyone. During this period, the Company has carried on no operations and
generated no revenues.
2
<PAGE>
OIL AND GAS OPERATIONS
From inception to December, 1989, the Company operated briefly as an oil
and gas company. No operations remain from this period. The Company
investigated certain possibilities but drilled no oil or gas wells. This was
the entire extent of the Company's activities.
GOLD OPERATIONS
The Company has succeeded to Sedcore's interests in certain defined gold
concessions and plans to undertake to prove the commercial feasibility of the
concessions. Once these concessions have been proven to be economically
feasible, the Company plans to undertake commercial development, either
itself or with a joint venture partner, or the Company may sell its interests
in these concessions to third parties.
ORGANIZATION
The Company presently comprises one corporation with no subsidiaries or
parent entities and is in the developmental stage.
(c) OPERATIONS
PROPOSED BUSINESS
From January 1, 1993 until August, 1996, the primary activity of the
Company had been directed towards organizational efforts. With the
acquisition of the Sedcore assets, the focus of the Company shifted.
It was initially the plan of the Company's management that the Company
focus in the gold mining business solely with respect to the two concessions
which were assigned to the Company by Sedcore. The Company's management
planned to develop operations through the use of additional capital which the
Company would plan to seek through a public or private offering, through debt
financing, or through internally generated profits. However, at this point,
and for the foreseeable future, the Company has shifted its business focus.
Sedcore had originally entered into a two year agreement with Ahanta
Mining Co. Limited ("Ahanta"), a Ghanian corporation, to undertake
exploration for gold in the Butre River area in the Western Region of Ghana.
Ahanta assigned its exclusive mineral rights under Mining Concession No. 111
to Sedcore for the period of the agreement. Sedcore, in turn, has assigned
its rights under this agreement with Ahanta to the Company. The Company
succeeded to all of Sedcore's rights and responsibilities. This agreement
with Ahanta has been terminated. The Company plans no further activity with
respect to this project.
3
<PAGE>
In addition, Sedcore had assigned to the Company its two and one-half
year agreement with Esikaman Mining Company Limited ("Esikaman") to conduct a
reconnaissance for gold in a licensed area located in the Wassa Amanfi
district of Ghana. The Company succeeded to all of Sedcore's rights and
responsibilities. During 1998, this agreement with Ahanta has been
terminated. The Company plans no further activity with respect to this
project.
In March, 1997, the Company completed an agreement with Trio Gold Corp.,
an Alberta public corporation (Trio), whereby Trio would earn a 50% ownership
interest in the Ahanta and Esikaman Concessions in return for the payment of
$144,000 to the Company and for the expenditure of $375,000 on geochemical
studies on both properties. Trio was to be responsible for all operations on
these properties. With the termination of the Ahanta agreement, the agreement
with Trio is no longer applicable.
On February 9, 1998, the Company entered into an exclusive agreement
with ASEAN GOLD INDUSTRIES, INC. (Asean Gold), whereby the Company will
provide to Asean Gold all technical advice regarding the building,
constructing, and operation of Asean Gold's gold milling, smelting, and
refining facilities in the Province of Lanao Del Norte, Mindanao, the
Philippines. Under this agreement, Registrant would also manage and oversee
the day-to-day operations of these facilities. This Agreement was terminated
in 1998.
In October, 1998, the Company issued a total of 1,300,000 shares for
four gold properties in the country of Burkina Faso. This agreement has been
rescinded.
In January, 1999, the Company entered a letter of intent to acquire 100%
of the issued and outstanding common shares of Animated Electronic Industries
Sdn Bhd, a private Malaysian company (AEI), in exchange for approximately 94%
of the ownership of the Company, subject to the completion of due diligence
by both parties, the approval of the shareholders of both companies, and the
divestiture of the assets and liabilities of the Company. The letter of
intent was extended until May, 1999.
For the coming fiscal year, the Company's primary focus will be to seek,
investigate and, if such investigation warrants, acquire controlling interest
in business opportunities presented to it by persons or firms who are
involved in any appropriate business and wish to seek the advantages of being
acquired by the Company. The Company would not restrict any acquisitions to
the gold business but would examine any business which would be beneficial
for its shareholders. The Company would be the surviving entity in each case.
It is anticipated that the search for acquisition candidates would be a
material focus of the Company in the next fiscal year.
In seeking business opportunities, the management decision of the
Company will be based upon the objective of seeking long-term appreciation in
the value of the Company. Current income will be a significant factor in such
decisions, although long-term appreciation of the operations will be the
prime consideration.
4
<PAGE>
(d) MARKETS
The Company's marketing plan for coming fiscal year and the foreseeable
future will be principally focused upon seeking an acquisition candidate.
(e) RAW MATERIALS
The use of raw materials will not be a material factor in the Company's
activities.
(f) CUSTOMERS AND COMPETITION
At the present time, the primary focus of the Company will be on seeking
an acquisition candidate.
(g) BACKLOG
At December 31, 1998, the Company had no backlogs.
(h) EMPLOYEES
As of December 31, 1998, the Company had one part-time employee. The
Company's Treasurer is a part-time employee who is paid at the rate of $1,000
per month. The Company does not plan to hire additional employees until it
has begun operations.
(i) PROPRIETARY INFORMATION
The Company has no proprietary information.
(j) GOVERNMENT REGULATION
The Company is not subject to any material governmental regulation or
approvals.
(k) RESEARCH AND DEVELOPMENT
The Company has never spent any amount in research and development
activities.
(l) ENVIRONMENTAL COMPLIANCE
At the present time, the Company is not subject to any material costs
for compliance with any environmental laws.
5
<PAGE>
(m) SUBSEQUENT EVENT
In January, 1999, the Company entered a letter of intent to acquire 100%
of the issued and outstanding common shares of Animated Electronic Industries
Sdn Bhd, a private Malaysian company (AEI), in exchange for approximately 94%
of the ownership of the Company, subject to the completion of due diligence
by both parties, the approval of the shareholders of both companies, and the
divestiture of the assets and liabilities of the Company. The letter of
intent was extended until May, 1999.
In April. 1999, the Company announced rescission its previous
acquisition of four properties located in Bukina Faso, West Africa. The
acquisition had been made in exchange for 1,300,000 restricted common shares
of the Company.
Item 2. DESCRIPTION OF PROPERTIES.
As of December 31, 1997, the Company's business office was located at
Tower II, Suite 100, 12835 E. Arapahoe Road, Englewood, Colorado 80112, for
which it pays approximately $1,000 per month in rent on a month-to-month
lease from the parent company of the principal shareholder of the Company.
