Pre-Effective Amendment to Registration of Securities by a Small-Business Issuer — Form SB-2
Filing Table of Contents
Document/Exhibit Description Pages Size
1: SB-2/A Form Sb-2, Amendment 1 - SEC File No. 333-72252 78 365K
2: EX-5.1 Opinion of Counsel 2 10K
3: EX-10.10 Promissory Notes to Directors & Schwarz 3 11K
4: EX-10.20(A) Amendment to Forbearance Agreement 2± 8K
5: EX-23.0 Consent of Independent Auditors 2 8K
SB-2/A — Form Sb-2, Amendment 1 – SEC File No. 333-72252
Document Table of Contents
| Page | (sequential) | | | | (alphabetic) | Top |
|---|
| | |
- Alternative Formats (Word, et al.)
- As an exploration company, we are subject to the risks of the minerals business
- Because the company's common shares are "penny stock" certain rules may impede the development of increased trading activity and could affect the liquidity for stockholders
- Business
- Business Activities
- Certain Relationships and Related Transactions
- Compensation
- Compensation to Consultant
- Corporate Background
- Description of Securities
- Directors and Officers
- Disclosure of Commission Position on Indemnification for Securities Act Liabilities
- Executive Compensation
- Exhibits and Financial Statement Schedule
- Experts
- Exploring volcanic cinder properties presents unique risks not encountered in other geologic settings
- Financing Transactions
- Forward Looking Statements
- If the production plant is not viable, shareholders will lose most of their investment
- Indemnification of Directors and Officers
- Index to Financial Statements
- Investment Agreement
- Legal Matters
- Legal Proceedings
- Loans by Officers
- Management
- Management lacks technical training and experience with exploring for, starting and operating a mine
- Management's Discussion and Analysis of Financial Condition and Results of Operations
- Market for Common Stock and Related Stockholder Matters
- Market Overhang
- Offering, The
- Other Expenses of Issuance and Distribution
- Our limited test results on the Pisgah property to date have not been consistent and positive results may not be validated by production operations
- Pisgah pilot plant's limited results will not guarantee the production plant's profitability, The
- Pisgah Property - Debt Transactions
- Pisgah Property Mining Lease
- Plan of Distribution
- Properties
- Public Relations Agreement
- Risk Factors
- Security Ownership of Certain Beneficial Owners and Management
- Selling Shareholders
- Selling stock to Dutchess Fund and DRH could reduce our market price and encourage short sales
- Selling stock to Dutchess Fund and DRH may substantially dilute the interests of the other stockholders
- Significant Permitting Delays May Be Encountered, Even If We Obtain A Site Which Has Been Used in Mining Operations by Other Companies in the Past
- Summary Information and Risk Factors
- Terms of subsequent financings may adversely impact your investment
- The Offering
- The Pisgah pilot plant's limited results will not guarantee the production plant's profitability
- Use of Proceeds
- We are an exploration stage company, have no reserves, have never made a profit, and may never become profitable
- We have a history in 2001 of late payments on debt, and we could lose the Pisgah property if debt secured by it is not paid or restructured in 2002
- We have not systematically drilled and sampled the Pisgah property to confirm the presence of any concentrations of precious metals
- We may not be successful in raising the capital necessary to build and operate the pilot plant and the production plant
- Without detailed designs and operating plans for the production plant, we can't assess what environmental compliance measures will be necessary
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| 1 | 1st Page - Filing Submission
|
| 4 | Significant Permitting Delays May Be Encountered, Even If We Obtain A Site Which Has Been Used in Mining Operations by Other Companies in the Past
|
| 6 | Forward Looking Statements
|
| 7 | Summary Information and Risk Factors
|
| 8 | The Offering
|
| 9 | Financing Transactions
|
| 10 | Investment Agreement
|
| 11 | Compensation
|
| 12 | Public Relations Agreement
|
| 13 | Risk Factors
|
| " | We are an exploration stage company, have no reserves, have never made a profit, and may never become profitable
|
| " | As an exploration company, we are subject to the risks of the minerals business
|
| " | Management lacks technical training and experience with exploring for, starting and operating a mine
|
| " | We have not systematically drilled and sampled the Pisgah property to confirm the presence of any concentrations of precious metals
|
| 14 | The Pisgah pilot plant's limited results will not guarantee the production plant's profitability
|
| " | If the production plant is not viable, shareholders will lose most of their investment
|
| " | Exploring volcanic cinder properties presents unique risks not encountered in other geologic settings
|
| " | Our limited test results on the Pisgah property to date have not been consistent and positive results may not be validated by production operations
|
| 15 | We have a history in 2001 of late payments on debt, and we could lose the Pisgah property if debt secured by it is not paid or restructured in 2002
|
| " | Without detailed designs and operating plans for the production plant, we can't assess what environmental compliance measures will be necessary
|
| " | We may not be successful in raising the capital necessary to build and operate the pilot plant and the production plant
|
| 16 | Terms of subsequent financings may adversely impact your investment
|
| " | Selling stock to Dutchess Fund and DRH may substantially dilute the interests of the other stockholders
|
| " | Selling stock to Dutchess Fund and DRH could reduce our market price and encourage short sales
|
| " | Market Overhang
|
| 17 | Because the company's common shares are "penny stock" certain rules may impede the development of increased trading activity and could affect the liquidity for stockholders
|
| " | Market for Common Stock and Related Stockholder Matters
|
| 18 | Use of Proceeds
|
| 20 | Management's Discussion and Analysis of Financial Condition and Results of Operations
|
| 24 | Business
|
| " | Corporate Background
|
| " | Business Activities
|
| 27 | Properties
|
| 29 | Pisgah Property Mining Lease
|
| 30 | Pisgah Property - Debt Transactions
|
| 35 | Management
|
| " | Directors and Officers
|
| 36 | Executive Compensation
|
| " | Compensation to Consultant
|
| 37 | Security Ownership of Certain Beneficial Owners and Management
|
| 38 | Certain Relationships and Related Transactions
|
| " | Loans by Officers
|
| 39 | Selling Shareholders
|
| 41 | Plan of Distribution
|
| 43 | Description of Securities
|
| 44 | Disclosure of Commission Position on Indemnification for Securities Act Liabilities
|
| 45 | Legal Proceedings
|
| " | Legal Matters
|
| " | Experts
|
| 46 | Index to Financial Statements
|
| 72 | Item 24. Indemnification of Directors and Officers
|
| " | Item 25. Other Expenses of Issuance and Distribution
|
| 74 | Item 27. Exhibits and Financial Statement Schedule
|
As filed with the Securities and Exchange Commission on February ___, 2002
Registration No. 333-72252
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
CAN-CAL RESOURCES LTD.
--------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Nevada 88-0336988
------------------------------- ---------------------------- -------------------
(State or other jurisdiction of (Primary standard industrial (I.R.S. Employer
incorporation or organization) classification code number) Identification No.)
8221 Cretan Blue Lane, Las Vegas, Nevada 89128; Tel. 702.243.1849
--------------------------------------------------------------------------------
(Address, including zip code, and telephone number of
issuer's principal executive offices)
Ronald D. Sloan, 8221 Cretan Blue Lane
Las Vegas, NV 89128; Tel. 702.243.1849
--------------------------------------------------------------------------------
(Name, address, including zip code, and telephone number of agent for service)
Copies to: Stephen E. Rounds, Esq.
The Law Office of Stephen E. Rounds
4635 East 18th Ave., Denver, CO 80220
Tel: 303.377.6997; Fax: 303.377.0231
---------------
Approximate date of commencement and end of proposed sale to the public: From
time to time after the registration statement becomes effective.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please 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(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,
please check the following box. [ ]
[Enlarge/Download Table]
CALCULATION OF REGISTRATION FEE
Proposed
Proposed Maximum
Amount of Maximum Aggregate Amount
Title of Each Class Securities Offering Dollar Price of
of Securities to be Registered Price Per of Securities to Registration
to be Registered in the Offering Security(1) be Registered Fee(5)
---------------- --------------- ----------- ------------- -------------
Common Stock 4,000,000(2) $0.85 $ 3,400,000.00 $ 850.00
Shares
Common Stock 643,059(3) $0.875 $ 562,676.63 $ 140.74
Shares
Common Stock 400,000(4) $0.875 $ 375,000.00 $ 93.75
and $1.00(4)
Common Stock 77,888(5) $0.875 $ 68,152.00 $ 17.23
Total No. Securities
to be Registered 5,120,947 n/a $ 4,920,828.63 $ 1,101.66
<FN>
(1) Under rule 457(f), registration fee calculations are estimated based on
the market value of the registrant's common stock (average of the bid
and asked prices as of October 19, 2001) which is within 5 business days
prior to the initial filing of this statement. The valuation of
securities registered is for future sale by the registrant under the
Investment Agreement (equity line financing) is based on 93% of the
average bid and ask price (shares are to be sold by the registrant at a
7% discount from market price); see (2) below. The fee for registration
for resale of securities already issued is 100% of the average bid and
ask prices at October 19, 2001 (see (3) below).
(2) These securities are registered for original issue by the registrant
under the Investment Agreement (equity line financing), at 93% of
average market prices, and for resale by the investors who so purchase.
(3) These securities now are issued and outstanding, and are registered for
resale. The additional fee of $7.74 for the additional 37,000 shares
being registered with this amendment is based on the $239.00 per $1
million value of shares filing fee now in effect, but using the October
19, 2001 market prices.
(4) Of these securities, we have agreed to issue 200,000 shares and these
shares are registered for resale; the fee is based on the $0.875 average
bid and ask price on October 19, 2001, for aggregate value of $175,000
for fee purposes. An additional 200,000 shares are registered for
issuance upon exercise of options; the fee is based on the $1.00
exercise price for these options.
(5) These securities now are issued and outstanding, and are registered for
resale. The additional fee of $5.23 for the additional 25,000 shares
being registered with this amendment is based on the $239.00 per $1
million value of shares filing fee now in effect, but using the October
19, 2001 market prices.
</FN>
DELAYING AMENDMENT UNDER RULE 473(A): The registrant hereby amends this
registration statement on such date or dates as may be necessary to delay its
effective date until the registrant shall file a further amendment
1
which specifically states that this registration statement shall become
effective in accordance with section 8(a) of the Securities Act of 1933 or until
the registration statement shall become effective on such date as the Commission
acting pursuant to section 8(a), may determine.
The information in this prospectus is subject to completion or amendment. We
cannot sell these securities until the registration statement filed with the
Securities and Exchange Commission becomes effective. This prospectus shall not
constitute an offer to sell or the solicitation of an offer to buy nor shall
there be any sale of these securities in any state in which an offer,
solicitation or sale would be unlawful prior to registration or qualification
under the securities laws of that state.
CAN-CAL RESOURCES LTD.
5,120,947 SHARES OF COMMON STOCK
This prospectus covers the offer and sale of up to 5,120,947 shares of
common stock ($0.001 par value) by the persons identified in this prospectus who
are shareholders, including two entities that may buy more shares, and another
entity holding options to buy shares of common stock:
- 4,000,000 shares which may be bought from us, by Dutchess Private Equities
Fund, L.P. and DRH Investment Company, LLC, who are providers of the equity
line of credit established under the Investment Agreement with us. Dutchess
Fund and DRH are statutory underwriters under section 2(a)(11) of the
Securities Act of 1933. See "Financing Transactions - Investment Agreement"
on page 9, "Selling Shareholders" on page 38, and "Plan of Distribution" on
page 40. We will not, however, receive any proceeds from sale of these
shares by Dutchess Fund and DRH after purchase from us.
- 643,059 shares already issued as fees to Dutchess Fund, Dutchess Advisors,
Ltd. (the advisor to Dutchess Fund), May Davis Group, Inc. and to the
attorney for Dutchess Fund and DRH. We will not receive any proceeds from
sale of these shares. Dutchess Advisors, Ltd. and May Davis Group, Inc. are
statutory underwriters under section 2(a)(11) of the Securities Act of
1933. The attorney for Dutchess Fund is not a statutory underwriter.
- 200,000 shares which we have agreed to issue as fees to National Financial
Communications Corp., and another 200,000 shares which may be purchased by
NFC on exercise of options to purchase 200,000 shares which has been
granted to NFC. NFC is not a statutory underwriter.
- 77,888 shares already sold to three cash investors.
Our common stock is traded ("CCRE.OB") on the Over-the-Counter Bulletin
Board ("OTCBB"). The closing bid price was $0.35 on January 31, 2002.
AN INVESTMENT IN THE SHARES OFFERED BY THIS PROSPECTUS IS SPECULATIVE AND
SUBJECT TO HIGH RISK OF LOSS. SEE "RISK FACTORS" BEGINNING ON PAGE 12.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS FEBRUARY ____, 2002.
2
TABLE OF CONTENTS
PAGE NO.
Forward Looking Statements ...................................................5
Where You Can Find More Information...........................................5
Summary Information and Risk Factors..........................................6
Financing Transactions........................................................8
Risk Factors ................................................................12
We are an exploration stage company,
have no reserves, have never made a profit, and
may never become profitable..............................................12
As an exploration company, we are subject to the risks of
the minerals business....................................................12
Management lacks technical training
and experience with exploring for,
starting and operating a mine ...........................................12
We have not systematically drilled and
sampled the Pisgah property to confirm the
presence of any concentrations of precious metals ......................12
The Pisgah pilot plant's limited results will not guarantee
the production plant's profitability ....................................13
If the production plant is not viable,
shareholders will lose most of their investment ........................13
Exploring volcanic cinder properties
presents unique risks not encountered
in other geologic settings ..............................................13
Our limited test results on the Pisgah property
to date have not been consistent and positive
results may not be validated by production operations....................13
We have a history in 2001 of late payments
on debt, and we could lose the Pisgah property
if debt secured by it is not paid or restructured in 2002 ...............14
Without detailed designs and operating plans
for the production plant, we can't assess what
environmental compliance measures will be necessary......................14
Significant permitting delays may be encountered,
even if we obtain a site which has been used in
mining operations by other companies in the past. .......................14
We may not be successful in raising the
capital necessary to build and operate the
pilot plant and the production plant.....................................14
Terms of subsequent financings may
adversely impact your investment.........................................15
Selling stock to Dutchess Fund and DRH may
substantially dilute the interests of the other stockholders.............15
3
Selling stock to Dutchess Fund and DRH could reduce
our market price and encourage short sales...............................15
Market Overhang..........................................................15
Because the company's common shares are "penny stock"
certain rules may impede the development of increased
trading activity and could affect the liquidity for stockholders.........16
Market for Common Stock and Related Stockholder Matters......................16
Use of Proceeds..............................................................17
Management's Discussion and Analysis of
Financial Condition and Results of Operations............................19
Business.....................................................................23
Corporate Background.....................................................23
Business Activities......................................................23
Properties...............................................................26
Management...................................................................34
Directors and Officers...................................................34
Executive Compensation...................................................35
Security Ownership of Certain Beneficial Owners and Management...............36
Certain Relationships and Related Transactions...............................37
Selling Shareholders.........................................................38
Plan of Distribution.........................................................40
Description of Securities....................................................42
Disclosure of Commission Position on Indemnification
for Securities Act Liabilities...........................................43
Legal Proceedings............................................................44
Legal Matters................................................................44
Experts......................................................................44
Index to Financial Statements................................................45
4
REPRESENTATIONS ABOUT THIS OFFERING
We have not authorized anyone to provide you with information different
from that contained in this prospectus. This prospectus is not an offer to sell
nor does it seek an offer to buy the shares in any jurisdiction where this offer
or sale is not permitted. The information contained in this prospectus is
accurate only as of the date of this prospectus (or any supplement), regardless
of when it is delivered or when any shares are sold.
WHERE TO FIND MORE INFORMATION ABOUT US
We have filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form SB-2 under the 1933 Act with
respect to the shares offered by this prospectus. This prospectus, filed as a
part of the registration statement, does not contain certain information
contained in Part II of the registration statement or filed as exhibits to the
registration statement. We refer you to the registration statement and exhibits
which may be inspected and copied at the Public Reference Department of the
Commission, 450 5th Street, NW, Washington, D.C. 20549, at prescribed rates. You
can contact the Commission's Public Reference Department at (800) SEC-0330. The
registration statement and exhibits also are available for viewing at and
downloading from the EDGAR location within the Commission's internet website
(http://www.sec.gov).
Our common stock is registered with the Commission under section 12(g) of
the Securities Exchange Act of 1934 (the "1934 Act"). Under the 1934 Act, we
file with the Commission periodic reports on Forms 10-KSB, 10-QSB and 8-K, and
proxy statements, and our officers and directors file reports of stock ownership
on Forms 3, 4 and 5. These filings may be viewed and downloaded from the
Commission's internet website (http://www.sec.gov) at the EDGAR location. Also,
we will provide copies of these documents and any exhibits to them, without
charge to prospective investors upon request addressed to Can-Cal Resources
Ltd., 8221 Cretan Blue Lane, Las Vegas, Nevada 89128, attention Ronald D. Sloan,
President.
FORWARD LOOKING STATEMENTS
Except for historical and current information, all the information in this
prospectus are considered to be "forward looking" statements. Specifically, all
statements (other than statements of historical and current information)
regarding financial and business strategy and the performance objectives of
management for future operations are forward-looking statements. These
forward-looking statements are based on the beliefs of management, as well as
assumptions made by and information currently available to them. These
statements involve known risks such as lack of capital to put our properties
into production, disappointing recoveries of precious metals from our properties
once we put them into production, higher than expected production costs,
declining market prices for precious metals, and delays or increased costs to
obtain production or mining permits.
When we use the words "anticipate," "believe," "estimate," "expect," "may,"
"will," "should," "continue," "intend" and similar words or phrases, we are
identifying forward-looking statements (also known as "cautionary statements"
because you should be cautious in evaluating such statements in the context of
all the information in this prospectus). These statements reflect our current
views with respect to future events. However, the merit or validity of current
views is subject to the realization in fact of assumptions we have made. What we
now think will happen may turn out much different, and therefore our assumptions
may prove to have been inaccurate or incomplete.
The investment risks discussed under "Risk Factors" specifically address
all of the material factors that may influence future operating results and
financial performance. The investment risks are not "boiler
5
plate;" they are intended to tell you about the uncertainties and risks inherent
in our business at the present time which you need to evaluate carefully before
making an investment decision.
SUMMARY INFORMATION AND RISK FACTORS
The following summarizes the information found elsewhere in this
prospectus. This summary is qualified by the more detailed information in this
prospectus.
THE COMPANY
The company is an exploration stage company. Since 1996, we have examined
various mineral properties prospective for precious metals and minerals, and
have acquired those we believe may contain precious metals and minerals. Our
properties are located in California and Arizona. We do not know if any of the
properties contain reserves (a reserve is that part of a mineral deposit which
could be economically and legally extracted or produced at the time of the
reserve determination). Further exploration will be needed before a final
determination can be made whether any property is economically and legally
feasible.
We have analyzed materials from the Owl Canyon and Pisgah properties, both
in California, to determine if precious metals are present. Assuming capital can
be raised through the equity line financing with Dutchess Fund and DRH, we will
build a small scale pilot plant on a location within approximately one hour
driving time from Pisgah Hill and begin processing material from the Pisgah
property for precious metals (primarily gold, platinum and palladium). If the
pilot plant is shown to consistently extract precious metals from the materials,
the company will retain an independent consultant to determine if there are
reserves of precious metals in the property. The reserve study would be based on
comprehensive drilling and sampling of the property according to a grid system
using industry standards.
Along with the reserve study work, we will have prepared an independent
feasibility study. This report will analyze the best extraction methods to use
in a full scale production plant, capital and operating costs, and if such a
plant can be built and operated profitably.
Assuming the reserve report and feasibility study indicate probable success
in moving forward, we will build at the same location, a production plant
capable of processing 104 tons of material per day. We will continue to hold the
Owl Canyon and other properties and resume testing and evaluation of the Owl
Canyon, and in the future initiate testing and evaluation of the other
properties. Presently no dates have been set to initiate such testing and
evaluation.
Prospective investors should note carefully that the company is an
exploration stage company. Even though the testing program on the Pisgah
property volcanic cinders indicate the presence of precious metals, we cannot
assure you that an economically viable mineral deposit exists on the Pisgah
property or on any of our other properties. Further exploration will be needed
before a final determination can be made whether any property is economically
viable.
Executive offices are located at 8221 Cretan Blue Lane, Las Vegas, Nevada
89128 (tel. 702.243.1849; fax 702.243.1869).
6
THE OFFERING
Securities Outstanding 10,719,415 shares of common
stock, $0.001 par value, including
shares we have agreed to issue to
National Financial Communications Corp.
(see "Financing Transactions - Public
Relations Agreement").
Securities To Be Outstanding 14,919,415 shares of common stock to be
outstanding if Dutchess Fund and DRH
purchase a total of 4,000,000 shares,
and National Financial Communications
Corp. exercises its option to purchase
200,000 shares which we have agreed to
issue (see "Financing Transactions -
Public Relations Agreement"). Under the
terms of the Investment Agreement, in
March or April 2002 we will increase our
authorized common stock up to 75,000,000
shares to be in position to sell more
stock under the Investment Agreement, up
to the $8,000,000 maximum amount, see
"Financing Transactions - Investment
Agreement." This prospectus will be
amended from time to time to disclose
how many shares are sold under the
Investment Agreement, and when our
authorized common stock is increased.
This increase will have to be approved
by our shareholders.
Securities Offered 5,120,947 shares of common stock:
4,000,000 shares by Dutchess Private
Equities Fund L.P. and DRH Investment
Company, LLC in equal amounts by each,
as purchased from time to time after
date of this prospectus and then resold
by Dutchess Fund and DRH from time to
time after date of this prospectus.
606,059 shares, which have already been
issued for services in October 2001
o 75,757 shares to Dutchess Fund. See
"Financing Transactions - Investment
Agreement."
o 303,030 shares to May Davis Group,
Inc. See "Financing Transactions -
Investment Agreement."
o 227,272 shares to Dutchess Advisors,
Ltd. See "Financing Transactions -
Investment Agreement."
37,000 shares, which have already been
issued to Joseph B. LaRocco, attorney
for Dutchess Fund and DRH. See
"Financing Transactions - Investment
Agreement."
