Attached files
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
S-1/A
Amendment No. 1
Amendment No. 1
REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933
CAPITAL
RESERVE CANADA LIMITED
(Exact
name of registrant as specified in its charter)
CIK:
0001230622
SIC:
1382 Oil & Gas Field Exploration Services
18104
– 102 Ave. Edmonton, Alberta T5S-1S7, 780-701-4447
(Address
and telephone number of principal executive offices)
Approximate
date of commencement of proposed sale: As soon as practicable after this
Registration Statement becomes effective.
If any of
the securities being registered on this Form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the
following box: x
________________________________________________________________________________
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. o
_________________________________________________________________________________
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. o
_________________________________________________________________________________
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. o
_________________________________________________________________________________
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer”, “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer o
Accelerated filer o
Non-accelerated
filer o
(Do not check if a smaller reporting company) Smaller
reporting company x
________________________________________________________________________________
CALCULATION
OF REGISTRATION FEE
|
Title
of Each Class of Securities to be Registered
|
Amount
to be Registered (1)
|
Proposed
Maximum Offering
Price
Per Share (2)
|
Proposed
Maximum
Aggregate
Offering Price
|
Amount
of Registration Fee
|
||||||||||||
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Common
Stock
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400,000,000 | $ | .025 | $ | 10,000,000 | $ | 558 | |||||||||
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(1)
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This
Registration Statement covers the offering of common stock of the Company
according to a Drawdown Equity Financing Agreement and for resale by the
selling security holder named in this prospectus. In accordance with Rule
416(a), the registrant is also registering hereunder an indeterminate
number of shares that may be issued and resold to prevent dilution
resulting from stock splits, stock dividends, or similar
transactions.
|
|
(2)
|
The
offering price has been estimated solely for the purpose of computing the
amount of the registration fee in accordance with Rule 457 under the
Securities Act of 1933. The offering price was determined arbitrarily by
using the last, highest price at which we sold shares in the past
year.
|
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 which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until this registration statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
Information
contained herein is subject to completion or amendment. A registration statement
relating to these securities has been filed with the Securities and Exchange
Commission. These securities may not be sold nor may offers to buy be accepted
prior to the time the registration statement 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 such offer,
solicitation or sale would be unlawful prior to registration or qualification
under the securities laws of any such State.
-1-
PROSPECTUS
This
prospectus relates to the issuance from time to time of approximately
400,000,000 shares of stock of Capital Reserve Canada LIMITED (“CRC” or “the
Company”) common stock, being offered for sale pursuant to a Drawdown Equity
Financing Agreement (“Drawdown Agreement”) entered in to between the Company and
Auctus Private Equity Fund, LLC (“Auctus”). The total amount of shares of common
stock which, may be sold pursuant to this prospectus would constitute 68% of our
issued and outstanding common stock as of February 28, 2010, if all of the
shares had been sold by that date.
Pursuant
to the Drawdown Agreement, which has a total drawdown amount of ten million
dollars ($10,000,000), CRC has the right to sell to Auctus at its sole
discretion and Auctus has the obligation to purchase through advances to the
Company, the Company’s common stock through Draw Down Notices issued by the
Company. The number of shares of common stock that Auctus shall purchase shall
be determined by dividing the amount of the advance by the purchase price. No
fractional shares will be issued.
The
Company is selling all of the shares of common stock offered by this prospectus.
It is anticipated that the Company will sell these shares of common stock from
time to time in one or more transactions, in negotiated transactions or
otherwise, at prevailing market prices or at prices otherwise negotiated (see
“Plan of Distribution”). We will not receive any proceeds from the sale of
shares by the selling security holder. However, we will receive the sale price
of any common stock that we sell to Auctus under the drawdown line of equity
credit facility.
Our Form
20-F form was filed and accepted on July 15, 2009.
There are
no underwriting agreements.
CRC is a
publicly traded company that trades under the CVSVF.OB call symbol on the
OTCBB.
The total
amount of shares of common stock which, may be sold pursuant to this prospectus,
would constitute 66% of our issued and outstanding
607,594,302 shares of stock as of February,
2010.
Important
Note: Investing in CAPITAL RESERVE CANADA LTD. involves a great deal of risk,
for many different reasons. Please see a list of the risk factors involved in
investing in our company, beginning on page 6 of this prospectus.
Neither
the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of these securities or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal
offense.
The
information in this prospectus is not complete and may be changed. Capital
Reserve Canada Limited may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these securities and it is not soliciting an
offer to buy these securities in any state where the offer or sale is not
permitted.
Capital
Reserve Canada does not plan to use this offering prospectus before the
effective date.
-2-
TABLE
OF CONTENTS
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WE AGREED TO PAY A NON-REFUNDABLE ORIGINATION
FEE OF FIFTEEN THOUSAND DOLLARS ($15,000)
CASH.
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-3-
SUMMARY
INFORMATION AND RISK FACTORS
This
summary highlights information contained elsewhere in this Prospectus. This
summary does not contain all of the information you should consider before
investing. You should read the entire prospectus, including “Risk Factors” and
the consolidated financial statements and the related notes before making an
investment decision.
Summary
Information
CRC is a
publicly traded company that trades under the CVSVF.OB call symbol on the
OTCBB.
CRC is an
environmental technology solutions firm, developing industrial-scale projects
that address current environmental concerns. Specifically, Two Hills (a
wholly-owned subsidiary of CRC) is establishing itself as a leader in the
emerging greenhouse gas mitigation industry (e.g. Carbon Capture and
Sequestration) as well as several other developed and emerging environmental
industries including: industrial waste recycling and disposal,
biofuels/bioenergy production and environmental services and remediation.
Two Hills has developed a strategy to leverage cutting edge technologies and
sound management in order to create remarkable solutions in place of current
environmental and macroeconomic liabilities.
We have
never had a profit, currently have no non-cash assets, are in poor financial
condition and we anticipate no profits for at least the upcoming year, as we
attempt to build our portfolio of properties. See Risk Factors starting on page
6 for more information.
The
mailing address of our principal executive offices is: 18104 – 102 Ave.
Edmonton, Alberta T5S-1S7. The telephone number of our principal executive
offices is: 780-701-4447. www.capitalreservecanada.com.
Our
revenues for the most recent unaudited period
January 1, 2009 – October 31, 2009 were $6,000 . Our
net loss for the most recent unaudited period was
$ 698,818 . We have accumulated a deficit of $ 11,013,710 since December 1999 and our auditors have
issued a going concern opinion. See the notes to our audited financial
statements below. The following table sets forth summary financial data derived
from our financial statements. The data should be read in conjunction with the
financial statements, related notes and other financial information included in
this prospectus.
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Operating
Statement Data
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for
the period January 1, 2009
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through
October 31, 2009
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(unaudited)
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Income
Statement Data
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Revenues:
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$ | 6,000 | ||
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Expenses:
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697,808 | |||
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Net
Loss from
Operations:
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698,818
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|||
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Balance
Sheet Data
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as
at October 31, 2009
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(Audited)
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Total
Assets:
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991,325 | |||
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Total
Liabilities:
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731,177 | |||
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__________
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||||
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Total
Stockholders' Equity:
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260,148 | |||
-4-
You
should carefully consider the following risk factors and all other information
in this prospectus before investing in CRC. Investing in CRC involves a high
degree of risk. Any of the following risks makes investment in our company
speculative or risky, and could adversely affect our business, financial
condition and results of our operations and could result in a complete loss of
your investment.
Risk
Factors Related Directly to Our Business
Investing in
Waste Storage May Expose the Company to Specific Risks.
Investments
in waste disposal and management are exposed to a wide variety of risks
including nationwide and local social conditions, the supply of, and demand for,
specific types of waste properties, the ability of our tenants to pay their
rent, vandalism, vacancies, changes in tax or zoning laws, changes in rent
control laws, etc. The Cavern Storage Terminal segment of the project comes
along with standard engineering, construction and development risks. Through
discussion with engineering partners, engaged to examine this project, it does
not appear that any of the technological problems cannot be solved through the
implementation of “off-the-shelf” equipment in standard configurations. While
the scale of the project is quite large, Albertan engineering and construction
firms possess the knowledge and resources to design and build the suggested
infrastructure. CO2 leakage due to fracture or mechanical failure is also a
risk, however, CRC feels as though these risks can be managed through careful
understanding and development of the caverns and the constant monitoring of the
caverns and mechanical infrastructure.
The
larger risk in the proposed project is of the biological conversion of CO2, due
to the early stage of development of the technology and the risks that come
along with scaling up any technology. However, CRC is seeking to develop a
partnership with a clear global leader in the development of biological
conversion processes in order to mitigate these risks as much as is possible.
The intellectual property and unique capacities that will be developed en-route
to the ultimate applications will all provide value to the province of
Alberta.
Our
business operations are speculative. The failure of our plans could
ultimately force us to reduce or suspend operations and even liquidate our
assets and wind-up and dissolve our company.
Our
shares should be considered highly speculative due to the proposed nature of our
business and the current stage of our development. Certain information set
out in our annual report includes or is based upon expectations, estimates,
projections or other “forward looking information”. Such forward-looking
information includes projections or estimates made by us and our management as
to our future business operations. While statements concerning
forward looking information, and any assumptions upon which they are based, are
made in good faith and reflect our current judgment regarding the direction of
our business, actual results will almost certainly vary, sometimes materially,
from any estimates, predictions, projections, assumptions or other future
performance suggested herein. See “cautionary statement concerning
forward – looking information” on page 15.
A
significant or prolonged decrease in oil and natural gas prices will seriously
and negatively impact our business plans and operations.
Our
revenues are dependent on the expenditures of oil and gas companies. The demand
for our tools and services are primarily influenced by current and anticipated
commodity prices, particularly oil and natural gas prices. Weakness in commodity
prices may cause our customers to reduce their capital and operating
expenditures as weaker commodity prices result in fewer wells being drilled.
Other factors that may affect demand for our tools and services include the
level of development, exploration and production activity of, and corresponding
spending by, energy and resource companies, which in turn is affected by
conditions such as weather conditions, and seasonality, government regulation of
energy and resource companies, and conditions in the worldwide energy and
resources industry.
Periods
of diminished or weakened demand for our tools and services may occur in the
future. In light of these factors, historical operating results may not be
indicative of our future performance. In addition, reductions in commodity
prices can result in a reduction in the trading prices and value of our
securities, even if the reduction in commodity prices does not affect our
business generally.
Seasonality
may affect our performance.
In
general, the level of activity in the oilfield service industry is influenced by
seasonal weather patterns. Wet weather and the spring thaw may make
the ground unstable. Consequently, municipalities and provincial
transportation departments enforce road bans that restrict the movement of rigs
and other heavy equipment, thereby reducing activity
levels. Additionally, certain oil and gas producing areas are located
in areas that are inaccessible other than during the winter months because the
ground surrounding the drilling sites in these areas consists of swampy
terrain. Seasonal factors and unexpected weather patterns may lead to
declines in the activity levels of exploration and production companies and
corresponding declines in the demand for our tools and services.
-5-
We
may be unable to continue as a going concern if we are unable to raise
additional capital.
The cost
associated with further development of our business and our ability to generate
revenue will depend on a variety of factors, including our ability to meet our
development schedule and customer needs, changes in technology, and the
availability of additional funds that may be required to advance and expand our
business. Additional funds, whether through additional equity financing, debt
financing or other sources, may not be available on terms acceptable to us or at
all, or may result
in significant dilution to our shareholders and/or a change of control of the
Company. The inability to obtain additional funds may have a material adverse
affect on our business, results of operations, and financial
condition.
There
is no guarantee that we will generate profit. We have incurred losses
and anticipate losses will continue. This could have an impact on
stockholders’ investments in our common stock.
Our
business is capital intensive and we have no history of
profit. Accordingly, there can be no assurance that our future
business activities will be profitable. We have incurred costs to develop and
enhance our tools and services, to establish strategic relationships and to
build an administrative organization. Our ability to operate profitably and
generate positive cash flow in the future will be affected by a variety of
factors, including our ability to further develop and test our technology on
schedule and on budget, the pace of our entry into our target markets, consumer
acceptance of our products, the intensity of the competition experienced by us,
the availability of additional capital to pursue our business plans, including
development of new products. An inability to generate sufficient
funds from operations will have a materially adverse affect on our business,
results of operations and financial condition.
Our
ability to grow our business and meet our commitments to our customers is
dependent upon the availability of suppliers upon which we rely.
We will
have to rely on suppliers for additional gauges, trucks and equipment in order
to expand, or to replace existing equipment. The availability of suppliers could
affect our ability to expand or to meet our commitment to existing
customers.
We
are in an early stage of development and there are no guarantees that we will be
able to achieve our business objectives. This may have a material adverse impact
on our business and ability to continue as a going concern.
Our
business prospects are subject to all of the risks inherent to a new
business. There can be no assurance that we will obtain market
acceptance as contemplated in our business objectives and any failure to sell
our products or services may have a material adverse effect on our business,
results of operations, and financial condition.
The
industry in which we operate is marked by rapid technological change. Our
inability to adapt to such change(s) may have a material adverse impact on our
business and ability to continue as a going concern.
Our
Industry is subject to rapid change, and any inability on our part to adapt to
such change may have an adverse affect on our business, results of operations
and financial condition. The effect of new developments and
technological changes on the business sector in which we will compete cannot be
predicted. Our failure to adapt to any of the above could have a material
adverse effect on our business, results of operations, and financial
condition.
We
compete directly with independent, technology-driven services companies. Our
inability to effectively compete with these companies could have a material
adverse impact on our business.
We expect
to face significant competition from other organizations and there can be no
assurance that we will be able to compete effectively in our target
markets. In addition, new technologies may emerge that are
competitive with our tools and services. Advances in measurement tools as well
as changes in the market place and the regulatory and legislative environment
are constantly occurring and any such change could have a material adverse
impact on us. We expect that competition will intensify in the future, as our
tools and services, and the opportunities presented thereby, become better
known.
There
is continual need for innovative solutions. Our ability to develop new solutions
or refine our existing solutions could have a material adverse impact on our
business.
To
achieve our business objectives and obtain market share and profitability, we
will need to continually research, develop and refine our tools and
services. Many factors may limit our ability to develop and refine
existing tools and services. We may also be exposed to marketplace resistance to
new tools and services. Any failure to develop or refine our existing tools and
services, or create new tools or offer new services could have a material
adverse effect on our business, results of operations, and financial
condition.
-6-
Our
failure to protect our intellectual property could have a material adverse
impact on our business.
Our
success will be largely dependent upon our ability to protect our proprietary
technology. We rely upon copyright law and trade secrets to protect
our intellectual property. We have not, to date, applied for or obtained any
patents or trademarks to protect our intellectual property in
KCP. Where appropriate, we also enter into non–disclosure agreements
with persons to whom we reveal proprietary information. Any failure to protect
our intellectual property could have a material adverse effect on our business,
results of operations, and financial condition.
We may
have to engage in litigation in the future to enforce or protect our
intellectual property rights or to defend against claims of invalidity and we
may incur substantial costs as a result. Any claims or litigation initiated by
us to protect our proprietary technology could result in significant expense to
us and diversion of the efforts of our technical and management resources,
whether or not the claims or litigation are determined in favor of
us.
A
small number of stockholders own a significant number of our shares that could
make it difficult for other investors to make changes in our operations or
management, and therefore, shareholders would be subject to decisions made by
management and the majority stockholders.
One (1)
stockholder, Steven Claussen, owns a significant number of our outstanding
shares. In total, this stockholder owns 42,833,495 shares of the
total amount of 207,594,302 Class A common shares
outstanding, which is approximately 20.6 %. This stockholder has the power to
significantly influence our affairs and may be able to influence the outcome of
matters required to be submitted to stockholders for approval, including the
election of directors and the amendment of our articles of incorporation and
bylaws. Conversely, it may be difficult for the remaining stockholders to
influence the outcome of such matters.
Our
business may attract uninsured liabilities that may have an adverse impact on
us.
Our
products are used in processes of production of oil and gas. Though it is
unlikely that the products could cause damage, we may be subject to liability
for property damage, personal injury or other hazards. We are insured
in accordance with industry standards to address certain of these risks;
however, such insurance has limitations on liability that may not be sufficient
to cover the full extent of such liabilities. In addition, such risks
may not in all circumstances be insurable. The payment of such uninsured
liabilities would have an adverse effect on our business, results of operations
and financial condition.
There may
be environmental liability from our services. In the event that
losses or damages result from the operation of the assets that are not covered
by the operator’s insurance, these losses or damages would become a liability
for us. It is possible that uncovered losses and damages could be insured which
could cause us to have to file for bankruptcy protection from the
courts.
Our
inability to effectively manage our planned growth could have a material adverse
impact on our business.
Responding
to consumer demands, expanding into other geographical markets and targeting
growth in our business is likely to place significant strains on our
administrative and operational resources and increased demands on our internal
systems, procedures and controls. If we experience rapid acceptance of our
technology, the need to manage such growth will add to the demands on our
management, resources, systems, procedures and controls. There have been no
operations since the sale of KCP’s assets. There can be no assurance that our
administrative infrastructure, systems, procedures and control will be adequate
to support our operations or that our officers and personnel will be able to
manage any significant expansion of operations. If we are unable to manage
growth effectively, our business, operating results, and financial condition
will be materially adversely affected.
We
are currently understaffed in our management. If our current essential officers
leave prior to securing their replacements, we will be left without adequate
management and our business operations would cease.
We will
be reliant upon company management personnel to anticipate and address consumer
demands and hire technical employees and contractors to provide our
service. There can be no assurance that qualified management or
technical personnel will be available to us in the future. The
success of our operations and activities will depend to a significant extent on
the efforts and abilities of our management and technical
personnel. The loss of services of any of our management or technical
personnel could have a material adverse effect on our business, results of
operations, and financial condition.
Our
day–to-day management and operations are dependent on the expertise of Steve
Claussen, our President. If he was no longer able to provide services, our
operations could be threatened.
Currently,
we are dependent on the expertise of Steve Claussen, who has an in-depth
knowledge of our technology and operations. He is also responsible for the
day-to-day management of our wholly owned subsidiaries. Our ability to operate
would be severely curtailed if he were to be unavailable.
-7-
Unpredictable
events could cause fluctuations in our operating results, which could cause
unanticipated losses and adversely impact our business.
We expect
to be exposed to significant fluctuations in operating results caused by many
factors, including changes in the demand for our technology, the introduction of
competing technologies, market acceptance of such enhancements or products,
delays in the introduction of such enhancements or products, changes in our
pricing policies or those of our competitors, the mix of services sold, foreign
currency exchange rates and general economic conditions.
Our
future operating results may fluctuate significantly depending upon a number of
factors, including industry conditions, prices of oil and natural gas, rate of
drilling success, rates of production from completed wells and the timing of
capital expenditures. This variability makes it very difficult to predict when
we might reach profitability and hence would have a serious impact on the value
of an investor’s investment in our company. In addition, any failure or delay in
the realization of expected cash flows from initial operating activities could
limit our future ability to continue exploration and to participate in an
economically attractive project.
The price
of oil and natural gas is determined based on world demand and supply. It is
impossible to predict future oil and natural gas price movements with any
certainty, as they have historically been subject to wide fluctuations in
response to a variety of market conditions, including relatively minor changes
in the supply and demand for oil and natural gas, economic, political and
regulatory developments, and competition from other sources of
energy.
Any
extended or substantial decline in oil and natural gas prices would have a
material adverse effect on our ability to negotiate favorable joint ventures
with viable industry participants, our cash flow and our access to capital. The Kyoto Protocol
and/or unforeseen changing government regulations may adversely impact our
business.
Canada is
a signatory to the United Nations Framework Convention on Climate Change and has
ratified the Kyoto Protocol established hereunder. Canada, as an
Annex B party to the Kyoto Protocol, is required to set legally binding
targets to reduce nation-wide emissions of carbon dioxide, methane, nitrous
oxide and other so-called “greenhouse gases”.
The
direct or indirect costs of complying with emissions regulations may adversely
affect the oil and gas business in Canada, which in turn may adversely affect
the oil and gas services industry in which we will participate.
Other
government regulations are subject to change at any time and are beyond our
control.
US
investors face the risk that their investment may be subject to special US
federal income tax rules.
