Item 1. Financial
Statements.
Our unaudited interim financial statements
are stated in United States dollars and are prepared in accordance with United States generally accepted accounting principles.
It is the opinion of management that the
unaudited interim financial statements for the quarter ended September 30, 2018 include all adjustments necessary in order to ensure
that the unaudited interim financial statements are not misleading.
Can-Cal Resources Ltd.
(An Exploration Company)
Balance Sheets
(Unaudited)
|
|
September 30, 2018
|
|
|
December 31, 2017
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
9,877
|
|
|
$
|
769
|
|
Other current assets
|
|
|
5,790
|
|
|
|
5,790
|
|
Total Current Assets
|
|
|
15,667
|
|
|
|
6,559
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
15,667
|
|
|
$
|
6,559
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
301,041
|
|
|
$
|
310,817
|
|
Accounts payable, related party
|
|
|
6,759
|
|
|
|
506
|
|
Accrued expenses
|
|
|
6,999
|
|
|
|
8,679
|
|
Accrued expenses, related party
|
|
|
102,805
|
|
|
|
117,913
|
|
Unearned revenues, related party
|
|
|
557,500
|
|
|
|
402,438
|
|
Notes payable, related parties
|
|
|
146,885
|
|
|
|
139,871
|
|
Total Current Liabilities
|
|
|
1,121,989
|
|
|
|
980,224
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
1,121,989
|
|
|
|
980,224
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Equity (Deficit)
|
|
|
|
|
|
|
|
|
Preferred stock, $0.001 par value, 10,000,000 shares authorized; no shares issued and outstanding
|
|
|
–
|
|
|
|
–
|
|
Common stock, $0.001 par value, 100,000,000 shares authorized; 43,667,060 shares issued and outstanding as at September 30, 2018 and December 31, 2017
|
|
|
43,667
|
|
|
|
43,667
|
|
Additional paid-in-capital
|
|
|
10,595,697
|
|
|
|
10,595,697
|
|
Accumulated deficit
|
|
|
(11,745,686
|
)
|
|
|
(11,613,029
|
)
|
Total Stockholders’ Equity (Deficit)
|
|
|
(1,106,322
|
)
|
|
|
(973,665
|
)
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders’ Equity (Deficit)
|
|
$
|
15,667
|
|
|
$
|
6,559
|
|
The accompanying notes are an integral part
of these unaudited interim financial statements.
Can-Cal Resources Ltd.
(An Exploration Company)
Statement of Operations
(Unaudited)
|
|
Three Months Ended
September 30,
2018
|
|
|
Three Months Ended
September 30,
2017
|
|
|
Nine Months
Ended
September 30,
2018
|
|
|
Nine Months
Ended
September 30,
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exploration costs
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
1,251
|
|
|
$
|
4,953
|
|
General and administrative expense
|
|
|
28,374
|
|
|
|
7,392
|
|
|
|
142,947
|
|
|
|
74,586
|
|
Director fees
|
|
|
18,750
|
|
|
|
–
|
|
|
|
56,250
|
|
|
|
–
|
|
Total operating expenses
|
|
|
47,124
|
|
|
|
7,392
|
|
|
|
200,448
|
|
|
|
79,539
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from operations
|
|
|
(47,124
|
)
|
|
|
(7,392
|
)
|
|
|
(200,448
|
)
|
|
|
(79,539
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, related party
|
|
|
(2,283
|
)
|
|
|
(2,891
|
)
|
|
|
8,943
|
|
|
|
(8,579
|
)
|
Gain from sale of assets
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
9,000
|
|
Other income
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
700
|
|
Foreign exchange loss
|
|
|
(528
|
)
|
|
|
(1,521
|
)
|
|
|
(137
|
)
|
|
|
(3,042
|
)
|
AP write-off
|
|
|
–
|
|
|
|
–
|
|
|
|
58,985
|
|
|
|
–
|
|
Total other income (expense)
|
|
|
(2,811
|
)
|
|
|
(4,412
|
)
|
|
|
67,791
|
|
|
|
(1,921
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before provision for income taxes
|
|
|
(49,935
|
)
|
|
|
(11,804
|
)
|
|
|
(132,657
|
)
|
|
|
(81,460
|
)
|
Provision for taxes
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(49,935
|
)
|
|
$
|
(11,804
|
)
|
|
$
|
(132,657
|
)
|
|
$
|
(81,460
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per common share – Basic and diluted
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common
shares outstanding, basic and diluted
|
|
|
43,667,060
|
|
|
|
42,867,060
|
|
|
|
43,667,060
|
|
|
|
42,867,060
|
|
The accompanying notes are an integral part
of these unaudited interim financial statements.
Can-Cal Resources Ltd.