The Company owns office furniture and equipment which it utilizes at its
principal office.
Sedcore originally entered into a two year agreement with Ahanta Mining
Co. Limited ("Ahanta"), a Ghanian corporation, to undertake exploration for
gold in the Butre River area in the Western Region of Ghana. Ahanta assigned
its exclusive mineral rights under Mining Concession No. 111 to Sedcore for
the period of the agreement. Sedcore, in turn, has assigned its rights under
this agreement with Ahanta to the Company. The Company has succeeded to all
of Sedcore's rights and responsibilities. This agreement has been terminated.
Further, Sedcore assigned to the Company its two and one-half year
agreement with Esikaman Mining Company Limited ("Esikaman") to conduct a
reconnaissance for gold in a licensed area located in the Wassa Amanfi
district of Ghana. The Company has succeeded to all of Sedcore's rights and
responsibilities, including the requirement to make scheduled payments to
Esikaman of a total of $90,000 through November, 1998. The Company has
negotiated an extension of this agreement with Esikaman to end in July, 1998.
The Company is currently evaluating its plans with respect to this situation.
This agreement has been terminated.
In April. 1999, the Company announced rescission its previous
acquisition of four properties located in Bukina Faso, West Africa. The
acquisition had been made in exchange for 1,300,000 restricted common shares
of the Company.
Otherwise, the Company has no other properties.
6
<PAGE>
Item 3. LEGAL PROCEEDINGS.
No legal proceedings of a material nature to which the Company is a
party were pending during the reporting period, and the Company knows of no
legal proceedings of a material nature pending or threatened or judgments
entered against any director or officer of the Company in his capacity as
such.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company did not submit any matter to a vote of security holders
through solicitation of proxies or otherwise during the fourth quarter of the
fiscal year covered by this report.
PART II
Item 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
(a) PRINCIPAL MARKET OR MARKETS.
The Company's began trading in January, 1997. Prior to that time, the
Company's securities had never been listed for trading on any market. Market
makers and other dealers provide bid and ask quotations of the Company's
Common Stock under the symbol "KNGC." Trading is conducted in the
over-the-counter market on the NASD's "Electronic Bulletin Board."
The table below represents the range of high and low bid quotations of
the common shares of the Company as reported during the reporting period
herein. The following bid price market quotations represent prices between
dealers and do not include retail markup, markdown, or commissions; hence,
they may not represent actual transactions.
<TABLE>
<CAPTION>
Fiscal Year 1998 High Low
---- ---
<S> <C> <C>
First Quarter
Common Shares $ .75 $ .875
Second Quarter
Common Shares $ .75 $ .843
Third Quarter
Common Shares $ .90 $1.00
Fourth Quarter
Common Shares $1.75 $1.875
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
Fiscal Year 1997 High Low
---- ---
<S> <C> <C>
First Quarter
Common Shares $5.875 $2.50
Second Quarter
Common Shares $3.375 $1.50
Third Quarter
Common Shares $3.44 $0.68
Fourth Quarter
Common Shares $5.56 $1.34
</TABLE>
(b) APPROXIMATE NUMBER OF HOLDERS OF COMMON STOCK
As of March 15, 1999, a total of 7,990,999 of shares of the Company's
Common Stock were outstanding and the number of holders of record of the
Company's common stock at that date was approximately 200. However, the
Company estimates that it has a significantly greater number of shareholders
because a substantial number of the Company's shares are held in nominee
names by the Company's market makers.
(c) DIVIDENDS
Holders of common stock are entitled to receive such dividends as may be
declared by the Company's Board of Directors. No dividends on the common
stock were paid by the Company during the periods reported herein nor does
the Company anticipate paying dividends in the foreseeable future.
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
Results of Operations
The Company has generated no substantial revenues from its operations
and has been a development stage company since inception. Since the Company
has not generated revenues and has never been in a profitable position, it
operates with minimal overhead. The Company's primary activity for the next
fiscal year will be to seek, investigate and, if such investigation warrants,
acquire controlling interest in business opportunities presented to it by
persons or firms who are involved in any appropriate business and wish to
seek the advantages of being acquired by the Company. The Company would not
restrict any acquisitions to the gold business but would examine any business
which would be beneficial for its shareholders. The Company would be the
surviving entity in each case. It is anticipated that the search for
acquisition candidates would be a material focus of the Company in the next
fiscal year.
8
<PAGE>
Liquidity and Capital Resources
As of the end of the reporting period, the Company had no material cash
or cash equivalents. There was no significant change in working capital
during this fiscal year.
Management feels that the Company has inadequate working capital to
pursue any gold discoveries which can be commercially extracted from its
lease properties. To develop these properties, the Company must utilize
additional capital which it must acquire, either itself or with joint venture
partners or investors. The Company has not entered into any agreement with a
partner but expects to require additional financing for its properties. The
Company will have negligible capital requirements prior to the decision to
develop these areas. The timing for the development of any commercially
feasible properties will be contingent upon the current price of gold rising
to more commercially reasonable levels. The Company cannot predict when this
will occur.
The Company has no plans to pay dividends to its shareholders.
Item 7. FINANCIAL STATEMENTS.
The complete financial statements are included at Item 13 herein.
Item 8. DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
The Company did not have any disagreements on accounting and
financial disclosures with its present accounting firm during the reporting
period.
PART III
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
The Directors and Executive Officers of the Company, their ages and
positions held in the Company as of December 31, 1998 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION HELD
---- --- -------------
<S> <C> <C>
Sanford Altberger 62 President
Michael Raisch 47 Secretary-Treasurer and Director
</TABLE>
The Company's Directors will serve in such capacity until the next
annual meeting of the Company's shareholders and until their successors have
been elected and qualified. The officers serve at the discretion of the
Company's Directors. There are no family relationships
9
<PAGE>
among the Company's officers and directors, nor are there any arrangements or
understandings between any of the directors or officers of the Company or any
other person pursuant to which any officer or director was or is to be
selected as an officer or director.
SANFORD ALTBERGER. Mr. Altberger has been the President and a Director of
the Company since August, 1997. From 1988 to the present, he has been the
President and principal owner of Orovi Corporation, a private corporation in
the minerals exploration business. He has been involved in various capacities
with the oil, gas, and mining business for approximately thirty years. He has
a degree in Mining Engineering from the University of Arizona and a degree in
Petroleum Engineering from Oklahoma University. Mr. Altberger will devote a
minimum of forty hours per week to the affairs of the Company.