For any
of our taxable years, if at least seventy-five percent (75%) of our gross income
is “Passive income” (as defined in the Internal Revenue Code of 1986, as amended
(the “Code”)), or if at least fifty percent (50%) of our assets, by average fair
market value, are assets that produce or are held for the production of passive
income, we will be a Passive Foreign Investment Corporation
(“PFIC”).
If we are
a PFIC for any taxable year during which an individual who is a citizen or
resident of the United States or a domestic corporation (a “US Taxpayer”) owns
any common stock, the US Taxpayer will be subject to US federal income tax
rules, set forth in Sections 1291 to 1297 of the Code, with respect to all of
such US Taxpayers’ common stock. For example, gifts and exchanges pursuant to
corporate reorganizations and use of the common stock as security for a loan may
be treated as a taxable disposition, and a stepped-up basis upon the death of
such US Taxpayer may be not available. Furthermore, in the absence of an
election by such US Taxpayer to treat us as a “qualified electing fund”
(the “QEF election”), as discussed below, the US Taxpayer would be required to
(i) report any gain on disposition of any common stock as ordinary income rather
than capital gain, (ii) to compute the tax liability on such gain and on certain
distributions as if the share had been earned pro rata over the US Taxpayer’s
holding period (or a certain portion thereof) for the common stock, and (iii)
would be subject to the highest ordinary income tax rate for each taxable year
of the US Taxpayer in which the shares were treated as having been
earned. Such US Taxpayer would also be liable for interest (which may
be non-deductible by certain US Taxpayers) on the foregoing tax liability as if
such liability had been due with respect to each prior year.
US
Taxpayers are strongly urged to consult his or her own tax advisor in this
regard.
The
foregoing discussion of United States taxation is of a general and summary
nature only and is not intended to be, nor should it be considered to be, legal
or tax consequences of receiving dividends from us or disposing of their common
stock, and thus, any investment in our common stock could be illiquid for an
indefinite period of time.
-8-
You
should not expect to receive dividends on your investment.
We have
never paid any cash dividends on shares of our capital stock, and we do not
anticipate that we will pay any dividends in the foreseeable future. Our current
business plan is to retain any future earnings to finance the expansion of our
business. Any further determination to pay cash dividends will be at the
discretion of our board of directors, and will be dependent upon our financial
condition, results of operations, capital requirements and other factors as our
board of directors may deem relevant at that time.
Our
business may be adversely impacted by unforeseen changes in environmental and
safety requirements.
Environmental
and safety regulations are extensive in the industry and subject to change at
any time. This may affect the development of our business.
Environmental and Safety matters are more completely described in Item 4 of this
document.
Risks
Associated With This Offering
Dilution:
Existing stockholders may experience significant dilution from the sale of our
common stock pursuant to the Drawdown Agreement.
The sale
of our common stock to Auctus Private Equity Fund LLC in accordance with the
Drawdown Equity Facility Agreement may have a dilutive impact on our
shareholders. As a result, our net income per share could decrease in future
periods and the market price of our common stock could decline. In addition, the
lower our stock price is at the time we exercise our put option, the more shares
of our common stock we will have to issue to Auctus Private Equity Fund LLC. If
our stock price decreases, then our existing shareholders would experience
greater dilution for any given dollar amount raised through the offering.
The
perceived risk of dilution may cause our stockholders to sell their shares,
which would contribute to a decline in the price of our common stock.
Moreover, the perceived risk of dilution and the resulting downward
pressure on our stock price could encourage investors to engage in short sales
of our common stock. By increasing the number of shares offered for sale,
material amounts of short selling could further contribute to progressive price
declines in our common stock.
Although
the amount of shares that we may issue pursuant to the equity line will vary
based on our stock price (the higher our stock price, the less shares we have to
issue) the information set out below indicates the potential dilution of our
shareholders if the full amount of the equity line is exercised.
FOR
EXAMPLE
|
Stock
Price
|
Shares
Issued*
|
Percentage
of
Outstanding
Shares**
|
|||
|
$0.01
(Current Price)
|
1,000,000,000
|
482
|
%
|
||
|
$0.05
(above)
|
200,000,000
|
96
|
%
|
||
|
0.0075
(25% below)
|
1,333,333,333
|
642
|
%
|
||
|
**
|
Based
on 207,594,302 shares outstanding as of October
31, 2009.
|
Auctus
Private Equity Fund LLC will pay less than the then-prevailing market price of
our common stock, which could cause the price of our common stock to
decline.
Our
common stock to be issued under the Drawdown Equity Facility Agreement will be
purchased at a seven percent (7%) discount or 93% of the lowest closing bid
price during the five trading days immediately following our notice to Auctus
Private Equity Fund LLC of our election to exercise our "put" right.
-9-
Auctus
Private Equity Fund LLC has a financial incentive to sell our shares
immediately upon receiving the shares to realize the profit between the
discounted price and the market price.
If Auctus
Private Equity Fund LLC sells our shares, the price of our common stock may
decrease. If our stock price decreases, Auctus may have a
further incentive to sell such shares. Accordingly, the discounted
sales price in the Drawdown Agreement may cause the price of our common stock to
decline.
You
may be unable to sell your common stock at or above your purchase price, which
may result in substantial losses to you.
The
following factors may add to the volatility in the price of our common stock:
actual or anticipated variations in our quarterly or annual operating results;
government regulations, announcements of significant acquisitions, strategic
partnerships or joint ventures; our capital commitments; and additions or
departures of our key personnel. Many of these factors are beyond our
control and may decrease the market price of our common stock, regardless of our
operating performance. We cannot make any predictions or projections
as to what the prevailing market price for our common stock will be at any time,
including as to whether our common stock will sustain its current market price,
or as to what effect that the sale of shares or the availability of common stock
for sale at any time will have on the prevailing market price.
Volatility
in our common stock price may subject the Company to securities
litigation.
The
market for our common stock is characterized by significant price volatility
when compared to seasoned issuers, and we expect that our share price will
continue to be more volatile than a seasoned issuer for the indefinite
future. In the past, plaintiffs have often initiated securities class
action litigation against a company following periods of volatility in the
market price of its securities. We may in the future be the target of
similar litigation. Securities litigation could result in substantial
costs and liabilities and could divert management’s attention and
resources.
We
may need to raise additional capital. If we are unable to raise
necessary additional capital, our business may fail or our operating results and
our stock price may be materially adversely affected.
Because
we are a newly operational company, we need to secure adequate
funding. If we are unable to obtain adequate funding, we may not be
able to execute on our business plan and our business will most likely
fail. We do not have commitments for additional
financing. To secure additional financing, we may need to borrow
money or sell more securities, which may reduce the value of our outstanding
securities. We may be unable to secure additional financing on
favorable terms or at all.
Selling
additional stock, either privately or publicly, would dilute the equity
interests of our stockholders. If we borrow more money, we will have
to pay interest and may also have to agree to restrictions that limit our
operating flexibility. If we are unable to obtain adequate financing,
we may have to curtail business operations, which would have a material negative
effect on operating results and most likely result in a lower stock
price.
Our
issuance of additional common stock in exchange for services or to repay debt
would dilute your proportionate ownership and voting rights and could have a
negative impact on the market price of our common stock.
Our board
of directors may generally issue shares of common stock to pay for debt or
services, without further approval by our stockholders based upon such factors
as our board of directors may deem relevant at that time. The Company
has in the past issued common stock shares in payment for debt and services, and
it is likely that we will issue additional securities to pay for services and
reduce debt in the future. It is possible that we will issue
additional shares of common stock under circumstances we may deem appropriate at
the time.
Our
directors have the right to authorize the issuance of shares of our preferred
stock and additional shares of our common stock.
Our
directors, within the limitations and restrictions contained in our articles of
incorporation and without further action by our stockholders, have the authority
to issue shares of preferred stock from time to time in one or more series and
to fix the number of shares and the relative rights, conversion rights, voting
rights, and terms of redemption, liquidation preferences and any other
preferences, special rights and qualifications of any such series. We
have no intention of issuing shares of preferred stock at the present
time. Any issuance of shares of preferred stock could adversely
affect the rights of holders of our common stock. Should we issue
additional shares of our common stock at a later time, each investor’s ownership
interest in our stock would be proportionally reduced. No investor
will have any preemptive right to acquire additional shares of our common stock,
or any of our other securities.
-10-
If we
fail to remain current on our reporting requirements, we could be removed from
the OTC Bulletin Board, which would limit the ability of broker-dealers to sell
our securities and the ability of stockholders to sell their securities in the
secondary market. Companies trading on the OTC Bulletin Board must be
reporting issuers under Section 12 of the Exchange Act, and must be current in
their reports under Section 13 of the Exchange Act, in order to maintain price
quotation privileges on the OTC Bulletin Board. If we fail to remain
current on our reporting requirements, we could be removed from the OTC Bulletin
Board. As a result, the market liquidity for our securities could be
adversely affected by limiting the ability of broker-dealers to sell our
securities and the ability of stockholders to sell their securities in the
secondary market.
Dividend
risk.
CRC does
not expect to pay dividends now or in the foreseeable future, and future
dividends will depend on our profitability. It intends to use any future
earnings for purchase of additional real estate and other administrative and
business functions. Should we decide to pay dividends at any time in the future,
there is no guarantee that they will be paid on a timely basis. If in buying our
stock you anticipate income from dividends, you should not buy our
stock.
Our
common stock is subject to the “penny stock” rules of the Securities and
Exchange Commission, and the trading market in our common stock is limited,
which makes transactions in our stock cumbersome and may reduce the investment
value of our stock.
Our
shares of common stock are “penny stocks” because they are not registered on a
national securities exchange or listed on an automated quotation system
sponsored by a registered national securities association, pursuant to Rule
3a51-1(a) under the Exchange Act. For any transaction involving a
penny stock, unless exempt, the rules require that a broker or dealer approve a
person’s account for transactions in penny stocks; and that the broker or dealer
receives from the investor a written agreement to the transaction, setting forth
the identity and quantity of the penny stock to be purchased.
The
broker or dealer must also deliver, prior to any transaction in a penny stock, a
disclosure schedule prescribed by the Securities and Exchange Commission
relating to the penny stock market, which, for example, sets forth the basis on
which the broker or dealer made the suitability determination; and that the
broker or dealer received a signed, written agreement from the investor prior to
the transaction.
Generally,
brokers may be less willing to execute transactions in securities subject to the
“penny stock” rules. This may make it more difficult for investors to
dispose of our common stock and cause a decline in the market value of our
stock.
Disclosure
also has to be made about the risks of investing in penny stocks in both public
offerings and in secondary trading and about the commissions payable to both the
broker-dealer and the registered representative, current quotations for the
securities and the rights and remedies available to an investor in cases of
fraud in penny stock transactions. Finally, monthly statements have
to be sent disclosing recent price information for the penny stock held in the
account and information on the limited market in penny stocks.
The
market for penny stocks has suffered in recent years from patterns of fraud and
abuse.
Stockholders
should be aware that, according to SEC Release No. 34-29093, the market for
penny stocks has suffered in recent years from patterns of fraud and
abuse. Such patterns include:
1.
Control of the market for the security by one or a few broker-dealers that are
often related to the promoter or issuer;
2.
Manipulation of prices through prearranged matching of purchases and sales and
false and misleading press releases;
3. Boiler
room practices involving high-pressure sales tactics and unrealistic price
projections by inexperienced salespersons;
4.
Excessive and undisclosed bid-ask differential and markups by selling
broker-dealers; and
5. The
wholesale dumping of the same securities by promoters and broker-dealers after
prices have been manipulated to a desired level, along with the resulting
inevitable collapse of those prices and with consequential investor
losses.
Our
management is aware of the abuses that have occurred historically in the penny
stock market. Although we do not expect to be in a position to dictate the
behavior of the market or of broker-dealers who participate in the market,
management will strive within the confines of practical limitations to prevent
the described patterns from being established with respect to our
securities. The occurrence of these patterns or practices could
increase the volatility of our share price.
-11-
Shares
eligible for future sale by our current stockholders may adversely affect our
stock price.
To date,
we have had a very limited trading volume in our common stock. As
long as this condition continues, the sale of a significant number of shares of
common stock at any particular time could be difficult to achieve at the market
prices prevailing immediately before such shares are offered. In
addition, sales of substantial amounts of common stock, including shares issued
upon the exercise of outstanding options and warrants, under Securities and
Exchange Commission Rule 144 or otherwise could adversely affect the prevailing
market price of our common stock and could impair our ability to raise capital
at that time through the sale of our securities.
Risk
Factors Related to Legal Issues
We Have A
Limitation Of Liability Against Our Directors, Where Permitted By Law, Possibly
Limiting Certain Claims By Investors Should Our Business Fail. There are limits
of liability of our directors for monetary damages for breach of director's
fiduciary duty except for liability in certain instances. As a result you as a
stockholder will have limited rights to recover against directors for breach of
fiduciary duty.
Forward-Looking Statements
Some
statements in this Prospectus contain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995, which reflect
the Company’s current judgment on certain issues. These statements appear in a
number of places in this memorandum and in the documents incorporated by
reference, if any, and may include statements regarding, among other matters,
the Company’s growth opportunities and other factors affecting the company’s
financial condition or results of operations. Because such statements apply to
future events, they are subject to risks and uncertainties that could cause the
actual results to differ materially from those anticipated in this
memorandum. Important factors that could cause actual results to
differ materially include, but are not limited to: business conditions and
growth in the oil and gas industry and general economy – both domestic and
international; lower than expected opportunities, including pricing pressures or
similar offerings by competitors and alternative technologies and the general
economic conditions. Actual results may differ materially from these
statements as a result of risk factors inherent in the Company’s business,
industry, or other factors.
Certain
statements in this memorandum including but not limited to statements, estimates
and projections of future trends and of the anticipated future performance of
the Company constitute "forward-looking statements". Such forward-looking
statements involve known and unknown risks, uncertainties and other important
factors that could cause the actual results, performance or achievements of the
company, or industry results, to differ materially from any future results,
performance or achievement implied by such forward-looking
statements.
Statements
in this Prospectus that are forward-looking involve numerous risks and
uncertainties that could cause actual results to differ materially from expected
results and are based on the Company's current beliefs and assumptions regarding
a large number of factors affecting its business. Actual results may differ
materially from expected results. There can be no assurance that (i) the company
has correctly measured or identified all of the factors affecting its business
or the extent of their likely impact, (ii) the publicly available information
with respect to these factors on which the Company's analysis is based or
complete or accurate, (iii) the Company's analysis is correct or (iv) the
Company's strategy, which is based in part on this analysis, will be
successful.
DETERMINATION
OF OFFERING PRICE
The
offering price of the common stock bears no relationship to any objective
criterion of value. The price does not bear any relationship to CRC’s assets,
book value, historical earnings, or net worth. In determining the offering
price, management considered such factors as the prospects, if any, for similar
companies, anticipated results of operations, present financial resources and
the likelihood of acceptance of this offering. Accordingly, the
offering price should not be considered an indication of the actual value of our
securities.
DILUTION
OF THE PRICE YOU PAY FOR YOUR SHARES
“Dilution”
represents the difference between the offering price of the shares of common
stock and the net book value per share of common stock immediately after
completion of the offering. “Net Book Value” is the amount that results from
subtracting total liabilities from total assets. In this offering, the level of
dilution is increased as a result of the relatively low book value of CRC’s
issued and outstanding stock. Please refer to the following table presenting the
number of shares issued and the corresponding price per share paid before this
offering for more information. CRC’s net book value on October 31, 2009 was $260,148 or $0.002 per share. Assuming
approximately 400,000,000 shares are sold, and in effect CRC receives the
maximum estimated proceeds of this offering from shareholders, CRC’s net book
value will be $10,260,148 or $0.020 per
share. Therefore, any investor in this offering will incur an immediate and
substantial dilution of approximately 0.5 % while CRC
present stockholders will receive an increase of $0.018 per share in the net book value of the shares
that he holds. This will result in a 0.5% dilution for purchasers of stock in
this offering.
-12-
This
table presents the dilution of the net book value of common stock purchased by
purchasers in this offering of 400,000,000 shares compared with the individual
who purchased shares in CRC previously:
Dilution
resulting from a 400,000,000 Share Offering
|
Book
Value Per Share Before the Offering
|
$ | 0.002 | ||
|
Book
Value Per Share After the Offering
|
$ | 0.020 | ||
|
Net
Increase to Original Shareholders
|
$ | 0.018 | ||
|
Decrease
in Investment to New Shareholders
|
$ | 0.002 | ||
|
Dilution
to New Shareholders (%)
|
0.5 | % |
Offering
THE
DRAWDOWN EQUITY FINANCE AGREEMENT/REGISTRICTION RIGHTS
AGREEMENT
On May 3,
2009, we entered into Drawdown Equity Finance Agreement and A Registration
Rights Agreement with Auctus Private Equity Fund, LLC in order to establish a
possible source of funding for us. The equity line of credit
agreement establishes what is sometimes also referred to as an equity
drawdown facility.
Under the
equity line of credit agreement, Auctus has agreed to provide us with up to
$10,000,000 of funding over a thirty-six month period from the effective
date of this prospectus; shares of our common stock covering $10,000,000 of the
agreement are being registered pursuant to this prospectus. During this period,
we may request a drawdown under the equity line of credit by selling
shares of our common stock to Auctus and Auctus will be obligated to purchase
the shares. We may request a drawdown once every five trading
days, although we are under no obligation to request any drawdowns under
the equity line of credit. There must be a minimum of five trading days
between each drawdown request.
We may
request a drawdown by sending a drawdown notice to Auctus, stating the amount of
the draw down and the price per share, which shall be the lowest closing
bid price of our common stock during the preceding five trading days. During the
five trading days following a drawdown request, we will calculate the
amount of shares we will sell to Auctus and the purchase price per share. The
number of shares of Common Stock that Auctus shall purchase pursuant to each
advance shall be determined by dividing the amount of the advance by the
purchase price.
The
purchase price per share of common stock will be set at
ninety-three percent (93%) (a Seven Percent (7%)
discount) of
the lowest closing bid of the common stock during the pricing period.
Further, Auctus shall immediately cease selling any shares of our common
stock within a drawdown notice if the price of the Company’s common stock falls
below 75% of the average closing bid price of the common stock over the
preceding ten (10) trading days prior to the drawdown notice date; such floor
can be waived only in the sole discretion of the Company.
There is
no minimum amount we can draw down at any one time. The maximum amount we
can draw down at any one time is the larger of $150,000; or 200% of the average
daily volume based on the trailing ten days preceding the drawdown notice
date.
Upon
effectiveness of the Registration Statement, the Company shall deliver
Instructions to its transfer agent to issue shares of Common Stock to the
Investor free of restrictive legends on or before each advance
date.
Pursuant
to the Drawdown Agreement, Auctus shall not be issued shares of the Company’s
common stock that would result in its beneficial ownership equaling more than
4.99% of the outstanding common stock of the Company.
The
obligation of Auctus to make an advance to the Company pursuant to the Drawdown
Agreement shall terminate permanently in the event that (i) there shall occur
any stop order or suspension of the effectiveness of this registration statement
for an aggregate of fifty (50) trading days, other than due to the acts of
Auctus, during the commitment period, or (ii) the Company shall at any time fail
materially to comply with the requirements contained in the Drawdown Agreement
and such failure is not cured within thirty (30) days after receipt of written
notice from the Investor, provided, however, that the
termination provision shall not apply to any period commencing upon the filing
of a post-effective amendment to this registration statement and ending upon the
date on which such post-effective amendment is declared effective by the
SEC.
-13-
On
September 3, 2009 the Company signed a Registration Rights Agreement with Auctus
requiring, among other things, that CRC prepare and file with the SEC Form S-1,
or on such other form as is available no later than one hundred twenty (120)
calendar days after the Company's Annual Report on Form 20-F for its fiscal year
ended December 31 2008 is filed with the SEC. In addition, the Company shall use
all commercially reasonable efforts to have the Registration Statement(s)
declared effective by the SEC within one hundred and twenty (120) calendar days
from the date that the Registration Statement is filed with the
SEC.
As per
the Drawdown Agreement, none of Auctus’s obligation thereunder are transferrable
and may not be assigned to a third party.
We agreed
to pay a non-refundable origination fee of Fifteen Thousand
Dollars ($15,000) cash.
SELLING
SECURITY HOLDER
We agreed
to register for resale shares of common stock of the selling security holder.