200,000 shares, which we have agreed to
issue to National Financial
Communications Corp. for public
relations services to be provided after
date of this prospectus, plus 200,000
shares underlying options, which we have
agreed to grant to NFC in connection
with services to be provided after date
of this prospectus, which shares
underlying the
7
options granted to NFC may be issued if
NFC exercises the options. See
"Financing Transactions - Public
Relations Agreement."
77,888 shares issued to three private
investors in August and September 2001.
Use of Proceeds Build an initial small scale pilot plant
to process mineralized materials for
precious metals, at a cost of
approximately $63,506 (equipment
$24,659, supplies $11,591, operating
labor cost $20,000, and $7,250 for
general expense and working capital
reserve). If results from this pilot
plant warrant, we will have a reserve
report and feasibility study prepared by
independent parties (approximate cost
$200,000). If supported by the report
and study, we will build a production
plant (at a cost of approximately
$1,821,000 (building construction
$750,000, motorized and production
equipment $471,000, and $600,000 for
operating start up costs and working
capital)). See "Use of Proceeds." The
company will realize proceeds from this
offering only from sale of shares to
Dutchess Fund and DRH under the
Investment Agreement, and from exercise
of options held by NFC. See "Financing
Transactions - Investment Agreement" and
- "Public Relations Agreement").
Plan of Distribution The offering is made by the selling
shareholders named in this prospectus,
to the extent they sell their shares.
Sales may be made in the open market or
in private negotiated transactions, at
fixed or negotiated prices. See "Plan of
Distribution."
Risk Factors The company is an exploration stage
company without established reserves or
production facilities. An investment is
subject to risk. See "Risk Factors."
FINANCING TRANSACTIONS
On October 4, 2001 we signed an Investment Agreement with Dutchess Private
Equities Fund, L.P. and DRH Investment Company, LLC to sell up to $8,000,000 in
shares of common stock to Dutchess Fund and DRH, in equal amounts. We also
issued shares of common stock to Dutchess Fund and May Davis Group, Inc., and to
Dutchess Advisors, Ltd. (advisor to Dutchess Fund), and to the attorney for
Dutchess Fund and DRH, for fees in connection with the Investment Agreement.
Terms of these transactions are described below. Reference is made to the
complete text of the Investment Agreement, which has been filed as an exhibit to
the registration statement which includes this prospectus.
8
INVESTMENT AGREEMENT. We have signed an Investment Agreement with Dutchess
Private Equities Fund L.P. ("Dutchess Fund", a Delaware limited partnership),
and DRH Investment Company, LLC ("DRH"), who have committed to buy from us up to
a total of $8,000,000 in shares of common stock, when and as requested by us,
until the third anniversary of this prospectus, 50% by Dutchess Fund and 50% by
DRH.
Our ability to sell stock to Dutchess Fund and DRH will depend on market
price and trading volume for our stock. See the risk factor captioned "We may
not be successful in raising the capital necessary to build and operate the
pilot plant and the production plant." If market prices as of prospectus date
continue at the January 2002 levels (less than $0.50 bid) or decline, we will
need more authorized capital than the current 15,000,000 shares of common stock
to take full advantage of the Investment Agreement (assuming trading volume is
sufficient, see below). The Investment Agreement allows us to increase
authorized capital for this purpose, and we intend to ask our shareholders to
approve an increase to 75,000,000 shares of common stock in March or April 2002.
The shareholders will have to approve the increase.
Dutchess Fund, and DRH, separately, cannot be required to purchase stock
from the company which, when added to stock of the company which either of them
owns beneficially, exceeds 4.99% of the issued and outstanding stock of the
company on the date of our "put" (see below).
In addition to the foregoing overall limit which applies to Dutchess Fund
and DRH, the amount of stock we can require Dutchess Fund and DRH to purchase at
any time is limited:
O There must be 13 stock market trading days between any two of our
"puts" (requests for purchase delivered to Dutchess Fund and DRH),
although one or more closings of sale of part of the shares may occur
every five trading days within the 13 trading days (the closing date
for each put is 13 trading days after put notice). We will deposit
stock certificates with First Union National Bank, Morristown, New
Jersey (the "escrow agent"), and Dutchess Fund and DRH will deposit
funds with the escrow agent sufficient to buy our stock.
O We shall be entitled to request that dollar amount of stock that is
equal to 175% of the average daily volume of our common stock over the
40 trading days prior to our put notice multiplied by the purchase
price (93% of the lowest closing bid price during that 40 days), but
never more than $1 million. This is how the maximum "put amount" is
determined under the Investment Agreement. The actual number of shares
we issue for each put delivered to Dutchess Fund and DRH will have a
total or aggregate purchase price equal to the lesser of (1) the put
amount, and (2) 15% of the aggregate trading volume in the 10 trading
days, multiplied by the average of the lowest closing bid prices
during the first five and the last five trading days, respectively, in
the 10 trading day pricing period.
Closing of each sale of stock to Dutchess Fund and DRH will be subject only
to standard closing conditions (for examples, that this prospectus is current,
that we are not insolvent, and that we continue to be listed for trading on the
Over-the-Counter Bulletin Board). Subject only to meeting the standard closing
conditions, Dutchess Fund and DRH must purchase the stock. We will receive net
sale proceeds (see below) not later than the thirteenth trading day after the
date of our put notice.
The issuance of shares of common stock to Dutchess Fund and DRH under the
Investment Agreement will be exempt from registration with the Securities and
Exchange Commission under section 5 of the 1933 Act, pursuant to section 4(2) of
the 1933 Act; the resale of such shares by Dutchess Fund and DRH is registered
with the Securities and Exchange Commission under section 5 by this registration
statement. We have agreed not to file any other registration statements for the
public sale of our securities for 90 days from
9
the effective date of this registration statement, with certain limited
exceptions. We have also agreed to use our best efforts to have our officers,
directors and any other persons affiliated with the company refrain from selling
shares during each 10 trading day pricing period.
The Investment Agreement contains mutual indemnities against loss, costs
and expenses arising out of misrepresentations, breach of warranties and
covenants, or other actions or inactions by us or by Dutchess Fund and DRH.
Insofar as such indemnification might be sought for loss, costs and expenses
arising from violations of the 1933 Act, we have been informed that in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the 1933 Act and therefore is not
enforceable.
Pursuant to the Investment Agreement, each time we sell stock to Dutchess
Fund and DRH, we will pay May Davis Group, Inc., a securities broker-dealer and
member of the National Association of Securities Dealers, Inc. cash in the
amount of 3.5% of the funds purchased in each transaction by Dutchess Fund and
DRH. See "Selling Shareholders" below. An additional 3.5% of the funds purchased
in each such transaction will be paid to Dutchess Advisors, see "- Compensation"
below.
REGISTRATION RIGHTS AGREEMENT. We have agreed to file with the Securities
and Exchange Commission, see to effectiveness with that agency, and keep current
the registration statement (of which this prospectus is part) for resale of the
shares sold to Dutchess Fund and DRH under the Investment Agreement, for so long
as Dutchess Fund or DRH hold any shares so purchased. The number of shares
available under the initial registration statement is insufficient to cover all
the stock which may be issued to Dutchess Fund and DRH at current market prices
and volumes. Therefore, we will use our best efforts to have our shareholders
approve an increase in authorized common stock (up to 75,000,000 shares) and
cause an amendment or new registration statement containing additional shares
(an additional 16,000,000 shares) to be filed with the Commission and declared
effective by it. If our shareholders do not approve the increase in authorized
shares, and if the market price of our stock does not increase to approximately
$2.00, we will not be able to realize the full potential funding of $8,000,000
which is available under the Investment Agreement, because we would not have
enough shares to sell. Failure to obtain an increase in authorized common stock
will not result in termination of the Investment Agreement.
Our agreements as to registration rights are only with Dutchess Fund and
DRH, Dutchess Advisors and the attorney for Dutchess Fund and DRH.
COMPENSATION. We will sell shares to Dutchess Fund and DRH at a 7% discount
from the market price (see above). We will pay Dutchess Advisors, Ltd., an
affiliate and advisor of Dutchess Fund, an amount of cash equal to 3.5% of the
dollar amount of shares we sell to Dutchess Fund and DRH, when each put is
closed (see above). In addition, we have issued 227,272 shares of common stock
to Dutchess Advisors, Ltd. (for its advisory services to Dutchess), and have
issued an additional 75,757 shares to Dutchess Fund, as fees to induce Dutchess
Fund to enter into the Investment Agreement. We will pay May Davis Group, Inc.
an amount of cash equal to 3.5% of the dollar amount of shares we sell to
Dutchess Fund and DRH when each put is closed (see above). We also issued
303,030 shares to May Davis Group, Inc., a securities broker-dealer firm, as a
placement fee for the execution of the Investment Agreement.
All of the foregoing shares were issued based on the value (agreed to by
the company and the parties pursuant to the Investment Agreement) of such fees
in the amounts of $50,000 by Dutchess Fund, $200,000 by May Davis Group, Inc.,
and $150,000 by Dutchess Advisors (total $400,000), divided by the $0.66 closing
bid price of the company's stock when the Investment Agreement was signed
(October 4, 2001).
10
An additional 37,000 shares were issued to Joseph B. LaRocco, for services
valued at $12,500 ($0.33 per share) provided by him as attorney for Dutchess
Fund and DRH in connection with the Investment Agreement. The value of his
services was determined by his clients Dutchess Fund and DRH, and agreed to
within the Investment Agreement signed by the company. The per share price for
his services was negotiated and agreed to between Mr. LaRocco and the company,
as the company did not have the funds to pay Mr. LaRocco in cash. The $0.33 per
share price represents a discount of 50% from the market price at October 4,
2001 ($0.66).
All of these shares (643,059 total) were issued as restricted securities
under section 4(2) of the 1933 Act, and are registered for resale by this
prospectus and the registration statement of which this prospectus is a part.
PUBLIC RELATIONS AGREEMENT. As of September 15, 2001 the company signed an
agreement with National Financial Communications Corp., based in Needham,
Massachusetts, for NFC to provide public relations and communications services
to the company for a period of 12 months. NFC's objective is to increase
awareness of the company among potential investors through traditional mail
channels and media interviews with officers of the company. The cost of NFC's
services is $5,000 per month if paid in cash ($6,000 per month if paid in
stock), plus reimbursement of third party expenses. The term of the agreement is
12 months, but can be terminated by either party on 10 days notice after
December 15, 2001. The agreement is automatically extended for three months if
not terminated by the company prior to end of the 12 month term.
In January 2002, we suspended the agreement with NFC, and have not issued
any stock or options to NFC. The agreement with NFC will be implemented with NFC
providing services and the company paying for those services with delivery of
stock and options (see below), after the date of this prospectus.
We have paid the first month's service with NFC with $5,000 cash, and have
agreed to issue 200,000 shares of stock for services and expenses under the
agreement. The 200,000 shares will pay for NFC's fees and expenses for the 11
months of the agreement not paid for in cash. The agreement required us to pay
three months in advance in stock, if we elected to pay all fees and expenses in
stock.
Each month for the duration of the agreement, starting in January 2002, we
agreed to deliver a certificate of 20,000 shares of stock of NFC (and 22,858
shares for the last month), to pay NFC's fees and expenses in advance for that
month. Each month, NFC will account to us for proceeds from selling the stock it
receives; sale proceeds will be deducted by NFC from the base service fee each
month. If proceeds from the sales of the stock exceed the monthly fee, the
excess amount will be credited by NFC to our next monthly fee. If there are not
enough dollars in proceeds from the sale of the stock to cover the $5,000 cash
monthly fee, the company will either issue more shares to cover the deficit or
pay the deficit in cash for that particular month. If after completion of the
agreement proceeds from sale of shares exceeds the agreement's base fees plus
expenses, the remaining shares will be returned to the company and canceled.
We have agreed to issue stock valued at $0.875 per share (the bid price as
of October 19, 2001), for a total value of $175,000 for the 200,000 shares.
These shares will be issued as restricted securities under section 4(2) of the
1933 Act, and are registered for resale by this prospectus and the registration
statement of which this prospectus is a part.
Also, we have agreed to issue options to NFC to purchase 200,000 shares of
common stock at an exercise price of $1.00 per share. The options will be
exercisable when delivered and will expire September 15, 2004. One-half of the
profits realized by NFC from selling shares purchase on option exercise will be
credited to the company's monthly account to the extent needed to pay base
service fees and expenses, and
11
additional options will be issued to NFC with an exercise price equal to our
then current market price. Shares issued on exercise of the options will be
restricted securities under section 4(2) of the 1933 Act; resale of such shares
is covered by this prospectus and the registration statement of which this
prospectus is a part.
In addition to paying NFC the monthly base service fee plus reimbursable
expenses, we will pay NFC a "transaction fee" as a result of any transaction
between us and any other entity or other party which is introduced to us by, or
with which we are put in contact by NFC. "Transaction" means a merger, sale,
sale of stock, sale of assets, consolidation or similar transaction or series or
combinations of transactions whereby we or such other party transfers to the
other, or both transfer to a third entity or person, stock, assets, or any
business interest in exchange for stock, assets, securities, cash or other
property or rights, or wherein they make a contribution of capital or services
to a joint venture or similar commonly owned enterprise, to conduct future
business. The amount of the fee would be 5% of the total value of the
consideration given, paid, transferred or contributed by or to the company. This
provision covers any transaction entered into within the term of our agreement
with NFC, or in the year following its expiration.
RISK FACTORS
An investment in our common stock is speculative in nature and involves a
high degree of risk. You should carefully consider the following risks and the
other information in this prospectus before investing.
RISK FACTORS INVOLVING THE COMPANY
WE ARE AN EXPLORATION STAGE COMPANY, HAVE NO RESERVES, HAVE NEVER MADE A
PROFIT, AND MAY NEVER BECOME PROFITABLE. For the nine months ended September 30,
2001, the company recorded a net loss of $463,000 from continuing operations,
and had an accumulated stockholders' deficit of $3,745,500 at that date. The
company is a mining company in the exploration stage. If we can raise the
capital we will build a pilot plant to further evaluate extraction methods for
the Pisgah property, and have prepared an independent reserve report and an
independent feasibility study upon which to base the decision to build a
production plant. See the next risk factor.
AS AN EXPLORATION COMPANY, WE ARE SUBJECT TO THE RISKS OF THE MINERALS
BUSINESS. The exploration for minerals is highly speculative and involves risks
different from and in some instances greater than risks encountered by companies
in other industries. Most exploration programs do not result in the discovery of
mineralization which is economic to mine. Most exploration programs never
recover the funds invested in them. Without extensive technical and economic
feasibility studies, no one can know if any property can be mined at a profit.
Even with promising reserve reports and feasibility studies, profits are not
assured.
MANAGEMENT LACKS TECHNICAL TRAINING AND EXPERIENCE WITH EXPLORING FOR,
STARTING AND OPERATING A MINE. Our directors and officers don't have technical
training in geophysical sciences, metallurgy, or mineral exploitation
management, nor do they have any direct prior experience in these areas or in
the minerals exploration business generally (except for Mr. Amies, director, who
presently operates a mining company, see "Management"). Without these kinds of
training or experience, our management may not be fully aware of many of the
specific requirements related to working in the mining industry. Their decisions
and choices for the company may not take into account standard engineering or
managerial approaches which mineral exploration companies routinely use. The
company's operations, earnings, and ultimate financial success could suffer
irreparable harm due to management's limited experience in this industry.
WE HAVE NOT SYSTEMATICALLY DRILLED AND SAMPLED THE PISGAH PROPERTY TO
CONFIRM THE PRESENCE OF ANY CONCENTRATIONS OF PRECIOUS METALS. There is
substantial risk that such testing would show limited concentrations of precious
metals. Our testing program so far indicates that precious metals are present in
the
12
very limited amounts of materials taken from a few locations on the stockpiled
material. We have not run, nor have we had third parties run for us, a
systematic drilling and sampling program designed to measure whether and where
concentrations of precious metals may or may not exist, either in the stockpiled
material or in the Pisgah deposit itself. Any positive test results so far
confirm the presence of precious metals in the samples. You cannot safely assume
that precious metals-bearing materials exist outside of the samples tested. Only
reserve report to be prepared in the future will provide this kind of
information.
THE PISGAH PILOT PLANT'S LIMITED RESULTS WILL NOT GUARANTEE THE PRODUCTION
PLANT'S PROFITABILITY. Prospective investors should note that the initial pilot
plant's operating results will not be a sure indicator of the ultimate viability
of company operations. We believe this is a significant risk for the company.
The pilot plant will run small batches of material through different production
processes (leaching times, proportions of chemicals, etc.) to help us better
understand how to extract precious metals from materials removed from different
locations on the Pisgah property. However, its results will not be
representative of the operating results we should expect with a production plant
using materials taken throughout the property. Therefore, pilot plant results,
even if promising in terms of yield per ton and production cost, will not be
indicative of the production plant's operating results. The pilot plant's
results will be used in conjunction with a future feasibility study to be
prepared for us.
IF THE PRODUCTION PLANT IS NOT VIABLE, SHAREHOLDERS WILL LOSE MOST OF THEIR
INVESTMENT. Building and operating a production plant will be expensive for the
company. If it is not profitable and has to be shuttered and sold, liquidation
proceeds would be a small percentage of total invested capital.
EXPLORING VOLCANIC CINDER PROPERTIES PRESENTS UNIQUE RISKS NOT ENCOUNTERED
IN OTHER GEOLOGIC SETTINGS. Precious metals most often are found in underground
quartz vein deposits, or in alluvial sites where the metals have been eroded
from surface exposed quartz veins and been transported by natural forces to
another (usually gravel type) deposit. Precious metals which are found in (or
came from eroded) vein deposits are believed to have been carried in underground
superheated water, which transported the precious metals and other
mineralization toward the surface, then cooled into quartz deposits underground.
In contrast, volcanic cinders resulted from magma flows deep in the earth
crust erupting to the surface. However, the mechanism which placed precious
metals in the Pisgah volcanic cinders is not well understood. Presently there
are no established geological theories to explain how precious metals came to be
located within volcanic cinders generally.
OUR LIMITED TEST RESULTS ON THE PISGAH PROPERTY TO DATE HAVE NOT BEEN
CONSISTENT AND POSITIVE RESULTS MAY NOT BE VALIDATED BY PRODUCTION OPERATIONS.
The company has run many tests on small amounts of the stockpiled volcanic
cinder material located at the Pisgah property, using different extractive
techniques. While the tests indicate the materials contain precious metals in
amounts which would be economic to process, our tests have been limited to
relatively small amounts of materials taken from a few stockpile locations. Even
within this limited testing scope, the test results have varied significantly,
with some samples showing up to 50% or more precious metals than other samples.
We can't determine if these variances are due to different values (amounts of
metals) in the samples alone, or to the presence of different amounts or types
of other minerals contained in the sample along with the precious metals (making
recovery of a higher percentage of the contained metals more difficult, or
impossible), or to both factors. Continued testing of larger amounts at the
pilot plant will be needed to determine if consistent results can be achieved
with uniform extractive procedures, or if there are different kinds of
mineralization to be found in different parts of the stockpile (and in the
original Pisgah hill deposit) which will require modified extractive procedures.
The independent reserve report will help reduce (but will not eliminate) this
risk by identifying different areas of mineralization. This is a significant
risk for the company.
13
WE HAVE A HISTORY IN 2001 OF LATE PAYMENTS ON DEBT, AND WE COULD LOSE THE
PISGAH PROPERTY IF DEBT SECURED BY IT IS NOT PAID OR RESTRUCTURED IN 2002. This
is a risk to the company. At September 30, 2001 the company owed two lenders
$335,300, secured by first and second deeds of trust on the Pisgah property.
Payments due in 2001 were not timely made; payment to one lender was deferred to
November 2001, and payment to the other lender was deferred mid-2002. Debt
service is current. However, a total of $58,000 (plus interest on $10,000
principal included in the $58,000) will be due from May through November, 2002.
If we don't pay all the amounts due on time, or can't restructure the debts to
give us more time to pay, we could lose the Pisgah property through foreclosure.
See "Business - Properties Pisgah Property - Debt Transactions."
WITHOUT DETAILED DESIGNS AND OPERATING PLANS FOR THE PRODUCTION PLANT, WE
CAN'T ASSESS WHAT ENVIRONMENTAL COMPLIANCE MEASURES WILL BE NECESSARY.
Permitting issues could be unresolvable and result in the company not being able
to build its planned facilities. The laboratory, pilot plant and production
plant will be located at a site to be determined in California within
approximately one hour hours driving distance from the Pisgah property.
Environmental permits from a number of California regulatory agencies will have
to be obtained or confirmed, including permits for transport of volcanic
cinders, disposal of the cinder material tailings after processing, hazardous
chemical storage and emergency containment in the event of spill, and filtration
of dust and fumes generated in processing operations. However, we can't apply
for permits (or for waiver of permit requirements as applied to the company)
until we have prepared detailed designs and operating plans for the pilot and
production plants. Therefore, presently we can't predict what permits will be
required, or what the different agencies will require us to build before issuing
the permits.
SIGNIFICANT PERMITTING DELAYS MAY BE ENCOUNTERED, EVEN IF WE OBTAIN A SITE
WHICH HAS BEEN USED IN MINING OPERATIONS BY OTHER COMPANIES IN THE PAST.
Agencies may impose expensive conditions to issuing the permits (installation of
air scrubbers, high efficiency filters, sealed-bottom containment facilities to
prevent contamination in the event of spill, and the like). We may not have
funds to pay for unexpected expenses in these respects (see "Use of Proceeds").
The combined risk of delays and increased expenses could be significant in
delaying the commencement of operations, but it is possible that we won't be
able to build the production plant at all.
WE MAY NOT BE SUCCESSFUL IN RAISING THE CAPITAL NECESSARY TO BUILD AND
OPERATE THE PILOT PLANT AND THE PRODUCTION PLANT. We will need approximately
$1,821,000 to design, build and start operating the production plant (processing
104 tons of volcanic cinder material per day) planned for late 2002, provided
operations at the small scale pilot plant justify the larger facility. In
addition, about $200,000 will be needed for a reserve report and feasibility
study. More funds could be needed depending on permit requirements (see above).
