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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2012

 

¨ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission file number 000-26669

 

CAN-CAL RESOURCES LTD.

(Exact name of registrant as specified in its charter)

 

Nevada 88-0336988
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)

 

8205 Aqua Spray Avenue
Las Vegas, Nevada

(Address of principal executive offices)

 

(702) 243-1849

(Registrant’s telephone number, including area code)

 

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

S Yes £ No

 

Indicate by checkmark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data Filed required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period the registrant was requires to submit and post such files)

S Yes £ No

 

Large accelerated filer ¨   Accelerated filer ¨
Non-accelerated filer ¨ (Do not check if a smaller reporting company) Smaller reporting company x

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No x

 

The number of shares of Common Stock, $0.001 par value, outstanding on November 15, 2012 was 42,027,060.

 

 

 

CAN-CAL RESOURCES LTD.

FORM 10-Q

TABLE OF CONTENTS

 

 

    Page
     
PART I – FINANCIAL INFORMATION   3
  Item 1. Financial Statements   3
    Condensed Balance Sheets as of September 30, 2012 (Unaudited) and December 31, 2011   3
    Condensed Statements of Operations (Unaudited)   4
    Condensed Statements of Cash Flows (Unaudited)   5
    Notes to Condensed Financial Statements (Unaudited)   6
  Item 2. Management’s Discussion and Analysis   15
  Item 3. Quantitative and Qualitative Disclosures about Market Risk   21
  Item 4. Controls and Procedures   21
       
PART II – OTHER INFORMATION   22
  Item 1. Legal Proceedings   22
  Item 1A. Risk Factors   22
  Item 2. Unregistered Sales of Equity Securities and Use of Proceeds   22
  Item 3. Defaults Upon Senior Securities   22
  Item 4. MINE SAFETY DISCLOSURES   22
  Item 5. Other Information   23
  Item 6. Exhibits   23

 

2
 

 

CAN-CAL RESOURCES LTD.

(AN EXPLORATION STAGE COMPANY)

CONDENSED BALANCE SHEETS

 

   September 30,   December 31, 
   2012   2011 
  (Unaudited)     
ASSETS          
           
Current assets:          
Cash  $2,531   $37,846 
Prepaid expenses   47,383    21,499 
Total current assets   49,914    59,345 
           
          
Property and equipment (net of accumulated depreciation of $31,979 and $26,971, respectively)   2,180    6,583 
           
Total assets  $52,094   $65,928 
           
LIABILITIES AND STOCKHOLDERS' (DEFICIT)          
           
Current liabilities:          
Accounts payable  $29,960   $25,936 
Accounts payable, related parties   165,000    120,632 
Accrued expenses   2,401    4,967 
Accrued expenses, related parties   337,766    243,869 
Unearned rental revenues   16,042    9,167 
Notes payable, related parties   11,407    53,062 
Total current liabilities   562,576    457,633 
           
Total liabilities   562,576    457,633 
           
Commitments and contingencies          
           
Stockholders' (deficit):          
Preferred stock, $0.001 par value, 10,000,000 shares authorized, no shares issued and outstanding        
Common stock, $0.001 par value, 100,000,000 shares authorized, 42,027,060 and 38,901,246 shares issued and outstanding as of September 30, 2012 and December 31, 2011, respectively   42,027    38,901 
Subscriptions payable, -0-, and 50,000 shares at September 30, 2012 and December 31, 2011, respectively       1,500 
Additional paid-in capital   9,710,015    9,248,673 
(Deficit) accumulated during exploration stage   (10,262,524)   (9,680,779)
Total stockholders' (deficit)   (510,482)   (391,705)
           
Total liabilities and stockholders' (deficit)  $52,094   $65,928 

 

See accompanying notes to financial statements.

 

3
 

 

CAN-CAL RESOURCES LTD.

(AN EXPLORATION STAGE COMPANY)

CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

 

                   March 22, 1995 
   For the three months ended   For the nine months ended   (inception) to 
   September 30,   September 30,   September 30, 
   2012   2011   2012   2011   2012 
                     
Material sales  $   $   $   $   $245,500 
Cost of sales                   263,400 
Gross loss                   (17,900)
                          
Operating expenses:                         
Exploration costs   14,802    15,381    38,163    35,387    634,012 
General and administrative   70,133    86,943    229,997    234,849    7,243,968 
Depreciation   1,682    2,192    5,008    6,577    263,792 
Officer salary   30,000    30,000    90,000    90,000    1,171,176 
Impairment of operating assets                   443,772 
Total operating expenses   116,617    134,516    363,168    366,813    9,756,720 
                          
Loss from operations   (116,617)   (134,516)   (363,168)   (366,813)   (9,774,620)
                          
Other income (expense):                         
Other income       3,000    3,100    9,000    69,798 
Interest income                   52,945 
Interest expense   (239,137)   (18,572)   (242,302)   (115,407)   (1,707,747)
Rental revenue   6,875    6,875    20,625    31,125    415,533 
Gain on disposal of fixed assets                   3,128 
Gain on extinguishment of debts                   1,152,039 
Total other income (expense)   (232,262)   (8,697)   (218,577)   (75,282)   (14,304)
                          
Loss before provision for income taxes   (348,879)   (143,213)   (581,745)   (442,095)   (9,788,924)
Provision for income taxes                    
Net loss from continuing operations   (348,879)   (143,213)   (581,745)   (442,095)   (9,788,924)
                          
Income from discontinued operations:                         
Income from discontinued operations                   116,400 
Loss on disposal of operations (net of taxes)                   (590,000)
Net (loss)  $(348,879)  $(143,213)  $(581,745)  $(442,095)  $(10,262,524)
                          
Weighted average number of common shares outstanding - basic and fully diluted   41,684,207    37,548,453    40,577,605    35,507,874      
                          
Net (loss) per share - basic and fully diluted  $(0.01)  $(0.00)  $(0.01)  $(0.01)     

   

See accompanying notes to financial statements.

 

4
 

 

CAN-CAL RESOURCES LTD.