The selling security holder may from time to time offer and sell any or all
of their shares that are registered under this prospectus. The selling
security holder and any participating broker-dealers are “underwriters”
within the meaning of the Securities Act of 1933, as amended. All expenses
incurred with respect to the registration of the common stock will be borne by
us, but we will not be obligated to pay any underwriting fees, discounts,
commissions or other expenses incurred by the selling security holder in
connection with the sale of such shares.
The
following table sets forth information with respect to the maximum number of
shares of common stock beneficially owned by the selling security holder
named below and as adjusted to give effect to the sale of the shares offered
hereby. The shares beneficially owned have been determined in accordance with
rules promulgated by the SEC, and the information is not necessarily indicative
of beneficial ownership for any other purpose. The information in the table
below is current as of the date of this prospectus. All information
contained in the table below is based upon information provided to us by the
selling security holder and we have not independently verified this
information. The selling security holder is not making any representation
that any shares covered by the prospectus will be offered for sale. The selling
security holder may from time to time offer and sell pursuant to this
prospectus any or all of the common stock being registered.
Except as
indicated below, the selling security holder has not held any position or
office with us, nor are any of the selling security holder associates or
affiliates of any of our officers or directors. Except as indicated below, the
selling stock holder is not the beneficial owner of any additional shares
of common stock or other equity securities issued by us or any securities
convertible into, or exercisable or exchangeable for, our equity securities. The
selling security holder is not a registered broker-dealer or an affiliate of a
broker-dealer.
For
purposes of this table, beneficial ownership is determined in accordance with
SEC rules, and includes voting power and investment power with respect to shares
and shares owned pursuant to warrants exercisable within 60 days. The "Number of
Shares Beneficially Owned After the Offering” column assumes the sale of all
shares offered.
As
explained below under “Plan of Distribution,” we have agreed with the selling
security holder to bear certain expenses (other than broker discounts and
commissions, if any) in connection with the registration statement, which
includes this prospectus.
|
Name
|
Number
of Shares
Beneficially
Owned
Prior
to Offering (1)
|
Number
of
Shares
Offered
|
Number
of Shares
Beneficially
Owned
after
the Offering
|
|
Auctus
Private Equity Fund, LLC (2)
|
0
|
400,000,000
|
400,000,000
|
|
(1)
The actual number of shares of common stock offered in this prospectus,
and included in the registration statement of which this prospectus is a
part, includes such additional number of shares of common stock as may be
issued or issuable upon draw downs under the Auctus credit
facility.
|
|||
|
(2)
Al Sollami is a managing member of Auctus Private Equity Fund,
LLC.
|
|||
-14-
USE
OF PROCEEDS
We
believe that we need approximately $4 million dollars to meet our capital
requirements over the next 12-24 months (beginning January 2010) for the
following estimated expenses and use of proceeds:
50,000 Geotechnical
Study
50,000 Completion
of Engineering Phase 1
2,500,000 Drill
Test well(s) (core sample, disposal zone, source water, cap rock , salt
strength)
500,000
Completion of Engineering Phase 2
50,000 Permits
850,000
Staffing, Equipment, leases, general operations
We
believe the proceeds of this offering will allow us to meet our capital
requirements for the 12-24 months. Any amount beyond the $4 million, up to the
$10 million allowed under the financing agreement, would be used for
acquisitions.
DETERMINATION OF OFFERING PRICE
The
offering price of the common stock is based on the stock price as determined in
accordance with the Drawdown Equity Financing Agreement. The price does not bear
any relationship to CRC’s assets, book value, historical earnings, or net worth.
In determining the offering price, management considered such factors as the
prospects, if any, for similar companies, anticipated results of operations,
present financial resources and the likelihood of acceptance of this
offering. Accordingly, the offering price should not be considered an
indication of the actual value of our securities.
SHARE
CONTINUITY
|
Shares
already issued in CRC prior to August 8, 2005
|
2,000,000 | |||
|
Issued
Nov 23, 2005 to purchase 78.2% of KCP
|
17,335,814 | |||
|
Issued
Nov 23, 2005 as a Debt Settlement
|
15,451,000 | |||
|
Issued
Nov 23, 2005 as an Option Exercise
|
24,000 | |||
|
Issued
Feb 3, 2006 for the remaining 21.8% of KCP
|
4,834,300 | |||
|
Issued
Feb 16, 2006 as a Debt Settlement
|
4,521,307 | |||
|
Issued
June 15, 2006 Per Southbend Agreement
|
13,200,000 | |||
|
Issued
Oct 20, 2006 per Rich Resource Agreement
|
1,000,000 | |||
|
Issued
July 19, 2007 for consulting services @$.085
|
700,000 | |||
|
Issued
Aug 19, 2007 for $839,187 debt
|
5,000,000 | |||
|
Issued
Aug 19, 2007 for $49,634 debt
|
1,500,000 | |||
|
Issued
Feb 4, 2008 for purchase of Behral Canada
|
23,500,000 | |||
|
Issued
Feb 5, 2008 as a Debt Settlement
|
3,500,000 | |||
|
Issued
Mar 13, 2008 for directors compensation @ $0.04
|
4,000,000 | |||
|
Issued
Aug 19, 2008 for (in lieu of pay and per contract) @ $0.014 to
$0.053
|
14,231,409 | |||
|
Issued
Dec 1, 2008 for consulting services @ $0.021
|
3,323,529 | |||
|
Issued
Dec 15, 2008 for consulting services @ $0.017
|
4,500,000 | |||
|
Issued
Mar 3, 2009 for debt settlement
|
8,571,428 | |||
|
Issued
Mar 11, 2009 in lieu of pay and per contract) @
$0.0055
|
15,818,182 | |||
|
Issued
Apr 28, 2009 in lieu of pay @ $0.014
|
2,500,000 | |||
|
Issued
Apr 28, 2009 per loan agreement
|
750.000 | |||
|
Issued
July 20, 2009 private placement @ $0.011
|
40,000,000 | |||
|
Issued
Aug 11, 2009 in lieu of pay @ $0.002
|
21,333,333 | |||
|
TOTAL
on October 31, 2009
|
207,594,302 |
-15-
CRC was
incorporated on December 8, 1999 as a private corporation under the Business Corporations Act
(Alberta, Canada). On January 15, 2003, the Company amended our articles of
incorporation to enable us to be a public company under the laws of the Province
of Alberta. On May 28, 2003, the Company amended our Articles of
Incorporation to forward split our issued and outstanding shares of Class A
common stock on the basis of 2000 shares for every 1 share held. From the
date of incorporation to November 1, 2004, Capital Canada was a wholly-owned subsidiary
of FACT Corporation from inception. On November 1, 2004 FACT Corporation
distributed the shares of the Company to the FACT shareholders and to a creditor
and the Company was no longer a subsidiary of FACT.
On
November 1, 2004, FACT Corporation distributed 1,604,919 Class A Common shares
to the FACT Corporation stockholders on a basis of one (1) share of Capital
Canada Class A Common Shares for every five (5) shares of Fact Corporation Class
A Common Stock held. All fractional shares were rounded up to a whole
share. All of the shares were held by FACT Corporation since December 8,
1999. The remaining 395,081 shares of our Class A Common Shares held by
FACT Corporation were issued to Ultimate Resort Destinations Inc. (“Ultimate”),
in exchange for the release of the Capital Class A Common Shares pursuant to a
debenture that Ultimate held over all of the assets of FACT Corporation. During
the quarter ended June 30, 2004, Ultimate agreed to release a total of 2,000,000
Class A Common Shares held by FACT Corporation from the debenture to allow for
the spin off of Capital Canada in exchange for the 395,081 shares of Capital
Canada. The shares were delivered to Ultimate on November 1, 2004 by
FACT.
On July
1, 2005, the Company entered in two convertible loan agreements with FACT
Corporation in the principal amount of $533,527 USD and $152,997 CDN (approx.
$126,222.USD). The loan agreements were to mature on June 30, 2007 and interest
was calculated at US prime plus 1%. The loans were convertible into Class
A common shares of the Company at $0.05USD per share. On November 22,
2005, FACT Corp. advised the Company that it had assigned all of its rights and
interest in the convertible loan agreements. On November 23, 2005, the
Company received notice of election to convert a total of $772,550USD owing for
interest and principal and issued a total of 15,451,000 Class A common shares
pursuant to the conversion. On February 15, 2006, the Company received
notification of the conversion of the remaining balance of the convertible loans
in the amount of $226,065US and issued a total of 4,521,307 Class A common
shares. This was full and final settlement of all of the outstanding debt
under the convertible notes.
On August
2nd,
2005, the Company incorporated a wholly-owned subsidiary,
Capital Reserve Canada Projects Limited to effect the acquisition of an
operating business in the oil and gas services industry, KCP Innovative Services
Inc. On August 8, 2005, the Company issued a total of 17,335,814 Class A
common shares of the Company and Capital Reserve Canada Projects Ltd. acquired a
78.2% interest in KCP Innovative Services Inc. This effected a change in
control of the Company.
On
February 3rd,
2006, the Company issued a further 4,834,300 shares of Class A common stock for
the remaining 21.8% of the shares of KCP Innovative Services Inc. and Capital
Reserve Canada Projects Limited effected an amalgamation with KCP Innovative
Services Inc. (“KCP”) with KCP the surviving entity. KCP is now a
wholly-owned
subsidiary of the Company. All of the operations of the Company are
carried on by KCP. As all of the operations of the Company are undertaken
by KCP, management has applied reverse merger accounting for the reporting of
financial information.
On June
13, 2006, we incorporated Two Hills Environmental Inc. in the Province of
Alberta, Canada as a wholly-owned subsidiary
to acquire the assets of Southbend Power Ltd. ("Southbend"). On June 16, 2006,
and then as amended on July 5, 2006, Two Hills Environmental Inc. and Southbend
entered into an asset purchase agreement for the purpose of acquiring a water
diversion permit, 147 acres of surface rights with water pumping station, and
certain mineral rights from Southbend, in exchange for 13,200,000 of our Class A
common restricted shares.
On
October 20, 2006, the Company purchased salt rights to about four (4) sections
of adjacent land from Rich Resources Investment Ltd. in exchange for 1,000,000
of our Class A common restricted shares.
On
February 4, 2008 the Company issued 23,500,000 shares to purchase the shares of
Behral Canada Ltd.
MANAGEMENT
|
Name
|
Age
|
Date
of Initial Appointment
|
Title
|
|
Donald
Getty
|
75
|
April
13, 2006
|
Chairman
of the Board and Director
|
|
Michael
Dolinski
|
61
|
December
12, 2008
|
Director
|
|
Steve
Claussen
|
37
|
December
19, 2007
|
Director,
President and CEO
|
|
Nicole
Wood
|
42
|
July
22, 2008
|
CFO
|
Donald
Getty - Chairman of the Board, Director of Capital Reserve Canada Ltd. and
Director of KCP Innovative Services Inc.
Mr. Getty
earned his Business Administration degree from the University of Western Ontario
with honours in 1954. His position with the Alberta Government included two
terms as Premier of Alberta, position of Energy Minister and the position of
Minister of Federal and Intergovernmental Affairs. In his business career, Mr.
Getty has served on the Boards of distinguished companies such as Royal Bank of
Canada, Nova Company, Genstar Company and Interprovincial Pipe and Steel
Corp.
-16-
Michael
G. Dolinski M.Sc., M.P.M. - Director
Mr.
Dolinski was trained as an entomologist and held the position of Provincial
Entomologist during most of his 32-year career with Alberta Agriculture, Food,
and Rural Development. He has chaired many Provincial and National Committees
during his career, and the first World Organic Conference in London U.K. in
2000. Mr. Dolinski has provided consulting and training services in pest
management and organic agriculture production across Canada and the Northern US
through Agri-Trend Agrology, the largest agricultural consulting company in
North America, which has also developed a system to measure carbon sequestration
and market carbon credits to large carbon dioxide emitters.
Steve
Claussen - Director, President and CEO of Capital Reserve Canada
Ltd.
Mr.
Claussen has 10 years experience as a CEO, and an entrepreneur, and he has built
successful companies in the retail, publishing and oil and gas industries. Mr.
Claussen is current CEO and Founder of Behral Canada Inc. since September
2006. Prior to that he was the CEO and President of Solus Interactive
Media.
CRC has a
management agreement with 1406172 Alberta Inc., which supplies the services of
Steven Claussen, as CEO and President of CRC, for $30,000 per
month.
Nicole
Wood - CFO of Capital Reserve Canada Ltd.
Mrs. Wood
holds an Honours of Commerce Degree and is a Certified General
Accountant. For the past five years, she has been the Controller/ CFO
of a publically traded company on the Canadian Venture Exchange. She
has previously held various positions including Chief Financial Officer,
Director of Finance and Vice President of Accounting, with public and private
sector companies.
CRC has
an employment agreement with Nicole Wood as CFO for $10,000 per
month.
Brian
Gusko – Corporate Financial Analyst of Capital Reserve Canada Ltd.
Mr. Gusko
most recently was the CFO of UC Resources Ltd., an emerging producer of silver
and gold in Mexico. He has also has been a research associate with the
U.S. Department of Commerce at an embassy posting. Mr. Gusko
received a Bachelor of Arts in Biology (1990) from Carleton University, and an
MBA from the University of Calgary (2003).
CRC will
use Mr Gusko’s services on a need by need basis.
PLAN
OF DISTRIBUTION.
The
selling security holder may, from time to time, sell, transfer or otherwise
dispose of any or all of their shares of common stock or interests in shares of
our common stock on any stock exchange, market or trading facility on which the
shares are traded or in private transactions. These dispositions will be at
prevailing market prices or privately negotiated prices. The selling security
holder may use any one or more of the following methods when disposing of shares
or interests therein:
-
ordinary brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
- 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;
-
purchases by a broker-dealer as principal and resale by the broker-dealer for
its account;
- an
exchange distribution in accordance with the rules of the applicable
exchange;
-
privately negotiated transactions;
- short
sales effected after the date the registration statement of which this
prospectus is a part is declared effective by the SEC;
- through
the writing or settlement of options or other hedging transactions, whether
through an options exchange or otherwise;
-
broker-dealers may agree with the selling security holders to sell a specified
number of such shares at a stipulated price per share; and
- a
combination of any such methods of sale.
-17-
The
selling security holder may, from time to time, pledge or grant a security
interest in some or all of the shares of common stock owned by them and, if they
default in the performance of their secured obligations, the pledgees or secured
parties may offer and sell the shares of common stock, from time to time, under
this prospectus, or under an amendment to this prospectus under Rule 424(b)(3)
or other applicable provision of the Securities Act amending the list of selling
security holder to include the pledgee, transferee or other successors in
interest as selling security holder under this prospectus. The selling security
holder also may transfer the shares of common stock in other circumstances, in
which case the transferees, pledgees or other successors in interest will be the
selling beneficial owners for purposes of this prospectus.
In
connection with the sale of our common stock or interests therein, the selling
security holder may enter into hedging transactions with broker-dealers or other
financial institutions, which may in turn engage in short sales of the common
stock in the course of hedging the positions they assume. The selling security
holder may also sell shares of our common stock short and deliver these
securities to close out their short positions, or loan or pledge the common
stock to broker-dealers that in turn may sell these securities. The selling
security holder may also enter into option or other transactions with
broker-dealers or other financial institutions or the creation of one or more
derivative securities which require the delivery to such broker-dealer or other
financial institution of shares offered by this prospectus, which shares such
broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such
transaction).
The
aggregate proceeds to the selling security holder from the sale of the common
stock offered by them will be the purchase price of the common stock less
discounts or commissions, if any. Each of the selling security holder reserves
the right to accept and, together with their agents from time to time, to
reject, in whole or in part, any proposed purchase of common stock to be made
directly or through agents. We will not receive any of the proceeds from this
registration.
Broker-dealers
engaged by the selling security holder may arrange for other broker-dealers to
participate in sales. Broker-dealers may receive commissions or discounts from
the selling security holder (or, if any broker-dealer acts as agent for the
purchase of shares, from the purchaser) in amounts to be negotiated. The selling
security holder does not expect these commissions and discounts to exceed what
is customary in the types of transactions involved.
The
selling security holder also may resell all or a portion of the shares in open
market transactions in reliance upon Rule 144 under the Securities Act, provided
that they meet the criteria and conform to the requirements of that
rule.
Any
underwriters, agents, or broker-dealers, and any selling security holder who are
affiliates of broker-dealers, that participate in the sale of the common stock
or interests therein may be “underwriters” within the meaning of Section 2(11)
of the Securities Act. Any discounts, commissions, concessions or profit they
earn on any resale of the shares may be underwriting discounts and commissions
under the Securities Act. Selling security holder who are “underwriters” within
the meaning of Section 2(11) of the Securities Act will be subject to the
prospectus delivery requirements of the Securities Act. We know of no existing
arrangements between any of the selling security holder and any other
stockholder, broker, dealer, underwriter, or agent relating to the sale or
distribution of the shares, nor can we presently estimate the amount, if any, of
such compensation. See “Selling Security Holder” for description of any material
relationship that a stockholder has with us and the description of such
relationship.
In order
to comply with the securities laws of some states, if applicable, the common
stock may be sold in these jurisdictions only through registered or licensed
brokers or dealers. In addition, in some states the common stock may not be sold
unless it has been registered or qualified for sale or an exemption from
registration or qualification requirements is available and is complied
with.
We have
advised the selling security holder that the anti-manipulation rules of
Regulation M under the Exchange Act may apply to sales of shares in the market
and to the activities of the selling security holder and their affiliates. In
addition, we will make copies of this prospectus (as it may be supplemented or
amended from time to time) available to the selling security holder for the
purpose of satisfying the prospectus delivery requirements of the Securities
Act. The selling security holder may indemnify any broker-dealer that
participates in transactions involving the sale of the shares against certain
liabilities, including liabilities arising under the Securities
Act.
We have
agreed to pay certain fees and expenses incurred by us incident to the
registration of the shares. Such fees and expenses are estimated to be $21,225.
We have agreed to indemnify the selling security holder against liabilities,
including liabilities under the Securities Act and state securities laws,
relating to the registration of the shares offered by this
prospectus.
We have
agreed with the selling security holder to keep the registration statement of
which this prospectus constitutes a part effective until the earlier of (1) such
time as all of the shares covered by this prospectus have been disposed of
pursuant to and in accordance with the registration statement or (2) the date on
which the shares may be sold pursuant to Rule 144(b) and (d) of the Securities
Act.
In
addition to the foregoing, persons who purchase common stock from a selling
stockholder pursuant to this prospectus may resell such shares of common stock
without restriction by any method permitted by applicable law.
LEGAL
PROCEEDINGS
The
Company is not engaged in any legal proceedings. The Company is not aware of any
proceeding contemplated by any governmental authority.
-18-
DIRECTORS,
EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS
The
following are the names of all directors and executive officers, their positions
and offices, and brief descriptions of their business experience during the past
five years:
Donald
Getty - Chairman of the Board, Director of Capital Reserve Canada Ltd. and
Director of KCP Innovative Services Inc.
Mr. Getty
earned his Business Administration degree from the University of Western Ontario
with honours in 1954. His position with the Alberta Government included two
terms as Premier of Alberta, position of Energy Minister and the position of
Minister of Federal and Intergovernmental Affairs. In his business career, Mr.
Getty has served on the Boards of distinguished companies such as Royal Bank of
Canada, Nova Company, Genstar Company and Interprovincial Pipe and Steel
Corp.
Steven
Claussen - Director, President and CEO of Capital Reserve Canada
Ltd.
Mr.
Claussen joined CRC as President and CEO in 2007 through CRC’s acquisition of
Behral Canada Inc. a company founded by Mr. Claussen. Mr. Claussen brings 13
years of executive and entrepreneurial experience in building successful
companies in many sectors including retail, publishing and Oil and Gas to CRC.
Mr. Claussen is also the company’s largest shareholder.
Michael
G. Dolinski M.Sc., M.P.M. - Director
Mr.
Dolinski was trained as an entomologist and held the position of Provincial
Entomologist during most of his 32-year career with Alberta Agriculture, Food,
and Rural Development. He has chaired many Provincial and National Committees
during his career, and the first World Organic Conference in London U.K. in
2000. Mr. Dolinski has provided consulting and training services in pest
management and organic agriculture production across Canada and the Northern US
through Agri-Trend Agrology, the largest agricultural consulting company in
North America, which has also developed a system to measure carbon sequestration
and market carbon credits to large carbon dioxide emitters.