MICHAEL RAISCH. Mr. Raisch has been a Director of the Company and the
Secretary-Treasurer since March, 1997. He was in public accounting with the
firm of Zaveral, Boosalis, Raisch from 1990 to September, 1995. At that time,
he became the Chief Financial Officers of George T. Sanders Company, a
private plumbing supply company. Mr. Raisch has a Bachelor's degree in
Accounting from the University of Colorado. He will devote a minimum of ten
hours per week to the affairs of the Company.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934.
Section 16(a) of the Securities Exchange Act of 1934 (the "34 Act")
requires the Company's officers and directors and persons owning more than
ten percent of the Company's Common Stock to file initial reports of
ownership and changes in ownership with the Securities and Exchange
Commission ("SEC"). Additionally, Item 405 of Regulation S-B under the 34 Act
requires the Company to identify in its Form 10-KSB and proxy statement those
individuals for whom one of the above referenced reports was not filed on a
timely basis during the most recent fiscal year or prior fiscal years. Given
these requirements, the Company has the following report to make under this
section. All of the Company's officers or directors, and all persons owning
more than ten percent of its shares have filed the subject reports, if
required, on a timely basis during the past fiscal year.
Item 10. EXECUTIVE COMPENSATION.
The following table sets forth the Summary Compensation Table for the
Chief Executive Officer and other executive officer who were serving as
executive officers at the end of the last completed fiscal year. No other
compensation not covered in the following table was paid or distributed by
the Company to such persons during the period covered. Employee Directors
receive no additional compensation for service on the Board of Directors of
the Company. Outside Directors received no compensation from the Company as
such during this period except as indicated below.
10
<PAGE>
The Company had granted a stock option to Mr. Raisch, the current
Secretary-Treasurer and a Director, for 75,000 common shares at $.02 per
share until November 14, 2001. This option has not been exercised. As of the
date hereof, the Company has no other options issued or outstanding. The
Company has no retirement, pension, profit sharing, stock option, insurance
or other similar programs.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
------------------- ----------------------
Awards Payouts
------ -------
Other
Annual Restricted All
Bonus Compen- Stock LTIP Other
Salary sation Award(s) Options/Payouts
Name Year ($) ($) ($) SARs(#) ($)
- ---- ---- ------ ----- ----- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Sanford 1998 $-0- (1)
Altberger 1997 $-0-
Chairman 1996 $-0-
Michael 1998 $5,000 (2)
Raisch 1997 $8,308
Treasurer 1996 $-0-
</TABLE>
(1) Orovi Corporation, a private company controlled by Mr. Altberger, and
one of the owners of Sedcore advanced loans to the Company from time to time
for operational purposes. As of January 1, 1998, the Company owed Orovi
Corporation $84,926. An additional $41,300 was advanced through December 31,
1998. The balance owed, plus accrued interest, was satisfied by the Company
issuing 465,000 shares of its restricted common stock as payment of the debt.
(2) The Company issued 235,000 shares of its restricted common stock to Mr.
Raisch for services.
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following sets forth the number of shares of the Registrant's
$0.00001 par value common stock beneficially owned by (I) each person who, as
of December 31, 1998, was known by the Company to own beneficially more than
five percent (5%) of its common stock; (ii) the individual Directors of the
Registrant and (iii) the Officers and Directors of the Registrant as a group.
As of December 31, 1998, there were 7,990,999 common shares issued and
outstanding.
11
<PAGE>
<TABLE>
<CAPTION>
Name and Address Amount and Nature Percent of
of Beneficial Owner of Beneficial Ownership(1)(2) Class
- ------------------- ----------------------------- ----------
<S> <C> <C>
Orovi Corporation 4,196,611 46.68%
Suite 100
12385 E. Arapahoe Road,
Englewood, CO 80112
Sanford Altberger -0-
Suite 100
12385 E. Arapahoe Road,
Englewood, CO 80112
Michael Raisch 235,000(3) 2.61%
Suite 100
12385 E. Arapahoe Road,
Englewood, CO 80112
All Officers and Directors as 4,431,611 49.29%
a Group (two persons)
</TABLE>
(1) All ownership is beneficial and on record, unless indicated otherwise.
(2) Beneficial owners listed above have sole voting and investment power with
respect to the shares shown, unless otherwise indicated.
(3) Mr. Raisch has an option for 75,000 common shares at $.02 per share until
November 14, 2001.
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Orovi Corporation, a private company controlled by Mr. Altberger, and
one of the owners of Sedcore advanced loans to the Company from time to time
for operational purposes. As of January 1, 1998, the Company owed Orovi
Corporation $84,926. An additional $41,300 was advanced through December 31,
1998. The balance owed, plus accrued interest, was satisfied by the Company
issuing 465,000 shares of its restricted common stock as payment of the debt.
The Company issued 235,000 shares of its restricted common stock to Mr.
Raisch for services.
12
<PAGE>
The Company entered into a verbal agreement to rent office space from
Orovi Corporation, effective September 1, 1997. The agreement calls for
monthly payments of $1,000 per month. No payments have been made to date.
PART IV
Item 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following financial information is filed as part of this
report:
(1) FINANCIAL STATEMENTS
<PAGE>
KALAN GOLD CORPORATION
(A DEVELOPMENT STAGE COMPANY)
Index to Financial Statements
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent auditors' report....................................................................... F-2
Balance sheet, December 31, 1998................................................................... F-3
Statements of operations, for the years ended December 31, 1998 and 1997,
and from January 1, 1993 (inception) through December 31, 1998 (unaudited) ................... F-4
Statement of shareholders' deficit, Janaury 1, 1993 (inception)
through December 31, 1998 (unaudited)......................................................... F-5
Statements of cash flows, for the years ended December 31, 1998 and 1997,
and from January 1, 1993 (inception) through December 31, 1998 (unaudited) ................... F-7
Notes to financial statements...................................................................... F-9
</TABLE>
F-1
<PAGE>
To the Board of Directors and Shareholders
Kalan Gold Corporation
INDEPENDENT AUDITORS' REPORT
We have audited the balance sheet of Kalan Gold Corporation (a development
stage company) as of December 31, 1998 and the related statements of
operations, shareholders' deficit and cash flows for the years ended December
31, 1998 and 1997. 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. 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 Kalan Gold Corporation, as
of December 31, 1998 and the results of its operations and cash flows for the
years ended December 31, 1998 and 1997, in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note H, the Company's net
capital deficiency and a working capital deficit raise substantial doubt
about its ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note H. The financial
statements do not include any adjustments that might result from the outcome
of this uncertainty.
Cordovano and Harvey, P.C.