(AN EXPLORATION STAGE COMPANY)

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

 

           March 22, 1995 
   For the nine months ended   (inception) to 
   September 30,   September 30, 
   2012   2011   2012 
CASH FLOWS FROM OPERATING ACTIVITIES               
Net loss  $(581,745)  $(442,095)  $(10,262,524)
Adjustments to reconcile net loss to net cash used in operating activities:               
Depreciation and amortization   5,008    6,577    263,792 
Bad debts           207,100 
Gain on sale of fixed assets           (3,128)
Gain on extinguishment of debts           (1,152,039)
Stock based compensation granted for services   1,050    9,288    563,952 
Stock based compensation granted for financing and interest   238,419    57,626    972,609 
Beneficial conversion feature on convertible debenture           25,200 
Loss on disposal of investment property           764,300 
Undistributed earnings of affiliate           (174,300)
Gain on discontinued operations           (116,400)
Loss on foreign currency translation           8,500 
Impairment of operating assets           443,772 
Decrease (increase) in assets:               
Prepaid expenses   (25,884)   (5,135)   73,517 
Increase (decrease) in liabilities:               
Accounts payable   4,024    (43,964)   (37,952)
Accounts payable, related parties   44,368    45,632    165,000 
Accrued expenses   (2,566)   128,309    540,979 
Accrued expenses, related parties   93,897    1,548    619,770 
Unearned revenues   6,875    6,875    16,042 
Net cash used in operating activities   (216,554)   (235,339)   (7,081,810)
                
CASH FLOWS FROM INVESTING ACTIVITIES               
Purchase of investment property           (1,083,600)
Proceeds from sale of investment property           319,300 
Purchase of property and equipment   (605)       (770,016)
Proceeds from sale of property and equipment           26,100 
Net cash used in investing activities   (605)       (1,508,216)
                
CASH FLOWS FROM FINANCING ACTIVITIES               
Proceeds from convertible debentures           128,800 
Proceeds from notes payable           948,400 
Principal payments on notes payable           (689,900)
Proceeds from notes payable, related parties   46,909        954,700 
Principal payments on notes payable, related parties   (88,564)   (4,129)   (471,743)
Proceeds from the issuance of common stock   223,499    328,475    7,722,300 
Net cash provided by financing activities   181,844    324,346    8,592,557 
                
Net increase in cash   (35,315)   89,007    2,531 
Cash, beginning of period   37,846    17,202     
Cash, end of period  $2,531   $106,209   $2,531 
                
Supplemental disclosures:               
Interest paid  $   $      
Income taxes paid  $   $      

  

See accompanying notes to financial statements.

 

5
 

 

CAN-CAL RESOURCES LTD.

(An Exploration Stage Company)

NOTES TO CONDENSED FINANCIAL STATEMENTS

(UNAUDITED) 

 

Note 1 – Basis of Presentation

 

The accompanying unaudited condensed financial statements have been prepared in accordance with Securities and Exchange Commission requirements for interim financial statements. Therefore, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. The financial statements should be read in conjunction with the Form 10-K for the year ended December 31, 2011 of Can-Cal Resources Ltd. (the “Company”).

 

The interim condensed financial statements present the balance sheets, statements of operations and cash flows of Can-Cal Resources Ltd. The financial statements have been prepared in accordance with accounting principles generally accepted in the United States.

 

The interim financial information is unaudited. In the opinion of management, all adjustments (which include normal recurring adjustments) necessary to present fairly the financial position as of September 30, 2012 and the results of operations and cash flows presented herein have been included in the financial statements. Interim results are not necessarily indicative of results of operations for the full year.

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Certain amounts in the prior periods presented have been reclassified to conform to the current period financial statement presentation.

 

Modification of Warrants

The Company extended a total of 6,417,496 warrants on September 30, 2012, which were originally granted on June 30, 2009 as part of debt financing arrangements. A modification of the terms or conditions of an equity award is treated as an exchange of the original award for a new award. The incremental (additional) cost is computed as any excess of the fair value of the modified award over the fair value of the original award immediately before modification. As a result, a total of $238,419 has been expensed as finance charges on September 30, 2012.

 

Exploration Stage Company

The Company is currently an exploration stage company. As an exploration stage enterprise, the Company discloses the deficit accumulated during the exploration stage and the cumulative statements of operations and cash flows from inception to the current balance sheet date. The Company has incurred net losses of $10,262,524 and used net cash in operations of $7,081,810 for the period from inception (March 22, 1995) through September 30, 2012. An entity remains in the exploration stage until such time as proven or probable reserves have been established for its deposits. Upon the location of commercially mineable reserves, the Company plans to prepare for mineral extraction and enter the development stage. To date, the exploration stage of the Company’s operations consists of contracting with geologists who sample and assess the mining viability of the Company’s claims.

  

Note 2 – Going Concern

 

The Company incurred a net loss of $581,745 for the nine months ended September 30, 2012. Also, the Company’s current liabilities exceed its current assets by $512,662 as of September 30, 2012. These factors create substantial doubt about the Company’s ability to continue as a going concern. The Company’s management plans to continue to fund its operations in the short term with a combination of debt and equity financing and with revenue from operations in the long term.

 

The ability of the Company to continue as a going concern is dependent on securing additional sources of capital and the success of the Company’s plan. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

  

Note 3 – Related Party

 

We received proceeds of $35,924 on unsecured short term loans from our CEO, G. Michael Hogan over various dates during the nine months ended September 30, 2012. We repaid a total of $26,234 of these loans, resulting in an unpaid balance of $9,690 at September 30, 2012. The promissory notes are due on demand and bearing interest at 10%.

 

6
 

 

CAN-CAL RESOURCES LTD.

(An Exploration Stage Company)

NOTES TO CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

 

On September 30, 2012, the Company extended 2,439,920 previously granted and extended common stock warrants issued to the Company’s CEO, with an exercise price of $0.15 for an additional 21 months from their expiration on September 30, 2012. These warrants are fully vested and expire on June 30, 2014. The total estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 216% and a call option value of $0.0374, was $91,215 and was recognized as interest expense during the nine months ended September 30, 2012.

 

On September 30, 2012, the Company extended a total of 1,301,312 previously granted and extended common stock warrants issued to the one of the Company’s directors, with an exercise price of $0.15 for an additional 21 months from their expiration on September 30, 2012. These warrants are fully vested and expire on June 30, 2014. The total estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 216% and a call option value of $0.0374, was $48,649 and was recognized as interest expense during the nine months ended September 30, 2012.

 

On April 17, 2012 the Company appointed Ron Schinnour to the Board of Directors. Mr. Schinnour currently serves on the Board of Directors of FoodChek Systems Inc., a Company owned by another member of the Company’s Board of Directors, William Hogan. Compensation has not yet been determined.

 

On April 4, 2012, the Company sold 416,667 shares of its common stock and an equal number of warrants pursuant to unit offerings to a member of the Company’s Board of Directors in exchange for proceeds of $25,000. The warrants are exercisable over two years at an exercise price of $0.08 per share. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.

 

On April 2, 2012, we repaid $28,260, including $3,260 of interest, on an unsecured note payable due to a Board of Director’s consulting firm, Futureworth Capital Corp.

 

On January 30, 2012, the Company appointed Mr. Thompson MacDonald to the Board of Directors. Compensation has not yet been determined.

 

On January 9, 2012, we reimbursed $632 of previously incurred expenses to one of our board members.

 

On September 15, 2011, we repaid $129 on an unsecured note payable due to our CEO, G. Michael Hogan.

 

On June 30, 2011, the Company extended 2,439,920 previously granted common stock warrants issued to the Company’s CEO, with an exercise price of $0.15 for an additional 15 months from their expiration on June 30, 2011. These warrants are fully vested and expire on September 30, 2012. The total estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 180% and a call option value of $0.0090, was $22,047 and was recognized as interest expense during the year ended December 31, 2011. These warrants were again extended for an additional 21 months with all other terms remaining consistent with these previously amended terms.