Nicole
Wood - CFO of Capital Reserve Canada Ltd.
Mrs. Wood
holds an Honours of Commerce Degree and is a Certified General
Accountant. For the past five years, she has been the Controller/ CFO
of a publically traded company on the Canadian Venture Exchange. She
has previously held various positions including Chief Financial Officer,
Director of Finance and Vice President of Accounting, with public and private
sector companies.
Brian
Gusko – Corporate Financial Analyst of Capital Reserve Canada Ltd.
Mr. Gusko
most recently was the CFO of UC Resources Ltd., an emerging producer of silver
and gold in Mexico. He has also has been a research associate with the
U.S. Department of Commerce at an embassy posting. Mr. Gusko
received a Bachelor of Arts in Biology (1990) from Carleton University, and an
MBA from the University of Calgary (2003).
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
We have
no parents. We have one class of equity securities, our Common Stock. For our
Common Stock, we present the following information regarding the security
ownership of our management, as of October 31,
2009:
The
following information is for any person, including any group of two or more
persons acting as a partnership, syndicate or other similar group, who is known
to us to be the beneficial owner of more than five percent of any class of our
voting securities, as of July 31, 2009:
|
TITLE
OF CLASS
|
BENEFICIAL
OWNER
|
AMOUNT
AND NATURE OF BENEFICIAL OWNER
|
PERCENT
OF
CLASS
(1)
|
|
Class
A Common
|
(1)
Steve Claussen, CEO, Director and President of Capital Reserve
Canada; St. Albert, Alberta T8N 5M1
|
42,833,495
common shares held directly and indirectly.(3)
|
20.6 %
|
(1)
Steven Claussen owns 42,833,495 shares of Capital Reserve Canada Ltd., no part
of which are options, warrants, or via any other rights, and he has no rights to
acquire beneficial ownership of any other shares, whether through option,
warrant, conversion privilege or any other right, within sixty days. He has the
sole voting and investment power and dispositive control over these shares held
directly (16,233,919 shares) and held indirectly (26,599,576 shares) in 1406172
Alberta Ltd, a company owned solely by Steve Claussen.
-19-
All
Directors and Executive Officers as a group own 56,697,115 shares of CRC, no
part of which are options, warrants, or via any other rights, and they have no
rights to acquire beneficial ownership of any other shares, whether through
option, warrant, conversion privilege or any other right, within sixty
days.
DESCRIPTION
OF SECURITIES
According
to its Articles of Incorporation, CRC is authorized to issue unlimited shares of
common stock, and we have no other classes of shares. Currently we have 207,594,302 shares outstanding. We have no options,
warrants, nor any convertible instruments outstanding.
Each
outstanding share of common stock is entitled to one vote, either in person or
by proxy, on all matters that may be voted upon by the owners thereof at
meetings of the stockholders. Holders of our common stock (i)have equal ratable rights to dividends
from funds legally available therefore, if declared by our Board of Directors,
(ii)are entitled to share ratably in all our assets available for distribution
to holders of common stock upon our liquidation, dissolution or winding up;
(iii)do not have preemptive, subscription or conversion rights or redemption or
sinking fund provisions; and (iv) are entitled to one non-cumulative vote per
share on all matters on which stockholders may vote at all meetings of our
stockholders.
Dividend
Rights - Holders of record of shares of Common Stock are entitled to receive
dividends when and if declared by the Board of Directors out of funds of CRC,
legally available therefore.
Voting
Rights - Holders of shares of Common Stock are entitled to one vote for each
share held of record on all matters submitted to a vote of the stockholders,
including the election of directors. Shares of Common Stock do not have
cumulative voting rights, which means that the holders of the majority of the
share votes eligible to vote and voting for the election of the Board of
Directors can elect all members of the Board of Directors.
Preemption
Rights - Holders of our common stock have no preemptive or conversion rights or
other rights to subscribe for or to purchase any stock, obligations or other
securities of Capital Reserve Canada Limited.
Liquidation
Rights - In the case of liquidation, dissolution or winding up of Capital
Reserve Canada Limited, the holders of shares of our Common Stock will be
entitled to share ratably in the net assets of Capital Reserve Canada Limited,
legally available for distribution to shareholders after payment of all our
liabilities and any preferred stock then outstanding, although none is currently
outstanding.
Other
Material Rights - There are no redemption or sinking fund provisions applicable
to our Common Stock. The rights, preferences and privileges of holders of our
Common Stock are subject to the rights of the holders of shares of any series of
preferred stock that we may designate and issue in the future, although our
Certificate of Incorporation does not currently authorize any preferred stock at
all.
There are
no provisions in our Certificate of Incorporation or bylaws that would delay,
defer or prevent a change in control of the smaller reporting
company.
INTEREST
OF NAMED EXPERTS AND COUNSEL
Our
counsel Laurence Singer, Esq. has provided the Company with the legal opinion
regarding the securities being registered.
The
independent registered accountants who have audited our financial statements are
Child, Van Wagoner & Bradshaw PLLC. The accountants' report is given upon
their authority as experts in accounting and auditing.
MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
As of
October 1, 2009 the Company had a total of 499 shareholders of
record. CRC is a publicly traded company that trades under the
CVSVF.OB call symbol on the OTCBB.
PENNY
STOCK RULES
The
Securities and Exchange Commission has also adopted rules that regulate
broker-dealer practices in connection with transactions in penny
stocks. Penny stocks are generally equity securities with a price of less
than $5.00 (other than securities registered on certain national securities
exchanges or quoted on the Nasdaq system, provided that current price and volume
information with respect to transactions in such securities is provided by the
exchange or system).
-20-
A
purchaser is purchasing penny stock, which limits the ability to sell the
stock. The shares offered by this prospectus constitute penny stock under
the Securities and Exchange Act. The shares will remain penny stocks
for the foreseeable future. The classification of penny stock makes it more
difficult for a broker-dealer to sell the stock into a secondary market, which
makes it more difficult for a purchaser to liquidate his/her
investment. Any broker-dealer engaged by the purchaser for the
purpose of selling his or her shares in us will be subject to Rules 15g-1
through 15g-10 of the Securities and Exchange Act. Rather than
creating a need to comply with those rules, some broker-dealers will refuse to
attempt to sell penny stock.
The penny
stock rules require a broker-dealer, prior to a transaction in a penny stock not
otherwise exempt from those rules, to deliver a standardized risk disclosure
document, which:
- Contains
a description of the nature and level of risk in the market for penny stock in
both Public offerings and secondary trading;
- Contains
a description of the broker’s or dealer’s duties to the customer and of the
rights and remedies available to the customer with respect to a violation of
such duties or other requirements of the Securities Act of 1934, as
amended;
-
Contains a brief, clear, narrative description of a dealer market, including
“bid” and “ask” price for the penny stock and the significance of the spread
between the bid and ask price;
- Contains
a toll-free number for inquiries on disciplinary actions;
- Defines
significant terms in the disclosure document or in the conduct of trading penny
stocks; and
- Contains
such other information and is in such form (including language, type, size and
format) as the Securities and Exchange Commission shall require by rule or
regulation.
The
broker-dealer also must provide, prior to effecting any transaction in a penny
stock, to the customer:
- The bid
and offer quotations for the penny stock;
- The
compensation of the broker-dealer and its salesperson in the
transaction;
- The
number of shares to which such bid and ask prices apply, or other comparable
information relating to the depth and liquidity of the market for such stock;
and
- Monthly
account statements showing the market value of each penny stock held in the
customer’s account.
In
addition, the penny stock rules require that prior to a transaction in a penny
stock not otherwise exempt from those rules; the broker-dealer must make a
special written determination that the penny stock is a suitable investment for
the purchaser and receive the purchaser’s written acknowledgement of the receipt
of a risk disclosure statement, a written agreement to transactions involving
penny stocks, and a signed and dated copy of a written suitability
statement. These disclosure requirements will have the effect of
reducing the trading activity in the secondary market for our stock because it
will be subject to these penny stock rules. Therefore, stockholders
may have difficulty selling their securities.
REPORTS
We are
subject to certain reporting requirements and will furnish annual financial
reports to our stockholders, certified by our independent accountants, and will
furnish un-audited quarterly financial reports in our quarterly reports filed
electronically with the SEC. All reports and information filed by us
can be found at the SEC website, www.sec.gov.
STOCK
TRANSFER AGENT
Our stock transfer agent
is Holladay Stock Transfer, 2939 N 67 Place, Scottsdale, AZ 85251,
phone: 480-481-3940.
Disclosure
of Commission Position of Indemnification for Securities
Act Liabilities
Currently,
Capital Reserve Canada Limited has no charter provisions, bylaws provisions,
contracts or other arrangements that insures or indemnifies directors, officers
or controlling persons of Capital Reserve Canada Limited against liability under
the Securities Act.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933 (the
"Act") may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
-21-
We
provide the undertaking that in the event that a claim for indemnification
against such liabilities (other than the payment by Capital Reserve Canada
Limited of expenses incurred or paid by a director, officer or controlling
person of Capital Reserve Canada Limited 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, we will, unless in
the opinion of our 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 Securities
Act and will be governed by the final adjudication of such issue.
ORGANIZATION
WITHIN LAST FIVE YEARS
Capital
Reserve Canada Limited was incorporated on December 8th,
1999 as a private corporation under the Business Corporations Act (Alberta,
Canada). On January 15, 2003, we amended our articles of incorporation to enable
us to be a public company under the laws of the Province of Alberta. On May 28,
2003, we amended our Articles of Incorporation to forward split issued and
outstanding shares of class A common stock on the basis of 2,000 shares for
every one (1) share held. From the date of incorporation to November
1, 2004, we were a wholly-owned subsidiary of FACT Corporation. On November 1,
2004, FACT Corporation distributed our shares to FACT Corporation’s shareholders
and to a creditor and we ceased to be a subsidiary of FACT
Corporation.
Our
principal place of business is located at 18104-102 Ave., Edmonton, Alberta, T5S
1S7. Our telephone number is 780-701-4447.
On July
1, 2005, we entered in two (2) convertible loan agreements with FACT Corporation
in the principal amount of $533,527 USD and $152,997 CDN (approx $126,222 USD).
The loan agreements were to mature on June 30, 2007 and interest calculated at
US prime plus one percent (1%). The loans were converted into our
Class A common shares at $0.05 USD per share. On November 22, 2005, FACT
Corporation advised us that it had assigned all of its rights and interest in
the convertible loan agreements. On November 23, 2005, we received
notice of election to convert a total of $772,550 USD owing for interest and
principal and issued a total of 15,451,000 Class A common shares pursuant to the
conversion. Also, on November 23, 2005, 24,000 Class A common shares
were issued when options were exercised. On February 15, 2006, we
received notification of the conversion of the remaining balance of the
convertible loans in the amount of $226,065 USD and issued a total of 4,521,307
Class A common shares. This constituted full and final settlement of all
outstanding debt under the convertible notes.
On August
2, 2005, we incorporated a wholly-owned subsidiary, Capital Reserve Canada
Projects Ltd., to effect the acquisition of an operating business in the oil and
gas services industry. On August 8, 2005, we issued a total of
17,335,814 of our Class A common shares and Capital Reserve Canada Projects Ltd.
acquired a 78.2% interest in KCP Innovative Services Inc. (“KCP”). After this
issuance, we had a total of 19,335,814 Class A common shares outstanding which
resulted in a change in control of the Company.
On
February 3, 2006, we issued an additional 4,834,300 shares of Class A common
stock for the remaining 21.8% of the shares of KCP and Capital Reserve Canada
Projects Ltd. This effected an amalgamation with KCP, with KCP being the
surviving entity. KCP is now a wholly-owned subsidiary of us. All of our
operations are currently carried on by KCP. As all of our operations are
undertaken by KCP, management has applied reverse merger accounting for the
reporting of financial information. Unless otherwise stated, all of the
financial information included in this annual report is the financial
information of KCP, our wholly-owned subsidiary, except for the shareholders’
equity which includes information for both us and KCP.
On June
13, 2006, we incorporated Two Hills Environmental Inc. in the Province of
Alberta, Canada as a wholly-owned subsidiary to acquire the assets of Southbend
Power Ltd. (“Southbend”). On June 16, 2006, as amended July 5, 2006,
Two Hills Environmental Inc. and Southbend entered into an asset purchase
agreement for the purpose of acquiring a water diversion permit, 147 acres of
surface rights with water pumping station, and certain mineral rights from
Southbend, in exchange for 13,200,000 of our Class A common restricted
shares.
On August
11, 2006, we, through a newly formed subsidiary, Suncone Technologies Ltd
(“SUN”), entered into an agreement with Southbend whereby Southbend agreed to
sell to SUN an Infratronic Soil Sterilization Unit for $50,000 on the condition
that the unit passed a start-up and operational test to the sole satisfaction of
SUN no later than September 30, 2006. This was later extended to
November 30, 2006 after which the contract was cancelled by SUN. Southbend was
given until March 31, 2007 to repay the $50,000. On December 11,
2006, both parties agreed to apply the $50,000 against work done by Southbend on
the Two Hills site. This work consisted of cleaning debris from the Two Hills
site. SUN was subsequently dissolved on Dec 18, 2006. The $50,000 was
offset by work done by Southbend on the site during the 2007 fiscal
year.
On
October 20, 2006, we purchased salt rights to about four (4) sections of
adjacent land from Rich Resources Investment Ltd. in exchange for 1,000,000 of
our Class A common restricted shares.
On
February 4, 2008 we issued 23,500,000 shares to purchase the shares of Behral
Canada Ltd. Behral owns the patents to a blowout preventer valve, stack control
system and portable blowout controller. Behral also owns a floating offshore
drilling vessel, a blow out preventer stack control system as well as a subsea
blowout stack control system. Pursuant to the agreement, the CEO of Behral
became our CEO.
-22-
On
February 8, 2008, KCP Innovative Services Ltd. sold one of the slickline trucks
for $300,000. The proceeds were used to retire the equipment loan with Canadian
Western Bank of about $236,000 and the remainder was used for working
capital.
In June
2008, the remaining slickline truck in KCP and tools were transferred to CRC and
subsequently, the truck was sold for $290,000 and the tools for
$100,000. With the assets being sold, KCP has become an inactive
company.
DESCRIPTION OF BUSINESS
CRC was
incorporated as a private corporation in the Province of Alberta on December 8,
1999, and is a reporting company registered with the United States Securities
and Exchange Commission. CRC is an environmental technology solutions firm,
developing industrial-scale projects that address current environmental
concerns.
While
green energy technologies are currently being developed and refined, industries
in Alberta Canada will continue to rely on fossil fuels until the new technology
can be economically implemented. This demand for fossil fuels will create a
continuous need for Alberta industries to find a secure means of carbon capture
and sequestration (“CCS”) and waste storage and disposal. CRC is establishing
itself as a leader in the emerging greenhouse gas mitigation industry and
emerging environmental industries including, industrial waste recycling and
disposal, biofuels/bioenergy production and environmental services and
remediation. CRC has developed a strategy to leverage cutting edge technologies
and create solutions for the current environmental concerns.
Alberta’s
Climate Change Strategy
The
Province of Alberta has developed a 2008 Climate Change Strategy for reducing
emissions from large industrial facilities. The strategy is a three-pronged
approach that will enable Alberta to maintain its strong energy-based economy
while helping to negate the impacts of fossil-fuel driven economy on the
environment.
The first
step of the Strategy is the conservation and efficient use of energy, which has
lead to the development of incentive programs for homeowners and
implementation of greenhouse gas mitigation for facilities that produce more
than 100,000 tons of greenhouse gas emissions per year. Mitigation fines for
every ton above 100,000 have been in effect since June 27, 2007.
The
implementation of carbon capture storage (“CCS”) is the second stage of the
Strategy. According to the 2008 Climate Change Strategy, “CO2 capture and
storage technologies provide the province with the greatest potential to
substantially reduce the greenhouse gas emissions while, at the same time,
retaining our ability to produce and provide energy to the rest of the world.”
The capture and storage of CO2 has the greatest potential for success in
Alberta because the economic success of the province relies heavily on the
demand for fossil fuel energy (oil and gas), and this demand is not going to
diminish in the near future. CCS will enable Alberta industries to continue
producing fossil fuel based energy at high rates, while diminishing the impact
on the environment by capturing the greenhouse gas emissions.
Third,
the Strategy’s focus turns to greening energy production, which will also reduce
green house gas emissions. These energy solutions include wind and solar power,
as well as geothermal and hydrogen energy.
If all
goes as planned, Alberta will reduce its greenhouse gas emissions by 50 Megatons
(Mt) by the year 2020, and by 200 Mt by 2050. Carbon capture and storage
accounts for 139 Mt of the 200 Mt CO2 reduction.
Two Hills
Environmental Inc. (THI), a wholly-owned subsidiary of CRC, purchased 147 acres
of land in an Alberta industrial zone located in the county of Two Hills for the
purpose of building caverns for the storage of CCS. Named the Two Hills Project,
this effort coincides with Alberta’s Climate Change Strategy, and the site is
strategically located to several potential industrial partners and oil sands
producers in the Fort McMurray, Cold Lake and Riley areas as well as the
provincial CO2 pipeline.
The
company also owns 2500 acres of land adjacent to the property that contains
large beds of salt. In addition to the salt beds, CRC possesses water diversion
permits to create caverns in the salt, thereby having the two essential elements
for cavern storage of CCS, as salt caverns have the structural strength of
steel, which makes them very resilient against reservoir
degradation.
A
geological investigation is currently underway to establish exactly how many
salt caverns can be safely created on the property, but initial estimates are
predicting up to 250 deep caverns capable of storing 350,000 tons each. The
geological survey will be completed by the end of June 2010 with construction of
the first 10 storage caverns to start immediately. CRC is also in possession of
a large water diversion permits on the North Saskatchewan Industry and
Environmental Solutions
-23-
CRC seeks
to develop the most secure, predictable and environmentally friendly means of
CO2 storage in order to both aid Alberta industry meet the CO2 reduction targets
set out by the Albertan government and to safely biologically convert CO2 into
viable fuel products. CRC’s initiative starts with the development of salt
caverns and the construction of facilities to capture and store CO2, as well as
waste storage. This development will meet Alberta’s immediate need for a
secure environmentally friendly method of industrial waste storage and CO2
caption to reduce green house gas emissions. Once the cavern development and
facility construction is underway, CRC will focus on the second stage of its
plan, to use CO2 as a valuable feedstock as opposed to a disposable
liability.
To
establish the CO2 conversion process, CRC has entered into discussions with
several world-class firms that are developing biological technologies for
converting CO2 to several potential fuel end products. Through this substantial
value-add, CRC will be able to help close the gap on the province’s proposed CCS
targets.
Salt
caverns provide a finite and readily quantifiable storage space that is
available to rigorous monitoring to ensure the integrity of the cavern.
Salt caverns are capable of both short and long-term storage, allowing CRC to
function both as an accumulator and final destination for CO2, if
required.
Experience
and technology gained in the storage of natural gas in caverns are directly
transferrable to the CO2 storage caverns; natural
gas storage caverns in the province of Alberta have provided optimal performance
and stability. CRC will reduce startup costs, by utilizing this existing
technology. In addition, existing compression technologies used in enhanced oil
recovery developments in Canada and the United States are directly applicable
for CCS. These EOR technologies capture CO2 and compress it into oil
wells to increase well pressure and force oil out. CRC would implement this
currently understood technology in its CCS facilities.
Salt
caverns have been used for decades in North America to securely store natural
gas. The natural gas is stored during the low demand summer months and
stockpiled to accommodate the peak demands during winter months. When demand is
more than what the natural gas system is able to deliver, the stored natural gas
is added to the system to ensure reliability for their
customers.
There are
generally three ways to store natural gas: depleted gas reserves, aquifers and
salt caverns. Salt caverns are the favored storage method as they offer the most
security, a high deliverability and the cushion gas requirement is 25-33% of gas
capacity compared to 50% or more with the other two methods. On average, the
land disturbed by a salt cavern facility is less than 100 times the size of the
depleted gas reserve making the cavern easier to operate and
monitor.
The
storage of natural gas in caverns would also offer industry cost savings. The
caverns would be able to be accessed and refilled three or four times during the
winter months, where as the depleted oil reserve could only be turned over once
during the same time period, leaving the industry to search for other storage
means.