(An Exploration Company)
Statements of Cash Flows
(Unaudited)
|
|
Nine Months Ended
September 30, 2018
|
|
|
Nine Months Ended
September 30, 2017
|
|
Operating activities
|
|
|
|
|
|
|
|
|
Net loss for the year
|
|
$
|
(132,657
|
)
|
|
$
|
(81,460
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
|
(5,203
|
)
|
|
|
(5,031
|
)
|
Accounts payable and accrued expenses, related party
|
|
|
(15,108
|
)
|
|
|
8,579
|
|
Gain on debt forgiveness
|
|
|
(58,985
|
)
|
|
|
–
|
|
Unearned revenues, related party
|
|
|
155,062
|
|
|
|
73,584
|
|
Net cash (used in) operating activities
|
|
|
(56,891
|
)
|
|
|
(4,328
|
)
|
Liquidation of AP
|
|
|
58,985
|
|
|
|
–
|
|
Sub-total
|
|
|
2,094
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
Financing activities
|
|
|
|
|
|
|
|
|
Proceeds from issuance of loans payable , related party
|
|
|
7,014
|
|
|
|
6,052
|
|
Net cash provided by financing activities
|
|
|
7,014
|
|
|
|
6,052
|
|
|
|
|
|
|
|
|
|
|
Net changes in cash and equivalents
|
|
|
9,108
|
|
|
|
1,724
|
|
|
|
|
|
|
|
|
|
|
Cash and equivalents at beginning of the period
|
|
|
769
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
Cash and equivalents at end of the period
|
|
$
|
9,877
|
|
|
$
|
1,724
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
Cash paid in interest
|
|
$
|
–
|
|
|
$
|
–
|
|
Cash paid for income taxes
|
|
$
|
–
|
|
|
$
|
–
|
|
Non-cash gain on elimination of payables
|
|
$
|
58,895
|
|
|
$
|
–
|
|
The accompanying notes are an integral part
of these unaudited interim financial statements.
Can-Cal Resources Ltd.
(An Exploration Company)
Notes to Unaudited Financial Statements
For the three and nine months ended September
30, 2018 and 2017
1. NATURE OF BUSINESS AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Can-Cal Resources Ltd. (“Can-Cal”
or the “Company”) is a Nevada corporation incorporated on March 22, 1995.
The Company is an exploration company engaged
in the exploration for precious metals, specifically focused on mineral exploration projects. We have examined various prospective
mineral properties for precious metals and acquired those deemed promising. We currently own, lease or have mining interest in
two mineral properties in the southwestern United States (California and Arizona, as follows: Cerbat, Arizona and Pisgah, California).
The Company previously had mineral rights in Owl Canyon, California and Wikieup, Arizona, which have now been abandoned.
As an exploration stage enterprise, the
Company discloses the deficit accumulated during the exploration stage. An entity remains in the exploration stage until such time
as proven or probable reserves have been established for its deposits. Upon the location of commercially mineable reserves, the
Company plans to prepare for mineral extraction and enter the development stage. To date, the exploration stage of the Company’s
operations consists of contracting with geologists who sample and assess the mining viability of the Company’s claims.
Summary of Significant Accounting
Policies
Basis of Presentation
The accompanying unaudited interim financial
statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States
of America (“U.S. GAAP”) for interim financial information, and with the rules and regulations of the United States
Securities and Exchange Commission set forth in Article 8 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by U.S. GAAP for complete financial statements. The unaudited interim financial statements
furnished reflect all adjustments (consisting of normal recurring accruals) which are, in the opinion of management, necessary
to a fair statement of the results for the interim periods presented. Unaudited interim results are not necessarily indicative
of the results for the full fiscal year. These financial statements should be read in conjunction with the financial statements
of the Company for the fiscal year ended December 31, 2017 and notes thereto contained in the Company’s Annual Report on
Form 10-K.
The Company’s functional and reporting
currency is the United States dollar (USD). Monetary assets and liabilities denominated in foreign currencies are translated in
accordance with ASC 820, using the exchange rate prevailing at the balance sheet date. Gains and losses arising on settlement of
foreign currency denominated transactions or balances are included in the determination of income. Foreign currency transactions
are primarily undertaken in the Canadian dollar (CDN). The Company has not, to the date of these financial statements, entered
into derivative instruments to offset the impact of foreign currency fluctuations.
Certain amounts in the prior periods presented
have been reclassified to conform to the current period financial statement presentation.
Exploration Stage Company
The Company is currently an exploration
stage company. As an exploration stage enterprise, the Company discloses the deficit accumulated during the exploration stage and
the cumulative statements of operations and cash flows from inception to the current balance sheet date. The Company has incurred
an accumulated deficit of $11,613,029 for the period from inception (March 22, 1995) through December 31, 2017. An entity remains
in the exploration stage until such time as proven or probable reserves have been established for its deposits. Upon the location
of commercially mineable reserves, the Company plans to prepare for mineral extraction and enter the development stage. To date,
the exploration stage of the Company’s operations consists of contracting with geologists who sample and assess the mining
viability of the Company’s claims.