The net proceeds from selling stock to DRH and Dutchess Fund will be used in
part to build the pilot plant and the production plant, but we may not be able
sell enough stock (see below) to fund complete construction. We have no
alternative arrangements in place to raise the funds we will need if we don't
sell enough stock to Dutchess Fund and DRH under the Investment Agreement.
The future market price and volume of trading of our common stock limits
the rate at which we can obtain funding from Dutchess Fund and DRH under the
Investment Agreement. Further, we might be unable to satisfy the conditions in
that agreement which would result in our inability to sell stock on a timely
basis, or at all. If the price of our common stock and/or trading volume do not
increase significantly from recent levels, we will be unable to obtain
sufficient funds to meet our liquidity needs. During the three months ended July
31, 2001 a total of 481,655 shares were traded, of which 221,560 were traded in
June 2001. In the five months from August 2001 through December 2001, trading
volumes and prices have decreased. These volumes and prices from May 2001
through December 2001 (approximately $1.00 or less bid price) would have to
increase significantly in future months in 2002 and thereafter to entitle us to
require Dutchess Fund and DRH to buy enough shares to result in the amounts of
capital the company will need.
14
TERMS OF SUBSEQUENT FINANCINGS MAY ADVERSELY IMPACT YOUR INVESTMENT. If we
can't raise enough capital to execute our business strategy (pay for reserve
report and feasibility study, and build the small scale pilot and production
plants) from the Investment Agreement, or if we do have the funds to build the
larger plant but decide to modify or enlarge it, we may have to raise equity,
debt or preferred stock financing in the future. Your rights and the value of
your investment in the common stock could be reduced. For example, if we have to
issue secured debt securities, the holders of the debt would have a claim to our
assets that would be prior to the rights of stockholders until the debt is paid.
Interest on these debt securities would increase costs and negatively impact
operating results. Preferred stock could be issued in series from time to time
with such designations, rights, preferences, and limitations as needed to raise
capital. The terms of preferred stock could be more advantageous to those
investors than you as holders of common stock. In addition, if we need to raise
more equity capital from sale of common stock, institutional or other investors
may negotiate terms at least and possibly more favorable than the terms of this
offering. More common stock could be sold under these circumstances at prices
lower than offered under this prospectus, which could result in dilution of the
book value of shares bought in this offering.
RISK FACTORS INVOLVING THIS OFFERING.
SELLING STOCK TO DUTCHESS FUND AND DRH MAY SUBSTANTIALLY DILUTE THE
INTERESTS OF THE OTHER STOCKHOLDERS. Under the Investment Agreement, we will be
selling shares of common stock to Dutchess Fund and DRH at prices which are 93%
of the bid price in the market. The exercise of our put rights under the
Investment Agreement therefore may result in substantial dilution to the
interests of the other holders of our common stock.
SELLING STOCK TO DUTCHESS FUND AND DRH COULD REDUCE OUR MARKET PRICE AND
ENCOURAGE SHORT SALES. If and to the extent Dutchess Fund and DRH resell shares
of our common stock bought under the Investment Agreement, our stock market
price may decrease due to the additional shares coming into the market. If the
price of our common stock decreases, and if we decide to sell more shares to
Dutchess Fund and DRH, we would be issuing more shares for any given amount
invested by such parties. This could encourage short sales, which would place
further downward pressure on the market price.
MARKET OVERHANG. Approximately 4,200,000 shares of the total shares issued
and outstanding are restricted under rule 144 under the 1933 Act from immediate
resale to the public stock market. This number does not include the outstanding
shares registered for resale with this prospectus. Rule 144 provides, in
essence, that a person holding "restricted securities" for a period of one year
may sell only an amount every three months equal to the greater of (a) 1% of a
company's issued and outstanding shares, or (b) the average weekly volume of
sales during the four calendar weeks preceding the sale. The amount of
"restricted securities" which a person who is not our affiliate sells is not so
limited, since non-affiliates may sell without volume limitation their shares
held for two years if there is adequate current public information available
concerning us. In that event, "restricted securities" would be eligible for sale
to the public at an earlier date. As restrictions on resale end, the market
price of our common stock could drop significantly if the holders of these
restricted shares sell them or are perceived by the market as intending to sell
them.
In addition, this prospectus covers the resale of 643,059 shares of common
stock issued to Dutchess Fund, May Davis Group, Inc., Dutchess Advisors, Ltd.
and Joseph B. LaRocco, 200,000 shares of common stock we have agreed to issue to
NFC, and 200,000 shares of common stock which may be purchased by NFC upon
exercise of options which we have agreed to grant to NFC. Sale of such shares
could further adversely impact our market price.
15
BECAUSE THE COMPANY'S COMMON SHARES ARE "PENNY STOCK" CERTAIN RULES MAY
IMPEDE THE DEVELOPMENT OF INCREASED TRADING ACTIVITY AND COULD AFFECT THE
LIQUIDITY FOR STOCKHOLDERS. Penny stocks generally are equity securities with a
price of less than $3.00 per share other than securities registered on certain
national securities exchanges or quoted on the Nasdaq stock market, provided
that current price and volume information with respect to transactions in such
securities is provided by the exchange or system. Our securities now are subject
to the "penny stock rules" that impose additional sales practice requirements on
broker-dealers who sell penny stock securities to persons other than established
customers and accredited investors (generally those with assets in excess of
$1,000,000 or annual income exceeding $200,000 or $300,000 together with their
spouse). For transactions covered by these rules, the broker-dealer must make a
special suitability determination for the purchase of penny stock securities and
have received the purchaser's written consent to the transaction prior to the
purchase. Additionally, for any transaction involving a penny stock, unless
exempt, the "penny stock rules" require the delivery, prior to the transaction,
of a disclosure schedule relating to the penny stock market. The broker-dealer
also must disclose the commissions payable to both the broker-dealer and the
registered representative and current quotations for the securities. Finally,
monthly statements must be sent disclosing recent price information on the
limited market in penny stocks. These rules may restrict the ability of
broker-dealers to sell our securities and may have the effect of reducing the
level of trading activity of our common stock in the secondary market.
MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The stock is traded on the Nasdaq Over-the-Counter Bulletin Board
("CCRE.OB").
The following shows in United States dollars the high and low bid quotation
for the shares for the last three years. Quotations reflect inter-dealer prices,
without retail mark-up, mark-down, or commissions, and do not necessarily
represent actual transactions.
1999 Low High
---- --- ----
First Quarter $0.375 $0.812
Second Quarter $0.406 $1.875
Third Quarter $0.75 $4.125
Fourth Quarter $0.906 $1.75
2000
First Quarter $0.875 $5.00
Second Quarter $2.125 $5.125
Third Quarter $1.50 $3.312
Fourth Quarter $1.031 $2.75
2001
First Quarter $1.218 $1.75
Second Quarter $1.156 $1.813
Third Quarter $0.77 $1.563
Fourth Quarter $0.31 $0.90
The company has approximately 220 shareholders of record. The stock
transfer agent is Pacific Stock Transfer Company, 500 E. Warm Springs, Suite
240, Las Vegas, NV 89119.
The company has never paid any dividends. There are no legal restrictions
which limit our ability to pay dividends. Based on the present financial
situation, it is unlikely we will pay dividends in the near future.
16
USE OF PROCEEDS
We may receive up to $8,000,000 from selling shares to Dutchess Fund and
DRH under the Investment Agreement; we will not receive any proceeds from their
sales of the shares purchased. We intend to use initial proceeds for working
capital and other general corporate purposes, and build a small scale pilot
plant to process 100 pounds per day of volcanic cinder material from our Pisgah,
California property. If warranted by results from operating the pilot plant for
six to nine months, we will build a production plant. We will keep the pilot
plant for continued testing of the Pisgah material, and also to run tests on the
Owl Canyon property material.
We will use proceeds from selling shares to Dutchess Fund and DRH mostly
for four principal purposes: First, general and administrative expenses
(approximately $225,000 for each calendar year, including approximately $12,000
of property holding costs for claims, and debt service of approximately $93,000
in 2002, and $48,000 in subsequent years, until maturity of $300,000 in debt in
2005); second, to build the pilot plant near Pisgah, California; and third, to
build the production plant, at the same site in California.
If we receive $2,700,000 in proceeds, we would use the funds as shown below
over a 24 month period. To the extent we receive less, we will defer building
the production plant; immediate priorities will be general and administrative
expenses (including debt service), followed by construction of the pilot plant.
The amounts allocated are estimated.
1. GENERAL AND ADMINISTRATIVE
AND DEBT SERVICE (1) $ 615,500
2. PILOT PLANT
Equipment (tanks, pumps, etc.) $ 24,659
Supplies (acids, solvents, filter paper, etc.) 11,591
Labor 20,000
Cash reserve and operating start-up costs 7,250
-----------
$ 63,500
3. INDEPENDENT RESERVE REPORT AND INDEPENDENT
FEASIBILITY STUDY $ 200,000
4. PRODUCTION PLANT
Motorized Equipment
A. Pisgah Mountain Facility
(1) 3 Yard Skiploader $ 40,000
B. Production Equipment at Plant
(2) Barrel type forklifts 40,000
(1) General use forklift 15,000
17
Production Equipment at Plant
(1) 10 ton per hour Ball Mill (steel, screens, grinding) 75,000
(2) Motors and Conveyor Systems 25,000
(1) MATd Reactor 20,000 gallon capacity
(15,000 gallon per batch) 125,000
(1) Filter Press Circuit, Pumps 60,000
(1) Electro Precipitation Tank with Plates
and 2,750 AMP 50 Volt Rectifiers 16,000
(1) Filtration System Circuits for precious metal collection 5,000
(6) High Speed, High Pressure Pumps, Slurry Pump 6,000
(3) Chemical Storage Hoppers at 5000 lbs. capacity each 30,000
(3) Automatic Chemical Feeders 12,000
(1) Automatic Chemical Monitor and Batch Feeder System 22,000
-----------
376,000
Production Plant - General Improvements
A. Air Quality and Chemical Storage Compliance 150,000
B. General Scale-up Plant Site Infrastructure & Materials 200,000
C. Construction and Labor Costs for (A) and (B) 400,000
-----------
750,000
Estimated Capital Costs $ 1,221,000
Cash Reserve and Operating Start-up Costs $ 600,000
-----------
$ 1,821,000
Total $ 2,700,000
(1) Debt service does not include payment of $103,961 owed to directors
and an employee as of December 31, 2001, which could be paid all or in
part from proceeds of this offering if more than the funds needed for
the budget are raised, or if funds are available to the company
through construction savings or otherwise. For information on debt,
see notes 6 and 7 to the unaudited financial statements included in
this prospectus, and "Certain Relationships and Related Party
Transactions."
The pilot plant will process material in 100 pound batches, scaling up to
one ton per day over a 30 day period. We intend to utilize this facility to
extract the metals for both in-house and external confirmation by independent
labs, pertaining to the concentrations and recoverability of precious metals in
the cinders. If results from this facility and the independent reserve report
and feasibility study, are promising, we will build the larger commercial-scale
production facility.
The pilot plan will use a standard industrial chemical leach process to
remove metals from the materials, then run the pregnant solution through an
electroplating process to deposit the metals out of solution onto metal sponges
in the circuit. The sponges then will be smelted to remove the precious metals.
18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following should be read together with the financial statements
included in this prospectus.
We hold interests in five mineral properties in the southwestern United
States. None of these properties has any proven or probable reserves and none of
these properties is in production. All expenditures on all properties are
expensed, not capitalized.
LIQUIDITY AND CAPITAL RESOURCES AT DECEMBER 31, 2000 COMPARED WITH DECEMBER 31,
1999, AND RESULTS OF OPERATIONS FOR THE TWO YEARS ENDED DECEMBER 31, 2000.
[Download Table]
Year ended December 31
--------------------------------------
2000 1999
------------- -------------
Sales $ -0- $ 3,700
Rental revenue 22,500 -0-
Costs (1,615,700) (614,600)
Other income (expenses) 27,200 (1,900)
Income (loss) from discontinued operations -0- 290,700
------------ ------------
Net income (loss) $ (1,566,000) $ (322,100)
============ ============
Income in 1999 was recorded from two sources: $3,700 from sale of precious
metals recovered by the company from materials we obtained from a third party
and $290,700 from sale of a discontinued business (see "Business - Corporate
Background"). Income in 2000 was payment received from the lessee of the Pisgah
property (see "Business - Properties - Pisgah Property Mining Lease"). The
lessee's payments in 1998 and 1999 were recorded as reductions in retained
deficit, see note 12 to the audited financial statements.
The following table summarizes working capital and total assets,
accumulated deficit, and shareholders' equity.
[Download Table]
Year ended December 31
--------------------------------------
2000 1999
------------- -------------
Working capital $ 480,100 $ 75,500
Total assets $ 720,600 $ 888,500
Accumulated deficit $ (3,248,400) $ (1,719,900)
Shareholders' equity $ 169,600 $ 888,500
At December 31, 1999, we owed $55,000 to a lender (secured by first deed of
trust on the Pisgah property), with annual interest at 8%. Annual payments of
$22,500 from Twin Mountain (lessee of the Pisgah property) are paid direct to
the lender by Twin Mountain, which reduced this debt to $32,500 at December 31,
2000; the balance was due July 31, 2001.
19
During 2000 the company issued 1,119,009 shares of common stock, including
774,009 shares for cash proceeds of $949,600 to finance operations. We also
borrowed $300,000 from a corporate lender (First Colony Merchant, a private
lender) at 16% annual interest, secured by a second mortgage on the Pisgah
property. Service on this debt is interest only (payable $24,000 each May and
November), with principal due November 23, 2005. In addition, during 2000 Ronald
D. Sloan, president, had loaned the company $152,289 on an unsecured basis, with
interest at prime plus 1%. See note 7 to the audited financial statements and
"Certain Relationships and Related Transactions - Loans by Officers."
We recorded a net loss from operations in 2000 of $1,566,000 compared to
$612,800 in 1999. This $953,200 increase in net loss in 2000 was due in
significant part to the write-down of $567,100 in the carrying value of the
investment in the Pisgah property and write-downs of $36,405 on two other
properties (Limestone/Erosion, and Cerbat), for a total write-down of $603,505
in 2000. See Note 14 to the audited financial statements. This total write-down
amount was charged to operations as a component of costs and expenses.
Net of the increase due to write-downs in value of properties, costs and
expenses increased approximately $398,000 to $1,012,200 (compared to $614,600 in
1999). The changes in costs and expenses, stated as changes in 2000 compared to
1999, were due to:
o $382,500 more for testing the Pisgah volcanic cinders property,
including increased cash expenditures of $82,500 for tests in our lab
and for third-party assay tests, and $300,000 for 200,000 shares of
restricted common stock issued in August 2000 to two individuals (Ken
Schmidt and John Tomashewski) to acquire their proprietary extractive
technology, at a value of $1.50 per share (market value on issue
date).
o A decrease of $56,100 paid to consultants for testing and evaluation
work, because we acquired our own testing equipment and used the
procedures acquired from the two individuals (see above).
o Travel and entertainment increased by $36,200 for costs associated
with more travel to Canada to raise funds by selling stock, meetings
with possible mining industry partners for the Pisgah and other
properties, and also for increased travel by directors to observe
operations in Nevada and consultants' travel between Canada and the
testing lab in Nevada.
o Increased legal and accounting costs of $13,700. A portion of
increased legal costs was related to the successful collection of
approximately $10,300 in 2000 (recorded as income) on a $53,300 debt
written off as uncollectible on the balance sheet in 2000.
o Increased insurance costs of $36,500, for premiums on officer and
director liability insurance obtained in 2000.
o Bad debt expense decreased by $98,800.
o An increase of $32,100 in office expense, because printing and copying
costs increased, and we bought more office supplies, office equipment,
and a new telephone system.
o An increase of $17,900 in office rent because we leased a residence in
Las Vegas which now serves as the principal office and also provides
accommodations for visiting officers and directors and other persons
with whom we transact business. The company continues to rent its
prior office.
20
o Depreciation and amortization increased by $12,200 because the company
had more equipment in 2000.
o An increase of $20,700 paid for advertising and promotion, due to
modifications made to our website, publication of more press releases,
and printing more brochures with color photographs.
o Lease expense increased by $9,400 because the company leased more
field equipment.
o Miscellaneous costs decreased by $16,900, which was partially offset
by increases of $8,600 for telecommunications and utility costs,
repairs and maintenance on equipment, and bank charges.
Unless we can establish the economic viability of the mining properties, we
will continue writing off the expenses of exploration and testing. Therefore,
losses will continue until such time, if ever, as we establish the economic
viability of the properties. If viability is established for a property, some of
the expenses related to that property would be capitalized instead of expensed.
We have no material commitments for capital expenditures.
LIQUIDITY AND CAPITAL RESOURCES AT SEPTEMBER 30, 2001 AND RESULTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 2000
In the nine months ended September 30, 2001, additions to funds available
for operations were provided by $58,300 from sale of 57,888 shares of restricted
common stock, and from an additional loan of $65,252 from Ronald D. Sloan,
president (unsecured, with interest at prime plus 1%), $6,313 from a director
(unsecured, with interest at prime plus 1%), and $21,600 from a shareholder
(unsecured, with interest at 20.74%). The company made principal repayments to
Mr. Sloan of $61,473, leaving a balance owing of $118,524. Funds for the
corresponding period in 2000 were provided by sales of restricted common stock,
and from a $300,000 loan from a private lender (First Colony Merchant). See
"Business - Properties - Pisgah Property - Debt Transactions."
At September 30, 2001, working capital was $106,000, compared to $480,100
at September 30, 2000. During the nine months ended September 30, 2001, we did
not make an interest payment of $24,000 to the lender which loaned us $300,000
in November, 2000 (secured by second deed of trust on the Pisgah Property),
which increased the loan principal to $324,000 at September 30, 2001. We also
did not make the final principal payment of $10,000 due on July 31, 2001 to
another private lender (Owen Sequoia, Inc.) which holds the first deed of trust
on the Pisgah property; this debt was extended to July 2002 and was $11,300
including interest at September 30, 2001. In the nine months ended September 30,
2001, arrangements were made with the two lenders to avoid default. See
"Business - Properties - Pisgah Property - Debt Transactions" above and note 6
to the unaudited financial statements.
We had no operating income or cash flow from mineral operations for the
nine months ended September 30, 2001 other than the sale of a small amount of
gold produced and sold for $6,900 from lab tests and rental income of $16,800
representing the ratable recognition (for the first nine months of the year) on
our books of the $22,500 annual rental payment from Twin Mountain (the lessee of
the Pisgah property). Each year's $22,500 rental payment is pledged and paid
direct by Twin Mountain to the lender holding the first deed of trust on the
Pisgah property.
21
The company recorded a net loss of $497,100 for the nine months ended
September 30, 2001, compared to a loss of $659,300 for the nine months ended
September 30, 2000.
For the nine months ended September 30, 2001, compared to the nine months
ended September 30, 2000, costs and expenses decreased by $219,400 (from
$706,200 for the period in 2000, down to $486,800 for the same period in 2001).
The changes in costs and expenses, stated as changes in the period in 2001
compared to the period in 2000, were due to the following:
o $384,200 less for testing the Pisgah property. However, costs in the
period in 2000 included $300,000 for 200,000 shares of restricted
common stock issued to acquire proprietary technology. The remaining
$84,200 of reduced expenses in the period in 2001 was due to savings
realized by testing conducted in our lab and fewer samples being sent
out to third parties for testing.
o $112,900 more was paid to consultants for testing and evaluation work,
because we retained the services of additional consultants to work on
various extraction procedures.
o Travel and entertainment decreased by $900.
o Decreased legal and accounting costs of $12,900, as the company was
able to lower the costs associated with public reporting. In addition,
in 2000 the company paid legal costs related to the successful
collection of approximately $10,600 in 2000 (recorded as income) on a
$53,300 debt written off as uncollectible on the balance sheet in
2000.
o Decreased insurance costs of $13,600. There was no change in coverage
during the comparative periods. These costs reflect only amounts paid
during the nine month period, including increased premiums paid during
the year 2000 for officer and director liability coverage.
o Salaries and wages and payroll taxes of $16,100 were accrued for the
nine months ended September 30, 2001 (no salaries or wages or payroll
taxes were paid in the period in 2000).
o Office expense increased $18,200 for the period in 2001 compared to
2000, because of the purchase of office equipment items, and setting
up the field office facility in Nye County, Nevada. Office rent
decreased $1,400.
o Depreciation and amortization decreased by $1,400.
o A decrease of $9,400 for advertising and promotion, due to fewer press
releases and few modifications to the website.
o Lease expense increased by $6,900 (nothing spent on this item in the
nine months ended September 30, 2000) because the company leased a
facility in Nye County, Nevada, and we prepaid the rent there for two
months.
o Miscellaneous costs, telephone, utilities, repairs and maintenance and
bank charges increased by a net $11,300 in the nine months ended
September 30, 2001 compared to the same period in 2000, principally
due to more power being used at the Nye County facility, and repairs
to equipment.
The company has no material commitments for capital expenditures.
22
PLAN OF OPERATIONS
We intend to continue sampling and testing volcanic cinder materials from
the Pisgah property with a small pilot plant to be located at a location within
approximately one hour driving time from the Pisgah property, assuming we have
the necessary funds. We anticipate using the pilot plant it to process small
batches of material for testing purposes until funds are available to build the
production plant (the length of time needed to obtain permits for the production
plant is not presently determinable). We will obtain an independent reserve
report and feasibility study before building the production plant.
We will depend on sales of stock to Dutchess Fund and DRH to build the
pilot and production plants, obtain an independent reserve report and an
independent feasibility study, pay general and administrative expenses, and pay
debt service. Total number of employees and consultants would increase to
approximately eight when the pilot plant is operational, and up to 25 when the
production plant is running.
At January 16, 2002, and before sale of any stock to Dutchess Fund and DRH,
we had approximately $21,200 cash available to sustain operations, would cover
two months operations maximum. In advance of such sales, we may seek additional
capital by sale of restricted stock in private placement transactions in Canada,
loans from directors, or possible funding or joint venture arrangements with
other mining companies. However, there are no plans or arrangements now in place
to fund the company by any of these means, and outcome of the discussions with
other companies cannot be predicted.