The
likelihood of a fissure in one of the CO2 storing caverns is very
slim, but the following aspects ensure adequate safety:
· The
region surrounding the salt has not experienced flexure resulting in faults or
fissures, indicating an overall integrity of the strata.
· The
Lostberg salt formation is covered by three impenetrable layers of rock, shale
and siltstone, and at least one of these layers is viscoplastic, causing it to
flow under pressure as opposed to fracture.
· Directly
beneath the Lotsberg salt formation are tight formations of sandstones,
siltstones and shales, (partially sealed with salt, which provide an
impenetrable lower boundary for the CO2.
· The
strata above and below the Lotsberg Salt provide several layers of safety in the
event of a fissure.
· The
lateral flight path for CO2 has been estimated at
200km; in the event of a fissure occurring, the CO2 would be required to
flow through a saline aquifer capable of absorbing vast quantities of CO2. It is
believed that any CO2 that escapes the cavern
would be dissolved before reaching the surface. The flight path for CO5 would
course through hundreds of kilometers of laterally-spanning strata, and it is
believed that CO2 would be dissolved into
the pore waters before reaching surface.
Creation
and Use of Salt Caverns
Use of
the Lotsberg formation for CCS is achieved through solution mining: the pumping
of water down into the formation to dissolve the salt, which leaves very large
symmetrical caverns approximately 350,000 m3 in size. Such caverns are used for
various purposes ranging from hydrocarbon storage to waste disposal; more than
60 such caverns currently in use throughout Alberta.
-24-
CRC’s
cavern storage facilities are both viable and ready for development. The company
has performed Phase 1 Engineering Scoping Studies as well as a Phase I
Environmental Site Assessment in preparation for these developments. The
company is progressing with both Phase II Environmental Site Assessments
and detailed engineering tasks and as previously mentioned, geological studies
are currently underway to determine the full scope of the cavern
facility.
CRC’s
cavern storage terminal will take advantage of currently available technologies,
required for the on-site transport, compression and recompression of CO2.
Development of the salt caverns will commence in a straightforward process,
utilizing the knowledge and resources available in the Albertan Oil and Gas, and
Mining industries whom have a working and functional understanding of salt
cavern development.
The CCS
industry is developing at a remarkable pace and CRC is proposing an initial
development of 10 caverns for storage (temporary and permanent) and four
wells for industrial waste disposal. This will allow for two streams of revenue
both of which would be based on wastes produced by the Alberta energy industry.
The THI site is also conveniently located on the Nisku fault, which will provide
another level of security to waste disposal, as industrial wastes will become
pressure trapped in the wells.
If
developed to the current estimated capacity of 250 caverns, the THI project site
would be capable of storing 1 Mt, possibly even 2 Mt, of CO2 per year. With the
provincial target of 200Mt emission reduction in the next 40 years, CRC would be
capable of storing approximately 87.5 Mt of CO2, more than half of the projected
139 Mt emission reduction due to CCS.
Environmentally Friendly Waste Disposal
When the
topic of waste disposal comes up, most people do not think “environmentally
friendly”. CRC on the other hand, believes that the two can find synergy with
each other and that there are means available to securely store industrial
wastes without putting our environment at risk.
One of
these synergies is with the storage of industry wastes in the salt caverns.
Salt’s lack of permeability is so low that it is considered to be impermeable;
it will not permit the passage of liquids from within, nor let outside liquids
into the cavern. With an average compressive strength of 3,000 PSI, salt is the
equivalent to construction concrete. Salt, unlike other minerals, has the
ability to heal itself if it is damaged so in the improbably case that a fissure
does occur, the salt should be able to heal itself within a couple of months.
Given these facts, CRC believes the THI project would be a logistical place for
the storage of industrial wastes like the oil sands tailings.
According
to the 2008 Alberta Government report on the Environmental Management of
Alberta’s Oil Sands, “the average 100,000 barrel a day facility processes about
195,000 tons of oil sands per day, creating almost 20,000 m3 of fine
tailings.” The current footprint of tailings facilities in existence today
is 130 km. Although processes have been refined to reuse the water from the
tailings ponds for oil recovery, there is still a lot of waste generated that
present an environmental hazard for Albertan industry. The mass death of
1,600 ducks that landed in the Syncrude tailings ponds in February 2008 could
have been avoided if sufficient cavern storage was made available to the
company.
In
addition to the environmental benefits of storing tailings in salt caverns,
there are process benefits as well. With the current use of tailings ponds, it
takes three to four years for the sediments in tailings to fully settle. Which
is a significant amount of time when industry needs the reclaimed tailing water
to proceed with further extraction. The pressure and the temperature at the
depth of the THI salt caverns, approximately 1,000 m deep, could potentially
accelerate this wait time by two-thirds.
The CRC’s
cavern storage facility would provide Alberta oil sands producers with a
feasible environmentally friendly means to store their tailings wastes. These
producers would then be able to use the compression and temperature of the
caverns to accelerate the separation of the tailings. As added benefit, because
the facility would offer both temporary and permanent storage, the producers
would be able to have the separated water pumped out of the cavern for re-use in
oil recovery, allowing for the future back pumping of the tailings should new
technology arise that would make the waste stream beneficial in some
way.
The
THI facility will seek regulatory approval for the following types of
wells:
Class
1a
Class
1b
Class II
– Salt Cavern
Class III
– Salt Cavern
-25-
In
addition, THI facilities would be built to accommodate the following types of
waste:
CO2
Emulsion
and slop oil
Lime
Invert
drilling mud
Frac-sand
Processed
oil sands
Processed
water
Produced
paraffin
Hazardous
soil
The THI
facility would also be able to accommodate Albertan energy industry with natural
gas storage.
Cavern Waste Disposal: - Class
1A and 1B - Drilling into the Nisku Fault (2) - Engineered Drawings - ERCB
Directive 055: (tankage) - ERCB Directive 065: (reservoir) 6 to 12 months from
the point of receiving funding and scheduling the work crews.
Cavern Storage Terminal: -
Phase II Environmental Assessment - Engineered Drawings - ERCB Directive 055:
(tankage) - ERCB Directive 065: (reservoir) 9 to 18 months from the time of
receiving the funding
REPORTS
TO SECURITY HOLDERS
We will
not voluntarily send an annual report. However, we will be subject to the
requirement to prepare a 10-K (annual report) every year, and once each 10-K has
been prepared and approved by our counsel for filing with the SEC, we will
provide this report and any additional information to any security holder who
requests it, and these reports will include audited financial
statements.
We will
also be required to file quarterly reports on Form 10-Q after our first, second
and third quarters of each fiscal year, as well as current reports on Form 8-K
relating to any material information that is important for investors in our
securities to know. We will have a continuing reporting obligation under Section
15(d) of the Securities and Exchange Act of 1934, once the registration
statement is effective.
The
public may read and copy any materials we file with the SEC at the SEC's Public
Reference Room at 100 F Street, N.E., Washington, D.C. 20549. The public may
obtain information on the operation of the Public Reference Room by calling the
SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports,
proxy and information statements, and other information regarding issuers that
file electronically with the SEC. The address of that site is http://www.sec.gov.
We also have information on our website – www.capitalreservecanada.com.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Forward-Looking
Statements
Much of
the discussion in this Item is "forward-looking" as that term is used in Section
27A of the Securities Act and Section 21E of the Securities Exchange Act of
1934. Actual operations and results may materially differ from present
plans and projections due to changes in economic conditions, new business
opportunities, changed business conditions, and other developments. Other
factors that could cause results to differ materially are described in our
filings with the Securities and Exchange Commission.
There are
several factors that could cause actual results or events to differ materially
from those anticipated, and include, but are not limited to general economic,
financial and business conditions, changes in and compliance with governmental
laws and regulations, including various state and federal environmental
regulations, our ability to obtain additional financing from outside investors
and/or bank and mezzanine lenders and our ability to generate sufficient
revenues to cover operating losses and position us to achieve positive cash
flow.
Readers
are cautioned not to place undue reliance on the forward-looking statements
contained herein, which speak only as of a certain date.
-26-
Plan
of Operations
CRC is an
environmental technology solutions firm, developing industrial-scale projects
that address current environmental concerns. Specifically, Two Hills
(a wholly-owned subsidiary of CRC) is establishing itself as a leader in the
emerging greenhouse gas mitigation industry (e.g. Carbon Capture and
Sequestration) as well as several other developed and emerging environmental
industries including: industrial waste recycling and disposal, natural gas
storage, biofuels/bioenergy production and environmental services and
remediation.
CRC is
set to create Alberta’s Largest Salt Cavern Storage Project. This
project coincides with Alberta’s Climate Change Strategy and CRC is positioning
itself to assist the province in meeting its stated goal of reducing CO2
emissions by at least 50 Megatonnes by the year
2020.
CRC's
147-acre industrial-zoned site is located on the south half of NE-27-55-14-W4M
in the county of Two Hills. The site is strategically located to several
potential industrial partners and oil sands producers in the Fort McMurray, Cold
Lake and Riley areas as well as the provincial CO2 pipeline.
Starting
with the development of salt caverns and the construction of the facilities
involved in the capture and storage of CO2, as well as waste storage, on this
strategically located site. This development will meet Alberta’s immediate need
for a secure environmentally friendly method of industrial waste storage and CO2
caption to reduce green house gas emissions. Once the cavern development and
facility construction is underway, CRC will focus on the second stage of its
plan, which revolves around the standpoint that CO2 is a valuable feedstock as
opposed to a disposable liability.
CRC seeks
to develop the most secure, predictable and environmentally friendly means of
CO2 storage in order to both aid Alberta industry meet the CO2 reduction targets
set out by the Albertan government and to safely biologically convert CO2 into
viable fuel products. Through this substantial value-add, CRC will be able to
help close the gap on the province’s proposed CCS targets.
The
Cavern facility would also be able to accommodate Albertan energy industry with
natural gas storage. Salt caverns in North America have been used for decades to
securely store natural gas. The natural gas is stored during the low demand
summer months and stockpiled to accommodate the peak demands during winter
months. When demand is more than what the natural gas system is able to deliver,
the stored natural gas is added to the system to ensure reliability for their
customers.
It plans
to use the initial $4 million to construct the initial salt cavern on the Two
Hills property to store waste and to regenerate energy.
Result
of Operations – Comparison of 2008, 2007 and
2006
Revenues
for the fiscal year ended December 31, 2008 were $24,000 and showed an increase
over revenues from the previous fiscal years ended December 31, 2007 of $18,000
and an increase over December 31, 2006 of $8,825. The increase in revenue in
2008 can be attributed to the lease pertaining for the full year. The increase
in revenues for 2007 can be predominantly attributed to more months of a lease
than 2006.
For the
year ended December 31, 2008, we incurred operating losses of $7,004,583 as
compared to operating losses of $197,461 for the fiscal year ended December 31,
2007 and operating losses of $176,776 for the fiscal year ended December
31, 2006. Expenses for the year ended December 31, 2008 increased to
$7,028,583 as compared to expenses of $215,461 for the year ended December 31,
2007 and $185,601 in the fiscal year ended in December 31, 2006 mainly due to
the recording of impairment charges of $5,759,690. Consulting,
salaries and benefits increased to $986,332 in 2008 from $nil and $nil
in 2007 and 2006 respectively due to the hiring of consultants in Capital
Reserve. General and administrative expenses decreased to $139,536 in 2008 from
$213,414 in 2007 and increased from $168,886 in 2006. This is due to
higher administrative costs and a need to retain management and consulting
services to maintain the public listing. Amortization increased to
$3,445 in 2008 from $nil in 2007 and $nil 2006 due to Capital Reserve and Behral
acquisitions of assets. 2008 expenses also included $5,899,102 in
impairment charges and restoration costs.
During
fiscal year ended December 31, 2006, we issued 13,200,000 common shares in
exchange for the assets of Southbend. This transaction was valued at $4,777,279.
Also 1,000,000 of our common shares were issued to Rich Resource Investments.
This transaction was valued at $134,400.
-27-
On August
19, 2007 the $800,000 lien on the Two Hills property and a BDC loan for
approximately $39,000 was paid with 5,000,000 of shares of common stock. The
lien on the Two Hills property has subsequently been discharged.
During
the fiscal year ended December 31, 2008, we issued 23,500,000 common shares in
exchange for the shares in Behral Canada. This transaction was valued at
$940,000.
Liquidity
and Capital Resources.
Funding
Requirements
We
believe that considering the proceeds from this offering and other ongoing
efforts to raise capital that we need approximately $4 million dollars to meet
our capital requirements over the next 12-24 months (beginning January 2010) for
the following estimated expenses and use of proceeds:
50,000 Geotechnical
Study
50,000 Completion
of Engineering Phase 1
2,500,000 Drill
Test well(s) (core sample , disposal zone, source water, cap rock , salt
strength)
500,000
Completion of Engineering Phase 2
50,000 Permits
850,000
Staffing, Equipment, leases, general operation’s
We
believe proceeds of this offering will allow us to meet our capital requirements
for the 12-24 months.
OFF-BALANCE
SHEET ARRANGEMENTS
The
Company maintains no off-balance sheet arrangements with any entities directly
or indirectly related to the Company.
DESCRIPTION
OF PROPERTY
The
Company and/or its subsidiaries own or leases a number of properties.
Below is a complete list of the Company’s real estate properties – both
leased and owned:
|
|
1.
CRC’s principal corporate and administrative offices are located at
18104-102 Avenue, Edmonton, Alberta, Canada. The Lease on the office is
paid till Jan 1st 2010, where as it will be renewed for 1 more year.
$1667.00 a month is the payment on the
lease.
|
|
|
2. Property:
|
147 acres
industrially zoned. The site is located on the south half of NE-27-55-14-W4M in
the county of Two Hills, Alberta, near the hamlet of Durvernay. This
land was previously owned by Two Hills Chemicals, who mined salt below the
surface using solution mining, thereby leaving behind the
caverns. The site also contains a high-volume water pumping facility
with water diversion permit, which is essential for use in salt cavern
creation.
3. Mineral Rights:
CRC owns
the mineral rights to approximately 2,500 acres of land adjacent to its property
near Two Hills.
-28-
EXCHANGE CONTROLS
There are
no governmental laws, decrees, regulations or other legislation of Canada that
may affect the import or export of capital for our use.
Other
than the withholding of any taxes due under the terms of specific treaties
between countries on dividends paid to our stockholders, there are no
restrictions on the remittance of dividends, interest or other
payments.
TAXATION
The
discussions below summarize the material tax considerations relevant to an
investment in common shares by individuals and corporations who, for income tax
purposes, are residents in the U.S. for purposes of the Convention (as
hereinafter defined) and are not residents of Canada, who hold common shares as
a capital asset, and who do not hold the common shares in carrying on a business
through a permanent establishment in Canada or in connection with a fixed base
in Canada (collectively, "Unconnected U.S. Shareholders," "Holder" or
"Holders"). The tax consequences of an investment in common shares by investors
who are not Unconnected U.S. Shareholders may differ substantially from the tax
consequences discussed herein. The discussion of U.S. tax considerations is
addressed only to Unconnected U.S. Shareholders whose "functional currency"
within the meaning of Section 985 of the Internal Revenue Code of 1986, as
amended (the "Code"), is the U.S. dollar, and to U.S. citizens who are not
residents in the U.S. for purposes of the Convention, but who otherwise meet the
definition of Unconnected U.S. Shareholders. Furthermore, the
discussion of U.S. tax considerations does not address the tax treatment of
Unconnected U.S. Shareholders that own, or are deemed for U.S. federal income
tax purposes to own, 10% or more of the total combined voting power of all
classes of voting stock of Capital Reserve Canada Limited. The
discussion of Canadian tax considerations does not address the tax treatment of
a trust, company, organization or other arrangement that is a resident of the
U.S. and that is generally exempt from U.S. tax.
This
discussion does not address all of the income tax consequences that may be
applicable to any Holder subject to special treatment under the U.S. federal
income tax law or to any particular Holder in light of such Holder's particular
facts and circumstances. Some Holders, including tax exempt entities, banks,
insurance companies and persons who hold common shares as part of a hedging
transaction may be subject to special or different rules not discussed below.
The discussion of U.S. tax considerations is based on the provisions of the
Code.
The
discussion of Canadian tax consideration is based upon the provisions of the
Income Tax Act (Canada), as amended from time to time (the "Tax Act"), the
Convention between Canada and the U.S. with Respect to Taxes on Income and
Capital, as amended from time to time (the "Convention"), and our understanding
of published administrative practices of Canada Customs and the Revenue Agency
and judicial decision, all of which are subject to change. The discussion does
not take into account the tax laws of the various provinces or territories of
Canada or the tax laws of the various state and local jurisdictions in the
U.S.
U.S.
Federal Income Tax Considerations
Unconnected
U.S. Shareholders generally will treat the gross amount of the distributions
paid by us, including the amount of any Canadian tax withheld, as foreign source
dividend income for U.S. federal income tax purposes to the extent of our
current or accumulated earnings and profits, as computed for U.S. federal income
tax purposes. Distribution in excess of that amount will reduce an Unconnected
U.S. Shareholder's tax basis in the common shares, but not below zero, and the
remainder, if any, will be treated as taxable capital gains. In general, in
computing its U.S. federal income tax liability, an Unconnected U.S. Shareholder
may elect for each taxable year whether to claim a deduction or, subject to the
limitations described below, a credit for Canadian taxes withheld from dividends
paid on its common shares. If the Unconnected U.S. Shareholder elects to claim a
credit for such Canadian taxes, the election will be binding for all foreign
taxes paid or accrued by the Shareholder for such taxable year. The Code applies
various limitations on the amount of foreign tax credit that may be available to
a U.S. taxpayer based upon the segregation of foreign source income into
separate categories of income. The amount of credit which may be claimed with
respect to the category of income to which the dividend is allocated, and to
which the foreign taxes are attributable generally may not exceed the same
portion of the U.S. tax on worldwide taxable income, before applying the foreign
tax credit as the U.S. holder's foreign source taxable income allocation to such
category bears to such U.S. holder's entire taxable income. The foreign tax
credit is disallowed for dividends on stock unless a minimum holding period is
satisfied and additional limitations may restrict the ability of some
individuals to claim the foreign tax credit. Accordingly, we urge investors to
consult their own tax advisors with respect to the potential consequences to
them of the foreign tax credit limitations.
-29-
For U.S.
federal income tax purposes, the amount of any distributions made on a common
share to an Unconnected U.S. Shareholder in Canadian dollars will equal the U.S.
dollar value of the Canadian dollars calculated by reference to the appropriate
exchange rate in effect on the date of receipt of the distribution, regardless
of whether the Canadian dollars are actually converted into U.S. dollars upon
receipt. Unconnected U.S. Shareholders are urged to consult their own
tax advisors regarding the treatment of foreign currency gain or loss, if any,
on any Canadian dollars which are converted into U.S. dollars subsequent to
receipt by the shareholder.
The sale
of common shares generally will result in a gain or loss to the Holder in an
amount equal to the difference between the amount realized and the Holder's
adjusted cost basis in the shares. Provided that the Holder is not considered a
"dealer" in the shares sold, gain or loss on the sale of the common shares will
generally be capital gain or loss.
Capital
losses are used to offset capital gains. Individual taxpayers may
deduct the excess of capital losses over capital gains of up to $3,000 USD a
year, $1,500 USD in the case of a married individual filing separately, from
ordinary income. Non-corporate taxpayers may carry forward unused
capital losses indefinitely. Unused capital losses of a corporation
may be carried back three (3) years and carried forward five (5)
years.
Canadian
Tax Considerations
Dividends
received or deemed to be received, on the common shares by Unconnected U.S.
Shareholders will be subject to Canadian withholding tax at the rate of
twenty-five percent (25%), subject to reduction under the
Convention. Under the Convention, the maximum rate of withholding tax
on such dividends is reduced to fifteen percent (15%) if the beneficial owner of
such dividends is an Unconnected U.S. Shareholder. However, that rate
is reduced to five percent (5%) under the Convention if the beneficial owner of
such dividends is an Unconnected U.S. Shareholder that is a corporation that
owns at least ten percent (10%) of the voting stock of the company.
An
Unconnected U.S. Shareholder will not be subject to tax in Canada on any capital
gain realized upon the disposition or deemed disposition of the common shares,
provided that the common shares do not constitute "taxable Canadian property" of
the shareholder within the meaning of the Tax Act.
Canada
does not currently impose any estate taxes or succession duties.