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 amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Gains and Losses from Debt Extinguishment
Gain from extinguishment of debt. The Company
reflects gain on extinguishment of debt as a credit to earnings from operations in the period in which it is determined that the
liability has been forgiven either by the vendor, judicial authority, or the passing of the stature of limitations. Gains from
related parties are credited to paid in capital.
Basic and Diluted Loss per Share
The basic net loss per common share is
computed by dividing the net loss by the weighted average number of common shares outstanding. Diluted net loss per common share
is computed by dividing the net loss adjusted on an “as if converted” basis, by the weighted average number of common
shares outstanding plus potential dilutive securities. For 2018 and 2017 potential dilutive securities had an anti-dilutive effect
and were not included in the calculation of diluted net loss per common share.
2. GOING CONCERN
The accompanying financial statements
have been prepared assuming the Company will continue as a going concern. As shown in the accompanying financial statements, the
Company had a net loss of $49,935 and $132,657 for the three and nine months ended September 30, 2018, respectively, has used
net cash in operating activities of $8,066,726 from inception and had a working capital deficit of $1,106,322 at September 30,
2018. The future of the Company is dependent upon its ability to obtain financing and upon future profitable operations from the
development of its new business opportunities. Management has plans to seek additional capital through private placements and
public offerings of its common stock. The financial statements do not include any adjustments relating to the recoverability and
classification of recorded assets, or the amounts of and classification of liabilities that might be necessary in the event the
Company cannot continue in existence.
The ability of the Company to continue
as a going concern is dependent on securing additional sources of capital and the success of the Company’s plan. The financial
statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
3. RELATED
PARTY TRANSACTIONS
Material Supply Agreement
On April 9, 2013, the Company entered
into a material supply agreement (“Original MSA”) with Candeo. On March 3, 2014, the Company entered into an amended
material supply agreement (“Amended MSA”). Pursuant to the Amended MSA, Candeo is entitled to purchase Material from
the Pisgah Property at a price equal to the greater of $15 per ton and the net sales margin per ton removed from the Pisgah Property
realized as follows: (i) 35% of the net sales margins during the first year of mining; and (ii) 50% of the net sales margins for
the subsequent years during the term of the Amended MSA. Under the Amended MSA, Candeo has the right to remove an Initial Amount
of up to 1,000,000 tons of Material from the Pisgah Property and Additional Amounts of 1,000,000 tons each, upon the successful
removal of the Initial Amount from the Pisgah Property. Candeo’s right to remove the Additional Amounts from the Pisgah
Property is on the basis that once Candeo has removed the first Additional Amount of the Material from the Pisgah Property, it
shall have the right to remove subsequent Additional Amounts of Material from the Property, so long as it removes its then current
Additional Amount. As such, Candeo’s right to extend the term of the Amended MSA is entirely based on Candeo’s successful
performance of its Material removal commitments under the terms of the Amended MSA.
Under the Amended MSA, Candeo was required
to purchase a minimum of ten thousand (10,000) tons of Material during each of the first three years of the term of the agreement,
all at a purchase price of $15.00 per ton, for a total payment of $150,000 per year in each of the first three years of the Term,
with credit being given by the Company to Candeo for all pre-paid tons of Material that have already been purchased and paid for
under the Original MSA. The Pre-Purchased Material will remain on the Pisgah Property until Candeo commences its production operations
or engages the Company to mine and remove Material on Candeo’s behalf.
The term of the Amended MSA was extended
from an initial term of ten (10) years to twenty (20) years (the “Primary Term”) and Candeo has the option to extend
the term for an additional thirty (30) years exercisable at any time with no less than three (3) months written notice prior to
the expiration of the Primary Term, provided that Candeo is not in default under any of the provisions of the Amended MSA and that
the whole of the Initial Amount has been removed from the Property.
The Court decision rendered on July 9,
2018 incorporated the Terms of the “Stipulation and Agreement of Settlement” and set the terms of the second amended
material supply agreement (“Second Amended MSA”). The terms thereof include the following:
PURCHASE PAYMENT. The price that Candeo
shall pay to Can-Cal per ton of Material (“Purchase Payment”) purchased by Candeo (or its assign or assigns) following
the date hereof, shall be as follows:
|
(a)
|
With respect to the sale of Material that is not a Minimum Purchase (as hereafter defined), 20%
of the Gross Sale Revenue; and
|
|
(b)
|
With respect to the sale of Material that is a Minimum Purchase, fifteen U.S. dollars (US$15.00)
per ton; and
|
|
(c)
|
In respect of Minimum Purchases referred to in section 7(b) and (c) below only, in the event that
the Gross Sale Revenue per ton is greater than U.S.$15.00 per ton, an amount equal to 20% of the amount that the Gross Sale Revenue
per ton exceeds US$15.00 per ton.
|
Candeo (or its assign or assigns) shall
pay such Purchase Payment to Can-Cal quarterly, with each Purchase Payment being made on or before the January 15, April 15, July
15 or October 15 immediately following the date the subject Material has been purchased by Candeo, except where a more specific
date for payment is set forth in Paragraph 7 below.