 

On June 30, 2011, the Company extended a total of 1,301,312 previously granted common stock warrants issued to the one of the Company’s directors, with an exercise price of $0.15 for an additional 15 months from their expiration on June 30, 2011. These warrants are fully vested and expire on September 30, 2012. The total estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 180% and a call option value of $0.0090, was $11,758 and was recognized as interest expense during the year ended December 31, 2011. These warrants were again extended for an additional 21 months with all other terms remaining consistent with these previously amended terms.

 

During the year ended December 31, 2010, we received a total of $28,191 in exchange for an unsecured note payable to our CEO, G. Michael Hogan, due on demand, bearing interest at 8%. This loan was repaid in full on April 2, 2012.

 

On November 12, 2010, we received a short term loan of $9,000 in exchange for a non-interest bearing, unsecured note payable to an employee, due on demand. On December 30, 2010 the Company repaid $5,000, and the remaining $4,000 was repaid in February of 2011.

 

On July 1, 2010, the Company entered into a twelve month employment agreement, subject to automatic monthly renewals, with the Company’s CEO, G. Michael Hogan. The terms of the agreement include a fixed annual salary of $120,000. The Company may elect to satisfy payment in shares of common stock in lieu of cash at a market value equal to $0.10 above the average closing trading price of the common stock for the preceding five (5) days from the date of such election. No payments have been made in cash or stock to date.

 

7
 

 

CAN-CAL RESOURCES LTD.

(An Exploration Stage Company)

NOTES TO CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

 

We owed accrued salaries to our CEO of $330,000 and $240,000 at September 30, 2012 and December 31, 2011, respectively.

 

On June 30, 2010, the Company entered into a twelve month consulting agreement, with a Board of Director’s consulting firm, Futureworth Capital Corp. The terms of the agreement include annual compensation of $60,000, payable monthly. The Company may elect to satisfy payment in shares of common stock in lieu of cash at a market value equal to $0.10 above the average closing trading price of the common stock for the preceding five (5) days from the date of such election. No payments have been made in cash or stock to date. As of September 30, 2012 we owed Futureworth Capital Corp. $165,000, as included in accounts payable, related parties, for service prior to, and during the service period under the consulting agreement.

 

On September 1, 2010, we received $25,000 in exchange for an unsecured note payable to a Board of Director’s consulting firm, Futureworth Capital Corp, due on demand, bearing interest at 8.25%. This loan was repaid in full on April 2, 2012.

  

Note 4 – Prepaid Expenses

 

As of September 30, 2012 and December 31, 2011 prepaid expenses consisted of the following:

 

   September 30,   December 31, 
   2012   2011 
Prepaid portion of UNLV research project as disclosed below  $24,706   $ 
Annual Bureau of Land Management fees   18,704    16,492 
Securities and Exchange Commission filing fees (XBRL)       1,750 
Rental fees       2,400 
Health and auto insurance premiums       857 
Directors and officers insurance   3,973     
   $47,383   $21,499 

 

On April 23, 2012 and May 10, 2012, the Company paid $30,000 and $5,000, respectively to the University of Nevada Las Vegas (UNLV) as part of a research project on our Wikieup property to be conducted from May 1, 2012 through September 30, 2013. These fees were paid pursuant to a donation to the UNLV’s Economic Geology Research Program Fund, and will be amortized over the duration of the project on a straight line basis. The project will use both field and laboratory analyses to investigate the surface geology of the property in order to address the following questions:

 

1. Is there geologic evidence consistent with the presence of a porphyry copper system within the area of Can-Cal's claim block?

2. Is there evidence to support the hypothesis that the property represents the root zone of a porphyry system that has been decapitated and transported into the valley to the east?

  

Note 5 – Notes Payable, Related Parties

 

Notes payable, related parties consisted of the following as of September 30, 2012 and December 31, 2011, respectively:

 

   September 30,   December 31, 
   2012   2011 
           
Note payable to a member of the Board of Directors, unsecured, due on demand, bearing interest at 8.25%, related party.  $   $25,000 
           
Notes payable to the CEO, unsecured, due on demand, bearing interest at 10% per annum, related party.   9,690     
           
Note payable to an employee, unsecured, due on demand, non-interest bearing, related party.   1,717     
           
Note payable to the CEO, unsecured, non-interest bearing, due on demand, related party.       28,062 
           
Total notes payable   11,407    53,062 
           
Less: current portion   11,407    53,062 
           
Notes payable, less current portion  $   $ 

 

8
 

 

CAN-CAL RESOURCES LTD.

(An Exploration Stage Company)

NOTES TO CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

 

The following presents components of interest expense by instrument type at September 30, 2012 and 2011, respectively:

 

   September 30,   September 30, 
   2012   2011 
           
Notes payable, related parties  $1,032   $1,548 
Notes payable       39,633 
Fair value of extended warrants   238,419    57,626 
Fair value of common stock granted as commissions   1,050    9,288 
Finance charges, commissions   1,050    6,670 
Vendor finance charges, accounts payable   751    642 
   $242,302   $115,407 

  

Note 6 – Changes in Securities

 

2012

 

On August 1, 2012 the Company issued 17,500 shares of its common stock to satisfy the $1,050 of subscriptions payable realized pursuant to common stock granted on March 20, 2012 as commission on the sale of securities.

 

On July 31, 2012, the Company sold a total of 1,000,000 shares of its common stock and an equal number of warrants pursuant to unit offerings to an individual investor in exchange for proceeds of $100,000. The warrants are exercisable over two years at an exercise price of $0.15 per share. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.

 

On April 4, 2012, the Company sold 416,667 shares of its common stock and an equal number of warrants pursuant to unit offerings to a member of the Company’s Board of Directors in exchange for proceeds of $25,000. The warrants are exercisable over two years at an exercise price of $0.08 per share. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.

 

On April 4, 2012, the Company sold a total of 874,982 shares of its common stock and an equal number of warrants pursuant to unit offerings amongst three individual investors in exchange for total proceeds of $52,499. The warrants are exercisable over two years at an exercise price of $0.08 per share. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.

 

On March 20, 2012, the Company sold a total of 566,665 shares of its common stock and an equal number of warrants pursuant to a unit offering in exchange for total proceeds of $34,000 received amongst four investors. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.

 

On March 20, 2012, the Company granted a total of 17,500 shares of its common stock as commissions on the sale of securities. The total fair value of the common stock was $1,050 based on the fair market value of the Company’s common stock on the date of grant. The Company elected not to net these commissions against the proceeds received from the sales and recognized the $1,050 of finance costs as interest expense within the statement of operations. The shares were subsequently issued in April of, 2012.

 

On March 20, 2012 the Company issued 50,000 shares of its common stock to satisfy the $1,500 of subscriptions payable realized pursuant to common stock granted to an employee for services on December 29, 2011.

 

9
 

 

CAN-CAL RESOURCES LTD.