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
On August 2, 2005, we incorporated a
wholly-owned subsidiary, Capital Reserve Canada Projects Ltd., to effect the
acquisition of KCP. On August 8, 2005, we issued a total of 17,335,814 of
our Class A common shares and Capital Reserve Canada Projects Ltd. acquired a
78.2% interest in KCP. This effected a change in our
control. Because the shareholders of KCP became
our controlling shareholders, this transaction was accounted for as a reverse
merger whereby KCP is deemed to be the parent company and Capital Reserve
Projects Ltd. is deemed to be the subsidiary company for accounting
purposes. The financial statements of the combined entity are issued
under our name, but are considered a continuation of the financial statements of
KCP.
On
February 3, 2006, we issued a further 4,834,300 shares of our Class A common
stock for the remaining 21.8% of KCP and Capital Reserve Canada Projects Ltd.
which effected an amalgamation with KCP with KCP being the surviving entity. KCP
is now one of our wholly-owned subsidiaries which are responsible for carrying
on all of our operations.
On June
16, 2006 and as amended on July 5, 2006, we entered into an agreement to acquire
the predominant assets of Southbend, which included a water diversion permit,
147 acres of surface rights with a water pumping station, and certain mineral
rights, in exchange for 13,200,000 of our Class A common shares. Share
certificates have been issued for these shares. We established Two Hills to
acquire these assets.
On
September 28, 2006, we entered into an agreement with Rich Resource Investments
Ltd., a company formed pursuant to the laws of Alberta, Canada, whereby we
acquired the mineral rights to approximately four sections of land adjacent to
the Two Hills site in exchange for 1,000,000 of our common shares.
On August
19, 2007 we issued 6,000,000 shares for the retirement of a lien of $800,000 on
the Two Hills property, and for $49,634 in accumulated debt.
On
February 4, 2008 we issued 23,500,000 shares to purchase all the shares of
Behral Canada Ltd. Behral owns the patents to a blowout preventer valve, stack
control system and portable blowout controller. Behral also owns a floating
offshore drilling vessel, a blow out preventer stack control system as well as a
subsea blowout stack control system. Pursuant to the agreement, the CEO of
Behral became our CEO.
-30-
MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
CRC is a
publicly traded company that trades under the CVSVF.OB call symbol on the
OTCBB.
EXECUTIVE
COMPENSATION
CRC and
its subsidiaries employ three people. The Company has in place two
agreements with its executives. The agreement with Steven Claussen has a
two (2) year term. The agreement does not provide for a non-competition
term after its termination. The agreement with Nicole Wood does
not have a term or non-completion clauses. All dollar amounts are in Canadian
dollars.
|
Name
and Principal Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Stock
Awards
($)
|
Option
Awards
($)
|
NonEquity
Incentive
Plan
Compensation
($)
|
Nonqualified
Deferred
Compensation
Earnings
($)
|
All
Other
Compensation
($)
|
Total
($)
|
||||||||||||||||||||||||
|
Steven
Claussen, Director, President and CEO
|
FY2009
|
360,000 | - | - | - | - | - | - | 360,000 | ||||||||||||||||||||||||
|
Nicole
Wood, Chief Financial Officer
|
FY2009
|
84,000 | - | - | - | - | - | - | 84,000 | ||||||||||||||||||||||||
|
Brian
Gusko, Corporate Financial Analyst
|
FY2009
|
- | - | - | - | - | - | - | - |
|
Name
|
Fees
Earned
or
Paid
in
Cash
($)
|
Stock
Awards
($)
|
Option
Awards
($)
|
Non-Equity
Incentive
Plan
Compensation
($)
|
Nonqualified
Deferred
Compensation
Earnings
($)
|
All
Other
Compensation
($)
|
Total
($)
|
|||||||||||||||||||||
|
Steven
Claussen
|
- | - | - | - | - | - | - | |||||||||||||||||||||
|
Donald
Getty
|
- | - | - | - | - | - | - | |||||||||||||||||||||
|
Michael
G. Dolinski
|
- | - | - | - | - | - | - | |||||||||||||||||||||
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There
have been no changes in, nor disagreements with, the Company’s
accountants.
The only
accounting firm we have ever retained has been Child, Van Wagoner &
Bradshaw. There have been no disagreements with Child, Van Wagoner &
Bradshaw, and we anticipate no change in accounting firms.
-31-
Summary
of Working Capital and Stockholders’ Equity
Using
current assets minus current liabilities, as of December 31, 2008, we had
negative working capital of $(243,147) compared to negative working capital of
$(101,601) on December 31, 2007, and compared with positive working capital of
$314,184 on December 31, 2006.
As of
December 31, 2008, stockholders' equity was $689,758 compared to $5,912,304 at
December 31, 2007 and $5,818,271 at December 31, 2006. The decrease is largely
due to the recording of the impairment in the water permits and salt leases and
the mineral rights, as well as the patent acquired in
Behral. Stockholders’ equity and KCP’s working capital increased in
2006 mainly because of the acquisition of Southbend assets. It had
decreased during 2005 due to the acquisition of additional equipment and
increased expenses as KCP increased operations and undertook to become a public
company.
Liquidity
We expect
that we can meet our monthly overhead requirements from our current cash and
cash equivalents for the next twelve months. We expect to be able to
generate sufficient amounts of cash and cash equivalents, both in the short and
long-term, to maintain our capacity, meet our planned growth and development
activities. Cash and cash equivalents are expected to come from
offerings of the Company’s securities to the public and joint
ventures.
Sources
of Working Capital
During
2006 and 2007, our primary sources of working capital have come from revenues
generated from our operations in KCP. During 2008, our primary
sources of working capital came from the sale of assets. As at
December 31, 2008, we had cash equivalents of $5,385 and accounts receivable of
$12,386. To develop the Two Hills site, the company will be looking
for capital from either a mortgage or a joint venture arrangement or
both.
Borrowings
KCP has
an operating line of credit in the maximum amount of
$95,000. Interest is charged monthly on the outstanding balance at
the rate of Bank of Canada prime plus one percent (1%). As at
December 31, 2008, the amount outstanding was $15,000.
KCP
had a demand bank loan repayable over sixty (60) months maturing February
2010. The loan had monthly blended payments of principal and
interest of $8,313. The interest rate on the loan was
6.375%. The loan was secured by two Sterling Slick Line
units. On February 8, 2008 the loan was paid in full.
Two Hills
assumed a $50,000 (maximum) loan, and a lien of $800,000 from
Southbend. The loan had monthly payments of interest and an
interest rate of two percent (2%) per month and was due March 5, 2011. The
balance of the loan on December 31, 2007 was $0. The lien and
the loan were settled with 5,000,000 shares on August 19,
2007.
Neither
we nor our subsidiaries are in arrears on the payment of interest or principal
payments on borrowing. We are not, nor have we been during the fiscal
year ended 2008, in default on any debt covenants.
Material
Capital Commitments
KCP
had taken delivery of the two (2) PID trucks. One was delivered
on February 18, 2005 and the other was delivered on March 29, 2005.
KCP has
arranged capital lease financing for the trucks totaling $494,614 including
interest. The balance of the loan was paid off on February 8, 2008
leaving a loan balance of zero.
KCP
leases space in Edmonton at 4403-68 Ave. The lease is for a period of
five (5) years commencing on November 1, 2007 at $11,845 per month.
-32-
RESEARCH
AND DEVELOPMENT, PATENTS AND LICENSES, ETC.
KCP no
longer invests in research and development, in previous years, they had invested
in research and development, not only to refine its existing products but to
develop new products.
Two Hills
has not conducted research and development in 2008 or 2007.
The
Company has no licenses but has the following patents held in Behral Canada
Ltd:
Serial #
472,497, filed Jan. 21, 1985 - Floating Offshore Drilling Vessel
Serial #
472,498, filed Jan. 21, 1985 - Riser Handling & B.O.P. Stack Handling
System
Serial #
472,499, filed Jan. 21, 1985 - Sub-Sea B.O.P. Stack Control System
Serial #
472,500, filed Jan. 21, 1985 - Blow-Out Preventer
Canadian
patent, number 1239091 -Blowout preventer valve and BOP stack
Canadian
patent number 1239090 - Subsea BOP stack control system
Patent
application no. 2088794 -portable blowout contrail
FINANCIAL
STATEMENTS
Exchange Rates
Financial
statements are presented in Canadian dollars and all dollar amounts in this
document are in Canadian Dollars unless otherwise indicated.
The host
country is the United States of America and therefore the Company provides
disclosure of the exchange rate between its financial reporting currency which
is in Canadian dollars and United States dollars (“US$”) of the host country
based upon the exchange rate in effect at the end of the month or of the
calendar year to which the amount relates, or the exchange rate on the date
specified. For such purposes, the exchange rate means the noon buying
rate for United States dollars from the bank of Canada (the “Noon Buying Rate”).
These translations should not be construed as representations that the Canadian
dollar amounts actually represent such U.S. dollar amounts or that Canadian
dollars could be converted into U.S. dollars at the rate indicated or at any
other rate. The Noon Buying Rate at the end of each of the five years ended
December 31, the average of the Noon Buying Rates on the last day of each month
during each of such fiscal years and the high and low Noon Buying Rate for each
of such fiscal years were as follows:
|
2004
|
2005
|
2006
|
2007
|
2008
|
||||||||||||||||
|
At
the end of period
|
0.83 | 0.858 | 0.862 | 1.020 | 0.817 | |||||||||||||||
|
Average
for period
|
0.77 | 0.825 | 0.882 | 0.930 | 0.938 | |||||||||||||||
|
High
for period
|
0.85 | 0.869 | 0.909 | 1.0905 | 1.029 | |||||||||||||||
|
Low
for period
|
0.72 | 0.787 | 0.853 | 0.844 | 0.771 | |||||||||||||||
Following
is a table of the Noon Buying Rates on the last day of each month for the last
four months ended April 30, 2009:
|
January
|
February
|
March
|
April
|
|||||||||||||
|
At
the end of period
|
0.996 | 1.016 | 0.974 | 0.993 | ||||||||||||
|
Average
for period
|
0.989 | 1.001 | 0.999 | 0.986 | ||||||||||||
|
High
for period
|
1.010 | 1.029 | 1.021 | 0.998 | ||||||||||||
|
Low
for period
|
0.969 | 0.981 | 0.973 | 0.974 | ||||||||||||
The Noon
Buying Rate as at June 30, 2009 was 0.8602
-33-
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of
Directors
Capital
Reserve Canada Limited
Edmonton,
Alberta, Canada
We have
audited the accompanying consolidated balance sheets of Capital Reserve Canada
Limited as of December 31, 2008, 2007 and 2006, and the related consolidated
statements of operations, changes in stockholders' equity, and cash flows for
the years ended December 31, 2008, 2007 and 2006. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States of America). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included consideration of
internal control over financial reporting, as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such
opinion. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Capital Reserve Canada
Limited as of December 31, 2008, 2007 and 2006 and the results of its
operations, changes in stockholders' equity, and its cash flows for the years
ended December 31, 2008, 2007 and 2006, in conformity with accounting principles
generally accepted in the United States.
The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note
4 to the consolidated financial statements, the Company currently has cash
flow constraints and an accumulated deficit. These factors, among others,
raise substantial doubt about the Company’s ability to continue as a going
concern. Management’s plans in regard to these matters are also described
in Note 4. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/
Child, Van Wagoner & Bradshaw
CERTIFIED
PUBLIC ACCOUNTANTS
Salt Lake
City, Utah
July 15,
2009
-34-
CAPITAL
RESERVE CANADA LIMITED
CONSOLIDATED
BALANCE SHEETS
AS
OF DECEMBER 31, 2008, 2007, and 2006
|
December
31,
|
||||||||||||
|
2008
|
2007
|
2006
|
||||||||||
|
ASSETS
|
||||||||||||
|
Current
assets
|
||||||||||||
|
Cash
and cash equivalents
|
$ | 5,385 | $ | 7,895 | $ | 391,528 | ||||||
|
Term
deposits (Note 6)
|
22,291 | 21,884 | 21,259 | |||||||||
|
Accounts
receivable
|
12,386 | 250,871 | 269,164 | |||||||||
|
Work
in process
|
- | - | 40,000 | |||||||||
|
Prepaid
expenses
|
20,569 | 13,647 | 41,480 | |||||||||
|
Total
current assets
|
60,631 | 294,297 | 763,431 | |||||||||
|
Property,
plant and equipment (Note 7)
|
921,059 | 5,977,989 | 6,073,206 | |||||||||
|
Intangible
assets (Note 8)
|
1 | 51,259 | 166,509 | |||||||||
|
Goodwill
|
- | 125,502 | 125,502 | |||||||||
|
Other
assets
|
11,845 | 11,845 | - | |||||||||
|
Total
assets
|
$ | 993,536 | $ | 6,460,892 | $ | 7,128,648 | ||||||
|
LIABILITIES
|
||||||||||||
|
Current
liabilities
|
||||||||||||
|
Bank
indebtedness
|
$ | 6,137 | $ | 16,367 | $ | - | ||||||
|
Accounts
payable and accrued liabilities
|
256,834 | 234,244 | 139,204 | |||||||||
|
Income
and commodity taxes payable
|
19,807 | 517 | 14,760 | |||||||||
|
Deferred
income
|
6,000 | 30,000 | - | |||||||||
|
Line
of credit (Note 9)
|
15,000 | 14,000 | 285,354 | |||||||||
|
Current
portion of long-term debt
|
- | 100,230 | 9,929 | |||||||||
|
Total
current liabilities
|
303,778 | 395,358 | 449,247 | |||||||||
|
Long-term
liabilities
|
||||||||||||
|
Long-term
debt (Notes 10 & 11)
|
- | 153,230 | 861,130 | |||||||||
|
Future
tax liability (Note 13)
|
- | - | - | |||||||||
|
Total
long-term liabilities
|
- | 153,230 | 861,130 | |||||||||
|
Total
liabilities
|
303,778 | 548,588 | 1,310,377 | |||||||||
|
STOCKHOLDERS’
EQUITY
|
||||||||||||
|
Share
Capital
|
11,004,651 | 9,314,463 | 8,381,142 | |||||||||
|
Stock
Subscription receivable
|
- | - | (15,000 | ) | ||||||||
|
Retained
earnings (Deficit)
|
(10,314,893 | ) | (3,402,159 | ) | (2,547,871 | ) | ||||||
|
Total
stockholders' equity
|
689,758 | 5,912,304 | 5,818,271 | |||||||||
|
Total
liabilities and stockholders' equity
|
$ | 993,536 | $ | 6,460,892 | $ | 7,128,648 | ||||||
The
accompanying notes are a part of these financial statements.
-35-
CAPITAL
RESERVE CANADA LIMITED
CONSOLIDATED
STATEMENTS OF OPERATIONS
YEARS
ENDED DECEMBER 31, 2008, 2007 AND 2006
|
Year
ended December 31, 2008
|
Year
ended December 31, 2007
|
Year
ended December 31, 2006
|
||||||||||
|
Revenue
|
$ | 24,000 | $ | 18,000 | $ | 8,825 | ||||||
|
Cost
of sales
|
- | - | - | |||||||||
|
Gross
profit
|
24,000 | 18,000 | 8,825 | |||||||||
|
Expenses
|
||||||||||||
|
Consulting,
salaries and benefits
|
986,332 | - | - | |||||||||
|
General
and administrative
|
139,536 | 213,414 | 168,886 | |||||||||
|
Impairment
charges
|
5,759,690 | - | - | |||||||||
|
Restoration
costs
|
139,412 | - | - | |||||||||
|
Amortization
|
3,445 | - | 10,426 | |||||||||
|
Interest
|
168 | 2,047 | 6,288 | |||||||||
|
Total
expenses
|
7,028,583 | 215,461 | 185,601 | |||||||||
|
Operating
loss
|
(7,004,583 | ) | (197,461 | ) | (176,776 | ) | ||||||
|
Gain
on sale of equipment
|
261,549 | - | - | |||||||||
|
Discontinued
operations
|
(169,700 | ) | (656,827 | ) | (11,969 | ) | ||||||
|
Net
loss
|
$ | (6,912,734 | ) | $ | (854,288 | ) | $ | (188,745 | ) | |||
|
Basic
and diluted earnings(loss) per share
|
||||||||||||
|
Operating
loss
|
$ | (0.07 | ) | $ | (0.00 | ) | $ | (0.00 | ) | |||
|
Discontinued
operations
|
$ | (0.00 | ) | $ | (0.01 | ) | $ | (0.00 | ) | |||
|
Net
Loss
|
$ | (0.07 | ) | $ | (0.01 | ) | $ | (0.00 | ) | |||
|
Weighted
average number of shares outstanding
|
101,178,060 | 61,072,284 | 46,603,617 | |||||||||
The
accompanying notes are a part of these financial statements.
-36-
CAPITAL
RESERVE CANADA LIMITED
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY
For
the years ended December 31, 2006, 2007 and 2008
| Common Stock | ||||||||||||||||||||
|
Shares
|
Amount | Retained Deficit | Stock Subscription Receivable | Total Stockholder’s Equity | ||||||||||||||||
|
Balance
at December 31, 2005
|
34,810,814 | 3,242,434 | (2,359,126 | ) | - | 883,308 | ||||||||||||||
|
Shares
issued to acquire minority 21.8%
|
4,834,300 | - | - | - | - | |||||||||||||||
|
Shares
issued to acquire assets
|
13,200,000 | 4,730,882 | - | - | 4,730,882 | |||||||||||||||
|
Shares
issued to acquire asset
|
1,000,000 | 134,400 | - | - | 134,400 | |||||||||||||||
|
Shares
issued for debt settlement
|
4,521,307 | 258,426 | - | - | 258,426 | |||||||||||||||
|
Shares
issued for restricted shares
|
30,000 | 15,000 | - | (15,000 | ) | - | ||||||||||||||
|
Net
Loss for year 2006
|
- | - | (188,745 | ) | - | (188,745 | ) | |||||||||||||
|
Balance
at December 31, 2006
|
58,396,421 | 8,381,142 | (2,547,871 | ) | (15,000 | ) | 5,818,271 | |||||||||||||
|
Stock
cancelled per contract
|
(30,000 | ) | (15,000 | ) | - | 15,000 | - | |||||||||||||
|
Shares
issued for consulting services
|
700,000 | 59,500 | - | - | 59,500 | |||||||||||||||
|
Shares
issued for debt settlement
|
5,000,000 | 839,187 | - | - | 839,187 | |||||||||||||||
|
Shares
issued for debt settlement
|
1,500,000 | 49,634 | - | - | 49,634 | |||||||||||||||
|
Net
Loss for year 2007
|
- | - | (854,288 | ) | - | (854,288 | ) | |||||||||||||
|
Balance
at December 31, 2007
|
65,566,421 | 9,314,463 | (3,402,159 | ) | - | 5,912,304 | ||||||||||||||
|
Shares
issued to acquire subsidiary
|
23,500,000 | 940,000 | 940,000 | |||||||||||||||||
|
Shares
issued to debt settlement
|
3,500,000 | 139,412 | 139,412 | |||||||||||||||||
|
Shares
issued for consulting services
|
25,554,938 | 601,776 | 601,776 | |||||||||||||||||
|
Shares
issued for cash
|
500,000 | 9,000 | 9,000 | |||||||||||||||||
|
Net
Loss for year 2008
|
(6,912,734 | ) | (6,912,734 | ) | ||||||||||||||||
|
Balance
at December 31, 2008
|
118,621,359 | $ | 11,004,651 | $ | (10,314,893 | ) | $ | - | $ | 689,758 | ||||||||||
The
accompanying notes are a part of these financial statements.