MINIMUM PURCHASES OF MATERIAL. Candeo will
purchase a minimum amount of Material (the “Minimum Purchases”) as follows:
|
(a)
|
twenty-five thousand (25,000) tons of Material shall be paid for within five (5) days following
the Start Date, with an option of Candeo to purchase an additional twenty thousand (20,000) tons of Material exercisable and payable
by Candeo within 180 days following the Start Date (“Option 1”), and only upon the prior exercise and payment in full
under Option 1, then Candeo shall be granted the right to purchase an additional forty thousand (40,000) tons of Material exercisable
and payable by Candeo within 365 days following the Start Date (“Option 2”);
|
|
(b)
|
ten thousand (10,000) tons of Material during each of the first three years following the first
anniversary of the Start Date, unless Option 1 has not been exercised and paid in full by Candeo, in which case this Minimum Purchase
obligation (10,000 tons per year) commences upon the Start Date and payment in full for the first year ($150,000) thereunder must
be made within 180 days following the Start Date; and
|
|
(c)
|
in each year following the three year period referred to in section 7(b) above, the Minimum Purchase
amount will increase (or decrease) from ten thousand (10,000) tons of Material by an amount equal to the increase (or decrease)
in the Consumer Price Index for the calendar year ended immediately prior to the calculation (“the CPI adjustment”).
|
For greater clarity, only in respect of
the Minimum Purchases referenced in section 7(a) above, the Purchase Payment shall be limited to and shall not exceed the amount
of US$15.00 per ton. The Material purchased as part of the Minimum Purchases by Candeo may remain on the Property until Candeo
commences its production operations, which will be subject to all necessary regulatory and other approvals required to remove Material
from the Property, such as permits, certified weigh scale, productions plan, environmental reclamation plan (if applicable) and
insurance all of which shall be the responsibility and at the sole cost of Candeo. Candeo hereby agrees that it will provide thirty
(30) days prior written notice to Can-Cal of the commencement of the operations on the Property, which notice will state the anticipated
amount of Material to be removed, the period of time during which the removal will occur and the means that will be used to effect
such removal. A separate License Agreement shall secure Candeo’s irrevocable right to access and remove Material purchased
and paid for, but not removed from the Property.
Pursuant to the Stipulation & Settlement
Agreement, Can-Cal must also restructure its Board of Directors and amend its Articles of Incorporation, at shareholder meeting
to be held this December or January, by adding a new Article 14 to read as follows:
“FOURTEENTH: Notwithstanding any
other provision of this Certificate of Amendment of Articles of Incorporation or the By-laws of the corporation, and in addition
to any affirmative vote of the holders of any particular class of stock of the corporation required by applicable law, the Articles
of Incorporation or the By-laws of the corporation, the affirmative vote of the holders of at least 90% of the voting power of
the shares of the then outstanding voting stock of the corporation, voting together as a single class, shall be required to authorize
any of the Supermajority Matters. For purposes hereof, the “Supermajority Matters” are: (i) authorization of the corporation
to file a voluntary petition for relief under the provisions of Chapter 11 of Title 11 of the United States Code (i.e., the U.S.
Bankruptcy Code); (ii) modification of that certain Second Amended Material Supply Agreement by and between the corporation and
Candeo Lava Products, Inc.; (iii) increase to the corporation’s outstanding voting capital securities to more than 100 million
outstanding votes, in the aggregate; and (iv) the Amendment or repeal of any provisions of this Article FOURTEENTH or the adoption
of any provisions inconsistent with this Article FOURTEENTH.”
Unearned revenues as reflected on the Balance
Sheet are a reflection of amounts received from Candeo based on the Amended MSA. Balances as at September 30, 2018 and December
31, 2017 were $557,500 and $402,438, respectively.
Compensation
On June 30, 2010, the Company entered into
a consulting agreement, with a Board of Director’s consulting firm, FutureWorth Capital Corp. The terms of the agreement
include annual compensation of $60,000, payable monthly. The Company may elect to satisfy payment in shares of common stock in
lieu of cash at a market value equal to $0.10 above the average closing trading price of the common stock for the preceding five
(5) days from the date of such election. No payments have been made in cash or stock to date. As of December 31, 2017, the Company
owed FutureWorth Capital Corp. $506 (2016 - $506) as included in accounts payable, related parties, for service prior to, and during
the service period under the consulting agreement. The consulting agreement was terminated on February 27, 2013 with Mr. William
Hogan’s resignation from the Board of Directors.
On June 10, 2016, the Company entered into
a consulting agreement, with a Board of Director’s consulting firm, For Life Financial. The terms of the agreement include
monthly compensation of $2,100 CAD for managing the Company. On September 10, 2016, the Company amended the agreement to include
additional annual compensation $50,000 USD, payable monthly as the scope of work increased.