(An Exploration Stage Company)

NOTES TO CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

 

On February 15, 2012, the Company sold a total of 200,000 shares of its common stock and an equal number of warrants pursuant to a unit offering in exchange for total proceeds of $12,000 received amongst two investors. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.

 

2011

 

On December 29, 2011 the Company granted 50,000 shares of common stock to an employee for services rendered. The fair value of the common stock was $1,500 based on the closing price of the Company’s common stock on the date of grant. The shares were authorized, but unissued and recognized as a subscription payable as of December 31, 2011. The shares were subsequently issued on March 20, 2012.

 

On October 24, 2011, the Company issued a total of 218,793 shares of its common stock as commissions on the sale of securities amongst three different sales persons. The total fair value of the common stock was $12,078 based on the fair market value of the Company’s common stock on the date of grant. The Company elected not to net these commissions against the proceeds received from the sales and recognized the $12,078 of finance costs as interest expense within the statement of operations.

 

On October 18, 2011, the Company sold a total of 200,000 shares of its common stock and an equal number of warrants pursuant to a unit offering in exchange for total proceeds of $12,000 from two investors. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.

 

On October 14, 2011, the Company sold a total of 150,000 shares of its common stock and an equal number of warrants pursuant to a unit offering in exchange for total proceeds of $9,000 from two investors. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.

 

On September 26, 2011, the Company sold a total of 700,000 shares of common stock and an equal number of warrants pursuant to a unit offering in exchange for total proceeds of $42,000 from three investors. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.

 

On July 12, 2011, the Company sold 84,000 shares of common stock and an equal number of warrants pursuant to a unit offering in exchange for proceeds $5,040. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.

 

On June 29, 2011, the Company sold a total of 1,067,000 shares of its common stock and an equal number of warrants pursuant to a unit offering in exchange for total proceeds of $64,020 from five investors. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.

 

On June 22, 2011, the Company sold a total of 595,000 shares of its common stock and an equal number of warrants pursuant to a unit offering in exchange for total proceeds of $35,700 from three investors. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.

 

On June 10, 2011, the Company sold a total of 565,250 shares of its common stock and an equal number of warrants pursuant to a unit offering in exchange for total proceeds of $33,915 from six investors. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.

 

On May 31, 2011, the Company sold a total of 255,000 shares of its common stock and an equal number of warrants pursuant to a unit offering in exchange for total proceeds of $15,300 from two investors. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.

 

On April 1, 2011, the Company sold a total of 320,000 shares of its common stock and an equal number of warrants pursuant to a unit offering in exchange for total proceeds of $19,200 from three investors. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.

 

On March 16, 2011, the Company sold a total of 698,334 shares of common stock and an equal number of warrants pursuant to a unit offering in exchange for total proceeds of $41,900 from four investors. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.

 

10
 

 

CAN-CAL RESOURCES LTD.

(An Exploration Stage Company)

NOTES TO CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

 

On February 25, 2011, the Company sold 170,000 shares of its common stock and an equal number of warrants pursuant to a unit offering in exchange for proceeds of $10,200. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.

 

On January 26, 2011, the Company sold 85,000 shares of its common stock and an equal number of warrants pursuant to a unit offering in exchange for proceeds of $5,100. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.

 

On January 26, 2011, the Company sold 85,000 shares of its common stock and an equal number of warrants pursuant to a unit offering in exchange for proceeds of $5,100. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.

 

On January 5, 2011, the Company issued a total of 2,146,666 shares of its par value common stock to satisfy subscriptions payable outstanding as of December 31, 2010 related to debts converted by a total of nine investors in the amount of $128,800.

 

On January 4, 2011, the Company sold 680,000 shares of its common stock and an equal number of warrants pursuant to a unit offering in exchange for proceeds of $40,800. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.

 

On January 4, 2011, the Company sold 170,000 shares of its common stock and an equal number of warrants pursuant to a unit offering in exchange for proceeds of $10,200. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.

  

Note 7 – Options and Warrants

 

Options

 

There were no options issued during the nine months ended September 30, 2012 and 2011, respectively.

 

The following table summarizes the Company’s option activity related to employees and consultants:

 

        Weighted 
    Options   Average 
    Outstanding   Exercise Price 
             
Balance, January 1, 2011    1,000,000   $0.18 
 Granted         
 Cancelled         
 Exercised         
 Expired    (1,000,000)   (0.18)
Balance, December 31, 2011        
 Granted         
 Cancelled         
 Exercised         
 Expired         
Balance, September 30, 2012       $ 

 

Warrants

 

On September 30, 2012, the Company extended 348,320 previously granted and extended common stock warrants issued to the Company’s former CEO, with an exercise price of $0.15 for an additional 21 months from their expiration on September 30, 2012. These warrants are fully vested and expire on June 30, 2014. The total estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 216% and a call option value of $0.0374, was $13,022 and was recognized as interest expense during the nine months ended September 30, 2012.

 

11
 

 

CAN-CAL RESOURCES LTD.

(An Exploration Stage Company)

NOTES TO CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

 

On September 30, 2012, the Company extended 2,439,920 previously granted and extended common stock warrants issued to the Company’s CEO, with an exercise price of $0.15 for an additional 21 months from their expiration on September 30, 2012. These warrants are fully vested and expire on June 30, 2014. The total estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 216% and a call option value of $0.0374, was $91,215 and was recognized as interest expense during the nine months ended September 30, 2012.

 

On September 30, 2012, the Company extended a total of 1,301,312 previously granted and extended common stock warrants issued to the one of the Company’s directors, with an exercise price of $0.15 for an additional 21 months from their expiration on September 30, 2012. These warrants are fully vested and expire on June 30, 2014. The total estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 216% and a call option value of $0.0374, was $48,649 and was recognized as interest expense during the nine months ended September 30, 2012.

 

On September 30, 2012, the Company extended a total of 2,287,944 previously granted and extended common stock warrants issued amongst a total of five former investors, with an exercise price of $0.15 for an additional 21 months from their expiration on September 30, 2012. These warrants are fully vested and expire on June 30, 2014. The total estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 216% and a call option value of $0.0374, was $85,533 and was recognized as interest expense during the nine months ended September 30, 2012.

 

On July 31, 2012, the Company granted 1,000,000 common stock warrants with an exercise price of $0.15 per share for its common stock. These stock warrants were granted in connection with the sale of 1,000,000 shares of common stock in exchange for proceeds of $100,000. These warrants are exercisable over two years at an exercise price of $0.15 per share.

 

On March 20, 2012, the Company granted 150,000 common stock warrants with an exercise price of $0.08 per share for its common stock. These stock warrants were granted in connection with the sale of 150,000 shares of common stock in exchange for proceeds of $9,000. These warrants are exercisable over two years at an exercise price of $0.08 per share.

 

On March 20, 2012, the Company granted 83,333 common stock warrants with an exercise price of $0.08 per share for its common stock. These stock warrants were granted in connection with the sale of 83,333 shares of common stock in exchange for proceeds of $5,000. These warrants are exercisable over two years at an exercise price of $0.08 per share.