Denver, Colorado
March 26, 1999
F-2
<PAGE>
KALAN GOLD CORPORATION
(A DEVELOPMENT STAGE COMPANY)
Balance Sheet
December 31, 1998
<TABLE>
<S> <C>
ASSETS
CASH ................................................................ $ 487
FURNITURE AND EQUIPMENT, less accumulated depreciation
of $2,585 (Note C) ................................................ 2,861
---------
$ 3,348
---------
---------
LIABILITIES AND SHAREHOLDER'S DEFICIT
LIABILITIES
Accounts payable .................................................. $ 40,950
Accrued liabilities ............................................... 4,383
---------
TOTAL LIABILITIES 45,333
---------
SHAREHOLDERS' DEFICIT (Notes D&E)
Preferred stock, $.10 par value; 1,000,000 shares authorized;
-0- shares issued and outstanding ............................... -
Common stock, $.00001 par value; 100,000,000 shares authorized;
7,990,999 shares issued and outstanding ......................... 80
Additional paid-in capital ........................................ 392,341
Unearned compensation.............................................. (48,000)
Retained deficit .................................................. (386,406)
---------
TOTAL SHAREHOLDER'S DEFICIT (41,985)
---------
$ 3,348
---------
---------
</TABLE>
See accompanying notes to the financial statements.
F-3
<PAGE>
KALAN GOLD CORPORATION
(A DEVELOPMENT STAGE COMPANY)
Statement of Operations
<TABLE>
<CAPTION>
January 1,
1993
For The Years Ended (inception)
December 31, Through
-------------------------- December 31,
1998 1997 1998
---------- ---------- -----------
(unaudited)
<S> <C> <C> <C>
COSTS AND EXPENSES
Salaries and payroll taxes................... $ 55,204 $ 91,933 $ 173,240
Compensation (Note E)........................ - 129,500 129,500
Professional fees............................ 32,824 33,272 86,375
General and administrative................... 24,361 43,414 77,354
Depreciation................................. 1,161 1,160 2,585
---------- ---------- ----------
OPERATING LOSS (113,550) (299,279) (469,054)
---------- ---------- ----------
NON-OPERATING INCOME (EXPENSES)
Interest expense............................. (8,069) (10,030) (20,516)
Gain on the sale of property (Note B)........ - 86,041 86,041
Gain on agreement termination (Note B)....... 4,517 12,606 17,123
---------- ---------- ----------
LOSS BEFORE INCOME TAXES (117,102) (210,662) (386,406)
INCOME TAXES (Note F)............................. - - -
---------- ---------- ----------
NET LOSS $ (117,102) $ (210,662) $ (386,406)
---------- ---------- ----------
---------- ---------- ----------
Basic weighted average common shares
outstanding....................................... 7,383,917 7,074,375 3,597,590
---------- ---------- ----------
---------- ---------- ----------
Basic loss per common share....................... $ (0.02) $ (0.03) $ (0.11)
---------- ---------- ----------
---------- ---------- ----------
Diluted weighted average common shares
outstanding....................................... 7,832,666 7,423,333 3,736,913
---------- ---------- ----------
---------- ---------- ----------
Diluted loss per common share..................... $ (0.01) $ (0.03) $ (0.10)
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See accompanying notes to the financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional
----------------- -------------------- Paid-in Outstanding
Shares Par Value Shares Par Value Capital Options
------ --------- --------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1993 (inception)(Note A)....... - $ - 553,499 $ 6 418,949 $ -
Net income for the year ended 12/31/93............. - - - - - -
------ ------ --------- ------ ---------- ------
BALANCE, DECEMBER 31, 1993 - - 553,499 6 418,949 -
Shares issued for services, at cost................ - - 1,500,000 15 - -
Net income for the year ended 12/31/94............. - - - - - -
------ ------ --------- ------ ---------- ------
BALANCE, DECEMBER 31, 1994 - - 2,053,499 21 418,949 -
Capital contribution (Note B)...................... - - - - 3,700 -
Net income for the year ended 12/31/95............. - - - - - -
------ ------ --------- ------ ---------- ------
BALANCE, DECEMBER 31, 1995 - - 2,053,499 21 422,649 -
Termination of S corporation (Note D).............. - - - - (422,023) -
Shares issued for property acquisition (Note B).... - - 5,000,000 50 19,982 -
Capital contribution (Note B)...................... - - - - 5,027 -
Net income for the year ended 12/31/96............. - - - - - -
------ ------ --------- ------ ---------- ------
BALANCE, DECEMBER 31, 1996 - - 7,053,499 71 25,635 -
<CAPTION>
Deficit
Accumulated
During
Deferred Development
Compensation Stage Total
------------ ------------ ---------
<S> <C> <C> <C>
Balance, January 1, 1993 (inception)(Note A)....... $ - $ (417,421) $ 1,534
Net income for the year ended 12/31/93............. - (336) (336)
------- ---------- --------
BALANCE, DECEMBER 31, 1993 - (417,757) 1,198
Shares issued for services, at cost................ - - 15
Net income for the year ended 12/31/94............. - (289) (289)
------- ---------- --------
BALANCE, DECEMBER 31, 1994 - (418,046) 924
Capital contribution (Note B)...................... - - 3,700
Net income for the year ended 12/31/95............. - (3,977) (3,977)
------- ---------- --------
BALANCE, DECEMBER 31, 1995 - (422,023) 647
Termination of S corporation (Note D).............. - 422,023 -
Shares issued for property acquisition (Note B).... - - 20,032
Capital contribution (Note B)...................... - - 5,027
Net income for the year ended 12/31/96............. - (58,642) (58,642)
------- ---------- --------
BALANCE, DECEMBER 31, 1996 - (58,642) (32,936)
</TABLE>
See accompanying notes to the financial statements.