BUSINESS
CORPORATE BACKGROUND. Can-Cal Resources Ltd. is a Nevada corporation
incorporated on March 22, 1995 under the name of British Pubs USA, Inc. as a
wholly owned subsidiary of 305856 B.C., Ltd. dba N.W. Electric Carriage Company
("NWE"), a British Columbia, Canada company ("NWE"). On April 12, 1995, NWE
exchanged shares of British Pubs USA, Inc. for shares of NWE held by its
existing shareholders, on a share for share basis. NWE changed its name to
Can-Cal Resources Ltd. on July 2, 1996.
In January 1999 the company sold its wholly-owned Canadian subsidiary
Scotmar Industries, Inc., which was engaged in the business of buying and
salvaging damaged trucks from insurance companies for resale of guaranteed truck
part components. The subsidiary was sold for a profit and the proceeds used to
acquire and explore mineral properties, as the company determined that the
subsidiary would lose money in the vehicle salvage business unless more capital
was obtained specifically for that business. See the audited financial
statements.
BUSINESS ACTIVITIES. The company is an exploration company. Since 1996, we
have examined various mineral properties prospective for precious metals and
minerals and acquired those deemed promising. We own, lease or have an interest
in five mineral properties in the southwestern United States (California and
Arizona). All these properties are "grass roots" because they are not known to
contain reserves of precious metals or other minerals. None of these properties
is in production, although we did sell a small amount of gold we extracted in
our analysis program on material taken from the Pisgah property in the second
quarter of 2001. We also sold 16.8 ounces of gold we produced from minerals
which had been partially processed which we bought from a third party (the
minerals did not originate from our properties).
We have performed more than 1000 "in-house" assays on mineral samples from
our properties. An assay is a test performed on a sample of minerals to
determine the quantity of one or more elements contained in the sample. The
in-house work has been conducted with our equipment by persons with whom we have
contracted, who are experienced in performing assays, but are not independent of
us. We also send samples
23
of materials from which we have obtained the most promising results to outside
independent assayers to confirm in-house results.
We have done an extensive amount of preliminary testing and assaying on the
Owl Canyon property in California, in which we hold a 50% ownership interest in
through the S&S Joint Venture. Results indicate the presence of precious metals
in material located on the Owl Canyon property; presently we have suspended
testing there to work on the Pisgah property.
Following is a list of the company's assay equipment, all of which is owned
by the company and is operated by its lab staff, Frank Valenti, Engineer/Chemist
and Robert Parker, Geochemist/Operations Manager. Information about Messrs.
Valenti and Parker follows.
Preparation Equipment:
- 2 Chipmunk Jaw Crushers
- Ring and Puck Pulverizer
- Jones Riffles
- 5HP Puma Compressor
- Classification Screens 20 mesh- 325 mesh
- 2 Drying Ovens
- Vacuum pump
Fire Assay Equipment:
- 2 Vcella Assay Ovens
- Numerous Pouring Molds
- Weighing Bench with Fire Assay Reagents
- 2 Assay Balances
- 1 Top Loading Pulp Balance
- 2 Fluxing scales
- Various Crucible and Cupel Tongs
Wet Chemical, Metallurgical Lab Equipment:
- 1 Fume Hood
- 4 Hot plates
- 3 Stir Plates
- Shaker Table
- 1L Separatory funnels
- 4L Separatory funnels
- Beakers, 10- 4000ml. (Numerous)
- Erlenmeyer Flasks (Numerous)
- Volumetric Flasks (Numerous)
- Graduated Cylinders
- IL Atomic Absorption Spectrophotometer ("AAS")
- Lamps for AAS include Au, Ag, Pd, Pt, Rh, Cu, Zn and Ni
ROBERT PARKER. Mr. Parker has 22 years experience in the metals industry
primarily in the preparation, determination and processing of noble metals. He
spent 14 years setting up refining techniques, analyzing precious and a wide
spectrum of base metals, environmental assays and cleanup. Mr. Parker's
experience includes bulk sampling large areas of feed and in circuit material
and qualitative analyses on samples as large as one ton. He has routinely
operated crushing plants and milling circuits; performed electrical, electronic,
instrument and mechanical repairs on AAS units, balances, crushing and milling
24
equipment and furnaces. Mr. Parker's initial practical training on sampling,
analytical methods and procedures was acquired through Loring Laboratories in
Calgary, Alberta and working with Loring McIssac Sr. on design and set up of two
gold labs for Echo Bay Mines.
Mr. Parker's prior employment includes Cantech Laboratories, Kazakhstan as
General Manager (March - September 1999); Barringer Laboratories Ltd., Suriname,
South America as Chief Assayer and Laboratory Manager (August 1992 - January
1999); Penboro Construction, Manitoba, Canada as Owner/Operator (August 1991 -
July 1992); Neptune Resources, Yellowknife, NT as Design Consultant and
Assistant Chief Chemist (November 1989 - July 1991); Barringer Laboratories
Ltd., Calgary, Alberta as Project Assayer (April 1989 - November 1989); Terra
Mines Ltd., Edmonton, Alberta as Chief Assayer (April 1984 - March 1989); and
Echo Bay Mines Ltd., Edmonton, Alberta as Assayer, Chief Assayer/Mill Operator,
and Assistant Mill superintendent (April 1978 - March 1984).
Mr. Parker is certified as an international scuba instructor and holds an
advanced certificate in mine rescue, CPR and first aid. He also holds a
certificate in security and safety.
Mr. Parker is paid $5,000 per month as a consultant pursuant to a verbal
agreement with the company. The verbal agreement is month-to-month.
FRANK M. VALENTI. Mr. Valenti, is a licensed professional engineer, and was
graduated from Stocton State College, Egg Harbor Township, New Jersey. From 1976
to 1978, Mr. Valenti was employed as chief auditor on the Cape May County sewage
project, and then by Texaco Oil Co., until he was injured in a Cat Cracking
tower explosion. Prior to joining the company in March 2001, he was a
self-employed chemist/assayer since 1983, working for such companies as Cougar
Mining in Arizona and Panther Mining Co., Vancouver, BC, Canada. In 1990 Mr.
Valenti designed and built a cyanide extraction plant (International Refining)
for the purpose of extracting silver from X-ray film. Over one-half million
ounces of silver was extracted during a three year period of operation. In 1993,
Mr. Valenti performed assay work for Naxos, International Resources, Inc., and
Valle' Mining of Indiana doing business as Spectro-Labs. Mr. Valenti built
another extraction plant under the International Refining name which was the
largest of its kind in southern California producing gold from electronics
scrap, and producing several thousand ounces of gold, along with some platinum,
rhodium and palladium. From 1996 to March 2001, Mr. Valenti owned and operated
the S.E.S. Engineering Labs in Lucerne Valley, CA.
Mr. Valenti is paid $5,000 per month as a consultant pursuant to a verbal
agreement with the company. The verbal agreement is month-to-month.
During 2000 and continuing to date, we have focused efforts on the
"volcanic cinders" property located on patented mining claims we own at Pisgah,
California. We have run an analysis program to determine if the material
contains precious metals. Our analysis program indicates the existence of
precious metals in material taken from the Pisgah property. We intend to build a
small scale pilot plant to begin test processing the volcanic cinder material,
at a plant to be located within approximately one hour driving time from Pisgah.
We have not obtained the location at the present time.
Substantial amounts of additional testing and drilling would be necessary
to determine whether the Pisgah property contains sufficient amounts of precious
metals to constitute "reserves," and whether any such reserves are capable of
economic production. We have elected to obtain an independent reserve report on
the property, and an independent feasibility study on the capital costs and
operating expenses for a production plant, before we decide whether (and how) to
build a production plant.
25
The pilot plant testing facility initially will process material in 100
pound batch test runs daily, gradually moving up to one ton per day to fine tune
the efficiency of our processes. It is our intention to extract the metals for
both in-house and external confirmation by independent labs, pertaining to the
concentrations and recoverability of precious metals in the cinders. If
production results from this facility are promising, we intend to build a
production plant (104 tons per day).
Further geologic and exploration work at the Cerbat and Limestone
properties has not been initiated. The company does not intend to conduct
further exploration on those properties in the immediate future, however, the
company intends to keep these properties for future exploration at some point in
the future.
The company has a general insurance policy in adequate amounts for casualty
loss to office and laboratory equipment, operation of motor vehicles, and mining
equipment on various properties. Additional insurance will be obtained for
operating locations, such as the proposed operations for the Pisgah, as
necessary.
PROPERTIES
We own or have interests in five properties, one which is owned (patented
mining claims on the volcanic cinders property at Pisgah, California), one which
is leased with an option to purchase (the Cerbat property in Mohave County,
Arizona), and two properties which are unpatented mining claims leased from the
United States Bureau of Land Management (the"BLM"): The Owl Canyon property (23
miles northeast of Baker, California); the Limestone/Erosion property (southeast
of Lucerne Valley, California); and the Wikieup property (in Mohave County,
Arizona).
Unpatented claims are "located" or "staked" by individuals or companies on
federal public land. Each placer claim covers 20 to 160 acres; each lode claim
covers 20 acres. The company is obligated to pay a maintenance fee of $100 per
claim per year to the BLM and file an Affidavit of Assessment Work with the
County showing labor and improvements of at least $100 for each claim yearly.
If the statutes and regulations for the location and maintenance of a
mining claim are complied with, the locator obtains a valid possessory right to
the contained minerals. Failure to pay such fees or make the required filings
may render the mining claim void or voidable. We believe we have valid claims,
but, because mining claims are self-initiated and self-maintained, it is
impossible to ascertain their validity solely from public real estate records.
If the validity of an unpatented mining claim is challenged by the government,
we would have the burden of proving the present economic feasibility of mining
minerals located on the claims.
Total expenditures, excluding acquisition costs, on the properties has been
$1,097,460.
PISGAH, CALIFORNIA PROPERTY.
GENERAL, TESTING. In 1997 we acquired fee title to a "volcanic cinders"
property at Pisgah, San Bernardino County, California, for $567,000. The cinders
material resulted from a geologically recent volcanic eruption.
The property is privately owned and is comprised of approximately 120 acres
located 10 miles southwest of Ludlow, California, with a very large hill of
volcanic cinders, accessible by paved road from Interstate 40. An independent
survey service hired by the company reported that there are approximately
13,500,000 tons of volcanic cinders above the surface. Approximately 3,500,000
tons of the cinders have been screened and stockpiled, the result of prior
operations by Burlington Northern Railroad Co. which processed the cinders from
the hill for railroad track ballast, taking all cinders above about one inch
diameter
26
and leaving the rest on the ground surface within one-quarter mile of the hill.
The remaining material in the hill, and the material left over from Burlington's
operations, can easily be removed by front end loaders and loaded into dump
trucks for hauling. The Cinder and Cinder #2 patented mining claims contain
morphologically young alkali basalt and hawaiite lava flows and cinder. The
cinder and spatter cone is about 100 meters high and has a basal diameter of
about 500 meters. The volcanic cone and crater consists of unsorted basalis
tephra, ranging from finest ash, through scoriascious cinders and blocks, to
dense and broken bombs up to two meters in dimension.
The company owns equipment which was acquired with the property, and is
located on the property: a ball mill for crushing cinders, truck loading pads,
two buildings, large storage tanks, conveyors to load trucks, material silos and
screening equipment.
Until Mr. Ballantyne left the company as a consultant in November, 2001,
all extractive testing programs were carried out pursuant to a "care and
custody" program established by him, utilizing processes and methodologies
developed by others. Nearly all tests under his program were conducted on small
amounts from 30 grams to 3 pounds of the volcanic cinder material, with some
tests on amounts up to 20 pounds in the third quarter of 2001. Under these
programs the volcanic cinder material was selected and collected form the
property by Mr. Ballantyne. The sample preparation and composition of the
samples used in the extraction testing were in Mr. Ballantyne's care and custody
and control. The precious metal-bearing material obtained from the repeated
extraction testing "runs" of the various precious metal extraction methods was
sent by Mr. Ballantyne to recognized and certified analytical laboratories,
which determined by chemical assay methods and other techniques the existence of
and the content of the various precious metals in the extracted material. They
reported their assay results to the company in certified analytical reports. The
company has received repeated confirmation from these independent laboratories
indicating that gold, silver and platinum group elements (PGE's) are present in,
and may be able to be extracted from, the material. These results from a variety
of methods have resulted in an expanded program of extraction and metallurgical
testing under the initial direction of Mr. Ballantyne, which the company is
continuing (with appropriate modifications as needed) following Mr. Ballantyne's
departure from the company. See "Management - Executive Compensation -
Compensation to Consultant" for information about Mr. Ballantyne.
We have run different analysis programs on the stockpiled material for
gold, silver, and platinum group metals using generally accepted assaying
procedures. No tests have been run on material located in the original hill
deposit. Samples were removed from 5 separate zones on the surface (down to
approximately 3 feet) of the stockpiled material and subjected to in-house
testing and assay using several standard metallurgical procedures. Beginning in
early 2001, we have been testing the material by "oxy-leach," which requires
dissolving the material in different mixes of standard industrial chemicals,
then filtering the liquids into powder residue and performing assay tests on the
residue. Results have varied, but the most promising results used longer leach
times. The results indicate the presence of significant amounts of precious
metals (gold, platinum group metals) in the samples tested. Test results in July
and August, 2001 were confirmed by independent assayers. Tests have been run
only on stockpiled material, removed by Bruce Ballantyne, a former consultant to
the company, in a care and custody program.
We have contracted with third parties, who prepared detailed mineralogical
studies of precious metal- bearing minerals and their associations in the
volcanic cinders. These studies, conducted at Canmet Ottawa, the Universite
Libre de Bruxelles and the Colorado School of Mines, used microscopical methods
to document and identify and confirm the presence of minerals and native metal
grains and alloys of gold, silver, platinum and palladium in the material. The
studies confirmed the existence of precious metal minerals in the material, and
helped us modify extraction methods which we will be implementing in the pilot
and production plants to be constructed in the future (see "Use of Proceeds").
27
We have conducted or had others conduct extractive processes to determine
how best to process the cinder material.
(a) Smelting of varying weights of cinder material at various temperatures
in a variety of furnace- types using a variety of different reagents
melted with the cinders (the reagents help collect and concentrate the
precious metal).
(b) Various acid digestion precious metal extractions of cinder material.
Filtration of resultant "pregnant" precious metal bearing solutions
with subsequent "dropping" of contained precious metals from these
solutions using methods such as solvent extraction, electrowinning and
wet chemical methods.
(c) Various precious metal chemical-leaching extractions of cinder
material. Filtration of the resultant "pregnant" precious
metal-bearing solutions with subsequent "dropping" of the contained
precious metals. Currently, this approach is yielding the best
results.
The precious metal-bearing products yielded by the processes were
subsequently sent to refineries and to certified analytical laboratories for
testing to determine the precious metal content. Extractive testing results
obtained to date from the independent laboratories show that we have "in-house"
repeatedly extracted precious metals including gold, silver and PGE's (platinum
group elements, here referring to platinum and palladium). However, it is not
possible to extrapolate from these results (which are confined to the samples
tested) to estimate the viability of the stockpiled material as a whole. See
"Risk Factors."
On January 17, 2002, market prices for gold, platinum and palladium were
$284.40, $481.00 and $422.00, respectively.
The Pisgah property consists of patented claims we own; no fees have to be
paid to the BLM or work performed on the claims to retain title to the property.
Electrical power presently is not available to the site, and is not
expected to be needed.
PISGAH PROPERTY MINING LEASE. To generate working capital, as of May 1,
1998 we signed a Mining Lease Agreement for the Pisgah property with Twin
Mountain Rock Venture, a California general partnership ("Twin Mountain," an
indirect subsidiary of Peter Kiewit & Sons, Inc., Omaha, Nebraska). The
Agreement is for an initial term of 10 years, with an option to renew for an
additional ten year term. Twin Mountain has the right to take 600,000 tons of
volcanic cinders during the initial term, and 600,000 more tons during the
additional term, which Twin Mountain will process and sell primarily as
decorative rock. The material will be removed from the original cinder deposit,
not the stockpiled material.
The agreement provides Twin Mountain will pay minimum annual rental
payments of $22,500 for the initial term and $27,500 per year for the additional
term. Twin Mountain is also obligated to pay us a monthly production royalty for
all material removed from the premises: The greater of 5% of gross sales f.o.b.
Pisgah, or $.80 per ton for material used for block material; plus 10% of gross
sales f.o.b. Pisgah for all other material. Against these payments, Twin
Mountain will be credited for minimum royalty payments previously made.
Twin Mountain is current in payments, which are pledged to service company
debt (see below). Twin Mountain has not yet removed any material from the
property and has indicated that it is unlikely it will do so until about 2003.
Twin Mountain does not have the right to remove or extract any precious metals
from the property; it does have the right to remove cinder material which could
contain precious metals (and Twin
28
Mountain would have title to the removed cinder material), but it cannot process
the materials for precious metals either on or off site.
Mining and reclamation permits, and an air quality permit have been issued
by the California regulatory agencies in the names of both Twin Mountain and the
company. We posted a cash bond in the amount of $1,379 (1% of the total bond
amount) and Twin Mountain has posted the remainder of the $137,886 bond. If Twin
Mountain defaults, we would be responsible for reclamation of the property, but
reclamation costs incurred in that event would be paid in whole or part by the
bond posted by us and Twin Mountain. Reclamation costs are not presently
determinable.
PISGAH PROPERTY - DEBT TRANSACTIONS. In 1998, the company borrowed $100,000
from a private lender. The debt bears annual interest at 8% and is secured by
our first deed of trust on the Pisgah property, plus our rights to payments
under the Twin Mountain lease. The original maturity date has been extended to
June 1, 2002, when the remaining $10,000 principal is due (extended from
original maturity date of July 31, 2001). Principal and interest to date have
been paid through direct payment of Twin Mountain royalty payments to the
lender. See "Management's Discussion and Analysis of Financial Condition and
Plan of Operation."
In 2000, we borrowed $300,000 from First Colony Merchant, a second private
lender. The debt bears annual interest at 16% (payable semi-annually in May and
November), is due November 23, 2005, and is secured by our second deed of trust
and assignment of rents (second right to payments under the Twin Mountain
lease). For additional consideration, the company granted the lender a five year
option to purchase 300,000 restricted shares of common stock, at the lower of
$0.65 per share or 50% of the lowest trading price during the month before
exercise, payable in cash. The option was exercised in 2000 at $0.52 per share.
As further consideration, also in 2000 we issued 45,000 restricted shares of
common stock to a corporate affiliate of the lender as a loan placement fee.
By subsequent agreement in 2001 with the second lender, the $24,000
interest payment due May 2001 was not paid but was added to principal and was
due when the November 2001 interest payment was due (total amount due in
November was $48,000). For this forbearance of interest due, we granted the
lender an option through November 19, 2001 to purchase restricted shares in the
amount of $24,000 plus 16% interest to exercise date, divided by 50% of the
lowest stock price from November 23, 2000 through November 19, 2001, However,
the November 2001 interest ($48,000) was not paid in 2001.
On November 27, 2001, we borrowed $25,000 from First Colony Merchant. The
loan bears interest at 6% per annum and matures May 27, 2002. An additional
$15,000 was borrowed from First Colony Merchant on December 28, 2001. This loan
bears interest at 6% and matures June 28, 2002.
In January 2002, we reached a further agreement with the second lender,
under which the total of $48,000 interest which was due in November 2001 was
paid by the company issuing 309,677 restricted shares of common stock. The
number of shares was determined by dividing $48,000 by $0.155 (50% of the lowest
trading price between the original loan date (November 23, 2000) and January 25,
2002).
29
OWL CANYON - S & S JOINT VENTURE
In 1996, the company entered into a Joint Venture Agreement with the
Schwarz family covering approximately 425 acres of unpatented placer and lode
mining claims in the Silurian Hills of California, known as Owl Canyon. The S &
S Joint Venture has since increased its holdings to 740 acres of lode claims and
a five acre mill site claim. These claims are deemed to be prospective for
precious metals and some base metals. The property is located approximately 23
miles northeast of Baker, California, accessible by 23 miles of paved and dirt
road. The company and the Schwarz family each have a 50% interest in the venture
which is operated by a management committee, comprised of our president and Ms.
Robin Schwarz, a member of the Schwarz family and also a sub-contractor to
Can-Cal who provides secretarial services. Approval by both the company and the
Schwarz family is required to pass resolutions and conduct venture business. In
the event of a tie vote, the matter would be decided by the company's corporate
counsel (William Fishman).
Holding costs are approximately $3,809 per year for county and BLM filing
fees, and work must be performed on the property each year to keep title to the
claims.
Pursuant to the Joint Venture Agreement, we are funding the venture's
operations. Any income from the venture will first be paid to the company to
repay funds advanced to the venture or spent on its account, with any additional
income divided 50% to the company and 50% to the Schwarz family.
As the acquisition price of its 50% interest in the S & S Joint Venture,
the company issued 500,000 restricted shares of common stock to the Schwarz
family. As of December 31, 2000, the company had spent approximately $1,219,700
in the venture, however, the carrying value of this investment is $19,000 (see
the financial statements), which represents the value of stock issued to buy the
50% in 1996. The balance of $1,200,700 represents exploration expenditures on
this property.
The venture owns the following equipment and facilities, all of which is
used but operational:
[Enlarge/Download Table]
Equipment Purpose
--------- -------
Refurbished 8-level screen classifier Separate various grades of materials
Six concentrate tables Separate the various fraction sizes and any precious
metals contained therein.
780 square foot building Building protects equipment and workers from weather
600 square foot living quarters Sleeping and Eating Quarters for Workers
Fire assay furnace To enable us to perform in house analysis.
2 smelting furnaces For smelting concentrates into precious metals
Impact Mill Used for crushing rock
Front end loader Fixing roads, loading dump truck, loading equipment
D-7 Cat Bulldozer Building roads, moving large equipment
TD-14 International track loader Building roads on side of mountain and handling bulk
material.
5-yard dump truck Hauling rock to the millsite for processing
20' x 5' ball mill For grinding material to liberate the precious metals
Portable 700 gallon water tank Hauling water for various areas
Screening system Processing of placer material and reducing material to
a finer mesh.