 

On March 20, 2012, the Company granted 166,666 common stock warrants with an exercise price of $0.08 per share for its common stock. These stock warrants were granted in connection with the sale of 166,666 shares of common stock in exchange for proceeds of $10,000. These warrants are exercisable over two years at an exercise price of $0.08 per share.

 

On March 20, 2012, the Company granted 166,666 common stock warrants with an exercise price of $0.08 per share for its common stock. These stock warrants were granted in connection with the sale of 166,666 shares of common stock in exchange for proceeds of $10,000. These warrants are exercisable over two years at an exercise price of $0.08 per share.

 

On February 15, 2012, the Company granted 100,000 common stock warrants with an exercise price of $0.08 per share for its common stock. These stock warrants were granted in connection with the sale of 100,000 shares of common stock in exchange for proceeds of $6,000. These warrants are exercisable over two years at an exercise price of $0.08 per share.

 

On February 15, 2012, the Company granted 100,000 common stock warrants with an exercise price of $0.08 per share for its common stock. These stock warrants were granted in connection with the sale of 100,000 shares of common stock in exchange for proceeds of $6,000. These warrants are exercisable over two years at an exercise price of $0.08 per share.

 

During the year ended December 31, 2011, the Company granted a total of 5,824,584 common stock warrants with an exercise price of $0.08 per share for its common stock amongst a total of thirty six investors. These stock warrants were granted in connection with financing activities related to the sale of common stock sold at various dates between January 4, 2011 and October 18, 2011. These warrants were exercisable upon issuance and expire two years from the date of grant, consisting of maturity dates between January 4, 2013 and October 18, 2011.

 

On June 30, 2011, the Company extended 348,320 previously granted common stock warrants issued to the Company’s former CEO, with an exercise price of $0.15 for an additional 15 months from their expiration on June 30, 2011. These warrants are fully vested and expire on September 30, 2012. The total estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 180% and a call option value of $0.0090, was $3,147 and was recognized as interest expense during the year ended December 31, 2011. These warrants were again extended for an additional 21 months with all other terms remaining consistent with these previously amended terms.

 

12
 

 

CAN-CAL RESOURCES LTD.

(An Exploration Stage Company)

NOTES TO CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

 

On June 30, 2011, the Company extended 2,439,920 previously granted common stock warrants issued to the Company’s CEO, with an exercise price of $0.15 for an additional 15 months from their expiration on June 30, 2011. These warrants are fully vested and expire on September 30, 2012. The total estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 180% and a call option value of $0.0090, was $22,047 and was recognized as interest expense during the year ended December 31, 2011. These warrants were again extended for an additional 21 months with all other terms remaining consistent with these previously amended terms.

 

On June 30, 2011, the Company extended a total of 1,301,312 previously granted common stock warrants issued to the one of the Company’s directors, with an exercise price of $0.15 for an additional 15 months from their expiration on June 30, 2011. These warrants are fully vested and expire on September 30, 2012. The total estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 180% and a call option value of $0.0090, was $11,758 and was recognized as interest expense during the year ended December 31, 2011. These warrants were again extended for an additional 21 months with all other terms remaining consistent with these previously amended terms.

 

On June 30, 2011, the Company extended a total of 2,287,944 previously granted common stock warrants issued amongst a total of five former investors, with an exercise price of $0.15 for an additional 15 months from their expiration on June 30, 2011. These warrants are fully vested and expire on September 30, 2012. The total estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 180% and a call option value of $0.0090, was $20,674 and was recognized as interest expense during the year ended December 31, 2011. These warrants were again extended for an additional 21 months with all other terms remaining consistent with these previously amended terms.

 

On December 31, 2010, the Company granted 2,146,666 common stock warrants with an exercise price of $0.08 per share. These stock warrants were granted in connection with the conversion of $128,800 of previously issued convertible debentures on December 31, 2010 to a total of nine investors in exchange for a total of 2,146,666 shares. These warrants were exercisable upon issuance and expire on December 31, 2012.

 

On January 22, 2010, the Company granted 40,000 stock warrants with an exercise price of $0.15 per share for its common stock. These stock warrants were granted in connection with financing activities relating to stock sold on January 22, 2010. These warrants were exercisable upon issuance and expired on March 31, 2011.

 

A total of -0- and 1,064,000 warrants expired during the nine months ended September 30, 2012 and the year ended December 31, 2011, respectively.

 

The following table summarizes the Company’s warrant activities:

 

        Weighted 
    Warrants   Average 
    Outstanding   Exercise Price 
             
Balance, January 1, 2011    9,588,162   $0.13 
 Granted    5,824,584    0.08 
 Cancelled         
 Exercised         
 Expired    (1,064,000)   (0.15)
Balance, December 31, 2011    14,348,746    0.11 
 Granted    9,435,810    0.13 
 Cancelled         
 Exercised         
 Expired    (6,377,496)   (0.15)
Balance, September 30, 2012    17,407,060   $0.14 

  

13
 

 

CAN-CAL RESOURCES LTD.

(An Exploration Stage Company)

NOTES TO CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

  

Note 8 – Commitments and Contingencies

 

Mining Claims - The Company has a lease and purchase option agreement covering six patented claims in the Cerbat Mountains, Hualapai Mining District and Mohave County Arizona. The Company pays $1,500 per quarter as minimum advance royalties. The Company has the option to purchase the property for $250,000 plus interest at a rate of 8% compounded annually from and after the date of its exercise of the option to purchase the property. If the Lessee exercises its option to purchase, all funds paid to Lessors shall be credited toward the purchase price as of the date the payments were made.

  

Note 9 – Subsequent Events

 

The Company has evaluated subsequent events from September 30, 2012 through the date whereupon the financial statements were issued and has determined that there are no items to disclose.

 

 

14
 

 

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS

 

OVERVIEW AND OUTLOOK

 

The following discussion of the business, financial condition and results of operation of the Company should be read in conjunction with the financial statements of the Company for the years ended December 31, 2011 and 2010 and the and the notes to those statements that are included their respective Annual Reports on Form 10-K, as well as the financial statements and notes the financial statements included in this Form 10-Q. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statement, including, but not limited to, the risk factors described in this Form 10-Q and in Item 1A of our Form 10-K for the year ended December 31, 2011 to which reference is made herein.

 

Overview

 

Can-Cal Resources Ltd. is a publicly traded exploration stage company engaged in seeking the acquisition and exploration of metals mineral properties. As part of its growth strategy, the Company will focus its future activities in the USA, with an emphasis on the Pisgah Mountain, California property and the Wikieup, Arizona property.

 

At September 30, 2012, we had cash on hand of $2,531 available to sustain operations. Accordingly, we are uncertain as to whether the Company may continue as a going concern. While we plan to seek additional investment capital, or possible funding or joint venture arrangements with other mining companies, we have no assurance that such investment capital or additional funding and joint venture arrangements will be available to the Company.