F-5
<PAGE>
KALAN GOLD CORPORATION
(A DEVELOPMENT STAGE COMPANY)
Statement of Shareholders' Deficit
January 1, 1993 (inception) through December 31, 1998
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional
----------------- -------------------- Paid-in Outstanding
Shares Par Value Shares Par Value Capital Options
------ --------- --------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding stock options (Note E)...................... - - - - - 129,500
Shares issued upon exercise of stock options (Note E)... - - 37,500 - 750 -
Net income for the year ended 12/31/97.................. - - - - - -
---- ------ --------- ------ ---------- ---------
BALANCE, DECEMBER 31, 1997 - - 7,090,999 71 26,385 129,500
Shares issued upon exercise of stock options (Note E)... - - 200,000 2 3,998 -
Shares issued to officer to repay advances, accrued
interest and accrued rent (Note B).................... - - 465,000 5 154,913 -
Shares issued to officer to repay accrued salaries,
accrued interest and deferred compensation (Note B)... - - 235,000 2 77,545 -
Cancellation of outstanding stock options (Note E)...... - - - - 129,500 (129,500)
Net income for the year ended 12/31/98................... - - - - - -
---- ------ --------- ------ ---------- ---------
BALANCE, DECEMBER 31, 1998 - $ - 7,990,999 $ 80 $ 392,341 $ -
---- ------ --------- ------ ---------- ---------
---- ------ --------- ------ ---------- ---------
<CAPTION>
Deficit
Accumulated
During
Deferred Development
Compensation Stage Total
------------ ------------ ---------
<S> <C> <C> <C>
Outstanding stock options (Note E)...................... - - 129,500
Shares issued upon exercise of stock options (Note E)... - - 750
Net income for the year ended 12/31/97.................. - (210,662) (210,662)
--------- ---------- ---------
BALANCE, DECEMBER 31, 1997 - (269,304) (113,348)
Shares issued upon exercise of stock options (Note E)... - - 4,000
Shares issued to officer to repay advances, accrued
interest and accrued rent (Note B).................... - - 154,918
Shares issued to officer to repay accrued salaries,
accrued interest and deferred compensation (Note B)... (48,000) - 29,547
Cancellation of outstanding stock options (Note E)...... - - -
Net income for the year ended 12/31/98................... - (117,102) (117,102)
--------- ---------- ---------
BALANCE, DECEMBER 31, 1998 $ (48,000) $ (386,406) $ (41,985)
--------- ---------- ---------
--------- ---------- ---------
</TABLE>
See accompanying notes to the financial statements.
F-6
<PAGE>
KALAN GOLD CORPORATION
(A DEVELOPMENT STAGE COMPANY)
Statement of Cash Flows
<TABLE>
<CAPTION>
January 1,
1993
For The Years Ended (inception)
December 31, Through
-------------------------- December 31,
1998 1997 1998
---------- ---------- ------------
(unaudited)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss.............................................. $ (117,102) $ (210,662) $ (386,406)
Transactions not requiring cash:
Depreciation........................................ 1,161 1,160 2,585
Amortization of notes payable....................... - 4,836 7,252
Contributed services................................ - - 5,027
Stock issued for other than cash.................... 58,239 - 58,254
Gain on agreement termination (Note B).............. (4,517) (12,606) (17,123)
Gain on sale of properties (Note B)................. - (86,041) (86,041)
Compensation related to stock options............... - 129,500 129,500
Changes in current assets and current liabilities:
Increase/(decrease) in accounts payable and other
current liabilities............................... 16,438 26,905 45,333
---------- ---------- ----------
NET CASH (USED IN)
OPERATING ACTIVITIES (45,781) (146,908) (241,619)
---------- ---------- ----------
INVESTING ACTIVITIES
Purchase of equipment................................. - - (5,446)
Proceeds from the sale of property (Note B)........... - 145,945 145,945
---------- ---------- ----------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES - 145,945 140,499
---------- ---------- ----------
FINANCING ACTIVITIES
Proceeds from exercise of stock options............... 4,000 750 4,750
Proceeds from advances from affiliate................. 41,300 101,400 229,070
Repayments to affiliate............................... - (107,447) (107,447)
Principal payments on long-term debt.................. - - (30,000)
Capital contribution.................................. - - 3,700
---------- ---------- ----------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 45,300 (5,297) 100,073
---------- ---------- ----------
</TABLE>
See accompanying notes to the financial statements.
F-7
<PAGE>
KALAN GOLD CORPORATION
(A DEVELOPMENT STAGE COMPANY)
Statement of Cash Flows
<TABLE>
<CAPTION>
January 1,
1993
For The Years Ended (inception)
December 31, Through
---------------------- December 31,
1998 1997 1998
-------- --------- ------------
(unaudited)
<S> <C> <C> <C>
NET INCREASE IN CASH (481) (6,260) (1,047)
Cash, beginning of period........................ 968 7,228 1,534
------ -------- --------
CASH, END OF PERIOD $ 487 $ 968 $ 487
------ -------- --------
------ -------- --------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
CASH PAID DURING THE PERIOD FOR:
Interest....................................... $ - $ - $ -
------ -------- --------
------ -------- --------
Income taxes................................... $ - $ - $ -
------ -------- --------
------ -------- --------
</TABLE>
NON-CASH INVESTING AND FINANCING ACTIVITIES:
During the year ended December 31, 1998, the Company acquired or paid the
following in exchange for common stock (see Notes B&D):
1. Advances and accrued interest due an affiliate totaling $126,226 and
$12,692, respectively;
2. Accrued rent payable due an affiliate totaling $16,000;
3. Salaries and accrued interest due an officer totaling $29,000 and $547,
respectively;
4. Unearned compensation to an officer totaling $48,000;
Effective December 31, 1998, the Company cancelled options to purchase
350,000 shares of the Company's common stock. As a result, the $129,500
recorded as outstanding stock options was reclassified to additional paid-in
capital.
During 1998, the Company terminated its agreement with Esikiman. This
transaction resulted in the elimination of $42,858 included in property
acquisition costs and the related note payable to Esikiman of $45,647. After
the write-off of the remaining discount on the note payable, the Company
recorded a net gain of $4,517.
During 1997, the Company terminated its agreement with Ahanta. This
transaction resulted in the elimination of $17,046 included in property
acquisition costs and the related note payable to Ahanta of $28,220. After
the write-off of the remaining discount on the note payable, the Company
recorded a net gain of $12,606.
Amortized discount on the notes payable for the years ended December 31, 1998
and 1997 were $-0- and $4,836, respectively.
See accompanying notes to the financial statements.
F-8
<PAGE>
KALAN GOLD CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
NOTE A: SIGNIFICANT ACCOUNTING POLICES AND NATURE OF ORGANIZATION
DEVELOPMENT STAGE
Kalan Gold Corporation (the "Company") is in the development stage in
accordance with Statement of Financial Accounting Standards No. 7.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
CASH
Cash consists of federally insured amounts maintained in a checking account
at a bank.
INCOME TAXES
Income taxes are provided for the tax effects of transactions reported in the
financial statements and consist of taxes currently due plus deferred taxes
related primarily to differences between the recorded book basis and tax
basis of assets and liabilities for financial and income tax reporting. The
deferred tax assets and liabilities represent the future tax return
consequences of those differences, which will either be taxable or deductible
when the assets and liabilities are recovered or settled. Deferred taxes are
also recognized for operating losses that are available to offset future
taxable income and tax credits that are available to offset future federal
income taxes.