Several platforms Accessing equipment
Sediment tanks, with two 3,000 gallon tanks Storage for water, waiting to be recycled
30
[Enlarge/Download Table]
Run by pumps Used to recycle water used for concentrating shaker
tables
Plumbing and PVC Move water on and within the property
Air compressors To operate and clean equipment.
One drill rig Drill core samples for testing
One air track drilling rig with 100' of steel Drill samples at different depths for testing
One Pionjar Core Plugger To extract core samples from various targets
for analyses.
Rebuilt engines and new engines On standby to ensure no downtime
will affect future productivity.
Generating power plant To create electricity to operate our equipment.
New roads have been constructed throughout the canyon to allow
accessibility to the various deposits. Also, the venture spent approximately
$32,000 to clean up all areas of the property to the BLM's satisfaction.
Power is supplied by an on-site generator. Substantial operations would
require paying for installation of a power line to the site from several miles
away.
GEOLOGY OF OWL CANYON.
The Owl Canyon property is dominated by an abundance of Precambrian and
Paleozoic rocks. The Precambrian is comprised of an older and abundant group of
foliated metasedimentary rock and gneiss and generally course-grained to
porphyritic textured, variably colored, granite. The younger Precambrian rocks
are marien clastic sedimentary rocks which may contain fine-grained clastics and
carbonate rocks. This thick Precambrian section is known as the Pahrump Group or
series. The older Precambrian gneissic-granite complex is in minor fault contact
with the grey colored Pahrump Group. Massive beds of dolomite occur in the
formation, which is light buff or grey in color in contrast to the less abundant
blue-grey to white limestone. These interbeds are unfollilferious, estimated to
be 2,500 feet thick. The high-angle faulting in a north-south direction or trend
would appear to be host to the mineral carrying solutions within the property.
Plans are presently under review to apply or to make application for
required permits and set up a small gravimetric test circuit utilizing much of
the equipment already established on this site. Capital cost for further
drilling and testing is estimated to be $225,000. Such costs would be funded
from stock sales to Dutchess and DRH in excess of the initial $2,700,000 we may
receive from them (see "Use of Proceeds").
TESTING. We have performed both external and in-house fire assays on
material from the Owl Canyon property, sending both trench and rock samples to
independent laboratories, confirming our in house results. In order to determine
if those values continued below the surface, approximately 15 tons of material
was removed to a depth of 3 to 4 feet to expose a continuation of one of the
veins. Samples were removed from this material by Bruce Ballantyne and analyzed
by Cone Geochemical, Inc. with the following results.
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Sample ID Location Assay Results
--------- -------- -------------
SQHO Owl Canyon 0.577 oz/ton gold
86.0 oz/ton silver
SQ Rock 3 Owl Canyon 0.559 oz/ton gold
19.8 oz/ton silver
SQH 0300 Owl Canyon 1.396 oz/ton gold
311.0 oz/ton silver
SSQ Head Ore Screen Owl Canyon 0.690 oz/ton gold
118.0 oz/ton silver
8FTSOQ 11-24 Owl Canyon 1.351 oz/ton gold
66.5 oz/ton silver
A 25 foot core hole was drilled at the base of the mountain which yielded
these gold and silver results over a 3 foot section:
CDH#1/20-23' Owl Canyon 1.08 oz/ton gold /
9.72 oz/ton silver
Cone Geochemical, established in 1978, is a closely held corporation
specializing in the analysis of geologic materials for element composition,
which, until recently had an analytical laboratory located in Lakewood,
Colorado. John S. (Steve) Cone is president and general manager of Cone
Geochemical and now works as a consultant to the industry. Mr. Cone has over 30
years experience in analysis of geologic materials. Prior to establishing Cone
Geochemical, Mr. Cone was employed as laboratory manager, Barringer Research,
Denver, CO (1978); assistant laboratory manager, Analytical Laboratory, Colorado
School of Mines Research (1977); laboratory manager, Geochemical Research and
Laboratory Division, Kennecott Exploration Services, Salt Lake City, UT; and
worked as an analyst from 1966 to 1974 after serving three years in the armed
forces.
A detailed structural and geologic mapping survey has been completed on the
property, indicating some zones in certain areas are suitable exploration
targets. Currently, work on this property has been suspended while evaluation
work at Pisgah, California continues. This property is without known reserves
and future work would be exploratory in nature.
CERBAT PROPERTY
On March 12, 1998, we signed a Lease and Purchase Option Agreement covering
six patented mining claims in the Cerbat Mountains, Hualapai Mining District,
Mohave County, Arizona. The patented claims cover approximately 120 acres. We
paid $10,000 as the initial lease payment and are obligated to pay $1,500 per
quarter as minimum advance royalties. The company has the option to purchase the
property for $250,000, less payments already made. In the event of production
before purchase, we will pay the lessor a production royalty of 5% of the gross
returns received from the sale or other disposition of metals produced. No work
has been performed on this property since 1999. Access is north 15 miles from
Kingman, Arizona on Highway 93, east from the historical marker to Mill Ranch,
then left three miles to locked gate.
The country rock is pre-Cambrian granite, gneiss and schist complex. It is
intruded by dikes of minette, granite porphyry, diabase, rhyolite, basalt and
other rocks, some of which are associated with workable veins and are too
greatly serieitized for determination. The complex is also flanked on the west
by
32
masses of the tertiary volcanic rocks, principally rhyolite. The mineralized
body contains principally gold, silver and lead. They occur in fissure veins,
which generally have a north-easterly trend and a steep north- easterly or
south-westerly dip. Those situated north of Cerbat wash are chiefly gold bearing
while those to the south principally contain silver and lead. The gangue is
mainly quartz and the values usually favor the hanging wall. The company has
been informed by the owner that the property contains several mine shafts of up
to several hundred feet in depth and tailings piles containing thousands of tons
of tailings. The property has not produced since the late 1800's.
The buildings on the property are practically valueless, owing to being in
disuse for so many years. Can-Cal is holding this property in abeyance for
future operations. This property is without known reserves and future work would
be exploratory in nature.
WIKIEUP PROPERTY
The Wikieup Arizona property consists of one unpatented lode mining claim
namely the Brown Derby #25 located in Section 036, Township 160N and Range 140W.
The 20 acre claim is accessed via gravel road just off Highway 93 at the town of
Wikieup, Arizona.
Holding costs are approximately $109.00 per year for county and BLM filing
fees, and work must be performed on the property each year to keep title to the
claims.
The geology of the area is comprised of Precambrian granoids and gneiss.
Outcrop is extensive on the property and rock units include diorite, gabbro and
granitic dykes. The company has kept the claim in good standing by submission of
the required rental fees. We have conducted very limited geologic examination
and surface sampling of the rock units on the property. We presently have no
plans to conduct any exploration on this claim as there is no assurance that any
mineralization may exist. We are holding this property in abeyance for future
exploration.
LIMESTONE PROPERTY/EROSION CLAIMS
This property consists of 180 acres of lode and 1280 acres of placer claims
on BLM property, prospective for use in cement, located 18 miles southeast of
Lucerne Valley, California, off Highway 247. The first 12 miles is paved surface
and the next six miles is good dirt road. The deposit is contained in a very
large hill, with the deposit rising from the ground level to several hundred and
possibly a thousand feet up within the hill. There are dirt roads to the top of
the property. The property was previously mined by a cement company which
discontinued operations around 1981. There are other companies currently mining
limestone deposits in the same general area. This property is presently being
held in abeyance for future exploration, as our main focus is on Pisgah and Owl
Canyon. We have had discussions with cement companies about selling this
property or having a cement company operate it for us, however, there are no
current prospects for either sale or third-party operation of this property.
This property is without known reserves.
Holding costs are approximately $1,709 per year for county and BLM filing
fees, and work must be performed on the property each year to keep title to the
claims.
33
MANAGEMENT
DIRECTORS AND OFFICERS
Officers and directors of the company are listed below. Directors are
elected to hold office until the next annual meeting of shareholders and until
their successors are elected or appointed and qualified. Officers are appointed
by the board of directors until a successor is elected and qualified or until
resignation, removal or death.
NAME AGE POSITION AND TENURE
Ronald D. Sloan 61 President and Treasurer since May, 1996
Chairman of the Board since January 2001
John Brian Wolfe 48 Secretary and a Director since May, 1996
Barry E. Amies 57 Vice President and Director since
October, 1998
James Dacyszyn 70 Director since February, 1999
No arrangement exists between any of the above officers and directors
pursuant to which any one of those persons was elected to such office or
position.
RONALD D. SLOAN. Mr. Sloan has directed the company as President, Treasurer
and CEO since May 2, 1996. In 2001 Mr. Sloan was elected Chairman of the board
by the Can-Cal board of directors. In these capacities he manages the
sub-contractors such as geologists, chemists, laboratory and office staff to
achieve the analytical confirmation the company requires in order to realize
success in the resource industry. During the past twenty five years Mr. Sloan
has been an entrepreneur as an owner and operator of several companies
including: Atlas Insurance Adjusters Ltd, partner/president from 1977 to 1978;
United Auto Parts, senior manager, parts sales and distribution, approximate
staff of 100 from 1979 to 1984; Save-On Auto Parts Ltd., shareholder, president,
secretary, parts sales and distribution, approximate staff of 40 from 1985 to
1989; Knight Auto Recyclers Ltd., owner/president, parts sales and distribution
from 1990 to 1995; Scotmar Industries Ltd., D.B.A. Truck City Inc., senior
management, parts sales and distribution from 1990-1995. Mr. Sloan spends his
full time on the company's business. Mr. Sloan has no professional or technical
credentials in the metals mining industry.
JOHN BRIAN WOLFE. Since 1984, Mr. Wolfe has owned Wolfe & Associates
Appraisal Services, which appraises damages sustained by vehicles, recreation
vehicles, motorcycles and equipment for insurance companies throughout North
America. From 1980 to 1984 he appraised damages to automobiles for ICBC
(Insurance Corporation of British Colombia). Mr. Wolfe also managed McLaughlin
Motors and Brasso Lincoln, both automotive companies where he was in charge of
their full operation and payroll from 1977 to 1980. Mr. Wolfe has no direct
metal mining experience, or any professional or technical credentials in the
metals mining industry, however, he has experience in management affairs. Mr.
Wolfe spends approximately 30 hours per month on the company's business.
BARRY E. AMIES. Mr. Amies has extensive experience in financing, insurance
and mining. He started Baron Insurance Agencies Ltd. in 1968 and built it from a
one-man operation to 45 employees, when he sold the company in 1994. He also
started Baron Financial, which was added to the insurance business to
incorporate financial investments. After the sale of Baron Insurance Agencies
Ltd. in 1994, Mr. Amies was retained as the General manager of the company until
1998. From 1998 to present Mr. Amies worked at the
34
capacity of president/owner of Landing Insurance Agency. Since 1980, Mr. Amies
has been President of Zalmac Mines, Ltd., which has properties in Canada
prospective for gold, silver, molybdenum, and other metals. Mr. Amies has no
professional or technical credentials in the metals mining industry. Mr. Amies
spends approximately 80 hours per month on the company's business.
JAMES DACYSZYN. Mr. Dacyszyn is a Canadian citizen who is semi-retired,
owns and operates several concrete transit mix plants and gravel operations in
central Alberta, Canada. He has no precious metal mining experience, or any
professional credentials in the metals mining industry, but he does have
extensive experience in Materials Engineering and holds a bachelor's degree in
Civil Engineering. From 1954 to 1971 he managed a laboratory which tested
gravels, asphalts, paints and coordinating quality control tests on earthwork.
Mr. Dacyszyn also drilled and evaluated more than 500 gravel deposits in the
Province of Alberta and has vast knowledge in crushing rock. From 1982 to 1995
he managed several concrete mixing plants and gravel operations, also producing
aggregates as owner/operator. The companies are now being managed by his son, a
professional engineer, and Mr. Dacyszyn is retained in a consulting capacity.
Mr. Dacyszyn spends approximately 70 hours per month on the company's business.
EXECUTIVE COMPENSATION
During 1999 and 2000 no officer or director received any compensation and
no officer or director has any options or other rights to purchase any shares of
the company. They are reimbursed for out of pocket expenses incurred on behalf
of the company or miscellaneous expenses as a result of services performed for
the company as directors. Ronald Sloan, a resident of Vancouver, British
Columbia, spends all of his time on the company's business. The company pays for
the costs of maintaining an apartment in Las Vegas which Mr. Sloan uses and
which other persons transacting business with the company use and also serves as
a company office. There are no director's fees.
In the third quarter of 2001, the company agreed to pay Mr. Sloan a salary
of $60,000 per year. The company has been accruing $5,000 a month plus payroll
taxes to cover this obligation. He does not have a written employment agreement.
The board members do not have any stock options or similar plans,
annuities, pension, retirement incentive, deferred compensation or any
arrangements whereby they have been paid or may receive compensation.
COMPENSATION TO CONSULTANT. As of January 8, 2001 we retained Mr. S. Bruce
Ballantyne as a consultant to advise and assist on a daily basis principally
with respect to evaluation of the Pisgah property and its volcanic cinder
material. Mr. Ballantyne's compensation was $1,700 per week. In addition, we
agreed to grant him, if we were producing or able to produce precious metals
from the Pisgah property on an economic basis during the term of the agreement
or any extension, an option to purchase up to 40,000 restricted shares of common
stock. The agreement also provided for the issuance to him of 10,000 restricted
shares of common stock. Mr. Ballantyne is no longer a consultant to the company
(as of November 1, 2001) and the option was not granted to him, nor (by oral
agreement with Mr. Ballantyne) are the 10,000 shares to be issued to him.
Mr. Ballantyne is president and owner of YKNAU RESOURCES, INC., an economic
geology and applied geochemistry exploration service and consulting firm in
Vancouver, British Columbia. The firm advises and implements mineral exploration
programs for major and mid-tier producers as well as junior mining companies and
prospecting syndicates. Mr. Ballantyne received a Bachelors Degree with a major
in Earth Science from the University of Guelph in 1973. His firm was under
exclusive contract to Eldorado Gold Corp from 1996 to December, 1997. While with
Eldorado, he was Senior Geochemist and member of
35
their Vancouver Exploration Dept., responsible for exploration activities for
gold and copper in Mexico, Brazil, Turkey, West Africa and Argentina.
Mr. Ballantyne was employed as an Applied Geochemist by the federal
Department of Natural Resources Canada at the Geological Survey of Canada in
Ottawa for 23 years, from 1973 to 1996. As a member of the GSC's Mineral
Resources Division, Resource Geophysics and Geochemistry Section, his scientific
career included programs in Nova Scotia, NWT, Alberta, British Columbia and the
Yukon.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information about beneficial
ownership of our common stock as of the date of this prospectus by each officer
and director, by any person or group who is known by us to own more than 5% of
our common stock, and by the officers and directors as a group. The ownership
information is based on the Forms 3 and 4 filed by our officers and directors
with the Securities and Exchange Commission as required by section 16(a) of the
Securities and Exchange Act of 1934. Based on those Forms 3 and 4, the
beneficial owners have sole voting and dispositive power with respect to their
shares except as noted. Shares shown as owned by Mr. Amies include 54% of the
shares held by a family partnership owned by his wife and adult children; the
balance of shares (46%) are owned beneficially by the adult children. Shares
shown as owned by Mr. Dacysyzn include shares held by a family company as to
which he exercises beneficial ownership; the balance of shares in the family
company are beneficially owned by an adult son.
[Enlarge/Download Table]
NAME AND ADDRESS OF AMOUNT AND NATURE OF
TITLE OF CLASS BENEFICIAL OWNER BENEFICIAL OWNER PERCENT OF CLASS
Common stock, par Ronald D. Sloan 785,431 7.8%
value $.001 4312-212 Street
Langley, B.C. Canada
Common stock, par John Brian Wolfe, 785,431 7.8%
value $.001 3157 Silver throne Drive
Coquitlam, B.C. Canada
Common stock, par Barry E. Amies 153,535 (1) 1.5%
value $.001 14198 Tamarack Drive
Vernon, B.C., Canada
Common stock, par James Dacysyzn 665,500 (2) 5.1%
value $.001 #64, 9703-41 Avenue
Edmonton, A.B., Canada
Common stock, par All Officers and Directors 2,391,807 22.2%
value $.001 as a group
<FN>
(1) shares are owned by Mr. Amies family partnership (Amies Holdings Ltd.).
(2) 470,000 shares are owned directly by Mr. Dacysyzn and 195,500 shares are
owned by a family company.
</FN>
36
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
LOANS BY OFFICERS
The company borrows money from Mr. Sloan when operating capital is needed.
The borrowings are unsecured and repayments are made at the company's
discretion. Interest is computed at prime +1%. Activity for this note in 2000
and through September 30, 2001 is summarized as follows:
September 30, December 31,
2001 2000
------------- ------------
Principal balance, beginning $ 114,745 $ 14,839
Additional borrowings 65,252 152,289
Principal repayments (61,473) (52,383)
------------ -----------
Principal balance, ending $ 118,524 $ 114,745
============ ===========
Brian Wolfe, a director, has loaned the company $6,313, maturing July 2002,
bearing interest at 7.5%. Robin Schwarz has loaned the company $21,600, bearing
interest at 20.74%, due on demand. Mr. Wolfe's and Ms. Schwarz's loans are
unsecured.
PURCHASE OF STOCK
From time to time we have sold stock to directors or their affiliates, to
raise operating capital. These transactions were not negotiated at arms-length.
Prices were determined by the board of directors based on market prices at which
the stock then was trading, less a discount for rule 144 investment
restrictions. The directors to whom stock was sold took part in the board
discussions to determine the stock prices.
Mr. Amies' family partnership purchased restricted shares of common stock
from the company as follows:
Percent Discount
Date Number of Shares Price From Market Price
---- ---------------- ----- -----------------
10-28-98 63,000 $.50 per share 6.0%
12-24-98 38,571 $.35 per share 6.6%
02-18-99 62,500 $.40 per share 36.0%
05-14-99 15,000 $.50 per share 36.0%
06-22-99 50,000 $.50 per share 57.0%
03-09-00 21,000 $.75 per share 50.0%
37
A family company controlled by Mr. Dacyszyn has purchased restricted shares
of common stock from the company as follows:
Percent Discount
Date Number of Shares Price From Market Price
---- ---------------- ----- -----------------
12-24-98 200,000 $.35 per share 6.6%
02-18-99 70,000 $.40 per share 36.0%
05-14-99 100,000 $.50 per share 36.0%
06-22-99 60,000 $.50 per share 57.0%
03-09-00 134,000 $.75 per share 50.0%
Mr. Dacyszyn, for his own account, purchased 100,000 restricted shares of
common stock in 1998, at $.45 per share, representing a discount of 40% from the
market price on July 18, 1998.
In 1999 and 2000, Joseph Reschreiter, a former director, purchased
restricted shares of common stock, as follows.
Percent Discount
Date Number of Shares Price From Market Price
---- ---------------- ----- -----------------
06-22-99 32,000 $.50 per share 57.0%
06-22-99 10,000 $.50 per share 57.0%
03-02-00 45,000 $.75 per share 50.0%
SELLING SHAREHOLDERS
This prospectus covers the offer and sale by the holders or future holders
of up to 5,120,947 shares of common stock held or to be purchased by certain
shareholders, which includes (i) up to 4,000,000 shares that may be sold to
Dutchess Fund and DRH under the Investment Agreement; and (ii) 643,059 shares
presently issued and outstanding which are held by Dutchess Fund, May Davis
Group, Inc., Dutchess Advisors, Ltd., and Joseph B. LaRocco, attorney for
Dutchess Fund and DRH. Each of these entities (but not Mr. LaRocco) are
underwriters of this offering.
The selling shareholders may offer their shares for sale on a continuous
basis pursuant to rule 415 under the 1933 Act. See "Risk Factors."
The following information has been provided to us by the selling
shareholders, and states ownership data for each person who is or might become a
selling shareholder. As shown in footnote (1) below, except for the total
843,059 shares issued and outstanding which are held by Dutchess Fund, Dutchess
Advisors, Ltd., May Davis Group, Inc., and Joseph B. LaRocco, all numbers of
shares, and percentage ownership, are stated on a pro forma basis as of
prospectus date and assume the 4,000,000 shares of stock covered by this
prospectus are sold to Dutchess Fund and DRH under the Investment Agreement (50%
to each). There are 14,919,415 shares issued and outstanding on a pro forma
basis as of prospectus date, including 200,000 shares which we have agreed to
issue to National Financial Communications Corp. and 200,000 shares issuable on
exercise of three year options at $1.00 per share.
38
[Enlarge/Download Table]
Number of Number of Shares
Shares of of Common Stock Percent Owned
Name and Address Common Stock Registered Prior to After
of Beneficial Owner Owned For Sale Offering(1) Offering(1)
-------------------------------------------------------------------------------------------------------
Dutchess Private 2,375,757(2) 2,376,757(2) 16.6% 0
Equities Fund Ltd. (3)
100 Mill Plain Road, 3rd Floor
Danbury, CT 06811
DRH Investment 2,300,000(2) 2,300,000(2) 16.5% 0
Company, LLC. (3)
578 Post Road East
Westport, CT 06880
Dutchess Advisors, Ltd. (3) 227,272 227,272 1.5% 0
100 Mill Plain Road, 3rd Floor
Danbury, CT 06811
May Davis Group, Inc. (3) 303,030 303,030 2.0% 0
120 Broadway, 28th Floor
New York, New York 10271
Joseph B. LaRocco, Esq. 37,000 37,000 * 0
49 Locust Ave., Suite 107
New Canaan, CT 06840
National Financial 200,000(4) 400,000(4) 2.7% 0
Communications Corp.
1040 Great Plain Avenue
Needham, MA 02492
Scooter Investments, Ltd.(5) 30,000 30,000 * 0
30-11100 Railway Ave.
Richmond, British Columbia V7E 2B9
Keith Balcaen 27,888 27,888 * 0
9933 Hill Drive
Vernon, British Columbia V1B 3C8
Pat Heron 20,000 20,000 * 0
246 Greenoch Crescent
Edmonton, Alberta
Canada T6L 1B4
<FN>
* Less than 1%.
(1) Assumes all shares are sold by the selling shareholder.