 

We expect in the near term to continue to rely on outside financing activities to finance our operations. We used investment proceeds realized during the first nine months of 2012 for (i) completion of work-up of two potential extraction processes to determine which process we will employ to potentially prove up any precious metals, platinum groups elements and/or other base metals on the Pisgah, California property and the Wikieup, Arizona property, if any; (ii) the development of a drill program to potentially prove up any tonnages and precious metals and/or other base metals on the Wikieup, Arizona property, if any; (iii) the continued development a comprehensive research and development program to ascertain the potential for any rare earth elements on the Owl Canyon, California property; (iv) costs associated with the initial implementation of our mineral lease agreement in connection with our Psgah property (detailed below); (v) strategic working capital reserve and (vi) to finance our operations.

 

In addition to our historic exploration activities, we are currently under taking alternative revenue producing opportunities at our Pisgah property. On January 23, 2012 we entered into a mineral lease agreement with a partner who will purchase up to 100,000 tons of resources derived from the property to produce commercial products for resale. The agreement is for an initial period of ten (10) years, with an additional five (5) year extension at the option of the lessee. We will receive fees for the removal of minerals at diminishing prices in $0.50 increments between $12 per ton and $10 per ton for each 20,000 tons of material removed. As of the date of this filing, we have not yet sold any minerals under this agreement.

 

With reference to the Wikieup Property, Can-Cal has commissioned a Geologist to perform a three-phased project to evaluate the property and its surrounding areas. The use of Satellite Imaging Interpretation software will provide regional, geological mapping. The next phase is to take surface samplings from various areas and have the samples analyzed. The results will determine the potential for any commercially viable mineral deposits as well as prospective drilling locations.

 

15
 

 

Results of Operations for the Three Months Ended September 30, 2012 and 2011:

 

  Three Months Ended         
  September 30,         
   2012   2011   Increase / (Decrease) 
  Amount   Amount   $   % 
Expenses:                    
Exploration costs  $14,802   $15,381   $(579)   (4%)
General & administrative   70,133    86,943    (16,810)   (19%)
Depreciation   1,682    2,192    (510)   (23%)
Officer salary   30,000    30,000         
Total operating expenses   116,617    134,516    (17,899)   (13%)
                     
Loss from operations   (116,617)   (134,516)   (17,899)   (13%)
                     
Other income (expense):                    
Other income       3,000    (3,000)   (100%)
Rental revenue   6,875    6,875        –% 
Interest expense   (239,137)   (18,572)   220,565    1,188%
Total other income (expense)   (232,262)   (8,697)   223,565    2,571%
                     
Net loss  $(348,879)  $(143,213)  $205,666    144%

 

 

Exploration costs

 

Exploration costs for the three months ended September 30, 2012 decreased by $579 (or 4%) from $15,381 for the three months ended September 30, 2011 to $14,802 for the three months ended September 30, 2012. The decrease is due to slight reductions in our exploration activities related to our Pisgah and Wikieup locations.

 

Unless the Company is able to establish the economic viability of its mining properties, the Company will continue writing off its expenses of exploration and testing of its properties. Therefore, losses will continue unless the Company sells one or more of its properties or locates and delineates reserves and initiates mining operations. If that occurs, the Company may capitalize certain of those expenses.

 

The Company has no material commitments for capital expenditures other than expenditures it chooses or may choose to make, if funds are available, with respect to testing and or exploration of its mineral properties.

 

General and administrative expenses

 

General and administrative expenses for the three months ended September 30, 2012 decreased by $16,810 (or 19%) from $86,943 for the three months ended September 30, 2011 to $70,133 for the three months ended September 30, 2012. The decrease is principally due to decreased legal fees during the three months ended September 30, 2012 compared to the three months ended September 30, 2011.

 

Depreciation

 

Depreciation for the three months ended September 30, 2012 decreased by $510 (or 23%) from $2,192 for the three months ended September 30, 2011 to $1,682 for the three months ended September 30, 2012. The decrease is principally due to certain assets reaching the end of their depreciable life cycle. We anticipate the replacement of these assets in the near future.

 

Officer salary

 

Officer salary for the three months ended September 30, 2012 and 2011 was $30,000 in accordance with the annual compensation of $120,000 to our Chief Executive Officer. No bonuses or stock awards were granted, and all compensation was accrued. No payments have been made in either cash or shares of the Company’s stock in either period.

 

16
 

 

Total operating expenses

 

Total operating expenses for the three months ended September 30, 2012 decreased by $17,899 (or 13%) from $134,516 for the three months ended September 30, 2011 to $116,617 for the three months ended September 30, 2012. The decrease in total operating expenses was mainly a result of reductions in General and Administrative expenses related to decreased legal fees during the three months ended September 30, 2012 compared to the three months ended September 30, 2011.

 

Other income (expense)

 

Other income for the three months ended September 30, 2012 decreased by $3,000 (or 100%) from $3,000 for the three months ended September 30, 2011 to $-0- for the three months ended September 30, 2012 due to diminished collection of proceeds received in settlement of misappropriated funds by our former bookkeeper during the three months ended September 30, 2012 compared to the three months ended September 30, 2011.

 

Rental revenue was $6,875 for the three months ended September 30, 2012, as well as, the three months ended September 30, 2011. Rental revenue relates to income derived from the rental of the Company’s land for the purposes of mineral extraction, filming movies or conducting photo shoots.

 

Interest expense for the three months ended September 30, 2012 increased by $220,565 (or 1,188%) from $18,572 for the three months ended September 30, 2011 compared to $239,137 for the three months ended September 30, 2012. The increase in interest expense was primarily due to $238,419 of interest expense from the modification of 6,377,496 warrants on September 30, 2012 based on the Black-Scholes Options Pricing Model that were not incurred in the comparative three month period ending September 30, 2011.

 

Net loss

 

Our net loss for the three months ended September 30, 2012 increased by $205,666 (or 144%) from $143,213 for the three months ended September 30, 2011 compared to $348,879 for the three months ended September 30, 2012. Our increased net loss for the three months ended September 30, 2012 was primarily a result of $238,419 of interest expense from the modification of 6,377,496 warrants on September 30, 2012 based on the Black-Scholes Options Pricing Model, as diminished by reductions in professional fees.