PROPERTY AND DEPRECIATION
Computer equipment and office furniture is recorded at cost and depreciated
on the straight-line basis over a period of 36 months.
RECLASSIFICATIONS
Certain amounts in the prior year financial statements have been reclassified
for comparative purposes to conform to the presentation in the current year
financial statements.
F-9
<PAGE>
KALAN GOLD CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
NOTE A: SIGNIFICANT ACCOUNTING POLICES AND NATURE OF ORGANIZATION CONTINUED
STOCK-BASED COMPENSATION
SFAS No. 123, "Accounting for Stock-Based Compensation" was issued in October
1995. This accounting standard permits the use of either a fair value based
method or the method defined in Accounting Principles Board Opinion 25,
"Accounting for Stock Issued to Employees" ("APB 25") to account for
stock-based compensation arrangements. Companies that elect to use the
method provided in APB 25 are required to disclose pro forma net income and
earnings per share that would have resulted from the use of the fair value
based method. The Company has elected to continue to determine the value of
stock-based compensation arrangements under the provisions of APB 25 and,
accordingly, has included pro forma disclosures under SFAS No. 123 in Note E.
FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS 107, "Disclosure About Fair Value of Financial Instruments," requires
certain disclosures regarding the fair value of financial instruments. The
Company has determined, based on available market information and appropriate
valuation methodologies, the fair value of its financial instruments
approximates carrying value. The carrying amounts of cash, accounts payable,
and other accrued liabilities approximate fair value due to the short-term
maturity of the instruments.
EARNINGS PER COMMON SHARE
Effective December 31, 1997, SFAS 128 "Earnings per Share" requires a dual
presentation of earnings per share-basic and diluted. Basic earnings per
common share has been computed based on the weighted average number of common
shares outstanding. Diluted earnings per share reflects the increase in
weighted average common shares outstanding that would result from the assumed
exercise of outstanding stock options. All prior periods presented have been
restated to reflect the adoption of this standard.
F-10
<PAGE>
KALAN GOLD CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
NOTE A: SIGNIFICANT ACCOUNTING POLICES AND NATURE OF ORGANIZATION CONTINUED
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Company has adopted the following new accounting pronouncements for the
year ended December 31, 1998. There was no effect on the financial
statements presented from the adoption of the new pronouncements. SFAS No.
130, "Reporting Comprehensive Income," requires the reporting and display of
total comprehensive income and its components in a full set of
general-purpose financial statements. SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information," is based on the
"management" approach for reporting segments. The management approach
designates the internal organization that is used by management for making
operating decisions and assessing performance as the source of the Company's
reportable segments. SFAS No. 131 also requires disclosure about the
Company's products, the geographic areas in which it earns revenue and holds
long-lived assets, and its major customers. SFAS No. 132, "Employers'
Disclosures about Pensions and Other Post-retirement Benefits," which
requires additional disclosures about pension and other post-retirement
benefit plans, but does not change the measurement or recognition of those
plans.
NATURE OF ORGANIZATION
The Company, formed to explore for natural gas, was incorporated on September
19, 1985 as Knight Natural Gas, Inc. in the State of Colorado. In December
1989, the Company ceased operations in the oil and gas business. Effective
January 1, 1993, under new management, the Company began the search for and
evaluation of privately owned operating companies. During 1996, the
Company's board of directors changed the name of the Company to Kalan Gold
Corporation. The Company was engaged in operations associated with the gold
mining business after acquiring, on August 26, 1996, two gold mine
concessions in the Republic of Ghana, which were assigned to the Company by
Sedcore Exploration Company Limited ("Sedcore"). During 1997, the Company
terminated the agreement to one of the concessions and in 1998 terminated the
agreement related to the other concession. As of December 31, 1998 the
Company had no operations.
On February 8, 1998 the Company had entered into an agreement with an
affiliated corporation to provide technical advice regarding the building,
constructing, and operation of the affiliate's gold milling, smelting, and
refining facilities in the Philippines. This agreement was terminated in
1998.
F-11
<PAGE>
KALAN GOLD CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
NOTE B: RELATED PARTY TRANSACTIONS
In August 1996, the Company acquired, from Sedcore Exploration ("Sedcore"),
mining concessions in Ghana ("Ahanta" and "Esikiman") and the related notes
payable to the owners of the concessions in exchange for 5,000,000 shares of
the Company's common stock. This transaction resulted in Sedcore becoming a
71% owner of the Company's outstanding common and voting shares. Sedcore
retained the obligation to incur exploration and related costs associated
with the development of the concessions, therefore no amounts related to
those expenditures are recorded in the financial statements of the Company.
As of December 31, 1998 the agreements related to the mining concessions had
been terminated.
During 1995 and 1996, certain shareholders of the Company made contributions
to the Company in the form of professional services. The value of these
services totaled $3,700 and $5,027, respectively, and is included in the
accompanying financial statements as contributed capital.
On February 18, 1997, the Company entered into a joint venture agreement with
Trio Gold Corp. ("Trio"), whose President was also a director of the Company.
For a 50% participating interest in the Company's share of the Ahanta and
Esikiman mining concessions, Trio paid the Company $145,945 and agreed to pay
on behalf of Sedcore, $310,000 in expenditures related to the geological and
exploratory costs and operate the concessions. Trio also agreed to reimburse
an affiliate of the Company $74,000 for exploration costs expended prior to
the closing of the agreement. The Company recorded a gain of $86,041 on the
sale of 50% of the $119,808 deferred costs ($59,904) associated with the
properties. Concurrent with the Company's termination of both of the mining
concessions (see the following discussion), the agreement with Trio was also
terminated.
During the fourth quarter of 1997, management contemplated the merits of
terminating the Ahanta agreement. On March 18, 1998, the Company formally
terminated its agreement with Ahanta, As a result, the Company wrote-off
property acquisition costs of $17,046 and the note payable to Ahanta totaling
$30,000 (including $348 unamortized discount). The formal termination of
this agreement occurred subsequent to December 31, 1997 however, management
determined the event was significant and therefore recognized the gain on
termination of this agreement totaling $12,606 in the year ended December
31, 1997.
F-12
<PAGE>
KALAN GOLD CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
NOTE B: RELATED PARTY TRANSACTIONS CONTINUED
In April 1998, the Company was given an option to extend its agreement with
Esikiman. As of December 31, 1997, the Company had recorded a deferred gain
of $4,517 in anticipation of not exercising its option to renew the agreement
in 1998. Accordingly, management decided not to pursue its option to extend
the agreement, therefore, for the year ended December 31, 1998; the Company
recognized the deferred gain of $4,517 on the termination of the agreement.