-37-
CAPITAL
RESERVE CANADA LIMITED
CONSOLIDATED
STATEMENTS OF CASH FLOWS
FOR
THE YEARS ENDED DECEMBER 31, 2008, 2007 and 2006
|
Year
ended December 31, 2008
|
Year
ended December 31, 2007
|
Year
ended December 31, 2006
|
||||||||||
|
Operating
Activities
|
||||||||||||
|
Net
Loss
|
$ | (6,912,734 | ) | $ | (854,288 | ) | $ | (188,745 | ) | |||
|
Adjustments
to reconcile net income (loss) to net cash provided (used) by operating
activities:
|
||||||||||||
|
Amortization
|
3,445 | - | - | |||||||||
|
Impairment
charges
|
5,759,690 | - | - | |||||||||
|
Gain
on sale of equipment
|
(261,549 | ) | - | - | ||||||||
|
Stock
issued for services
|
741,188 | 109,134 | - | |||||||||
|
Accounts
receivable
|
1,195 | 50,000 | (21,560 | ) | ||||||||
|
Corporation
income taxes
|
- | - | 9,263 | |||||||||
|
Work
in process
|
- | - | (40,000 | ) | ||||||||
|
Prepaid
expenses and deposits
|
(16,669 | ) | 3,910 | (31,937 | ) | |||||||
|
Accounts
payable and accrued liabilities
|
155,257 | 196,436 | 36,435 | |||||||||
|
Deferred
revenue
|
(24,000 | ) | 30,000 | - | ||||||||
|
Income
and commodity taxes payable
|
- | - | 12,144 | |||||||||
|
Cash
provided (used) by operating activities – continuing
operations
|
(554,177 | ) | (464,808 | ) | (224,400 | ) | ||||||
|
Cash
provided (used) by discontinued operations
|
140,243 | 118,429 | 261,042 | |||||||||
|
Cash
provided (used) by operating activities
|
(413,934 | ) | (346,379 | ) | 36,642 | |||||||
|
Investing
Activities
|
||||||||||||
|
Decrease
in restricted cash
|
- | - | ||||||||||
|
Purchase
of property, plant and equipment
|
(7,401 | ) | (1,623 | ) | - | |||||||
|
Proceeds
from sale of fixed assets
|
390,000 | - | - | |||||||||
|
Proceeds
from purchase of subsidiary
|
2,057 | - | - | |||||||||
|
Cash
provided (used) by investing activities
|
384,655 | (1,623 | ) | - | ||||||||
|
Cash
provided (used) in discontinued operations
|
280,459 | (2,233 | ) | 424,757 | ||||||||
|
Cash
provided (used) by investing activities
|
665,114 | (3,856 | ) | 424,757 | ||||||||
|
Financing
Activities
|
||||||||||||
|
Shares
issuances
|
9,000 | - | - | |||||||||
|
Cash
provided by financing activities – continuing operations
|
9,000 | - | - | |||||||||
|
Cash
used in discontinued operations
|
(262,690 | ) | (33,398 | ) | (94,639 | ) | ||||||
|
Cash
used by financing activities
|
(253,690 | ) | (33,398 | ) | (94,639 | ) | ||||||
|
Increase
(decrease) in cash during the year
|
(2,510 | ) | (383,633 | ) | 366,760 | |||||||
|
Cash
and cash equivalents, beginning of year
|
7,895 | 391,528 | 24,768 | |||||||||
|
Cash
and cash equivalents, end of year
|
$ | 5,385 | $ | 7,895 | $ | 391,528 | ||||||
|
Supplemental
Information
|
||||||||||||
|
Cash
paid for interest
|
$ | 9,642 | $ | 20,600 | $ | 29,486 | ||||||
|
Shares
issued for assets
|
$ | - | $ | - | $ | 4,865,280 | ||||||
|
Shares
issued for subsidiary
|
$ | 940,000 | $ | - | $ | 676,802 | ||||||
|
Shares
issued for debt settlement and expenses
|
$ | 741,188 | $ | 888,821 | $ | 258,426 | ||||||
The
accompanying notes are a part of these financial statements.
-38-
1. Description
of the Company
CRC was
incorporated as a private corporation in the Province of Alberta on December 8,
1999, and is a reporting company registered with the U.S. Securities and
Exchange Commission. CRC provides minimal equipment and related
rental services. Pursuant to the share exchange agreement dated August 12, 2005,
the Company effected a share exchange indirectly with the shareholders of KCP
Innovative Services Ltd. ("KCP"), resulting in the Company acquiring 78.2% of
the outstanding shares of KCP through exchanging shares with the Company's
wholly owned subsidiary, Capital Reserve Canada Projects Ltd ("Project").
Subsequent to the Annual General Meeting of the company on January 12, 2006, the
minority interest shareholders signed off and all minority interest shares were
exchanged for CRC shares. Because the shareholders of KCP became the controlling
shareholders of the Company, this transaction was accounted for as a reverse
takeover whereby KCP was deemed to be the acquirer as described more fully in
Note 2.
Capital
Reserve Canada Projects Ltd. was incorporated as a private corporation in the
Province of Alberta on August 2, 2005, and it has been inactive since inception
except for the share exchange as described. Effectively on February 3, 2006
Capital Reserve Canada Projects Ltd. amalgamated with KCP Innovative Services
Inc.
Effective
January 22, 2006, KCP Innovative Services Inc. became directly a wholly-owned
subsidiary of Capital Reserve Canada Ltd.
On
February 4, 2008 we issued 23,500,000 shares to purchase the shares of Behral
Canada Ltd. Behral owns the patents to a blowout preventer valve, stack control
system and portable blowout controller. Behral also owns a floating offshore
drilling vessel, a blow out preventer stack control system as well as a subsea
blowout stack control system.
2. Share
exchange
On August
12, 2005, Project issued 17,335,814 common shares to exchange for 17,335,814
common shares (78.2%) from the shareholders of KCP Innovative Services. CRC then
issued 17,335,814 common shares in exchange for 17,335,814 common shares from
Projects.
Subsequent
to January 12, 2006, minority interest shareholders of KCP signed off to
exchange for shares in CRC. Minority interest of 21.8% (4,833,085 shares) was
exchanged for CRC shares. CRCP and KCP were amalgamated on February 3, 2006.
Following the transactions, CRC directly owns 100% of KCP.
During
2006, CRC issued 896,264 common shares to FACT Corp. in exchange for the debt of
$258,426.
These
share exchange transactions between CRC (legal parent) and KCP (legal
subsidiary) were accounted for as a reverse takeover as a capital transaction in
accordance with accounting principles generally accepted in the United States of
America. As a result, no goodwill is accounted for in this
transaction.
The
reverse takeover accounting reports result in the following:
(a) KCP
is deemed to be the parent company and CRC is deemed to be the subsidiary
company for accounting purposes;
-39-
2. Share
exchange (continued)
(b) The
financial statements of the combined entity are issued under the name of the
legal parent, CRC, but are considered a continuation of the financial statements
of the legal subsidiary, KCP; and
(c) Since
KCP is deemed to be the acquirer for accounting purposes, its assets and
liabilities are included in its consolidated balance sheet at their historical
carrying values.
3. Summary
of significant accounting policies
These
consolidated financial statements include the accounts of the company and its
legal subsidiary, KCP Innovative Services Inc., its wholly-owned subsidiary, Two
Hills Environmental Inc and Behral Canada Ltd. and have been prepared in
accordance with accounting principles generally accepted in United States of
America. All significant inter-company transactions and balances are eliminated
in the preparation of these consolidated financial statements.
(a) Cash
and cash equivalents
Cash and
cash equivalents consist of cash on deposit and short-term investments with
original maturities of 90 days or less and are recorded at the lower of cost or
market value.
(b) Leases
Leases
are classified as either capital or operating. Leases which transfer
substantially all of the benefits and risks of ownership of property to the
Company are accounted for as capital leases. The capitalized lease obligation
reflects the present value of future rental payments, discounted at the
appropriate interest rates. The amount capitalized as the cost of the
asset is amortized as set out below under property, plant and equipment. Rental
payments under operating leases are expenses as incurred.
(c) Property,
plant and equipment
Property,
plant and equipment are recorded at cost and are being amortized using the
following method at the rates set out below which are estimated to be sufficient
to amortize the cost of the assets to residual value by the expiration of their
useful lives:
|
Building
|
4%
diminishing balance
|
|
|
Equipment
|
20%
diminishing balance
|
|
|
Furniture
and Fixtures
|
20%
diminishing balance
|
|
|
Vehicles
|
30%
diminishing balance
|
|
|
Computer
and Software
|
30%
diminishing balance
|
|
|
Mineral
Rights
|
0%
diminishing balance
|
|
|
Water
Permit
|
0%
diminishing balance
|
(d) Goodwill
and intangible assets
The cost
of intangible assets is amortized over the period in which the benefits of such
assets are expected to be realized, principally on a straight-line
basis. The Company's policy is to amortize client relationships with
determinable lives over four years. Contract backlog is amortized
over the estimated period of completion, generally less than one
year. Technology is being amortized over an estimated life of four
years. Goodwill is not amortized but is evaluated annually for
impairment by comparing the fair value of the reporting unit, determined on a
discounted after tax cash flow basis, to the carrying value. An
impairment loss would be recognized if the carrying value of the goodwill
exceeds its fair value.
-40-
3. Summary
of significant accounting policies (continued)
(e) Future
income taxes
The
Company uses the liability method of accounting for income
taxes. Under this method, future income tax assets and liabilities
are determined based on differences between financial reporting and the tax
bases of assets and liabilities and measured using the substantively enacted
rates and laws that will be in effect when these differences are expected to
reverse.
(f) Revenue
recognition
The
Company's services are generally sold based upon purchase orders or contracts
with customers that include fixed or determinable prices based upon daily,
hourly or job rates. Customer contract terms do not include provisions for
significant past service delivery obligations. Revenue is recognized
when services and equipment rentals are rendered and only when collectability is
reasonably assured.
(g) Statement
of cash flows
The
statement of cash flows has been prepared using the indirect
method.
4. Basis
of presentation and going concern
These
financial statements have been prepared on the basis of accounting principles
applicable to a going concern which assumes the Company will continue in
operation for the foreseeable future and will be able to realize its assets and
discharge its liabilities in the normal course of operations.
Because
of the operating losses of the past two periods, the Company's continuance as a
going concern is dependent upon its ability to obtain adequate financing and to
reach profitable levels of operation. Management believes actions
planned and presently being taken provides the opportunity for the Company to
continue as a going concern.
5. Acquisition
of Zone Technologies Ltd.
On June
11, 2004, KCP acquired 100% of the issued and outstanding shares of Zone
Technologies Ltd. ("Zone") from an existing stockholder and an unrelated
party. The transaction was recorded at the exchange amount, as the
change in ownership interests in Zone was substantive.
Consideration
for the acquisition was $782,500 and it consisted of 1,294,444 common shares of
KCP, at a fair value of $0.45 per share and cash of $200,000. Zone is
an Alberta based company focused on providing diagnostic and consulting services
to customers exploring for coal based methane gas. The fair value of
the acquisition was determined through an independent third party appraisal of
Zone as at the date of acquisition.
The
acquisition was accounted for using the purchase method and the results of
operations from June 11, 2004.
-41-
5. Acquisition
of Zone Technologies Ltd. (continued)
The fair
value of the net assets acquired is summarized as follows:
|
Cash
|
$ | 43,954 | ||
|
Accounts
receivable
|
21,414 | |||
|
Property,
plant and equipment
|
48,000 | |||
|
Zone
Technology (Note 8)
|
277,000 | |||
|
Backlog
|
196,600 | |||
|
Customer
relationships
|
184,000 | |||
|
Goodwill
|
138,155 | |||
| 909,123 | ||||
|
Accounts
payable and accrued liabilities
|
4,407 | |||
|
Income
and commodity taxes payable
|
36,016 | |||
|
Future
income tax liability
|
86,200 | |||
| 126,623 | ||||
|
Net
assets acquitted
|
$ | 782,500 | ||
|
Cash
consideration
|
$ | 200,000 | ||
|
Share
consideration (Note 12)
|
582,500 | |||
|
Purchase
price
|
$ | 782,500 |
The
goodwill is non-deductible for income tax purposes.
Subsequent
to September 2005, Zone Technologies Ltd. was dissolved as a corporate
entity.
6. Term
deposits
The term
deposit of $21,884 matured on March 14, 2008 and bore interest at 2.65% per
annum.
7. Property,
plant and equipment
|
Cost
|
Accumulated
Amortization
|
Net
December 31, 2008
|
||||||||||
|
Land
|
$ | 900,000 | $ | - | $ | 900,000 | ||||||
|
Water
Permit & Salt Lease
|
- | - | - | |||||||||
|
Furniture
and fixtures
|
18,239 | 12,376 | 5,863 | |||||||||
|
Computer
and software
|
48,131 | 32,935 | 15,196 | |||||||||
|
Mineral
Rights
|
- | - | - | |||||||||
| $ | 66,370 | $ | 45,311 | $ | 921,059 | |||||||
During
2008, it has been determined that the water permit and salt lease, as well as
the mineral rights should be written off as an impairment charge due to the
uncertainty of future economic value. The impairment charge amounts
to $4,802,079.
-42-
CAPITAL
RESERVE CANADA LIMITED
CONSOLIDATED
FINANCIAL STATEMENTS
OCTOBER
31, 2009
Management
has prepared the accompanying unaudited consolidated financials statements of
Capital Reserve Canada Limited. The Company’s independent auditor has not
performed a review of these financial statements.
CAPITAL
RESERVE CANADA LIMITED
UNAUDITED
CONSOLIDATED BALANCE SHEETS
AS
OF OCTOBER 31, 2009
|
October
31,
|
||||
|
2009
|
||||
|
ASSETS
|
||||
|
Current
assets
|
||||
|
Cash
and cash equivalents
|
$ | 24,946 | ||
|
Accounts
receivable
|
9,478 | |||
|
Prepaid
expenses
|
27,713 | |||
|
Total
current assets
|
62,137 | |||
|
Property,
plant and equipment (Note 5)
|
917,342 | |||
|
Intangible
assets (Note 6)
|
1 | |||
|
Other
assets
|
11,845 | |||
|
Total
assets
|
$ | 991,325 | ||
|
LIABILITIES
|
||||
|
Current
liabilities
|
||||
|
Accounts
payable and accrued liabilities
|
$ | 491,149 | ||
|
Income
and commodity taxes payable
|
19,927 | |||
|
Deferred
income
|
150,000 | |||
|
Line
of credit (Note 7)
|
17,000 | |||
|
Loan
Payable (Note 8)
|
53,101 | |||
|
Current
portion of long-term debt
|
- | |||
|
Total
current liabilities
|
731,177 | |||
|
Long-term
liabilities
|
||||
|
Long-term
debt (Notes 9 & 10)
|
- | |||
|
Total
long-term liabilities
|
- | |||
|
Total
liabilities
|
731,177 | |||
|
STOCKHOLDERS’
EQUITY
|
||||
|
Share
Capital
|
11,273,858 | |||
|
Stock
Subscription receivable
|
- | |||
|
Retained
earnings (Deficit)
|
(11,013,710 | ) | ||
|
Total
stockholders' equity
|
260,148 | |||
|
Total
liabilities and stockholders' equity
|
$ | 991,325 | ||
The
accompanying notes are a part of these financial
statements.
-43-
CAPITAL
RESERVE CANADA LIMITED
UNAUDITED
CONSOLIDATED STATEMENTS OF OPERATIONS
TEN
MONTH PERIOD ENDED OCTOBER 31, 2009
|
October
31, 2009
|
||||
|
Revenue
|
$ | 6,000 | ||
|
Cost
of sales
|
- | |||
|
Gross
profit
|
6,000 | |||
|
Expenses
|
||||
|
Consulting,
salaries and benefits
|
656,47 | |||
|
General
and administrative
|
33,784 | |||
|
Impairment
charges
|
- | |||
|
Restoration
costs
|
- | |||
|
Amortization
|
1,677 | |||
|
Interest
|
5,900 | |||
|
Total
expenses
|
697,808 | |||
|
Operating
loss
|
(691,808 | ) | ||
|
Gain
on sale of equipment
|
- | |||
|
Discontinued
operations
|
(7,010 | ) | ||
|
Net
loss
|
$ | (698,818 | ) | |
|
Basic
and diluted earnings (loss) per share
|
||||
|
Operating
loss
|
$ | (0.00 | ) | |
|
Discontinued
operations
|
$ | (0.00 | ) | |
|
Net
Loss
|
$ | (0.00 | ) | |
|
Weighted
average number of shares outstanding
|
158,386,952 | |||
The
accompanying notes are a part of these financial statements.
-44-
CAPITAL
RESERVE CANADA LIMITED
UNAUDITED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
For
the ten month period ending October 31, 2009
| Common Stock | ||||||||||||||||||||
|
Shares
|
Amount | Retained Deficit | Stock Subscription Receivable |
Total
Stockholder’s Equity
|
||||||||||||||||
|
Balance
at December 31, 2008
|
118,621,359 | $ | 11,004,651 | $ | (10,314,893 | ) | $ | - | $ | 689,758 | ||||||||||
|
Shares
issued to debt settlement
|
48,972,943 | 226,500 | 226,500 | |||||||||||||||||
|
Shares
issued for cash
|
40,000,000 | 42,707 | 42,707 | |||||||||||||||||
|
Net
Loss for period 2009
|
(698,818 | ) | (698,818 | ) | ||||||||||||||||
|
Balance
at October 31, 2009
|
207,594, | $ | 11,273,858 | $ | (10,994,811 | ) | $ | - | $ | 260,148 | ||||||||||
The
accompanying notes are a part of these financial statements.
-45-
CAPITAL
RESERVE CANADA LIMITED
CONSOLIDATED
STATEMENTS OF CASH FLOWS
FOR
THE TEN MONTH PERIOD ENDED OCTOBER 31, 2009
|
October
31, 2009
|
||||
|
Operating
Activities
|
||||
|
Net
Loss
|
$ | (698,818 | ) | |
|
Adjustments
to reconcile net income (loss) to net cash provided (used) by operating
activities:
|
||||
|
Amortization
|
1,677 | |||
|
Stock
issued for services
|
226,500 | |||
|
Accounts
receivable
|
(234,382 | ) | ||
|
Prepaid
expenses and deposits
|
(16,891 | ) | ||
|
Accounts
payable and accrued liabilities
|
347,840 | |||
|
Deferred
revenue
|
144,000 | |||
|
Cash
provided (used) by operating activities – continuing
operations
|
(230,075 | ) | ||
|
Cash
provided (used) by discontinued operations
|
135,673 | |||
|
Cash
provided (used) by operating activities
|
(94,401 | ) | ||
|
Investing
Activities
|
||||
|
Proceeds
from sale of fixed assets
|
- | |||
|
Cash
provided (used) by investing activities
|
- | |||
|
Cash
provided (used) in discontinued operations
|
22,291 | |||
|
Cash
provided (used) by investing activities
|
22,291 | |||
|
Financing
Activities
|
||||
|
Loan
payable
|
53,101 | |||
|
Shares
issuances
|
42,707 | |||
|
Cash
provided by financing activities – continuing
operations
|
95,808 | |||
|
Cash
used in discontinued operations
|
(4,137 | ) | ||
|
Cash
used by financing activities
|
(91,671 | ) | ||
|
Increase
(decrease) in cash during the year
|
19,561 | |||
|
Cash
and cash equivalents, beginning of year
|
5,385 | |||
|
Cash
and cash equivalents, end of year
|
$ | 24,946 | ||
|
Supplemental
Information
|
||||
|
Cash
paid for interest
|
$ | - | ||
|
Shares
issued for assets
|
$ | - | ||
|
Shares
issued for subsidiary
|
$ | - | ||
|
Shares
issued for debt settlement and expenses
|
$ | 226,500 | ||
The
accompanying notes are a part of these financial statements.
-46-
CAPITAL
RESERVE CANADA LIMITED
Notes
to unaudited financial statements
1. Description of the
Company
KCP
Innovative Services Inc. was incorporated as a private corporation named K C
Pearson Consulting Inc. in the Province of Alberta on February 20,
1996. The name was changed to KCP Innovative Services Inc. on May 22,
2003. KCP has developed a series of devices that are used to diagnose the pay
zone in oil or gas wells. The diagnostic information collected from
these devices is used by production engineers to complete the well at the most
efficient level. KCP's customers are oil and gas
companies.
Capital
Reserve Canada Ltd. (“CRC") was incorporated as a private corporation in the
Province of Alberta on December 8, 1999, and is a reporting company registered
with the U.S. Securities and Exchange Commission. CRC provides
minimal equipment and related rental services. Pursuant to the share exchange
agreement dated August 12, 2005, the Company effected a share exchange
indirectly with the shareholders of KCP Innovative Services Ltd. ("KCP"),
resulting in the Company acquiring 78.2% of the outstanding shares of KCP
through exchanging shares with the Company's wholly owned subsidiary, Capital
Reserve Canada Projects Ltd ("Project"). Subsequent to the Annual General
Meeting of the company on January 12, 2006, the minority interest shareholders
signed off and all minority interest shares were exchanged for CRC shares.