Stock-Based Compensation
All warrants previously issued by the Company
have expired as of the fiscal year ending December 31, 2014. No new warrants have been issued as of September 30, 2018.
On December 31, 2017, 650,000 Stock Options
and 800,000 shares were issued as compensation for work done by consultants and directors of the Company. No new stock options
have been issued as of September 30, 2018. (Note 9)
4. NOTES PAYABLE, RELATED PARTIES
Notes payable, related parties consisted
of the following as of September 30, 2018 and December 31, 2017, respectively:
|
|
September 30,
2018
|
|
|
December 31,
2017
|
|
Note payable
(1)
|
|
$
|
146,885
|
|
|
$
|
129,871
|
|
Promissory note payable
(2)
|
|
|
–
|
|
|
|
10,000
|
|
Promissory note payable
(3)
|
|
|
–
|
|
|
|
–
|
|
Total related party notes payable
|
|
$
|
146,885
|
|
|
$
|
139,871
|
|
|
(1)
|
Note payable to the former CEO, unsecured, bearing interest at 10% and due on demand. Per the settlement
of a lawsuit, the terms of this note were adjusted. Legal expenses incurred as a result of the lawsuit would bear interest at 10%,
however, all other expenses would bear interest at 5%.
|
|
(2)
|
Promissory note payable originated on November 30, 2012 with FutureWorth Capital Corp., a consulting
firm owned by our former Chairman of the Board of Directors, unsecured, bearing interest at 10%, matures on November 29, 2013.
In connection with the promissory note, the Company granted warrants to purchase 20,000 shares of the Company’s common stock
at an exercise price of $0.10. The warrants expired on November 29, 2014. Repaid on January 4, 2018.
|
|
(3)
|
Promissory note payable originated on February 1, 2018 with Candeo, a company in which the former
CEO is a director. The note bears an interest rate of 10% per annum and is payable on or before December 31, 2018. On July 9, 2018,
the principal and accrued interest was converted to a material purchase for inventory.
|
The following presents components of interest
expense by instrument type:
|
|
Three Months Ended
September 30,
2018
|
|
|
Three Months Ended
September 30,
2017
|
|
|
Nine Months Ended
September 30,
2018
|
|
|
Nine Months Ended
September 30,
2017
|
|
Interest on notes payable, related parties
|
|
$
|
(2,283
|
)
|
|
$
|
(2,891
|
)
|
|
$
|
8,943
|
|
|
$
|
(8,579
|
)
|
Total interest expense
|
|
$
|
(2,283
|
)
|
|
$
|
(2,891
|
)
|
|
$
|
8,943
|
|
|
$
|
(8,579
|
)
|
The negative interest recognized in the
nine months ended September 30, 2018 is due to a recalculation on the loan per revisions to the agreement from the lawyers of the
lawsuit recognized in the first three months of 2018. Previously omitted costs were added to the outstanding loan and the interest
rate was left at 10% for legal expenses incurred but adjusted to 5% for all other expenses.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Forward-Looking Statements
This quarterly report contains “forward-looking
statements”. All statements other than statements of historical fact are “forward-looking statements” for purposes
of federal and state securities laws, including, but not limited to, statements regarding: the plans, strategies and objections
of management for future operations; the future plans or business of our company; future economic conditions or performance; and
any statements of assumptions underlying any of the foregoing.
Forward-looking statements may include
the words “may,” “could,” “estimate,” “intend,” “continue,” “believe,”
“expect” or “anticipate” or other similar words. These forward-looking statements present our estimates
and assumptions only as of the date of this report. Accordingly, readers are cautioned not to place undue reliance on forward-looking
statements, which speak only as of the dates on which they are made. Except as required by applicable law, we do not intend, and
undertake no obligation, to update any forward-looking statement.
Although we believe the expectations reflected
in the forward-looking statements in this report are reasonable, actual results could differ materially from those projected or
assumed in any forward-looking statements. All forward-looking statements are subject to change and inherent risks and uncertainties.
The factors impacting these risks and uncertainties include, but are not limited to:
|
·
|
our current lack of working capital;
|
|
|
|
|
·
|
a possible inability to raise additional financing;
|
|
|
|
|
·
|
the fact that our accounting policies and methods are fundamental to how we report our financial condition and results of operations, and they may require our management to make estimates about matters that are inherently uncertain;
|
|
|
|
|
·
|
deterioration in general or regional economic conditions;
|
|
|
|
|
·
|
adverse state or federal legislation or regulations that increase the costs of compliance;
|
|
|
|
|
·
|
inability to efficiently manage our operations; and
|
|
|
|
|
·
|
the unavailability of funds for capital expenditures.
|
All financial information contained herein
is shown in United States dollars unless otherwise stated. Our financial statements are prepared in accordance with United States
generally accepted accounting principles.
In this quarterly report, unless otherwise
specified, all references to “shares” refer to shares of common stock in the capital of our company.