(2) Based on shares owned at prospectus date (75,757 shares for Dutchess Fund,
227,272 shares for Dutchess Advisors, Ltd., no shares for DRH) plus
2,000,000 shares which may be sold under the Investment Agreement to each
of Dutchess Fund and DRH.
39
(3) Dutchess Fund and DRH, investors under the Investment Agreement, are
statutory underwriters under section 2(a)(11) of the 1933 Act. The
principals of Dutchess Fund are Dutchess Capital Management LLC, its
general partner, and Michael A. Novielli and Douglas H. Leighton, managing
members and principal owners of the general partner. Mr. Novielli and Mr.
Leighton exercise voting and investment power over the company's shares
owned by Dutchess Fund. The principals of DRH are David Danovitch, Alfred
Hahnfeldt and Hunter Singer; these individuals exercise voting and
investment power over the company's shares owned by DRH. The principals of
Dutchess Advisors, Ltd., advisor to Dutchess Fund, are Michael A. Novielli
and Douglas H. Leighton. These individuals exercise voting and investment
power over the company's shares owned by Dutchess Advisors. May Davis
Group, Inc. is a statutory underwriter of this offering under section
2(a)(11) of the 1933 Act. The principals of May Davis Group are Owen May,
chairman, and Kevin Davis, president. Mr. May and Mr. Davis exercise voting
and investment power over the company's shares owned by May Davis Group,
Inc. See "Financing Transactions - Investment Agreement" above, and "Plan
of Distribution" below.
(4) Includes 200,000 shares we have agreed to issue, and 200,000 shares
issuable on exercise of three year options at $1.00 per share. See
"Financing Transactions - Public Relations Agreement." NFC is not an
underwriter of this offering.
(5) A cash investor who bought restricted stock, and who is not an affiliate of
the company.
</FN>
The shares owned or to be owned by the selling shareholders are
registered under rule 415 of the general rules and regulations of the Securities
and Exchange Commission, concerning delayed and continuous offers and sales of
securities. In regard to the offer and sale of such shares, we have made certain
undertakings in Part II of the registration statement of which this prospectus
is part, by which, in general, we have committed to keep this prospectus current
during any period in which these persons make offers to sell or sell the covered
securities pursuant to rule 415.
PLAN OF DISTRIBUTION
The selling shareholders and any of their pledgees, donees, assignees and
successors-in-interest may, from time to time, sell any or all of their shares
of common stock on any stock exchange, market or trading facility on which the
shares are traded. These sales may be at fixed or negotiated prices. The selling
shareholders may use any one or more of the following methods when selling
shares:
O ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
O block trades in which the broker-dealer will attempt to sell the
shares as agent but may position and resell a portion of the block as
principal to facilitate the transaction;
O purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
O an exchange distribution in accordance with the rules of the
applicable exchange;
O privately negotiated transactions;
O short sales;
40
O broker-dealers may agree with the selling shareholders to sell a
specified number of such shares at a stipulated price per share;
O a combination of any such methods of sale; and
O any other method permitted pursuant to applicable law.
The selling shareholders may also sell shares under rule 144, if available,
rather than under this prospectus.
The selling shareholders may also engage in short sales against the box,
puts and calls and other transactions in securities of the company or
derivatives of company securities and may sell or deliver shares in connection
with these trades. The selling shareholders may pledge their shares to their
brokers under the margin provisions of customer agreements. If a selling
shareholder defaults on a margin loan, the broker may, from time to time, offer
and sell the pledged shares. The selling shareholders have advised the company
that they have not entered into any agreements, understandings or arrangements
with any underwriters or broker- dealers regarding the sale of their shares
other than ordinary course brokerage arrangements, nor is there an underwriter
or coordinating broker acting in connection with the proposed sale of shares by
the selling shareholders.
Broker-dealers engaged by the selling shareholders may arrange for other
brokers-dealers to participate in sales. Broker-dealers may receive commissions
or discounts from the selling shareholders (or, if any broker-dealer acts as
agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated. The selling shareholders do not expect these commissions and
discounts to exceed what is customary in the types of transactions involved.
DRH Investment Company, LLC and Dutchess Private Equities Fund, L.P. and
their affiliates (for Dutchess Fund, Dutchess Advisors, Ltd. and Dutchess
Management LLC) are each an "underwriter" under section 2(a)(11) of the 1933
Act, in connection with the resale of common stock under the Investment
Agreement. Dutchess Fund and DRH will pay us 93% of the market price for our
common stock, determined in accordance with the Investment Agreement (see
"Financing Transactions - Investment Agreement"). The discount on the purchase
of the common stock to be received by them will be an underwriting discount. We
retained May Davis Group, Inc. as placement agent in connection with the
financing facility under the Investment Agreement. May Davis Group, Inc. will be
paid a commission of 3.5% of each investing transaction by Dutchess Fund and DRH
under the Investment Agreement. This cash commission is in addition to the
303,030 shares of common stock issued to May Davis Group, Inc. as a placement
fee under the terms of the Investment Agreement upon its execution on October 4,
2001. Dutchess Advisors, Ltd. is acting in an advisory capacity to Dutchess Fund
and the company has agreed to pay Dutchess Advisors, Ltd. as its advisory fee
3.5% of each investing transaction and has issued 227,272 shares of common stock
to Dutchess Advisors, Ltd. The company also has issued 75,757 shares of common
stock to Dutchess Fund as an inducement to enter into the Investment Agreement.
Other selling shareholders and any broker-dealers or agents that are
involved in selling the shares may be deemed to be "underwriters" within the
meaning of the 1933 Act in connection with such sales. In such event, any
commissions received by such broker-dealers or agents and any profit on the
resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the 1933 Act.
We are required to pay all fees and expenses incident to the registration
of the shares. Otherwise, all discounts, commissions or fees incurred in
connection with the sale of the common stock offered hereby will be paid by the
selling shareholders. The company has agreed to indemnify certain selling
shareholders
41
(Dutchess Fund, DRH, and Dutchess Advisors) against certain losses, claims,
damages and liabilities, including liabilities under the 1933 Act. We have been
advised that in the opinion of the Securities and Exchange Commission,
indemnification for liabilities under the 1933 Act is against public policy, and
therefore is unenforceable.
Upon the company being notified by a selling shareholder that any material
arrangement has been entered into with a broker-dealer for the sale of shares
through a block trade, special offering, exchange distribution or secondary
distribution or a purchase by a broker or dealer, a supplement to this
prospectus will be filed, if required, pursuant to rule 424(b) under the 1933
Act, disclosing (i) the name of each such selling shareholder and of the
participating broker-dealer(s), (ii) the number of shares involved, (iii) the
price at which such shares were sold, (iv) the commissions paid or discounts or
concessions allowed to such broker-dealer(s), where applicable, (v) that such
broker-dealer(s) did not conduct any investigation to verify the information set
out or incorporated by reference in this prospectus, and (vi) other facts
material to the transaction.
In order to comply with the securities laws of certain states, if
applicable, the shares will be sold in such jurisdictions, if required, only
through registered or licensed brokers or dealers. In addition, in certain
states the shares may not be sold unless the shares have been registered or
qualified for sale in such state or an exemption from registration or
qualification is available and complied with.
We have advised the selling shareholders that the anti-manipulative
provisions of the Securities and Exchange Commission's regulation M promulgated
under the Securities Exchange Act of 1934 may apply to their sales of the shares
offered under this prospectus. Regulation M provides that any person engaged in
a distribution of the common stock offered hereby may not simultaneously engage
in market making activities with respect to the common stock for a period of up
to five days preceding such distribution. The selling shareholders will be
subject to other provisions of the Exchange Act and the rules and regulations
thereunder, which provisions may limit the timing of purchases and sales by the
selling shareholders.
DESCRIPTION OF SECURITIES
COMMON STOCK
We are authorized to issue 15,000,000 shares of common stock ($.001 par
value).
Holders of common stock are entitled to one vote per share on each matter
submitted to a vote at any meeting of shareholders. Cumulative voting is not
permitted in elections of directors or otherwise. The presence in person or by
proxy of the holders of a majority of the outstanding common stock is required
to constitute a quorum at any shareholders meeting. If a quorum is present,
proposals are passed if approved by the holders of a majority of the votes
present, except for substantive corporate matters (such as a merger, sale of
assets or amendment to articles of incorporation, which matters must be approved
by the holders of a majority of outstanding shares under Nevada law). In
addition, if there is preferred stock outstanding, the holders of the preferred
stock would be entitled to vote as a separate class on such substantive
corporate transactions.
A minimum of 10 days notice is required to be given for any shareholders
meeting.
Our board of directors has authority, without action by the shareholders,
to issue all or any portion of the authorized but unissued shares of common
stock, which would reduce the percentage ownership of its present shareholders
and which may dilute the book value of the common stock.
42
Shareholders have no pre-emptive rights to acquire additional shares of
common stock. The common stock is not subject to redemption and carries no
subscription or conversion rights. In the event of liquidation, the shares of
common stock are entitled to share equally in corporate assets after
satisfaction of all liabilities.
Holders of common stock are entitled to receive such dividends as the board
of directors may from time to time declare out of funds legally available for
the payment of dividends. We have not paid dividends and do not intend to pay
dividends in the foreseeable future.
PREFERRED STOCK
We are authorized to issue 10,000,000 shares of preferred stock ($.001 par
value). The board of directors has authority, without action by the
shareholders, to issue preferred stock in one or more series and to determine
the voting rights, preferences as to dividends and liquidation, conversion
rights, and other rights of such series. Preferred stock may carry rights
superior to those of the common stock. No series of preferred stock has been
authorized, and no shares of preferred stock have been issued.
Reference is made to our certificate of incorporation and by-laws which are
available for inspection at our offices or which can be viewed through the EDGAR
data base at http://www.sec.gov as exhibits to the registration statement on
Form SB-2. Reference is also made to applicable statutes of the state of Nevada
for laws concerning rights of shareholders.
WARRANTS
Warrants have been issued to a Canadian investor to purchase 40,000
restricted shares at $0.35 per share expiring on October 10, 2003; and warrants
to purchase a total of 36,000 shares have been issued to three investors (one
Canadian resident, and two private companies controlled and owned by Canadian
residents) for $0.35 per share, expiring on January 8, 2004. The purchase price
of $0.35 per share represents a discount of approximately 50% from market prices
at the time of issuance.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES
Our bylaws provide that we shall indemnify directors provided that the
indemnification shall not eliminate or limit the liability of a director for
breach of the director's duty or loyalty to the corporation or its stockholders,
or for acts of omission not in good faith or which involve intentional
misconduct or a knowing violation of law.
Nevada law permits a corporation, under specified circumstances, to
indemnify its directors, officers, employees or agents against expenses
(including attorney's fees), judgments, fines and amounts paid in settlements
actually and reasonably incurred by them in connection with any action, suit or
proceeding brought by third parties by reason of the fact that they were or are
directors, officers, employees or agents of the corporation, if these directors,
officers, employees or agents acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceedings, had no
reason to believe their conduct was unlawful. In a derivative action, i.e., one
by or in the right of the corporation, indemnification may be made only for
expenses actually and reasonably incurred by directors, officers, employees or
agent in connection with the defense or settlement of an action or suit, and
only with respect to a matter as to which they shall have acted in good faith
and in a manner they reasonably believed to be in or not opposed to the best
interests of the corporation, except that no indemnification shall be made if
such person shall have been adjudged liable to the corporation, unless and only
to the extent that the court in which the action or suit was brought shall
determine upon application that
43
the defendant directors, officers, employees or agents are fairly and reasonably
entitled to indemnify for such expenses despite such adjudication of liability.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
company pursuant to the foregoing provisions, or otherwise, we have been advised
that in the opinion of the Commission such indemnification is against public
policy as expressed in the 1933 Act, and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the company of expenses incurred or paid by a director, officer or
controlling person in the successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling person in connection with
the securities being registered, the company will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the 1933 Securities Act, and will be
governed by the final adjudication of such issue.
LEGAL PROCEEDINGS
The company is not a party to current litigation and no notice of possible
claims against the company has been received.
LEGAL MATTERS
The validity of the issuance of the shares offered hereby will be passed
upon for us by The Law Office of Stephen E. Rounds, Denver, Colorado. Dutchess
Private Equities Fund and DRH Investment Company LLC are represented in
connection with the Investment Agreement by Joseph B. LaRocco, New Canaan,
Connecticut. Mr. LaRocco owns 37,000 shares of common stock in the company.
EXPERTS
Our financial statements as of December 31, 2000 and for the 24 months then
ended, and unaduited financial statements for the nine months ended September
30, 2001 and 2000, have been included in this prospectus in reliance on the
report of Murphy, Bennington & Co., Las Vegas, Nevada. Their reports are
included upon the authority of such firm as experts in accounting and auditing.
44
CAN-CAL RESOURCES, LTD.
INDEX TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 PAGE
INDEPENDENT AUDITORS' REPORT 46
FINANCIAL STATEMENTS:
Balance sheets 47
Statements of operations 48
Statements of changes in stockholders' deficit 49
Statements of cash flows 50
Notes to financial statements 51-59
SUPPLEMENTARY SCHEDULE:
Supplemental schedule I-- Costs and expenses 60
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
INDEPENDENT ACCOUNTANTS' REPORT 61
FINANCIAL STATEMENTS:
Interim balance sheets 62
Interim statements of operations 63
Interim statements of changes in stockholders' deficit 64
Interim statements of cash flows 65
Notes to interim financial statements 66-69
SUPPLEMENTARY SCHEDULE:
Supplemental schedule I-- Costs and expenses 70
45
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Can-Cal Resources, Ltd.
Las Vegas, Nevada
In our opinion, the accompanying restated balance sheets of Can-Cal Resources,
Ltd. (a Nevada corporation) as of December 31, 2000 and 1999, and the related
restated statements of operations, changes in stockholders' equity, and cash
flows present fairly, in all material respects the financial position of Can-Cal
Resources, Ltd. at December 31, 2000 and 1999, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles. 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 of these statements 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.
As more fully described in Note 14, the Company restated its financial
statements for the year ended December 31, 2000 to expense previously
capitalized costs.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company's significant operating losses raise
substantial doubt about its ability to continue as a going concern. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental information on page 14
is presented for purposes of additional analysis and is not a required part of
the basic financial statements. Such information has been subjected to the
auditing procedures applied in the audits of the basic financial statements and,
in our opinion, is fairly stated in all material respects in relation to the
basic financial statements taken as a whole.
/s/ Murphy, Bennington & Co.
Las Vegas, NV
January 14, 2001
46
CAN-CAL RESOURCES, LTD.
BALANCE SHEETS
DECEMBER 31, 2000 AND 1999
(ROUNDED TO THE NEAREST HUNDRED, EXCEPT SHARE DATA)
[Enlarge/Download Table]
ASSETS 2000 1999
------------ -----------
(As Restated)
CURRENT ASSETS:
Cash $ 510,800 $ 51,800
Notes receivable, related parties (Note 2) 48,100 44,700
Prepaid expenses -- 1,200
Current portion of note receivable 53,000 48,000
----------- -----------
Total current assets 611,900 145,700
PROPERTY AND EQUIPMENT, NET (NOTES 1 AND 3) 72,400 61,400
OTHER ASSETS (NOTE 4) 17,300 95,300
LONG-TERM INVESTMENTS (NOTE 5) 19,000 586,100
----------- -----------
$ 720,600 $ 888,500
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank overdrafts $ 14,200 $ --
Accounts payable 51,300 7,100
Accrued expenses 33,800 56,300
Notes payable, current portion 32,500 6,800
----------- -----------
Total current liabilities 131,800 70,200
NOTE PAYABLE, (NOTE 6) 300,000 55,000
NOTES PAYABLE, RELATED PARTIES (NOTE 7) 119,200 14,800
----------- -----------
551,000 140,000
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value; authorized, 15,000,000
shares; issued and outstanding, 9,372,791 and
8,253,783 shares respectively 9,400 8,200
Preferred stock, $.001 par value; authorized, 10,000,000
shares; none issued or outstanding -- --
Additional paid-in-capital 3,408,600 2,460,200
Accumulated deficit (3,248,400) (1,719,900)
----------- -----------
169,600 748,500
----------- -----------
$ 720,600 $ 888,500
=========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
47
CAN-CAL RESOURCES, LTD.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2000 AND 1999 (ROUNDED TO THE NEAREST HUNDRED, EXCEPT
SHARE DATA)
[Download Table]
2000 1999
------------- -----------
(As Restated)
SALES
Mining revenue $ -- $ 3,700
Rental revenue 22,500 --
----------- -----------
22,500 3,700
----------- -----------
COSTS AND EXPENSES (NOTE 14) 1,615,700 614,600
----------- -----------
LOSS FROM OPERATIONS (1,593,200) (610,900)
OTHER INCOME (EXPENSES):
Other income 10,300 --
Gain on sale of equipment 20,300 --
Interest income 12,300 7,200
Interest expense (15,700) (9,100)
----------- -----------
NET INCOME(LOSS) FROM CONTINUING OPERATIONS (1,566,000) (612,800)
----------- -----------
INCOME (LOSS) FROM DISCONTINUED OPERATIONS:
Income (loss) from discontinued
automobile salvage division -- 174,300
Gain on disposal of automobile
salvage division (net of taxes) -- 116,400
----------- -----------
NET INCOME (LOSS) $(1,566,000) $ (322,100)
=========== ===========
NET INCOME (LOSS) PER SHARE OF COMMON STOCK
AND COMMON STOCK EQUIVALENTS:
BASIC EPS
Net loss from continuing operations $ (0.17) $ (0.04)
=========== ===========
Weighted average shares outstanding 8,811,282 7,907,054
=========== ===========
DILUTED EPS
Net loss from continuing operations $ (0.17) $ (0.04)
=========== ===========
Weighted average shares outstanding 8,811,282 7,907,054
=========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
48
CAN-CAL RESOURCES, LTD.
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
YEARS ENDED DECEMBER 31, 2000 AND 1999 (ROUNDED TO THE NEAREST HUNDRED, EXCEPT
SHARE DATA)
[Enlarge/Download Table]
ADDITIONAL CUMULATIVE TOTAL
PAID-IN ACCUMULATED TRANSLATION STOCKHOLDERS'
COMMON STOCK CAPITAL DEFICIT ADJUSTMENT EQUITY
----------------------- ------------ ------------ ------------ ------------
SHARES AMOUNT (As Restated)
---------- ----------
BALANCE, DECEMBER 31, 1998 7,005,161 $ 7,000 $ 1,887,600 $(1,397,800) $ 8,500 $ 505,300
Issuance of common stock 1,248,621 1,200 572,600 -- -- 573,800
Foreign currency translation -- -- -- -- (11,800) (11,800)
Realized foreign currency translation loss -- -- -- -- 3,300 3,300
Net income (loss) for the year -- -- -- (322,100) -- (322,100)
----------- ----------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1999 8,253,782 8,200 2,460,200 (1,719,900) -- 748,500
Issuance of common stock 1,119,009 1,200 948,400 -- -- 949,600
Prior period adjustment (Note 12) -- -- -- 37,500 -- --
Net income (loss) for the year -- -- -- (1,566,000) -- (1,566,000)
----------- ----------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 2000 9,372,791 $ 9,400 $ 3,408,600 $(3,248,400) $ -- $ 132,100
=========== =========== =========== =========== =========== ===========
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</FN>
49
CAN-CAL RESOURCES, LTD.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2000 AND 1999
(ROUNDED TO THE NEAREST HUNDRED)
[Enlarge/Download Table]
2000 1999
------------- ------------
(As Restated)
CASH FLOWS FROM OPERATING ACTIVITIES:
NET LOSS $(1,566,000) $ (322,100)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 31,000 18,700
Bad debt expense 53,300 152,100
Gain on disposal (20,000) (116,400)
Impairment loss on mining properties 603,500 --
Undistributed earnings of affiliate -- (174,300)
Gain on foreign currency translation -- 8,500
Cumulative effect of change in income recognition 37,500 --
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (3,400) (4,000)
(Increase) decrease in inventories -- 100
(Increase) decrease in prepaid expenses 1,200 --
(Increase) decrease in other assets (10,300) --
Increase (decrease) in accounts payable and
other current liabilities 35,700 34,100
----------- -----------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (837,500) (403,300)
----------- -----------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of property and equipment (42,000) (57,400)
Sale of equipment 20,000 65,300
Loan to an individual (5,000) --
----------- -----------
NET CASH PROVIDED BY INVESTING ACTIVITIES (27,000) 7,900
----------- -----------
CASH FLOW FROM FINANCING ACTIVITIES:
Increase (decrease) in related party debt 104,400 (148,500)
Principal payments on note payable (30,500) (55,200)
Proceeds from issuance of common stock 949,600 574,000
Proceeds from debt issuance 300,000 35,300
----------- -----------
NET CASH USED BY FINANCING ACTIVITIES 1,323,500 405,600
NET INCREASE (DECREASE) IN CASH 459,000 10,200
CASH AT BEGINNING OF YEAR 51,800 41,600
----------- -----------
CASH AT END OF YEAR $ 510,800 $ 51,800
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
CASH PAID DURING THE YEAR FOR:
Interest $ - $ -
============== ==============
Income taxes $ - $ -
============== ==============
The accompanying notes are an integral part of these
consolidated financial statements.
50
CAN-CAL RESOURCES, LTD.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization and nature of business:
Can-Cal Resources, Ltd. ( the "Company") is a corporation formed under the
laws of the State of Nevada on March 22, 1995. The company is engaged in
the precious metal processing industry and other investment
opportunities.
Company's activities and operating cycle:
In the course of its activities, the Company has sustained continuing
operating losses and expects such losses to continue for the foreseeable
future. The Company plans to continue to fund its operations with various
types of financing including borrowings and sales of stock, and, in the
longer term, revenues from sales. The Company's ability to continue as a
going concern is dependent upon future financing and ultimately upon
achieving profitable operations.
Revenue recognition:
Precious metals sales are recognized when delivery has occurred, title
passes and pricing is either fixed or determinable. All precious metal
sales are made in accordance with standard sales contracts that the
Company enters into with third parties.
Rental revenues are recognized on a pro-rata basis over the term of the
agreements.
Basis of accounting:
The Company prepares its financial statements in accordance with generally
accepted accounting principles.