The property acquisition costs and outstanding balance on the note payable to
Esikiman were $42,858 and $45,647, respectively. After giving effect to the
unamortized discount on the note, the net gain for the year ended December
31, 1998 was $4,517.
As of January 1, 1998, the Company owed an affiliate $84,926 for short-term
cash advances made during prior years. The affiliate also advanced an
additional $41,300 in 1998 for working capital purposes. The balance of
$126,226 and related accrued interest totaling $12,692 due to the affiliate
was satisfied with the Company issuing 465,000 shares of its restricted
common stock to the affiliate as payment for the debt.
The Company entered into a verbal agreement to rent office space from the
affiliate effective September 1, 1997. The agreement calls for monthly
payments of $1,000. As of December 31, 1998, the Company has accrued
$16,000, which was also satisfied with the issuance of the 465,000 shares
described above.
The Company issued 235,000 shares of its restricted common stock to an
officer of the Company as payment for past and future services. The past
services totaled $29,000 and have been recorded in the financial statements
as compensation expense. Related accrued interest on the services totaled
$547. The future services totaled $48,000 and have been recorded in the
financial statements as unearned compensation, a component of shareholders'
equity.
F-13
<PAGE>
KALAN GOLD CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
NOTE C: FURNITURE AND EQUIPMENT
Furniture and equipment consisted of the following at December 31, 1998:
<TABLE>
<S> <C>
Furniture .................................................... $ 4,909
Equipment .................................................... 537
-------
5,446
Less accumulated depreciation................................. (2,585)
-------
$ 2,861
-------
-------
</TABLE>
Depreciation expense for the years ended December 31, 1998, 1997 and
inception (January 1, 1993) through December 31, 1998 totaled $1,161, $1,160,
and $2,585, respectively.
NOTE D: SHAREHOLDERS' EQUITY
PREFERRED STOCK
The Company is authorized to issue one million shares of $.10 par value
preferred stock which may be issued in series with such designations,
preferences, stated values, rights, qualifications or limitations as
determined by the Board of Directors.
TERMINATION OF "S" CORPORATION STATUS
At December 31, 1995, the Company had elected to be taxed as a subchapter "S"
corporation, meaning that the tax expense and/or benefits accrued to the
shareholders. During the year ended December 31, 1996, the number of
shareholders increased to approximately 100, terminating the "S" election.
Beginning in 1996, the income tax expense and/or benefit accrued to the
Company.
F-14
<PAGE>
KALAN GOLD CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
NOTE E: STOCK OPTIONS
1996
On November 14, 1996, the Company granted non-compensatory options for
312,500 shares of its common stock to officers of the Company. The options
which are vested and exercisable as of the grant date, allow the officers of
the Company to purchase 37,500; 75,000; 75,000; and 125,000 shares of common
stock at $.02 per share. The Company's common stock did not begin trading in
the public market until January 1997, therefore the exercise price of $.02
per share on the date of grant approximated management's estimate of the fair
value of the Company's common stock. The options expire on November 14,
2001. During 1998 and 1997, 200,000 and 37,500 options were exercised,
respectively. At December 31, 1998, 75,000 are outstanding.
1997
On December 24, 1997 the Company granted compensatory options for 350,000
shares, exercisable for $1.00 per share of its common stock to officers and
directors of the Company. All 350,000 options were cancelled effective
December 31, 1998.
As of December 24, 1997 the fair market value of the Company's common stock
as determined by a national quotation system, was $1.37. In accordance with
APB 25, the Company recognized $129,500 of compensation expense related to
the fully vested stock options exercisable at $1.00, granted December 24,
1997. Following the cancellation of the options, the $129,500 recorded in
equity as outstanding stock options was reclassified to additional paid-in
capital.
SUMMARY
A summary of the status of the Company's stock option awards as of December
31, 1998, and the changes during the period ended December 31, 1998 and 1997
is presented below:
<TABLE>
<CAPTION>
Fixed Options Number
----------------------------------- --------
<S> <C>
Outstanding at January 1, 1997..... 312,500
Granted ........................... 350,000
Exercised ......................... (37,500)
Canceled .......................... -
--------
Outstanding at December 31, 1997... 625,000
--------
--------
Granted ........................... -
Exercised ......................... (200,000)
Canceled .......................... (350,000)
--------
Outstanding at December 31, 1998... 75,000
--------
--------
</TABLE>
F-15
<PAGE>
KALAN GOLD CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
NOTE E: STOCK OPTIONS CONTINUED
The weighted average exercise price per share for the 75,000 outstanding
options at December 31, 1998 was $.02.
SFAS 123
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123 (SFAS 123), "Accounting form
Stock-Based Compensation". SFAS 123 encourages the use of a fair value based
method of accounting for compensation expense associated with stock option
awards and similar plans. However, SFAS 123 permits the continued use of the
intrinsic value based method prescribed by APB 25, but requires additional
disclosures, including pro forma calculations of net earnings and earnings
per share as if the fair value method of accounting prescribed by SFAS 123
had been applied in 1997. SFAS 123 is not applicable to the non-compensatory
awards granted in 1996.
Based on the use of the Black-Scholes option pricing model, the fair value of
the stock options granted during 1997 was $ .897. The Black-Scholes option
valuation model was developed for use in estimating the fair value of traded
options, which have no vesting restrictions and are fully transferable.
Option valuation models also require the input of highly subjective
assumptions such as expected option life and expected stock price volatility.
Because the Company's stock-based awards have characteristics significantly
different from those of traded options and because changes in the subjective
input assumptions can materially affect the fair value estimate, the Company
believes that the existing option valuation models do not necessarily provide
a reliable single measure of the fair value of its stock-based awards.