As used in this quarterly report on Form
10-Q, the terms “we”, “us” “our” and “Can-Cal” refer to Can-Cal Resources Ltd.,
a Nevada corporation, unless otherwise specified.
Corporate Overview
Can-Cal Resources Ltd.
is a publicly traded exploration stage company engaged in seeking the acquisition and exploration of metals mineral properties.
As part of its growth strategy, the Company will focus its future activities in the USA, with an emphasis on the Pisgah Mountain,
California property and the Cerbat, Arizona property.
At September 30, 2018,
we had cash on hand of approximately $9,877 available to sustain operations. At December 31, 2017, cash on hand was $769. Accordingly,
we are uncertain as to whether the Company may continue as a going concern. While we may seek additional investment capital, or
possible funding or joint venture arrangements with other mining companies, we have no assurance that such investment capital or
additional funding and joint venture arrangements will be available to the Company.
On April 9, 2013, the
Company entered into a material supply agreement (“Original MSA”) with Candeo. On March 3, 2014, the Company entered
into an amended material supply agreement (“Amended MSA”). Pursuant to the Amended MSA, Candeo is entitled to purchase
Material from the Pisgah Property at a price equal to the greater of $15 per ton and the net sales margin per ton removed from
the Pisgah Property realized as follows: (i) 35% of the net sales margins during the first year of mining; and (ii) 50% of the
net sales margins for the subsequent years during the term of the Amended MSA. Under the Amended MSA, Candeo has the right to remove
an Initial Amount of up to 1,000,000 tons of Material from the Pisgah Property and Additional Amounts of 1,000,000 tons each, upon
the successful removal of the Initial Amount from the Pisgah Property. Candeo’s right to remove the Additional Amounts from
the Pisgah Property is on the basis that once Candeo has removed the first Additional Amount of the Material from the Pisgah Property,
it shall have the right to remove subsequent Additional Amounts of Material from the Property, so long as it removes its then current
Additional Amount. As such, Candeo’s right to extend the term of the Amended MSA is entirely based on Candeo’s successful
performance of its Material removal commitments under the terms of the Amended MSA.
Under the Amended MSA,
Candeo was required to purchase a minimum of ten thousand (10,000) tons of Material during each of the first three years of the
term of the agreement, all at a purchase price of $15.00 per ton, for a total payment of $150,000 per year in each of the first
three years of the Term, with credit being given by the Company to Candeo for all pre-paid tons of Material that have already been
purchased and paid for under the Original MSA. The Pre-Purchased Material will remain on the Pisgah Property until Candeo commences
its production operations or engages the Company to mine and remove Material on Candeo’s behalf.
The term of the Amended
MSA was extended from an initial term of ten (10) years to twenty (20) years (the “Primary Term”) and Candeo has the
option to extend the term for an additional thirty (30) years exercisable at any time with no less than three (3) months written
notice prior to the expiration of the Primary Term, provided that Candeo is not in default under any of the provisions of the Amended
MSA and that the whole of the Initial Amount has been removed from the Property.
The Court decision
rendered on July 9, 2018 incorporated the Terms of the “Stipulation and Agreement of Settlement” and set the terms
of the second amended material supply agreement (“Second Amended MSA”). The terms thereof include the following:
PURCHASE PAYMENT. The price that Candeo
shall pay to Can-Cal per ton of Material (“Purchase Payment”) purchased by Candeo (or its assign or assigns) following
the date hereof, shall be as follows:
|
(a)
|
With respect to the sale of Material that is not a Minimum Purchase (as hereafter defined), 20%
of the Gross Sale Revenue; and
|
|
(b)
|
With respect to the sale of Material that is a Minimum Purchase, fifteen U.S. dollars (US$15.00)
per ton; and
|
|
(c)
|
In respect of Minimum Purchases referred to in section 7(b) and (c) below only, in the event that
the Gross Sale Revenue per ton is greater than U.S.$15.00 per ton, an amount equal to 20% of the amount that the Gross Sale Revenue
per ton exceeds US$15.00 per ton.
|
Candeo (or its assign
or assigns) shall pay such Purchase Payment to Can-Cal quarterly, with each Purchase Payment being made on or before the January
15, April 15, July 15 or October 15 immediately following the date the subject Material has been purchased by Candeo, except where
a more specific date for payment is set forth in Paragraph 7 below.