Cash and cash equivalents:
Cash and cash equivalents consist of all cash balances and highly liquid
investments with an original maturity of three months or less. Because of
the short maturity of these investments, the carrying amounts approximate
their fair value.
Property, equipment and depreciation:
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is provided on the straight-line method over the estimated
useful lives of the assets. The amounts of depreciation provided are
sufficient to charge the cost of the related assets to operations over
their estimated useful lives.
The cost of maintenance and repairs is charged to expense as incurred.
Expenditures for betterments and renewals are capitalized. Upon sale or
other disposition of depreciable property, cost and accumulated
depreciation are removed from the accounts and any gain or loss is
reflected in income.
51
CAN-CAL RESOURCES, LTD.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Property evaluations:
Long lived assets are reviewed for impairment when events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. If deemed impaired, an impairment loss is measured and
recorded based on the fair value of the asset, which generally will be
computed using discounted expected future cash flows.
Undeveloped properties upon which the Company has not performed sufficient
exploration work to determine whether significant mineralization exists
are carried at original acquisition cost. If it is determined that
significant mineralization does not exist, an impairment loss is measured
and recorded based on the fair value of the property at the time of such
determination.
Joint ventures:
Investments in joint ventures in which the company has a 20% to 50%
interest are carried at cost, adjusted for the Company's proportionate
share of their undistributed earnings or losses.
Concentration of credit risk:
A majority of the Company's business activity is with customers primarily
located in the metropolitan area of Las Vegas, NV.
The company maintains multiple cash balances at financial institutions
located in Las Vegas, NV. The accounts are insured by the Federal Deposit
Insurance Corporation ("FDIC") up to $100,000. As of December 31, 2000,
the Company had $ 409,500 in excess of FDIC limits.
Income taxes:
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." This
statement requires an asset and liability approach to account for income
taxes. The Company provides deferred income taxes for temporary
differences that will result in taxable or deductible amounts in future
years based on the reporting of certain costs in different periods for
financial statement and income tax purposes.
Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
52
CAN-CAL RESOURCES, LTD.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Reclassifications:
Certain financial statements from prior years have been reclassified to
conform with current year presentation.
Net income (loss) per share of common stock:
In 1997 the Company adopted Statement of Financial Accounting Standards No.
128 ("SFAS 128"), "Earnings Per Share," which sets forth the basis for
the computation of "basic" earnings per share and "dilutive" earnings per
share. Basic EPS excludes dilution and is computed by dividing income
(loss) available to common stockholders by the weighted-average number of
common shares outstanding for the period. Diluted EPS reflects the
potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that would then share in the
earnings of the entity. Diluted EPS is computed on the basis of the
weighted-average shares of Common Stock outstanding plus common
equivalent shares arising from the effect of cumulative convertible
Preferred Stock, using the if- converted method, and dilutive stock
options, using the treasury-stock method. All EPS amounts for prior years
have been restated to conform to these new standards, and the effect of
the restatement was not significant.
2. NOTES RECEIVABLE (RELATED PARTIES):
Notes receivable, related parties, at December 31, 2000 and 1999 consisted
of the following:
[Download Table]
Note receivable from S&S Joint Venture, a
joint venture partner unsecured
interest imputed at 8%, due on demand $ 28,000 $ 28,000
Note receivable from an individual,
unsecured, interest
imputed at 8%, due on demand 12,000 12,000
Accrued interest receivable 13,900 10,500
----------- -----------
53,900 50,500
Allowance for uncollectible accounts 5,800 5,800
----------- -----------
$ 48,100 $ 44,700
=========== ===========
53
CAN-CAL RESOURCES, LTD.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
3. PROPERTY AND EQUIPMENT:
Property and equipment at December 31, 2000 and 1999 consisted of the
following:
[Download Table]
2000 1999
----------- ----------
Machinery and equipment $ 95,100 $ 81,700
Transportation equipment 18,400 --
Office equipment and furniture 14,200 4,000
----------- ----------
127,700 85,700
Less accumulated depreciation (55,300) (24,300)
----------- ----------
$ 72,400 $ 61,400
=========== ==========
Depreciation expense for the years ended December 31,2000 and 1999 totaled
$31,000 and $18,800 respectively.
4. OTHER ASSETS:
Other assets at December 31, 2000 and 1999 consisted of the following:
[Download Table]
2000 1999
----------- ----------
Note receivable from Tyro, Inc., and principals,
a corporation, secured by equipment,
interest accrued at 6% per annum, due on demand $ 53,300 $ 53,300
Deposits 6,800 5,600
Non-destructive testing supplies 10,500 --
Mining claims -- 36,400
----------- ----------
70,600 95,300
Allowance for uncollectible notes (53,300) --
----------- ----------
$ 17,300 $ 95,300
=========== ==========
5. LONG-TERM INVESTMENTS:
Long-term investments at December 31, 2000 and 1999 consisted of the
following:
[Download Table]
2000 1999
---------- ---------
Pisgah property $ - $ 567,100
Investment in S&S Joint Venture 19,000 19,000
---------- ---------
$ 19,000 $ 586,100
========== =========
For further discussion of the Pisgah property, see Note 14 regarding
write-downs recorded at December 31, 2000.
54
CAN-CAL RESOURCES, LTD.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
5. LONG-TERM INVESTMENTS (CONTINUED):
In 1996, the Company entered into a joint venture agreement with the
Schwarz family. The joint venture agreement covers approximately 425
acres of unpatented placer and lode mining claims in the Silurian Hills
of California, known as Owl Canyon. The S&S Joint Venture has since
increased its holdings to about 745 acres.
In consideration of a 50% interest in the joint venture, the Company issued
500,000 restricted shares of common stock and loaned approximately
$35,000 to the venture partners.
The joint venture is accounted for using the equity method of accounting
whereby the investment is recorded at cost and is increased or decreased
by the Company's pro-rata share of income or losses.
Currently the Company is focusing its efforts on the Pisgah Property and
therefore there is no activity in the joint venture at this time.
6. NOTES PAYABLE:
Notes payable at December 31, 2000 and 1999 consisted of the following:
[Enlarge/Download Table]
2000 1999
----------- ----------
Note payable to lender; secured by 1st deed of trust; interest
at 8.00% per annum, matures July 31, 2001 $ 32,500 $ 55,000
Note payable to lender; unsecured; interest
at prime plus 1.00% per annum, matures September, 2000 - 5,100
Note payable to lender, unsecured; interest at prime plus
1.00% per annum, matures March, 2000 - 1,700
Note payable to lender; secured by 2nd deed of trust; interest
at 16.00% per annum, matures November 24, 2005 300,000 --
----------- ----------
332,500 61,800
Less current portion 32,500 6,800
----------- ----------
$ 300,000 $ 55,000
=========== ==========
7. NOTE PAYABLE, RELATED PARTIES:
Notes payable, related parties, at December 31, 2000 and 1999 consisted of
the following:
[Download Table]
2000 1999
---------- ---------
Note payable to shareholder; unsecured; interest
at prime plus 1.00% per annum, due on demand $ 114,700 $ 14,800
Note payable to shareholder; unsecured; interest at
prime plus 1.00% per annum, due on demand 4,500 --
---------- ---------
$ 119,200 $ 14,800
========== =========
55
CAN-CAL RESOURCES, LTD.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
8. STOCKHOLDERS' EQUITY:
Common stock:
February 1, 1999, the Board of Directors approved the Sale of 62,500 shares
of Can-Cal common stock to a Board member.
On February 8, 1999 the Board approved the sale of 70,000 shares of Can-Cal
common stock to a Board member.
On March 1, 1999 the Board approved the issuance of 32,121 shares of
Can-Cal common stock in return for services rendered.
On March 15, 1999 the Board approved the sale of 86,000 shares of Can-Cal
common stock to various investors.
On March 17, 1999 the Board approved the issuance of 40,000 shares of
Can-Cal common stock in return for equipment.
On March 10, 1999 the Board approved the sale 295,500 shares of Can-Cal
common stock to various investors.
On April 1, 1999 the Board approved the sale of 1,000 restricted common
stock in return for equipment.
On July 21, 1999 the Board approved the sale of 357,500 shares of common
stock to various investors.
On August 24, 1999 the Board approved the sale of 274,000 shares of common
stock to various investors.
September 7, 1999 the Board approved the sale of 20,000 shares of common
stock to an investor.
On November 9, 1999, the board approved the issuance of 10,000 shares of
common stock to an investor.
On February 27, 2000, the Board of Directors approved the sale of 500,000
shares of Can-Cal common stock to three of its directors (all of whom
reside in Canada), an offshore trust and another person affiliated with
the Company.
On July 3, 2000, the Board of Directors exercised the option to acquire
technology related to the extraction and processing of ore and, in
accordance with the agreement with the two owners of that technology,
issued 200,000 shares of Can-Cal's common stock to them.
On November 24, 2000, the Company borrowed $300,000 from a lender. As part
of the transaction, the Company issued 45,000 shares of its common stock
as a loan placement fee and granted the lender an option to purchase up
to 300,000 shares of its common stock. On November 24, 2000, the lender
exercised its option in full and purchased 300,000 shares of Can-Cal's
common stock.
In July 2000 the Board of Directors authorized the sale of 74,009 shares of
its common stock to eight persons, all of whom reside outside the United
States. 46,670 shares were sold during the third quarter and the
remaining 27,339 shares were sold during the fourth quarter. All of those
shares were issued on December 15, 2000.
56
CAN-CAL RESOURCES, LTD.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
9. STOCK OPTIONS:
The company has entered into an agreement with a consultant. If the Company
is producing or able to produce precious metals from the volcanic cinder
material, the Company will grant a three-year option to purchase up to
40,000 shares of its common stock. The exercise price shall be equal to
the closing price of the stock on January 8, 2001.
10. COMMITMENTS AND CONTINGENCIES:
Lease commitments:
Facilities:
The Company has entered into an interim agreement with an individual, to
lease a facility in Nye County, Nevada. The agreement stipulates rent of
$1,000 per month and includes a purchase option. At December 31, 2000,
the parties were finalizing the terms of the agreement.
Mining Claims:
The Company has a lease and purchase option agreement covering six patented
mining claims in the Cerbat Mountains, Hualapai Mining District, Mohave
County Arizona. The Company pays $1,500 per quarter as minimum advance
royalties. The Company has the option to purchase the property for
$250,000 less payments already made.
Auto leases:
The Company entered into three operating leases for automobiles that expire
during the year 2000. The monthly lease payments currently total $1,274
per month. Lease payments for the year ended December 31, 2000 totaled $
14,900.
The Company leases space for the operations of the Company under an
operating lease due to expire in March 2001.
Minimum future rental payments under these non-cancelable operating leases
for each of the next five years and in aggregate are as follows:
YEAR ENDING
DECEMBER 31,
------------
2001 $ 15,900
2002 9,500
2003 3,700
2004 2,500
2005 --
Thereafter --
----------
$ 31,600
57
CAN-CAL RESOURCES, LTD.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
11. INCOME TAXES:
Deferred income taxes are provided for the temporary differences between
the financial reporting basis and the tax basis of the Company's assets
and liabilities. The temporary difference that gave rise to the deferred
tax asset is primarily as follows:
[Download Table]
Net operating loss carry forward - December 31, 2000 $ 2,915,000
Net operating loss carry forward - December 31, 1999 322,100
Net Operating loss carry forward - December 31, 1998 353,000
Net Operating loss carry forward - December 31, 1997 1,044,700
-----------
4,634,900
Deferred tax assets 991,200
Total valuation allowance recognized for deferred tax assets (991,200)
-----------
Net deferred tax asset $ --
===========
12. PRIOR PERIOD ADJUSTMENT:
In May 1998, the Company entered into an agreement by which it would
receive a minimum royalty payment of $22,500 annually during the initial
term of the agreement. These payments have been recorded as unearned
revenues in the Company's accounts. These minimum royalty payments are
characteristic of rent on the property. It was found that, during 2001,
the earnings process had been completed and that the revenues should have
been recognized throughout the term of the agreement. As restated, the
financial statements reflect the $22,500 annual payment in the year ended
December 31, 2000. The effect of 1998 and 1999 rental revenues are as
follows:
[Download Table]
1998 Reduction of retained deficit $ 15,000
1999 Reduction of retained deficit 22,500
-----------
$ 37,500
===========
The $37,500 prior period adjustment has been reported in the Statements of
Changes in Stockholders' Deficit.
13. NEW ACCOUNTING STANDARD:
On January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130 ("SFAS 130") "Reporting Comprehensive Income", which
requires companies to report all changes in equity during a period,
except those resulting from investment by owners and distribution to
owners. The components for comprehensive income are as follows:
[Download Table]
2000 1999
---------- ----------
Net income (loss) $(917,500) $ (322,100)
Translation adjustment -- 3,300
---------- ----------
Comprehensive income $(917,500) $ (318,800)
58
CAN-CAL RESOURCES, LTD.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
14. WRITE DOWNS:
The Company has not determined that any proven and probable reserves exist
on the Pisgah property, the Erosion mining claims, or the Cerbat mining
claims. Further, the Company cannot at this time accurately estimate the
extent of future cash flows, if any, from these properties. Based on this
information the Company recorded $567,100, $22,905, and $13,500 of
impairment charges relating to the write-downs of the Pisgah property,
the Erosion mining claims and the Cerbat mining claims, respectively. The
total $603,505 of such write-downs is included in costs and expenses on
the Statements of Operations for the year ended December 31, 2000.
15. RESTATEMENT:
After issuing Can-Cal's 2000 financial statements and filing Form 10-KSB
with the Securities and Exchange Commission ("SEC"), management
determined it was necessary to revise its financial statements to expense
previously capitalized costs associated with its Pisgah property and the
Cerbat and Erosion mining claims and recognized rental revenues in the
period earned.
16. NONCASH INVESTING AND FINANCING ACTIVITIES:
During 2000, the Company issued 200,000 shares of common stock for
technology related to extracting and processing ore.
The Company issued 45,000 shares of common stock as a loan placement fee.
17. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The following table presents the carrying amounts and estimated fair value
of the Company's financial instruments at December 31, 2000:
CARRYING FAIR
AMOUNT VALUE
---------- ----------
Financial assets:
Loans receivable-related party $ 48,100 $ 48,100
Property and equipment 72,400 72,400
Other assets 17,300 17,300
Long-term investments 19,000 19,000
Financial liabilities:
Notes payable, related parties 119,200 119,200
Note payable 300,000 300,000
The carrying amounts of cash, accounts payable and accrued expenses
approximate fair value because of the short maturity of those
instruments. Using interest rates prevailing on similar instruments, the
carrying amount of notes payable, related parties, approximate fair value
at December 31, 2000.
18. SUBSEQUENT EVENTS:
During the first quarter of 2001, the Board of Directors approved a salary
of $60,000 per year for the Company's president.
59
CAN-CAL RESOURCES, LTD.
SUPPLEMENTAL SCHEDULE I --
COSTS AND EXPENSES
YEARS ENDED DECEMBER 31, 2000 AND 1999
[Enlarge/Download Table]
THREE MONTHS THREE MONTHS
ENDED ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2000 1999 2000 1999
----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Impairment loss on mining property $ 603,500 $ -- $ 603,500 $ --
Mine exploration costs 80,200 19,100 534,700 152,200
Consulting 4,700 36,500 69,600 125,700
Travel and entertainment 6,800 9,500 65,300 29,100
Accounting and legal 29,100 13,700 59,300 45,600
Insurance 16,700 14,500 54,800 18,300
Bad debt expense 53,300 -- 53,300 152,100
Office expense 15,400 (600) 41,600 9,500
Office rent 8,700 5,500 33,900 16,000
Depreciation and amortization 9,900 6,000 31,000 18,800
Advertising and promotion 9,800 500 22,500 1,800
Lease expense 14,900 5,500 14,900 5,500
Miscellaneous 8,000 29,300 14,300 31,200
Telephone 1,600 3,500 9,300 7,000
Utilities 1,000 200 3,800 800
Repairs and maintenance 3,600 500 3,600 500
Bank charges -- -- 300 500
----------- ----------- ----------- -----------
$ 867,200 $ 143,700 $ 1,615,700 $ 614,600
=========== =========== =========== ===========
See independent auditors' report.
60
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors and Stockholders
Can-Cal Resources, Ltd.
Las Vegas, Nevada
We have reviewed the accompanying condensed balance sheet of Can-Cal Resources,
Ltd., as of September 30, 2001, and the condensed statements of operations for
the three and nine months ended September 30, 2001 and 2000, the condensed
statements of cash flows for the nine months ended September 30, 2001 and 2000,
and the condensed statement of changes in stockholders' equity (deficit) for the
nine months ended September 30, 2001. These financial statements are the
responsibility of the company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements for them to be in conformity
with generally accepted accounting principles.
We previously audited, in accordance with generally accepted auditing standards,
the balance sheet as of December 31, 2000, and the related changes in
stockholders' equity (deficit), and cash flows and statements of operations (not
presented herein); for the year then ended; and in our report dated February 18,
2001, we expressed an unqualified opinion on these financial statements. In our
opinion, the information set forth in the accompanying condensed balance sheet
as of December 31, 2000 and the condensed statement of changes in stockholders'
equity for the year then ended, is fairly stated in all material respects in
relation to the balance sheet and statement of changes in stockholders' equity
from which they have been derived.
MURPHY, BENNINGTON & CO.
/s/ Murphy, Bennington & Co.
Las Vegas, NV
November 2, 2001
61
CAN-CAL RESOURCES, LTD.
BALANCE SHEETS
SEPTEMBER 30, 2001
[Enlarge/Download Table]
SEPTEMBER 30, DECEMBER 31,
2001 2000
------------- -------------
(UNAUDITED) (NOTE)
ASSETS (AS RESTATED) (AS RESTATED)
CURRENT ASSETS:
Cash $ 101,500 $ 510,800
Notes receivable, related parties (note 2) 54,400 48,100
Note receivable 52,500 53,000
----------- -----------
Total current assets 208,400 611,900
PROPERTY AND EQUIPMENT, NET (NOTE 3) 55,200 72,400
OTHER ASSETS (NOTE 4) 21,000 17,300
LONG-TERM INVESTMENTS (NOTE 5) 19,000 19,000
----------- -----------
$ 303,600 $ 720,600
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable $ 17,200 $ 51,300
Accrued expenses 73,900 33,800
Checks written against future deposits -- 14,200
Note payable, current portion (note 6) 11,300 32,500
----------- -----------
Total current liabilities 102,400 131,800
NOTE PAYABLE, NET OF CURRENT PORTION (NOTE 6) 324,000 300,000
NOTE PAYABLE - RELATED PARTIES (NOTE 7) 146,400 119,200
----------- -----------
572,800 551,000
----------- -----------
STOCKHOLDERS' DEFICIT:
Common stock, $.001 par value; authorized, 15,000,000
shares; issued and outstanding, 9,430,679 shares 9,500 9,400
Preferred stock, $.001 par value; authorized, 10,000,000
shares; none issued or outstanding -- --
Additional paid-in-capital 3,466,800 3,408,600
Accumulated deficit (3,745,500) (3,248,400)
----------- -----------
(269,200) 169,600
----------- -----------
$ 303,600 $ 720,600
=========== ===========
<FN>
Note: The balance sheet of December 31, 2000 has been derived from the audited financial
statements at that date.
</FN>
See accompanying notes and accountant's report.
62
CAN-CAL RESOURCES, LTD.
STATEMENTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
[Enlarge/Download Table]
THREE MONTHS ENDED NINE MONTHS ENDED
-------------------------- --------------------------
SEPTEMBER SEPTEMBER SEPTEMBER SEPTEMBER
30, 2001 30, 2000 30,2001 30,2000
------------ ------------ ------------ -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
SALES
Mining revenue $ 6,900 $ -- $ 7,000 $ --
Rental revenue 5,600 5,600 16,800 16,800
----------- ----------- ----------- -----------
12,500 5,600 23,800 16,800
COST AND EXPENSES 158,500 453,200 486,800 706,200
----------- ----------- ----------- -----------
LOSS FROM OPERATIONS (158,500) (447,600) (463,000) (689,400)
OTHER INCOME (EXPENSES):
Other income -- 4,500 800 30,000
Interest income 1,300 3,200 9,300 8,000
Interest expense (10,100) (3,500) (44,200) (7,900)
----------- ----------- ----------- -----------
INCOME (LOSS) FROM CONTINUING
OPERATIONS (167,300) (443,400) (497,100) (659,300)
----------- ----------- ----------- -----------
PROVISION FOR INCOME TAXES -- -- -- --
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ (167,300) $ (443,400) $ (497,100) $ (650,300)
=========== =========== =========== ===========
NET INCOME (LOSS) PER SHARE OF COMMON
STOCK AND COMMON STOCK EQUIVALENTS:
BASIC EPS
Net income (loss) $ (0.02) $ (0.05) $ (0.05) $ (0.08)
=========== =========== =========== ===========
Weighted average shares 9,402,058 8,484,895 9,394,587 8,719,709
=========== =========== =========== ===========
DILUTED EPS
Net income (loss) $ (0.02) $ (0.05) $ (0.05) $ (0.08)
=========== =========== =========== ===========
Weighted average shares 9,402,058 8,484,895 9,394,587 8,719,709
=========== =========== =========== ===========
See accompanying notes and accountant's report.
63
CAN-CAL RESOURCES, LTD.