Because the shareholders of KCP became the controlling shareholders of the
Company, this transaction was accounted for as a reverse takeover whereby KCP
was deemed to be the acquirer as described more fully in Note
2.
Capital
Reserve Canada Projects Ltd. was incorporated as a private corporation in the
Province of Alberta on August 2, 2005, and it has been inactive since inception
except for the share exchange as described. Effectively on February 3, 2006
Capital Reserve Canada Projects Ltd. amalgamated with KCP Innovative Services
Inc.
Effective
January 22, 2006, KCP Innovative Services Inc. became directly a wholly-owned
subsidiary of Capital Reserve Canada Ltd.
On
February 4, 2008 we issued 23,500,000 shares to purchase the shares of Behral
Canada Ltd. Behral owns the patents to a blowout preventer valve, stack control
system and portable blowout controller. Behral also owns a floating offshore
drilling vessel, a blow out preventer stack control system as well as a subsea
blowout stack control system.
2. Share
exchange
On August
12, 2005, Project issued 17,335,814 common shares to exchange for 17,335,814
common shares (78.2%) from the shareholders of KCP Innovative Services. CRC then
issued 17,335,814 common shares in exchange for 17,335,814 common shares from
Projects.
Subsequent
to January 12, 2006, minority interest shareholders of KCP signed off to
exchange for shares in CRC. Minority interest of 21.8% (4,833,085 shares) was
exchanged for CRC shares. CRCP and KCP were amalgamated on February 3, 2006.
Following the transactions, CRC directly owns 100% of KCP.
During
2006, CRC issued 896,264 common shares to FACT Corp. in exchange for the debt of
$258,426.
These
share exchange transactions between CRC (legal parent) and KCP (legal
subsidiary) were accounted for as a reverse takeover as a capital transaction in
accordance with accounting principles generally accepted in the United States of
America. As a result, no goodwill is accounted for in this
transaction.
The
reverse takeover accounting reports result in the following:
(a) KCP
is deemed to be the parent company and CRC is deemed to be the subsidiary
company for accounting purposes;
-47-
2. Share
exchange (continued)
(b) The
financial statements of the combined entity are issued under the name of the
legal parent, CRC, but are considered a continuation of the financial statements
of the legal subsidiary, KCP; and
(c) Since
KCP is deemed to be the acquirer for accounting purposes, its assets and
liabilities are included in its consolidated balance sheet at their historical
carrying values.
3. Summary
of significant accounting policies
These
consolidated financial statements include the accounts of the company and its
legal subsidiary, KCP Innovative Services Inc., its wholly-owned subsidiary, Two
Hills Environmental Inc and Behral Canada Ltd. and have been prepared in
accordance with accounting principles generally accepted in United States of
America. All significant inter-company transactions and balances are eliminated
in the preparation of these consolidated financial
statements.
(a) Cash
and cash equivalents
Cash and
cash equivalents consist of cash on deposit and short-term investments with
original maturities of 90 days or less and are recorded at the lower of cost or
market value.
(b) Leases
Leases
are classified as either capital or operating. Leases which transfer
substantially all of the benefits and risks of ownership of property to the
Company are accounted for as capital leases. The capitalized lease obligation
reflects the present value of future rental payments, discounted at the
appropriate interest rates. The amount capitalized as the cost of the
asset is amortized as set out below under property, plant and equipment. Rental
payments under operating leases are expenses as incurred.
(c) Property,
plant and equipment
Property,
plant and equipment are recorded at cost and are being amortized using the
following method at the rates set out below which are estimated to be sufficient
to amortize the cost of the assets to residual value by the expiration of their
useful lives:
|
Building
|
4%
diminishing balance
|
|
|
Equipment
|
20%
diminishing balance
|
|
|
Furniture
and Fixtures
|
20%
diminishing balance
|
|
|
Vehicles
|
30%
diminishing balance
|
|
|
Computer
and Software
|
30%
diminishing balance
|
|
|
Mineral
Rights
|
0%
diminishing balance
|
|
|
Water
Permit
|
0%
diminishing balance
|
(d) Goodwill
and intangible assets
The cost
of intangible assets is amortized over the period in which the benefits of such
assets are expected to be realized, principally on a straight-line
basis. The Company's policy is to amortize client relationships with
determinable lives over four years. Contract backlog is amortized
over the estimated period of completion, generally less than one
year. Technology is being amortized over an estimated life of four
years. Goodwill is not amortized but is evaluated annually for
impairment by comparing the fair value of the reporting unit, determined on a
discounted after tax cash flow basis, to the carrying value. An
impairment loss would be recognized if the carrying value of the goodwill
exceeds its fair value.
-48-
3. Summary
of significant accounting policies (continued)
(e) Future
income taxes
The
Company uses the liability method of accounting for income
taxes. Under this method, future income tax assets and liabilities
are determined based on differences between financial reporting and the tax
bases of assets and liabilities and measured using the substantively enacted
rates and laws that will be in effect when these differences are expected to
reverse.
(f) Revenue
recognition
The
Company's services are generally sold based upon purchase orders or contracts
with customers that include fixed or determinable prices based upon daily,
hourly or job rates. Customer contract terms do not include provisions for
significant past service delivery obligations. Revenue is recognized
when services and equipment rentals are rendered and only when collectability is
reasonably assured.
(g) Statement
of cash flows
The
statement of cash flows has been prepared using the indirect
method.
4. Basis
of presentation and going concern
These
financial statements have been prepared on the basis of accounting principles
applicable to a going concern which assumes the Company will continue in
operation for the foreseeable future and will be able to realize its assets and
discharge its liabilities in the normal course of
operations.
Because
of the operating losses of the past two periods, the Company's continuance as a
going concern is dependent upon its ability to obtain adequate financing and to
reach profitable levels of operation. Management believes actions
planned and presently being taken provides the opportunity for the Company to
continue as a going concern.
5. Property,
plant and equipment
|
Cost
|
Accumulated
Amortization
|
Net
December 31, 2008
|
||||||||||
|
Land
|
$ | 900,000 | $ | - | $ | 900,000 | ||||||
|
Furniture
and fixtures
|
18,239 | 13,255 | 4,984 | |||||||||
|
Computer
and software
|
48,131 | 35,773 | 12,358 | |||||||||
| $ | 966,370 | $ | 49,028 | $ | 9917,342 | |||||||
-49-
5. Property,
plant and equipment (continued)
Southbend
Power Ltd.
On June
16, 2006, Two Hills Environmental Inc., a wholly-owned subsidiary of CRC
purchased 147 acres of land together with certain salt lease and water permit
rights from Southbend Power Ltd. for the consideration of CRC to issue
13,200,000 common shares to Southbend Power Ltd. and the assumption of certain
liabilities. The transaction was completed on July 28, 2006. The company
recorded the value of the purchase based on the market share trading value of
July 28, 2006 at US$ 0.32 per share. The company recorded the land at its fair
market value of $900,000 and the value of the water permits and salt leases to
be $4,677,679, the trading value of the exchanged shares. These 147
acres sit on the Nisku Fault and the Lotsburg salt formation has 3 large
existing salt caverns. The Lotsburg salt formation contains salt
deposits that average 122m in thickness and spans a total area of 390,000 sq.
km. The Nisku Fault resides approximately 1000m underground and
extends downwards and can be used for certain liquid waste
disposal. Caverns are formed through solution mining, during which
water is pumped into the formation to dissolve large pockets of salt in the
formation. These caverns are especially important in the oilfield
waste disposal industry, where wastes from oil production are stored in these
caverns. The 147 acres are strategically located in terms of
proximity to sources of oilfield wastes being generated in the Cold Lake Region.
The companies currently producing oil wastes are discouraged from the duopoly in
the oil waste disposal industry due to prices and lack of customer service.
Currently, 7 million cubic meters of oilfield wastes are being produced
annually. At the going rate of $100/m for disposal of oilfield wastes that
require deep disposal, the revenue potential for disposal of current volumes is
estimated to be $1,900,000 per day. Two Hills estimates in capturing 545 cubic
meters per day which would equate to approximately $55,000 per day in revenues
and annual cash flow exceeding $5,300,000. Due to the projections of these
estimates and the time that it would take Two Hills to have their site ready for
oilfield waste disposal, the Company has decided to take a conservative approach
in valuing these salt caverns and have recorded them at the original cost at
acquisition. The numbers represented in this paragraph concerning the amount of
oilfield waste production and revenue generated per day were received through
two third party consultants.
In
addition to the salt caverns, this site has a water pumping station and water
rights to pump from the North Saskatchewan River running along
it. Future water rights are not being easily given for the North
Saskatchewan River due to the scarcity of water there. This site is now held at
a premium due to the water pump located there and the rights already
owned.
The
Company has leased a portion of the land to another company for $2,000 per month
for storage of trailers and other equipment. This lease expired on
September 1st
2009.
The
Company is currently seeking opportunities to further expand the operations of
this site by either raising money or forming a joint venture to be able to
prepare the site for waste disposal storage and commence operations in this
area.
-50-
6. Intangible
assets
|
Cost
|
Accumulated
Amortization
|
Net
December 31, 2008
|
||||||||||
|
PID
Technology
|
$ | 1 | $ | - | $ | 1 | ||||||
|
Zone
Technology
|
277,000 | 277,000 | 0 | |||||||||
|
Backlog
|
196,600 | 196,600 | 0 | |||||||||
|
Customer
relationships
|
184,000 | 184,000 | 0 | |||||||||
|
Patents
in Behral
|
- | - | ||||||||||
| $ | 657,601 | $ | 657,600 | $ | 1 | |||||||
Perforation
Inflow Diagnostics ("PID")
Effective
January 1, 2004, KCP acquired from a group of individuals, one of which was a
stockholder of KCP, a computer modeling system to analyze the underground
formations that contain natural gas and oil. Consideration consisted
of 14,966,270 common shares of KCP. As this related party transaction
did not result in a substantive change in the ownership interest of the
technology, the technology has been recorded at the nominal carrying value of
$1.
Zone
Technology
Effective
June 11, 2004, KCP acquired 100% of the outstanding shares of Zone Technologies
Ltd. Zone Technologies Ltd. has developed a computer modeling system to explore
the underground formations that contain coal based methane gas. Zone
Technologies Ltd. was dissolved on September 26, 2005.
Suncone
Technologies Ltd.
The
company was formed to purchase the Infratronic Soil Sterilization Unit in
exchange for CRC shares and cash. $50,000 was paid to Southbend Powers Ltd. for
the unit for testing and evaluation. However, it was determined that the unit
was not consistent with the overall business objectives. Suncone Technologies
Ltd. was dissolved and the funds were returned to CRC through a follow-on
transaction during the 2007 fiscal year.
Patents
Patents
were acquired with the acquisition of Behral. As none of the patents
are in production, the economic value is uncertain and thus written off to
impairment charges during the year ended December 31, 2008.
($947,611)
7. Operating
line of credit
The
Company has an operating line of credit to a maximum of
$95,000. Interest is charged monthly on the outstanding balance at
the rate of prime plus 1%. It is secured by General Security
Agreement. There was an outstanding amount as of October 31, 2009, of
$17,000.
8. Loan
Payable
The
Company signed a promissory note and received funds of US$40,000 (Cdn$47,201) in
April 2009. The interest rate is 25% per annum and compounded monthly
until the principal is paid in full. Payment are applied firstly to
the accrued interest and secondly to the principal. 750,000 shares
were issued upon signing the agreement. $5,900 in interest has been
accrued as of October 31, 2009.
-51-
9. Demand
bank loan
The bank
loan is repayable over 60 months commencing March 2005 and ending in February
2010. Monthly blended payments of principal and interest are $8,313
with an interest rate of 6.375%. The first payment was $4,130 and was made on
March 18, 2005. One half of the loan was drawn on February 18, 2005
upon completion of unit 101. The balance was drawn on March 31, 2005
upon completion of unit 102. Two Sterline Slick Line units, included in
property, plant and equipment, are pledged as collateral for this
loan. The Loan was paid in full on February 8, 2008 when one of
the slick line trucks was sold.
10. Long-term
debt
The
vehicle loan is repayable over 72 months commencing in August 2003 and ended in
July 2009. The blended payments of principal and interest were $1,027 per month
with an interest rate of 7.99% per annum. A 2003 Dodge truck,
included in property, plant and equipment, was pledged as collateral for this
loan.
11. Share
capital
Authorized
The
authorized share capital of the Company consists of an unlimited number of
common shares without par value: Shares issued are as
follows:
|
Shares
already issued in CRC as at December 31, 2006
|
58,396,421 | |||
|
Cancelled
Feb 7, 2007 pursuant to contract
|
-30,000 | |||
|
Issued
July 19, 2007 for consulting services @$.085
|
700,000 | |||
|
Issued
Aug 19, 2007 for $839,187 debt
|
5,000,000 | |||
|
Issued
Aug 19, 2007 for $49,634 debt
|
1,500,000 | |||
|
Issued
Feb 4, 2008 for purchase of Behral Canada
|
23,500,000 | |||
|
Issued
Feb 5, 2008 as a Debt Settlement
|
3,500,000 | |||
|
Issued
Mar 13, 2008 for directors compensation @ $0.04
|
4,000,000 | |||
|
Issued
Aug 19, 2008 for (in lieu of pay and per contract) @ $0.014 to
$0.053
|
14,231,409 | |||
|
Issued
Dec 1, 2008 for consulting services @ $0.021
|
3,323,529 | |||
|
Issued
Dec 15, 2008 for consulting services @ $0.017
|
4,500,000 | |||
|
Issued
Mar 3, 2009 for Debt Settlement
|
8,571,428 | |||
|
Issue
Mar 11, 2009 for (in lieu of pay and per contract) @
$0.0055
|
15,818,182 | |||
|
Issued
Apr 28, 2009 in lieu of pay @ $0.014
|
2,500,000 | |||
|
Issued
Apr 28, 2009 per loan agreement
|
750,000 | |||
|
Issued
July 20, 2009 private placement @ $0.011
|
40,000,000 | |||
|
Issued
Aug 11, 2009 in lieu of pay @ $0.003
|
21,333,333 | |||
|
TOTAL
on October 31, 2009
|
207,594,302 |
On March
3, 2009 we issued 8,571,428 shares for debt settlement to the company
president.
On March
11, 2009 we issued 15,818,182 shares for consulting services to three
stockholders.
On April
28, 2009 we issued 2,500,000 shares for consulting services to two
consultants.
On April
28, 2009 we issued 750,000 shares to one stockholder as per an interim loan
agreement. (note 11)
On July
20, 2009 we closed a non-brokered private placement, 40,000,000 shares were
issued and received net proceeds of $42,707.
On August
11, 2009 we issued 21,333,333 shares for consulting services to one employee and
four consultants.
-52-
12. Related
party transactions
The
amounts due to the shareholders are non-interest bearing, unsecured and due on
demand and are nil.
13. Commitment
The
Company leases shop and office space under operating leases. The
future office and shop lease payments are as follows:
|
2010
|
$ | 142,140 | ||
|
2011
|
142,140 | |||
|
2012
|
142,140 | |||
|
Total
|
$ | 426,420 |
14. Financial
instruments
Credit
risk
Credit
risk is the risk that one party to a financial instrument will fail to fulfill
an obligation and causes the other party to incur a financial loss. The
Company’s credit risk consists primarily of cash and cash equivalents and
short-term investments. The credit risk is minimized by placing cash and cash
equivalents and investing in short-term investments with major Canadian
financial institutions. The Company’s receivables consist of GST due from the
Federal Government of Canada. Management believes that the credit
risk concentration with respect to amounts receivable is remote. The
Company does not invest in asset–backed commercial papers.
Interest
rate risk
The
Company is exposed to interest rate risk to the extent that it has bank
indebtedness that carries a variable rate of
interest. Notwithstanding this, unless otherwise indicated, it is
management's opinion that the Company's exposure to interest rate risk arising
from these financial instruments is insignificant.
Fair
value of financial assets and liabilities
The
Company has estimated the fair value of its financial instruments, which include
cash and cash equivalents, cash restricted, term deposit, accounts receivable,
bank indebtedness, accounts payable, accrued liabilities, due to stockholder and
long-term debt. The Company used valuation methodologies and market information
available at October 31, 2009 and has determined that the carrying amounts of
such financial instruments approximate fair value in all
cases.
16. Segmented
information
The
Company operates in one geographic segment within one industry
segment. Oilfield services are provided in
Canada.
-53-
PART
II – INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM
13. Other Expenses of Issuance and
Distribution
The
following table sets forth the costs and expenses payable by CRC in connection
with registering the sale of the common stock. CRC has agreed to pay all costs
and expenses in connection with this offering of common stock. Set forth below
is the estimated expenses of issuance and distribution, assuming the maximum
proceeds is raised.
|
Legal
and Professional Fees
|
$ | 9,000 | ||
|
SEC
Registration Fee
|
840 | |||
|
Accounting/Auditing
Fees
|
1,000 | |||
|
Blue
Sky Qualification Fees
|
500 | * | ||
|
Printing
and Copying
|
2,000 | * | ||
|
Mailing
and Couriering Prospectus
|
1,000 | * | ||
|
Transfer
Agent Fees and Certificate Printing
|
3,685 | |||
|
EDGARizing
Fees
|
3,200 | * | ||
|
Total
|
$ | 21,225 |
*
Estimate
ITEM
14. Indemnification of Directors and
Officers
The
Company’s Articles of Incorporation and Bylaws provide for the indemnification
of a present or former director or officer. CRC indemnifies any director,
officer, employee or agent who is successful on the merits or otherwise in
defense on any action or suit. Such indemnification shall include, but not
necessarily be limited to, expenses, including attorney’s fees actually or
reasonably incurred by him. Canadian law also provides for discretionary
indemnification for each person who serves as or at CRC request as an officer or
director. CRC may indemnify such individual against all costs, expenses, and
liabilities incurred in a threatened, pending or completed action, suit, or
proceeding brought because such individual is a director or officer. Such
individual must have conducted himself in good faith and reasonably believed
that his conduct was in, or not opposed to, CRC’s best interests. In a criminal
action, he/she must not have had a reasonable cause to believe his conduct was
unlawful.
ITEM
15. Recent Sales of Unregistered
Securities.
There are
no recent sales of unregistered securities.
EXHIBITS
|
Number
|
Description
|
|
EX
3.1
|
Articles
of Incorporation
|
|
EX
3.2
|
Bylaws
|
|
Ex
5.1
|
Consent
of Counsel
|
|
EX
10.8
|
Drawdown
Equity Financing Agreement
|
|
EX
10.9
|
Registration
Rights Agreement
|
|
EX
20.1
|
Resolution
of Board of Directors Re: Drawdown Equity Financing
Agreement
|
|
EX
23.1
|
Consent
of Independent Registered Certified Public
Accountants
|
-54-
UNDERTAKINGS
We hereby
undertake to file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
|
·
|
To
include any prospectus required by section
10(a)(3) of the Securities Act of
1933;
|
|
·
|
To
reflect in the prospectus any facts or events arising after the effective
date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any deviation from
the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant to
Rule
424(b) if, in the aggregate, the changes in volume and price
represent no more than 20% change in the maximum aggregate offering price
set forth in the "Calculation of Registration Fee" table in the effective
registration statement.
|
|
·
|
To
include any material information with respect to the plan of distribution
not previously disclosed in the registration statement or any material
change to such information in the registration
statement;
|
Insofar
as indemnification for liabilities arising under the Securities Act of 1933 may
be permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant 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 registrant 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 Act and will be governed by the final adjudication of
such issue.
The
Company undertakes, for determining liability under the Securities Act, to treat
each post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
The
Company undertakes to file a post-effective amendment to remove from
registration any of the securities that remain unsold at the end of the
offering.
-55-
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the Province of Alberta, Canada on
November 12, 2009.
CAPITAL
RESERVE CANADA LIMITED
By:
/s/ Steven
Claussen
Stephen Claussen
Director, President and
CEO
DIRECTORS
/s/ Steven
Claussen
Stephen
Claussen
Director,
President and CEO
December
7, 2009
/s/ Donald
Getty
Donald
Getty
Chairman
of the Board, Director
December
7, 2009
/s/ Michael G.
Dolinski
Michael
G. Dolinski M.Sc., M.P.M.
Director
December
7, 2009
-56-