MINIMUM PURCHASES OF MATERIAL. Candeo will
purchase a minimum amount of Material (the “Minimum Purchases”) as follows:
|
(a)
|
twenty-five thousand (25,000) tons of Material shall be paid for within five (5) days following
the Start Date, with an option of Candeo to purchase an additional twenty thousand (20,000) tons of Material exercisable and payable
by Candeo within 180 days following the Start Date (“Option 1”), and only upon the prior exercise and payment in full
under Option 1, then Candeo shall be granted the right to purchase an additional forty thousand (40,000) tons of Material exercisable
and payable by Candeo within 365 days following the Start Date (“Option 2”);
|
|
(b)
|
ten thousand (10,000) tons of Material during each of the first three years following the first
anniversary of the Start Date, unless Option 1 has not been exercised and paid in full by Candeo, in which case this Minimum Purchase
obligation (10,000 tons per year) commences upon the Start Date and payment in full for the first year ($150,000) thereunder must
be made within 180 days following the Start Date; and
|
|
(c)
|
in each year following the three year period referred to in section 7(b) above, the Minimum Purchase
amount will increase (or decrease) from ten thousand (10,000) tons of Material by an amount equal to the increase (or decrease)
in the Consumer Price Index for the calendar year ended immediately prior to the calculation (“the CPI adjustment”).
|
For greater clarity,
only in respect of the Minimum Purchases referenced in section 7(a) above, the Purchase Payment shall be limited to and shall not
exceed the amount of US$15.00 per ton. The Material purchased as part of the Minimum Purchases by Candeo may remain on the Property
until Candeo commences its production operations, which will be subject to all necessary regulatory and other approvals required
to remove Material from the Property, such as permits, certified weigh scale, productions plan, environmental reclamation plan
(if applicable) and insurance all of which shall be the responsibility and at the sole cost of Candeo. Candeo hereby agrees that
it will provide thirty (30) days prior written notice to Can-Cal of the commencement of the operations on the Property, which notice
will state the anticipated amount of Material to be removed, the period of time during which the removal will occur and the means
that will be used to effect such removal. A separate License Agreement shall secure Candeo’s irrevocable right to access
and remove Material purchased and paid for, but not removed from the Property.
Pursuant to the Stipulation
& Settlement Agreement, Can-Cal must also restructure its Board of Directors and amend its Articles of Incorporation, at shareholder
meeting to be held this December or January, by adding a new Article 14 to read as follows:
“FOURTEENTH:
Notwithstanding any other provision of this Certificate of Amendment of Articles of Incorporation or the By-laws of the corporation,
and in addition to any affirmative vote of the holders of any particular class of stock of the corporation required by applicable
law, the Articles of Incorporation or the By-laws of the corporation, the affirmative vote of the holders of at least 90% of the
voting power of the shares of the then outstanding voting stock of the corporation, voting together as a single class, shall be
required to authorize any of the Supermajority Matters. For purposes hereof, the “Supermajority Matters” are: (i) authorization
of the corporation to file a voluntary petition for relief under the provisions of Chapter 11 of Title 11 of the United States
Code (i.e., the U.S. Bankruptcy Code); (ii) modification of that certain Second Amended Material Supply Agreement by and between
the corporation and Candeo Lava Products, Inc.; (iii) increase to the corporation’s outstanding voting capital securities
to more than 100 million outstanding votes, in the aggregate; and (iv) the Amendment or repeal of any provisions of this Article
FOURTEENTH or the adoption of any provisions inconsistent with this Article FOURTEENTH.”
Results of Operations
Three and Nine Months Ended September
30, 2018 Compared to the Three and Nine Months Ended September 30, 2017
Results of Operations for the Three
and Nine Months Ended September 30, 2018 and 2017:
|
|
Three Months Ended September 30, 2018
|
|
|
Three Months Ended September 30, 2017
|
|
|
Nine Months Ended September 30, 2018
|
|
|
Nine Months Ended September 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exploration costs
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
1,251
|
|
|
$
|
4,953
|
|
General and administrative expense
|
|
|
28,374
|
|
|
|
7,392
|
|
|
|
142,947
|
|
|
|
74,586
|
|
Director fees
|
|
|
18,750
|
|
|
|
–
|
|
|
|
56,250
|
|
|
|
–
|
|
Total operating expenses
|
|
|
47,124
|
|
|
|
7,392
|
|
|
|
200,448
|
|
|
|
79,539
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from operations
|
|
|
(47,124
|
)
|
|
|
(7,392
|
)
|
|
|
(200,448
|
)
|
|
|
(79,539
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, related party
|
|
|
(2,283
|
)
|
|
|
(2,891
|
)
|
|
|
8,943
|
|
|
|
(8,579
|
)
|
Gain from sale of assets
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
9,000
|
|
Other income
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
700
|
|
Foreign exchange gain (loss)
|
|
|
(528
|
)
|
|
|
(1,521
|
)
|
|
|
(137
|
)
|
|
|
(3,042
|
)
|
Liability write-off
|
|
|
–
|
|
|
|
–
|
|
|
|
58,985
|
|
|
|
–
|
|
Total other income (expense)
|
|
|
(2,811
|
)
|
|
|
(4,412
|
)
|
|
|
67,791
|
|
|
|
(1,921
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before provision for income taxes
|
|
|
(49,935
|
)
|
|
|
(11,804
|
)
|
|
|
(132,657
|
)
|
|
|
(81,460
|
)
|
Provision for taxes
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(49,935
|
)
|
|
$
|
(11,804
|
)
|
|
$
|
(132,657
|
)
|
|
$
|
(81,460
|
)
|
Exploration Costs:
Exploration costs were
$Nil and $1,251 for the three and nine months ended September 30, 2018, respectively, and $Nil and $4,953 for the three and nine
months ended September 30, 2017, respectively. The costs in both years were related to property taxes.