The required pro forma and additional information is presented below:
<TABLE>
<CAPTION>
1997
---------------------------------
As Reported Pro Forma
---------------- -----------
<S> <C> <C>
Net loss $ (210,662) $ (395,112)
Basic loss per share $ (.03) $ (.06)
Diluted loss per share Less than $(.01) $ (.01)
BLACK-SCHOLES OPTION PRICE MODEL ASSUMPTIONS:
Risk-free interest rate 5.3750%
Expected life (years) 5
Volatility 63.73%
Dividend yield None
Fair value of $1.00 options $ .897
</TABLE>
F-16
<PAGE>
KALAN GOLD CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
Note F: INCOME TAXES
A reconciliation of the U.S. statutory federal income tax rate to the effective
tax rate follows for the years ended December 31, 1998 and 1997:
<TABLE>
<CAPTION>
January 1,
1993
(Inception)
December 31, Through
------------------ December 31,
1998 1997 1998
------ ------ ------------
<S> <C> <C> <C>
U.S. statutory federal rate ................ 23.94% 30.63% 34.00%
State income tax rate,
net of federal benefit .................. 3.80% 3.47% 3.30%
Net operating loss for which no tax
benefit is currently available .......... (27.74%) (34.10%) (37.30%)
------ ------ ------
-% -% -%
------ ------ ------
------ ------ ------
</TABLE>
At December 31, 1998 and 1997, deferred taxes consisted of the following:
<TABLE>
<CAPTION>
December 31,
------------------------
1998 1997
--------- ---------
<S> <C> <C>
Deferred tax assets,
Net operating loss............... $ 141,754 $ 109,263
Valuation allowance................ (141,754) (109,263)
--------- ---------
Net deferred taxes............... $ - $ -
--------- ---------
--------- ---------
</TABLE>
The valuation allowance offsets the net deferred tax asset for which there is
no assurance of recovery. The change in the valuation allowance for the
years ended December 31, 1998 and 1997 totaled $32,491 and $71,833,
respectively. The net operating loss carryforward expires through the year
2018.
The valuation allowance will be evaluated at the end of each year,
considering positive and negative evidence about whether the deferred tax
asset will be realized. At that time, the allowance will either be increased
or reduced; reduction could result in the complete elimination of the
allowance if positive evidence indicates that the value of the deferred tax
assets is no longer impaired and the allowance is no longer required.
F-17
<PAGE>
KALAN GOLD CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
Note F: INCOME TAXES, CONTINUED
Should the Company undergo an ownership change as defined in Section 382 of
the Internal Revenue Code, the Company's tax net operating loss carryforwards
generated prior to the ownership change will be subject to an annual
limitation which could reduce or defer the utilization of these losses.
NOTE G: OTHER TRANSACTIONS
On October 28, 1998, the Company issued 1,300,000 shares of its $.00001 par
value restricted common stock in exchange for the license rights to four gold
properties. On March 31, 1999, the transaction was rescinded, therefore, the
rights were returned and the shares were cancelled as of October 28, 1998.
Accordingly, the accounting for the transaction was reversed and the
transaction does not appear in the Company's books.
On October 28, 1998, the Company issued 1,000,000 shares of its $.00001 par
value restricted common stock in exchange for services valued at a cost of
$50,000 as determined by the board of directors. On April 10, 1999, the
transaction was rescinded as of October 28, 1998 as the services did not
provide a benefit to the Company. Accordingly, the accounting for the
transaction was reversed and the transaction does not appear in the Company's
books.
On November 30, 1998, the Company entered into a letter of intent to acquire
100 percent of the issued and outstanding common shares of the wholly-owned
subsidiary of Popbridge Industrial Limited (PIL), a manufacturing company
located in Hong Kong. In exchange, the Company would issue 15,000,000 shares
of its $.00001 par value common stock. In addition, the Company needed a
third party commitment to raise $2.5 million following the closing of the
transaction. In January 1999, the Company rescinded the letter of intent.
NOTE H: GOING CONCERN
As of December 31, 1998, the Company had a net capital deficiency and a
working capital deficit, which raises substantial doubt about its ability to
continue as a going concern. The Company plans to continue as a shell
corporation that will seek, investigate and, if such investigation warrants,
acquire a controlling interest in various business opportunities. In
addition, from time to time certain officers infuse cash for working capital
purposes on an as-needed basis. There is no assurance that the Company will
achieve profitable operations. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
F-18
<PAGE>
KALAN GOLD CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
NOTE I: SUBSEQUENT EVENT
In January 1999, the Company entered into a letter of intent to acquire 100
percent of the issued and outstanding common shares of Animated Electronic
Industries Sdn Bhd (AEI), a private Malaysian company, in exchange for
approximately 94 percent of the ownership of the Company, subject to the
completion of due diligence by both parties, the approval of the shareholders
of both companies, and the divestiture of the assets and liabilities of the
Company. The letter of intent expires 60 days from March 23, 1999.
F-19
<PAGE>
(2) SCHEDULES
(3) EXHIBITS. The following exhibits required by Item 601
to be filed herewith are incorporated by reference to
previously filed documents:
<TABLE>
<CAPTION>
Exhibit number to
Item 601 Registration Statement
Exhibit No. Description on Form 10-SB
- ----------- ----------- ----------------------
<S> <C> <C>
* 3A Articles of Incorporation
* 3B Articles of Amendment
* 3C Bylaws
* 3D Articles of Amendment to change name to
KALAN GOLD CORPORATION.
* 10A August 26, 1996 Purchase Agreement for
defined assets and liabilities of SEDCORE
EXPLORATION COMPANY LIMITED
* 10B Agreement between the Company and Asean
Gold Industries, Inc.
</TABLE>
*Previously Filed
(b) REPORTS ON FORM 8-K. The Company filed two reports on Form
8-K during the fourth quarter of the fiscal year ended
December 31, 1998. One report was filed on November 3, 1998. The
other report was filed on November 30, 1998.
13
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
Kalan Gold Corporation
Dated: 4/12/99 By: /s/ Sanford Altberger
-------------------------------------
Sanford Altberger
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
CHIEF FINANCIAL AND ACCOUNTING OFFICER
Dated: 4/12/99 By: /s/ Michael Raisch
-------------------------------------
Michael Raisch
Treasurer
14
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
EXHIBITS
TO
Kalan Gold Corporation
15
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Page or
Number Description Cross Reference
- ------- ----------- ---------------
<S> <C> <C>
* 3A Articles of Incorporation
* 3B Articles of Amendment
* 3C Bylaws
* 3D Articles of Amendment to change name to KALAN GOLD
CORPORATION.
* 10A August 26, 1996 Purchase Agreement for defined assets
and liabilities of SEDCORE EXPLORATION COMPANY LIMITED
* 10B Agreement between the Company and Asean Gold Industries, Inc.
</TABLE>
*Previously Filed
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 487
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 5,446
<DEPRECIATION> (2,585)
<TOTAL-ASSETS> 3,348
<CURRENT-LIABILITIES> 45,333
<BONDS> 0
0
0
<COMMON> 80
<OTHER-SE> (42,065)
<TOTAL-LIABILITY-AND-EQUITY> 3,348
<SALES> 0
<TOTAL-REVENUES> 4,517
<CGS> 0
<TOTAL-COSTS> 113,550
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,069
<INCOME-PRETAX> (117,102)
<INCOME-TAX> 0
<INCOME-CONTINUING> (117,102)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (117,102)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.01)
</TABLE>