 

17
 

 

Results of Operations for the Nine Months Ended September 30, 2012 and 2011:

 

  Nine Months Ended         
  September 30,         
   2012   2011   Increase / (Decrease) 
  Amount    Amount   $   % 
Expenses:                    
Exploration costs  $38,163   $35,387   $2,776    8%
General & administrative   229,997    234,849    (4,852)   (2%)
Depreciation   5,008    6,577    (1,569)   (24%)
Officer salary   90,000    90,000         
Total operating expenses   363,168    366,813    (3,645)   (1%)
                     
Loss from operations   (363,168)   (366,813)   (3,645)   (1%)
                     
Other income (expense):                    
Other income   3,100    9,000    (5,900)   (66%)
Rental revenue   20,625    31,125    (10,500)   (34%)
Interest expense   (242,302)   (115,407)   126,895    110%
Total other income (expense)   (218,577)   (75,282)   143,295    190%
                     
Net loss  $(581,745)  $(442,095)  $139,650    32%

 

 

Exploration costs

 

Exploration costs for the nine months ended September 30, 2012 increased by $2,776 (or 8%) from $35,387 for the nine months ended September 30, 2011 to $38,163 for the nine months ended September 30, 2012. The increase is due to annual price increases on our Bureau of Land Management (BLM) fees related to our Pisgah and Wikieup locations.

 

Unless the Company is able to establish the economic viability of its mining properties, the Company will continue writing off its expenses of exploration and testing of its properties. Therefore, losses will continue unless the Company sells one or more of its properties or locates and delineates reserves and initiates mining operations. If that occurs, the Company may capitalize certain of those expenses.

 

The Company has no material commitments for capital expenditures other than expenditures it chooses or may choose to make, if funds are available, with respect to testing and or exploration of its mineral properties.

 

General and administrative expenses

 

General and administrative expenses for the nine months ended September 30, 2012 decreased by $4,852 (or 2%) from $234,849 for the nine months ended September 30, 2011 to $229,997 for the nine months ended September 30, 2012. The decrease is principally due to decreased professional fees during the nine months ended September 30, 2012 compared to the nine months ended September 30, 2011.

 

Depreciation

 

Depreciation for the nine months ended September 30, 2012 decreased by $1,569 (or 24%) from $6,577 for the nine months ended September 30, 2011 to $5,008 for the nine months ended September 30, 2012. The decrease is principally due to certain assets reaching the end of their depreciable life cycle. We anticipate the replacement of these assets in the near future.

 

Officer salary

 

Officer salary for the nine months ended September 30, 2012 and 2011 was $90,000 in accordance with the annual compensation of $120,000 to our Chief Executive Officer. No bonuses or stock awards were granted, and all compensation was accrued. No payments have been made in either cash or shares of the Company’s stock in either period.

 

18
 

 

Total operating expenses

 

Total operating expenses for the nine months ended September 30, 2012 decreased by $3,645 (or 1%) from $366,813 for the nine months ended September 30, 2011 to $363,168 for the nine months ended September 30, 2012. The decrease in total operating expenses was mainly a result of decreased professional fees as diminished by increased General and Administrative expenses related to increased office salaries and the establishment of directors and officers insurance during the nine months ended September 30, 2012 compared to the nine months ended September 30, 2011.

 

Other income (expense)

 

Other income for the nine months ended September 30, 2012 decreased by $5,900 (or 66%) from $9,000 for the nine months ended September 30, 2011 to $3,100 for the nine months ended September 30, 2012 due to diminished collection of proceeds received in settlement of misappropriated funds by our former bookkeeper during the nine months ended September 30, 2012 compared to the nine months ended September 30, 2011.

 

Rental revenue for the nine months ended September 30, 2012 decreased by $10,500 (or 34%) from $31,125 for the nine months ended September 30, 2011 to $20,625 for the nine months ended September 30, 2012. Rental revenue relates to income derived from the rental of the Company’s land for the purposes of mineral extraction, filming movies or conducting photo shoots. Our land was leased for $10,500 related to photo shoots that were held during the nine months ended September 30, 2011 that were not realized in nine months ended September 30, 2012.

 

Interest expense for the nine months ended September 30, 2012 increased by $126,895 (or 110%) from $115,407 for the nine months ended September 30, 2011 compared to $242,302 for the nine months ended September 30, 2012. The increase in interest expense was primarily due to $238,419 of interest expense from the modification of 6,377,496 warrants granted during the nine months ended September 30, 2012 based on the Black-Scholes Options Pricing Model compared to $57,626 of interest expense from the previous modification of the same options during the nine month period ending September 30, 2011.

 

Net loss

 

Our net loss for the nine months ended September 30, 2012 increased by $139,650 (or 32%) from $442,095 for the nine months ended September 30, 2011 compared to $581,745 for the nine months ended September 30, 2012. Our increased net loss for the nine months ended September 30, 2012 was primarily a result of increased interest expenses related to $238,419 of interest expense from the modification of 6,377,496 warrants granted during the nine months ended September 30, 2012 based on the Black-Scholes Options Pricing Model compared to $57,626 of interest expense from the previous modification of the same options during the nine month period ending September 30, 2011.

 

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LIQUIDITY AND CAPITAL RESOURCES

 

The following table summarizes total current assets, total current liabilities and working capital at September 30, 2012 compared to December 31, 2011.

 

  September 30,   December 31,   Increase / (Decrease) 
   2012   2011   $   % 
                     
Current Assets  $49,914   $59,345   $(9,431)   (16%)
                     
Current Liabilities  $562,576   $457,633   $104,943    23%
                     
Working Capital (deficit)  $(512,662)  $(398,288)  $114,374    29%

 

 

Internal and External Sources of Liquidity

 

During the nine months ended September 30, 2012 and 2011, our operating and investing activities used cash of $216,554 and $235,339, respectively, while our financing activities provided cash of $181,844 and $324,346, respectively. The cash used in operating activities was principally a result of the net loss we incurred.

 

Financing Activities. During the nine months ended September 30, 2012 we raised a total of $123,499 from the sale of common stock to a total of ten (10) accredited investors under a private placement offering through the sale of 2,058,314 Units of the Company’s common stock at a price of US$0.06 per Unit. The terms of the private placement allowed us to raise up to $1,000,000 through the private placement of units of securities (“Unit”) of the Company, at a price of US$0.06 per Unit. Each Unit consisted of one share of common stock (“Common Share”) and one Common Share purchase Warrant (“Warrant”) exercisable over two years at a strike price of $0.08 per share. Finders acting in connection with the private placement received aggregate fees of $1,050 and 17,500 Common Shares. We also raised $100,000 from the sale of common stock to an accredited investor under another private placement offering through the sale of 1,000,000 Units of the Company’s common stock at a price of US$0.10 per Unit. Each Unit consisted of one share of common stock (“Common Share”) and one Common Share purchase Warrant (“Warrant”) exercisable over two years at a strike price of $0.15 per share. The Company has since terminated both of these offerings, and commenced a new non-brokered US$500,000 Convertible Debenture private placement program. The Debenture offerings are unsecured and mature three years after the date of issue. The principal amount of the Debentures shall accrue interest at a rate of 12% per annum, compounded and payable quarterly. The principal amount (excluding interest) shall be convertible in whole or in part at any time at the option of the holder until the maturity date at a conversion price of US$0.20 per common share in year one, US$0.35 in year two and US$0.50 in year three. Can-Cal can redeem the Debentures at any time following the date that is 18 months from issuance until the maturity date. The use of proceeds will include but not limited to, i) exploitation of the Wikieup, Arizona property, including a drilling program; and ii) strategic working capital reserve.