General and Administrative:
General and administrative
expenses were $28,374 and $142,947 for the three and nine months ended September 30, 2018, respectively, and $7,392 and $74,586
for 2017, respectively. The increase in costs from 2018 compared to 2017 is from the overall increase in general and administrative
expense in due to management fees and filing fees.
Director Fees:
Director fees were
$18,750 and $56,250 for the three and nine months ended September 30, 2018, respectively, and $Nil and $Nil for the three and nine
months ended September 30, 2017, respectively. During the settlement of a lawsuit from the shareholders, it was deemed that the
three directors of the Company would each be compensated $25,000 per year starting January 1, 2017, however, the entirety of the
2017 amounts were recorded in the fourth quarter of 2017.
Net Operating Gain or Loss:
Net operating loss
for the three and nine months ended September 30, 2018 was $49,935 or $0.00 per share and $132,657 or $0.00 per share, respectively,
there was a net operating loss of $11,804 or $0.00 per share and $81,460 or $0.00 for the three and nine months ended September
30, 2017, respectively. This operating loss increase is primarily due to higher General and Administrative expense and Director
fees as explained above.
Interest Expense:
Interest expense for
the three and nine months ended September 30, 2018 was an expense of $2,283 and a recovery of $8,943, respectively, and a $2,891
and $8,579 expense for 2017, respectively. The recovery in the nine months ended September 30, 2018 was due to a recalculation
of the related party loan outstanding with G. Michael Hogan that was recognized in the first three months of the year. After being
reviewed by the lawyers involved in the lawsuit, it was determined that previously omitted expenses would be included and that
legal expenses would remain bearing an interest rate of 10%, but all other expenses would bear an interest rate of 5%.
Gain on Sale of Assets:
Gain on sale of assets
in 2017 occurred due to the sale of a truck that had been wholly depreciated on the books.
Other Income
Other income in 2017
was $700 received for a movie shoot on Can-Cal’s property in May 2017.
Liability Write-off:
Certain liabilities
were written off in the year as backup was provided showing that vendors had acknowledged a zero balance. Expense and payment transactions
for these would have occurred during the period that the comprehensive Form 10-K had covered from October 1, 2015 to September
30, 2017 when backup for these payments had not previously been received.
Net Loss:
For the three months
ended September 30, 2018, net loss was largely impacted by the general and administrative expense and director fees while the nine
months ended September 30, 2018 was also impacted from the liability write-off in the first three months of 2018. The nine months
ended September 30, 2017 saw a $9,700 positive impact from the gain on sale of assets and other income.
LIQUIDITY AND CAPITAL RESOURCES
The following table
summarizes total assets, accumulated deficit, stockholders’ equity (deficit) and working capital at September 30, 2018 and
December 31, 2017.
|
|
September 30,
2018
|
|
|
December 31,
2017
|
|
Total Assets
|
|
$
|
15,667
|
|
|
$
|
6,559
|
|
Accumulated (Deficit)
|
|
|
(11,745,686
|
)
|
|
|
(11,613,029
|
)
|
Stockholders’ Equity (Deficit)
|
|
|
(1,106,322
|
)
|
|
|
(973,665
|
)
|
Working Capital (Deficit)
|
|
$
|
(1,106,322
|
)
|
|
$
|
(973,665
|
)
|
At September 30, 2018,
the Company had total assets of $15,667, consisting of prepaid expenses and cash, compared to assets of $6,559 at December 31,
2017. The Company has implemented financial controls in the business to ensure each expense is warranted and needed. The Company
had $9,877 of cash on hand at September 30, 2018.
Off Balance Sheet Arrangements
The Company does not
have any off-balance sheet arrangements of any kind.
Contractual Obligations
An agreement was signed
effective June 10, 2016 with For Life Financial for the office administration of the Company and can be terminated by either party
with one month’s written notice. An agreement was signed effective September 10, 2016 to manage the Company. The contract
is effective until December 31, 2018 and will continue until the earlier of the completion of the services or the termination of
the agreement. Termination of the agreement may be for any or no reason upon four months written notice. The Company may, in its
sole discretion, request For Life Financial to cease performing services during the four-month period. For Life Financial may terminate
this agreement for any or no reason upon two months written notice.
On September 1, 2017,
an agreement was signed with Red to Black Inc. to perform the accounting for the Company. The contract is effective until December
31, 2017 and will automatically renew and can be terminated by either party with thirty days notice. No new contract has been signed
and the automatic renewal has been continuing.