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
NINE MONTHS ENDED SEPTEMBER 30, 2001
(UNAUDITED)
[Enlarge/Download Table]
ADDITIONAL CUMULATIVE TOTAL
PAID-IN ACCUMULATED TRANSLATION STOCKHOLDER
COMMON STOCK CAPITAL DEFICIT ADJUSTMENT EQUITY
-------------------------- ------------ ------------ ------------- -------------
SHARES AMOUNT (AS RESTATED)
----------- -----------
BALANCE, DECEMBER 31, 1998 7,005,161 $ 7,000 $ 1,887,600 $(1,397,800) $ 8,500 $ 505,300
Issuance of common stock 1,248,621 1,200 572,600 -- -- 573,800
Foreign currency translation -- -- -- -- (11,800) (11,800)
Realized foreign currency -- -- -- -- 3,300 3,300
translation loss
Net income (loss) for the year -- -- -- (322,100) -- (322,100)
----------- ----------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1999 8,253,782 8,200 2,460,200 (1,719,900) -- 748,500
Issuance of common stock 1,119,009 1,200 948,400 -- -- 949,600
Prior period adjustment -- -- -- 37,500 -- 37,500
Net income (loss) for the year -- -- -- (1,566,000) -- (1,566,000)
----------- ----------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 2000 9,372,791 9,400 3,408,600 (3,248,400) -- 169,600
Issuance of common stock 57,888 100 58,200 -- -- 58,300
Net income (loss) for the period -- -- -- (497,100) -- (491,400)
----------- ----------- ----------- ----------- ----------- -----------
BALANCE, SEPTEMBER 30, 2001 9,430,679 $ 9,500 $ 3,466,800 $(3,745,500) $ -- $ (263,500)
=========== =========== =========== =========== =========== ===========
See accompanying notes and accountant's report.
64
CAN-CAL RESOURCES, LTD.
STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
[Enlarge/Download Table]
NINE MONTHS ENDED
-----------------------------
SEPTEMBER 30, SEPTEMBER 30,
2001 2000
------------- -------------
(AS RESTATED) (AS RESTATED)
CASH FLOWS FROM OPERATING ACTIVITIES:
NET LOSS $ (497,100) $ (659,300)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 19,700 21,100
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (5,800) (7,600)
(Increase) decrease in prepaid expenses 1,200
(Increase) decrease in other assets (3,700) (11,800)
Increase (decrease) in accounts payable
and other current liabilities (13,900) 10,900
----------- -----------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (500,800) (645,500)
----------- -----------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of property and equipment (2,500) (30,000)
----------- -----------
NET CASH PROVIDED BY INVESTING ACTIVITIES (2,500) (30,000)
CASH FLOW FROM FINANCING ACTIVITIES:
Increase in related party debt 27,200 110,300
Principal payments on note payable (22,500) (23,900)
Proceeds from issuance of common stock 58,300 744,800
Proceeds from debt issuance 25,300 --
----------- -----------
NET CASH USED BY FINANCING ACTIVITIES 88,300 831,200
NET INCREASE (DECREASE) IN CASH (415,000) 155,700
CASH AT BEGINNING OF PERIOD 510,800 51,800
----------- -----------
CASH AT END OF PERIOD $ 95,800 $ 207,500
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
CASH PAID DURING THE YEAR FOR:
Interest $ -- $ --
=========== ===========
Income taxes $ -- $ --
=========== ===========
See accompanying notes and accountant's report.
65
CAN-CAL RESOURCES, LTD.
NOTES TO FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
1. BASIS OF PRESENTATION OF FINANCIAL STATEMENTS:
These unaudited interim financial statements of Can-Cal Resources, Ltd.
have been prepared in accordance with the rules and regulations of the
Securities and Exchange Commission. Such rules and regulations allow the
omission of certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles as long as the statements are not misleading.
In the opinion of management, all adjustments necessary for a fair
presentation of these interim statements have been included and are of a
normal recurring nature. These interim financial statements should be read
in conjunction with the financial statements of the Company included in its
2000 Annual Report on Form 10-KSB. Interim results are not necessarily
indicative of results for a full year.
In the course of its activities, the Company has sustained continuing
operating losses and expects such losses to continue for the foreseeable
future. The Company plans to continue to finance its operations with stock
sales and, in the longer term, revenues from sales. The Company's ability
to continue as a going concern is dependent upon future obtaining financing
and ultimately upon achieving profitable operations.
After issuing Can-Cal's 2000 financial statements and filing the Form
10-KSB with the Securities and Exchange Commission ("SEC"), management has
revised its financial statements in accordance with SFAS 121, to expense as
of December 31, 2000, previously capitalized costs associated with the
Pisgah Property, and the Cerbat and Erosion Mining claims. Refer to note
14, "Write-downs," to the restated financial statements at December 31,
2000 and the two years then ended.
2. NOTES RECEIVABLE (RELATED PARTIES):
Notes receivable, related parties, at September 30, 2001 consisted of the
following:
[Download Table]
Note receivable from S&S Mining, Inc., a joint venture partner,
unsecured, interest imputed at 8%, due on demand $ 28,000
Note receivable from an individual, unsecured, interest imputed
at 8%, due on demand 12,000
Note receivable from an individual, unsecured, interest imputed
at 6%, due on demand 3,500
Accrued interest receivable 16,500
-----------
60,000
Allowance for uncollectible accounts (5,600)
-----------
$ 54,400
===========
66
CAN-CAL RESOURCES, LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
3. PROPERTY AND EQUIPMENT:
Property and equipment at September 30, 2001 consisted of the following:
[Download Table]
Machinery and equipment $ 97,600
Transportation equipment 18,400
Office equipment and furniture 14,200
-----------
130,200
Less accumulated depreciation (75,000)
-----------
$ 55,200
===========
Depreciation expense for the nine months ended September 30, 2001 totaled
$19,700.
4. OTHER ASSETS:
Other assets at September 30, 2001 consisted of the following:
[Enlarge/Download Table]
Note receivable from Tyro, Inc., and principals, a corporation, secured
by equipment, interest accrued at 6% per annum, due on demand $ 53,300
Deposits 6,800
Non destructive testing material 14,200
-----------
74,300
Allowance for uncollectible notes (53,300)
-----------
$ 21,000
===========
5. LONG-TERM INVESTMENTS:
Long-term investments at September 30, 2001 consisted of the following:
[Download Table]
Pisgah property $ --
Investment in S&S Mining joint venture 19,000
-----------
$ 19,000
===========
67
CAN-CAL RESOURCES, LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
6. NOTES PAYABLE:
Note payable at September 30, 2001 consisted of the following:
[Download Table]
Note payable to lender; secured by 1st deed of trust; interest
at 8.00% per annum, matures July 31, 2001 $ 11,300
Note payable to lender; secured by 2nd deed of trust; interest
at 16.00% per annum; matures November 24, 2005 324,000
-----------
335,300
Less current portion (11,300)
-----------
$ 324,000
===========
The Company did not make the interest payment of $24,000 due on May 24,
2001 to the lender which holds the second deed of trust on the Pisgah
property. The Company also did not make the final principal payment of
$10,000 due on July 31, 2001 to the lender which holds the first trust deed
on the Pisgah Property.
On August 7, 2001 the Company entered into a Forbearance agreement with the
lender that holds the 2nd deed of trust. The Forbearance Agreement provides
that the $24,000 interest payment due May 24, 2001 shall be added to the
principal of the loan and paid on or before November 24, 2001. Further, the
lender has the option of purchasing restricted common shares of the company
in lieu of the $24,000. The lender must exercise this option on or before
November 20, 2001.
On August 10, 2001 the Company entered into a Forbearance Agreement with
the lender that holds the 1st deed of trust. The agreement provides that
interest due on the $10,000 principal balance shall be added to the
principal and shall be paid on or before June 1, 2002. An interest payment
is due on December 1, 2001.
7. NOTE PAYABLE, RELATED PARTIES:
Notes payable, related parties, at September 30, 2001 consisted of the
following:
[Enlarge/Download Table]
Note payable to shareholder; unsecured; interest at prime plus
1.00% per annum; due on demand $ 118,500
Note payable to director; unsecured; interest at 7.5%; matures July 2002 6,300
Note payable to shareholder; unsecured; interest at 20.74%; due on demand 21,600
-----------
$ 146,400
===========
68
CAN-CAL RESOURCES, LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
8. RELATED PARTY TRANSACTIONS:
The Board of Directors approved a resolution to pay an officer compensation
of $5,000 per month. At September 30, 2001 $15,000 has been accrued.
9. SUBSEQUENT EVENTS:
During October, 2001 the company signed an Investment Agreement with two
funds (Dutchess Private Equities Fund LP and DRH Investment Company LLC) to
sell to those funds up to $8,000,000 in common stock of the company, for a
period of three years.
In connection with the Investment Agreement, the company issued 606,059
shares of restricted common stock to Dutchess Fund and its advisor, and to
a broker-dealer firm, for services valued at $400,000, to induce those
entities to enter into the Investment Agreement and perform services
contemplated under such agreement. The company also issued 37,000 shares of
restricted common stock to the attorney for Dutchess Fund.
The company has also signed a consulting agreement with a public relations
firm, and have authorized the issuance and will deliver certificates for up
to 200,000 shares over the next 12 months to pay for services and costs.
Further, the company has issued to the public relations firm options to
purchase another 200,000 at $1.00 per share. These options are to expire in
September 2004.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The following table presents the carrying amounts and estimated fair value
of the Company's financial instruments at September 30, 2001:
CARRYING FAIR
AMOUNT VALUE
--------- ---------
Financial assets:
Notes receivable-related party $ 54,400 $ 54,400
Note receivable 52,500 52,500
Property and equipment 55,200 55,200
Other assets 18,800 18,800
Long-term investments 19,000 19,000
Financial liabilities:
Notes payable, related parties 146,400 146,400
Notes payable 335,300 335,300
The carrying amounts of cash, prepaid expenses, accounts payable and
accrued expenses approximate fair value because of the short maturity of
those instruments.
The fair value of note payable is based upon the borrowing rates currently
available to the Company for bank loans with similar terms and average
maturities.
69
CAN-CAL RESOURCES, LTD.
SUPPLEMENTAL SCHEDULE I -
COSTS AND EXPENSES
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
(UNAUDITED)
[Enlarge/Download Table]
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2001 2000 2001 2000
------------ ------------ ------------- -------------
COSTS AND EXPENSES:
Mine exploration $ 30,900 $ 370,800 $ 111,300 $ 454,500
Consulting 45,100 7,800 135,500 22,600
Travel and entertainment 15,900 22,200 57,600 58,500
Accounting and legal 9,300 6,900 17,300 30,200
Insurance 3,900 7,900 24,500 38,100
Salaries and wages 15,000 -- 15,000 --
Payroll taxes 1,100 -- 1,100 --
Office expense 13,600 12,200 44,400 26,200
Office rent 7,900 6,400 23,800 25,200
Depreciation and amortization 6,700 7,900 19,700 21,100
Advertising and promotion -- 5,700 3,300 12,700
Lease expense 2,500 -- 6,900 --
Miscellaneous 1,000 1,900 6,100 6,300
Telephone 2,400 1,900 8,500 7,700
Utilities 2,500 1,600 6,800 2,800
Repairs and maintenance 600 -- 4,800 --
Bank charges 100 -- 200 300
--------- --------- --------- ---------
$ 158,500 $ 453,200 $ 486,800 $ 706,200
========= ========= ========= =========
See accountants' report
70
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The bylaws provide that directors and officers shall be indemnified by the
corporation against expenses incurred in connection with the defense of any
action, suit or proceeding in which they are made parties by reason of being or
having been directors or officers of the corporation, except in relation to
matters as to which they are adjudged in such matter to be liable for negligence
or misconduct in the performance of duty. Such indemnification is not exclusive
of any other rights to which those indemnified may be entitled by agreement,
vote of stockholders, or otherwise. In addition, the Nevada Corporation Act
permits indemnification of directors and officers against such expenses.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Estimated expenses in connection with the issuance and distribution of the
securities being registered:
[Enlarge/Download Table]
Securities and Exchange Commission registration fee.........................$ 1,223.78
National Association of Securities Dealers, Inc. examination fee............ n/a
Accounting ................................................................. 2,000.00
Legal fees and expenses..................................................... 25,000.00
Printing ................................................................... 300.00
Blue Sky fees and expenses (excluding legal fees)........................... 1,000.00
Transfer agent ............................................................. n/a
Escrow agent................................................................ n/a
Miscellaneous............................................................... 5,722.00
Total.......................................................................$ 35,245.78
The Registrant will pay all of these expenses.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES. In the 49 months ending
January 31, 2002, the registrant has sold the following unregistered securities.
Where shares were sold at a discount from market prices, the discount was made
for the restricted status of the shares as subject to Rule 144.
A. 1998.
(1) For cash: 837,509 restricted common shares for $360,780:
703,571 shares to directors and family companies at
$.35 to .45 per share, in July, October and
December 1998; and 133,938 shares to three Canadian
citizens and one U.S. citizen at $.40 to $.41 per
share, in October and December 1998. The stock
prices were determined by the board of directors,
including those who bought stock personally or
whose family companies bought stock. The stock
prices were determined by discounts of
approximately 50% from market prices at the
relevant times. Regulation S exemption from
registration for the Canadians, section 4(2) for
U.S. citizen. Complete information about the
company and the stock offerings was provided to
investors in the form of a private placement
memorandum. No commissions were paid.
71
B. 1999.
(1) For cash: 925,500 restricted common shares for $429,500:
367,500 to directors and family companies at $.40
to $.50 per shares in May and November 1999;
518,000 shares to Canadian citizens at $.50 per
share in April 1999; and 6,000 shares to two U.S.
citizens at $.50 per share, in April 1999. The
stock prices were determined by the board of
directors, including those who bought stock
personally or whose family companies bought stock.
The stock prices were determined by discounts of
approximately 50% from market prices at the
relevant times. Regulation S exemption from
registration for Canadian citizens; section 4(2)
for U.S. citizens. Complete information about the
company and the stock offerings was provided to
investors in the form of a private placement
memorandum. No commissions were paid.
(2) For assets: 40,000 shares at $.50 to a Canadian citizen for a
truck in May 1999, as determined by the board of
directors applying a discount of approximately 50%
to the market price for the stock at the time; and
1,000 shares to a U.S. citizen for computer
software in July 1999. Regulation S for Canadian
citizen; section 4(2) for U.S. citizen. No
commissions were paid.
(3) For Services: In August 1999, 32,121 restricted common shares at
$.50 per share for $16,061 of services from a
nonaffiliate vendor, in section 4(2) transaction,
five U.S. citizens received stock. The stock price
was determined by the board of directors, applying
a discount of approximately 55% to the market
prices for the stock at the time. Regulation S for
Canadian citizens. Section 4(2) for U.S. citizens.
Complete information about the company was provided
to these individuals. No commissions were paid.
C. 2000.
(1) 1,119,009 restricted common shares:
In March 2000, 495,460 restricted common shares for
cash to Canadians and their family companies, at
$0.75 per share, including directors and their
family companies, and 4,540 restricted common
shares to a U.S. citizen employee at 0.75 per
share, under Regulation S (for Canadians and family
companies) and a U.S. citizen employee under
section 4(2). The stock prices were determined by
the board of directors, including those who bought
stock personally or whose family companies bought
stock. The stock prices were determined by
discounts of approximately 50% from market prices
at the relevant times. These shares were at
discounts of 50% from market prices at the time;
300,000 shares to lender on exercise of option (in
connection with loan agreement) at $.5156 per share
in cash, plus another 45,000 shares as loan fee to
this lender, under Regulation S; 74,009 shares at
$1.50 per share to seven Canadian citizens and one
Italian citizen, under Regulation S; 200,000 shares
to two U.S. citizens for their proprietary
extraction technology, at $1.50 per share, in
August 2000. Complete information about the company
was provided to each of these individuals. No
commissions were paid.
D. 2001:
(1) For cash: In August and September, 2001, a total of 57,888
shares to two Canadian investors for $58,300 (an
average share price of $0.44 per share,
representing a discount of approximately 50% from
market prices). These shares were sold pursuant to
the exemption provided by Regulation S of the 1933
Act. Complete information about the company was
provided to these investors. No commissions were
paid.
72
On October 2, 2001, 20,000 restricted shares to a
Canadian investor for $10,000 ($0.50 per share,
representing a discount of approximately 50% from
market prices, as determined by the board of
directors). These shares were sold pursuant to the
exemption provided by Regulation S of the 1933 Act.
Complete information about the company was provided
to this investor. On October 10 and December 12,
2001, 40,000 restricted shares to a Canadian
investor for $14,000 ($0.35 per share, representing
a discount of approximately 50% from market
prices). this investor also was issued warrants to
purchase 40,000 additional restricted shares, at a
price of $0.35 per share; the warrants will expire
October 10, 2003. Complete information about the
company was provided to this investor. These shares
and warrants were sold pursuant to the exemption
provided by Regulation S of the 1933 Act.
(2) For services: In October 2001, 75,757 restricted common shares to
Dutchess Private Equities Fund L.P., 227,272
restricted common shares to Dutchess Advisors,
Ltd., as inducements for execution of Investment
Agreement between issuer and Dutchess Fund and DRH
Investment Company, LLC. 303,030 restricted common
shares to May Davis Group, Inc., a securities
broker-dealer, as a placement fee in connection
with the Investment Agreement. 37,000 shares to
Joseph B. LaRocco, attorney for Dutchess Fund and
DRH Investment Company, LLC in connection with the
Investment Agreement, for legal services to such
entities, which the issuer agreed to pay pursuant
to the Investment Agreement.
E. 2002 On January 8, 2002, 36,000 restricted common shares
to three investors (one Canadian resident, and two
private companies controlled and owned by Canadian
residents) for $12,600 cash ($0.35 per share,
representing a discount of approximately 50% from
market price). These investors also were issued
warrants to purchase 36,000 additional restricted
shares, at a price of $0.35 per share; the warrants
will expire January 8, 2004. Complete information
about the company was provided to these investors.
These shares and warrants were sold pursuant to the
exemption provided by Regulation S of the 1933 Act.
No general solicitation or advertising was used in the preceding
transactions, and all investors supplied information which the issuer believed
qualified such investors as sophisticated investors or accredited investors.
Stop transfer instructions were issued to the issuer's transfer agent for the
securities as "restricted" under rule 144.
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE.
EXHIBIT NO. TITLE OF EXHIBIT
Exhibit 3.0 Articles of Incorporation...................................
Exhibit 3.1 Amendment to the Articles of Incorporation..................
Exhibit 3.2 By-Laws.....................................................
Exhibit 5.0 Opinion re legality (with consent)..........................
Exhibit 10.0 Joint Venture Agreement between Robin Schwarz,
Aylward Schwarz, S&S Mining, a Nevada Corporation,
and Can-Cal Resources Ltd. .................................
73
Exhibit 10.1 Mining Lease Agreement between Can-Cal Resources Ltd.
and Twin Mountain Rock Venture dated May 1, 1998 ...........
Exhibit 10.2 Loan Agreement between Owen Sequoia, Inc.
and Can-Cal Resources Ltd. .................................
Exhibit 10.3 Amendment to Loan Agreement dated June 9, 1998..............
Exhibit 10.4 Second Amendment to Loan Agreement .........................
Exhibit 10.5 Deed of Trust, Security Agreement, Financing Statement,
and Fixture Filing with Assignment of Rents ................
Exhibit 10.6 Lease and Purchase Option Agreement dated March 12, 1998
between Arthur James Good and Wanda Mae Good
and Can-Cal Resources Ltd...................................
Exhibit 10.7 Left blank - no exhibit filed.
Exhibit 10.8 Quit Claim Deed from Aurum, LLC to
Can-Cal Resources Ltd.......................................
Exhibit 10.9 Agreement between Tyro, Inc., Dean Willman,
Roland S. Ericsson, and Can-Cal Resources Ltd. .............
Exhibit 10.10 Promissory Notes to directors and Robin Schwarz.............
Exhibit 10.11- 10.12 Left blank - no exhibit filed.
Exhibit 10.13 Agreement between Can-Cal Resources Ltd.,
Cameron Miller and James R. Ardoin,
dated December 6, 1999 .....................................
Exhibit 10.14 Loan Agreement between First Colony Merchant,
Tobian Trading Limited and Can-Cal Resources Ltd.
(f/y 2000 loan, second lender on Pisgah property) ..........
Exhibit 10.15 Deed of Trust Security Agreement, Financial
Statement and Fixture Filing with Assignment of Rents ......
Exhibit 10.16 Option Agreement with Lender................................
Exhibit 10.17 Written notice to exercise option...........................
Exhibit 10.18 Agreement between Can-Cal Resources Ltd. and
Consultant Bruce Ballantyne ................................
Exhibit 10.19 Forbearance Agreement with Lender
(first lender on Pisgah property) ..........................
Exhibit 10.20 Forbearance Agreement with Lender
(second lender on Pisgah property) .........................
Exhibit 10.20(a) Amendment to Forbearance Agreement with Lender
(second lender on Forbearance Agreement)....................
74
Exhibit 10.21 Investment Agreement (Dutchess Private Equities Fund
and DRH Investment Company, LLC) ........................*
Exhibit 10.22 Registration Rights Agreement
(for Investment Agreement transaction) ..................*
Exhibit 10.23 Escrow Agreement (for future transactions
under Investment Agreement) .............................*
Exhibit 10.24 National Financial Communications Corp.
Consulting Agreement (Public Relations Agreement) .......*
Exhibit 23.0 Consent of Independent Auditors
(Murphy, Bennington & Co.) .............................**
Exhibit 23.1 Consent of Counsel......................................**
* Previously filed.
** Filed with Amendment No. 1.
75
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized Amendment No. 1 to
this registration statement to be signed on its behalf by the undersigned, in
the City of Las Vegas, Nevada, on February 5, 2002.
CAN-CAL RESOURCES LTD.
(Registrant)
Date: February 5, 2002. By: /s/ Ronald D. Sloan
----------------------------------------
Ronald D. Sloan,
President, Treasurer, Chief Operating
Officer, Director and Chairman
Date: February 5, 2002. By: /s/ John Brian Wolfe
----------------------------------------
John Brian Wolfe,
Secretary, Director
Date: February 5, 2002. By: /s/ James Dacyszyn
----------------------------------------
James Dacyszyn, Director
Date: February 5, 2002 By: /s/ Barry E. Amies
----------------------------------------
Barry E. Amies, Vice President, Director
76
--------------------
PROSPECTUS
--------------------
February _____, 2002
No dealer, salesman or other person is authorized to give any information
or make any information or make any representations not contained in the
prospectus with respect to the offering made hereby. This prospectus does not
constitute an offer to sell any of the securities offered hereby in any
jurisdiction where, or to any person to whom it is unlawful to make such an
offer. Neither the delivery of this prospectus nor any sale made hereunder
shall, under any circumstances, create an implication that there has been no
change in the information set forth herein or in the business of our company
since the date hereof.
77
Dates Referenced Herein and Documents Incorporated by Reference
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