 

Cash Flow. Since inception, we have primarily financed our cash flow requirements through the issuance of common stock and the issuance of notes. With the expected growth of our current business we may, during our normal course of business, experience net negative cash flows from operations until some of our mining activities begin to produce revenues. Further, we will therefore be required to obtain financing to fund operations, both during periods of growth and/or contraction, through additional common stock offerings and bank or other debt borrowings, to the extent available, or to obtain additional financing to the extent necessary to augment our available working capital.

 

Satisfaction of our cash obligations for the next twelve months.

 

As of September 30, 2012, our cash balance was $2,531. Our plan for satisfying our cash requirements for the next twelve months is through additional debt and/or equity financing. We anticipate our current cash reserves will be sufficient to support operations through November 30, 2012, but do not anticipate generating sufficient amounts of positive cash flow from operations to meet our working capital requirements. Consequently, we intend to make appropriate plans in order to obtain sources of additional capital in the future to fund growth and expansion through the issuance of additional equity or debt financing or credit facilities. We also are considering possible funding through joint venture arrangements with other mining companies or other natural resource companies. However, there can be no assurance that we will raise capital through any of these means.

 

As we maintain or expand our current operational activities, we may continue to experience net negative cash flows from operations, and unless we generate sufficient sales through our operations, will be required to obtain additional financing to fund operations through common stock offerings and debt borrowings to the extent necessary to provide working capital.

 

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We anticipate incurring operating losses until we build our capital base. Our operating history makes predictions of future operating results difficult to ascertain and unreliable. In addition, since our net loss has increased we are finding it increasingly difficult to support and expand our operations. Thus, our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in their early stages of commercial viability. Such risks include, but are not limited to, an evolving and unpredictable business model and the management of growth. To address these risks we must, among other things, implement and successfully execute our business and marketing strategy, continuously develop and upgrade technology and products, respond to competitive developments, and continue to attract, retain and motivate qualified personnel. There can be no assurance that we will be successful in addressing such risks, and the failure to do so can have a material adverse effect on our business prospects, financial condition and results of operations.

  

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

Not applicable.

 

ITEM 4. CONTROLS AND PROCEDURES.

 

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions in accordance with the required "disclosure controls and procedures" as defined in Rule 13a-15(e). The Company’s disclosure and control procedures are designed to provide reasonable assurance of achieving their objectives, and the Chief Executive Officer and Chief Financial Officer of the Company concluded that the Company’s disclosure controls and procedures were effective at the reasonable assurance level.

 

At the end of the period covered by this Quarterly Report, the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based on the foregoing, the Chief Executive Officer and Chief Financial Officer of the Company concluded that the Company’s disclosure controls and procedures were effective to ensure that the information required to be disclosed in the Company’s Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management including the Company’s Chief Executive Officer and Chief Financial Officer to allow timely decisions regarding required disclosure.

 

Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

The Company is not currently a party to litigation.

 

Item 1A. Risk Factors.

 

As a smaller reporting company, we are not required to provide the information required by this Item.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

During the quarter ended September 30, 2012 Can-Cal completed the following sales of unregistered securities under private placement exemptions pursuant to Section 4(2) and Regulation S of the Securities Act of 1933, as follows:

 

On July 31, 2012, the Company sold 1,000,000 shares of its common stock and an equal number of warrants pursuant to a unit offering in exchange for proceeds of $100,000. The warrants are exercisable over two years at an exercise price of $0.15 per share. The proceeds received were allocated between the common stock and warrants on a relative fair value basis.

 

On August 6, 2012 the Company issued 17,500 shares of its common stock to satisfy a subscription payable in the amount of $1,050 realized pursuant to common stock granted to a sales person for commissions on the sale of securities on February 15, 2012 and March 20, 2012.

 

The Company plans to use the proceeds of the sale for: i) exploitation of the Wikieup, Arizona property, including a drilling program; and ii) strategic working capital reserve.

 

Issuer Purchases of Equity Securities

 

We did not repurchase any of our equity securities during the nine month period ended September 30, 2012.

  

Item 3. Defaults Upon Senior Securities.

 

None.

 

Item 4. Mine safety disclosures.

 

N/A

 

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Item 5. Other Information.

 

Events Subsequent to the Quarter Ended September 30, 2012

 

On October 24, 2012 the Company commenced a new non-brokered US$500,000 Convertible Debenture private placement program offered only to previously identified investors that are accredited and qualified. The Debenture offerings are unsecured and mature three years after the date of issue. The principal amount of the Debentures sold shall accrue interest at a rate of 12% per annum, compounded and payable quarterly. The principal amount (excluding interest) shall be convertible in whole or in part at any time at the option of the holder until the maturity date at a conversion price of US$0.20 per common share in year one, US$0.35 in year two and US$0.50 in year three. Can-Cal can redeem the Debentures at any time following the date that is 18 months from issuance until the maturity date. The use of proceeds will include but not limited to, i) exploitation of the Wikieup, Arizona property, including a drilling program; and ii) strategic working capital reserve.

 

Also on October 24, 2012, the Company appointed Dr. Michael Giuffre to the board of directors. Dr. Giuffre MD, MBA, is currently Clinical Professor of Cardiac Sciences and Pediatrics in the Faculty of Medicine at the University of Calgary and a recipient of the Distinguished Fellow of the American Academy of Cardiology. Dr Giuffre is also the current President of the Alberta Medical Association. He currently sits on the board of FoodChek Systems, a private Life Sciences company; DiaMedica, a biotechnology company currently traded on the TSX; and UNICEF Canada. Dr. Giuffre is a past Board member of MedMira, a public biotechnology company in rapid HIV and hepatitis diagnostics, and is a past consultant for Redsky Inc. that was sold to Research In Motion (RIM). The Board has not named Dr. Giuffre to any committee of the Board through the date of this filing.

  

Item 6. Exhibits.

 

      Incorporated by reference
Exhibit Exhibit Description Filed
herewith
Form Period
ending
Exhibit Filing
date
             
31.1 Certification of Michael Hogan pursuant to Section 302 of the Sarbanes-Oxley Act X        
31.2 Certification of Michael Hogan pursuant to Section 302 of the Sarbanes-Oxley Act X        
32.1 Certification of Michael Hogan pursuant to Section 906 of the Sarbanes-Oxley Act X        
101.INS XBRL Instance Document X        
101.SCH XBRL Taxonomy Extension Schema Document X        
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document X        
101.DEF XBRL Taxonomy Extension Definition Linkbase Document X        
101.LAB XBRL Taxonomy Extension Label Linkbase Document X        
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document X        

 

 

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SIGNATURES

 

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

 

CAN-CAL RESOURCES LTD.

(Registrant)

   
Date: November 16, 2012 By: /s/ Michael Hogan
   

Michael Hogan, President and Chief Executive Officer

(On behalf of the Registrant and as Principal Financial Officer)

 

 

 

 

 

 

 

 

 

 

 

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