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 March 31, 2014

 

¨ 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.

x 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)

x 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 20, 2014 was 42,027,060.

 

 

 

 

CAN-CAL RESOURCES LTD.

FORM 10-Q

TABLE OF CONTENTS

 

 

				Page
PART I – FINANCIAL INFORMATION
	Item 1. Financial Statements
		Condensed Balance Sheets as of March 31, 2014 (Unaudited) and December 31, 2013		3
		Condensed Statements of Operations for the three months ended March 31, 2014 and 2013 (Unaudited)		4
		Condensed Statements of Cash Flows for the three months ended March 31, 2014 and 2013 (Unaudited)		5
		Notes to Condensed Financial Statements (Unaudited)		7
	Item 2. Management’s Discussion and Analysis			15
	Item 3. Quantitative and Qualitative Disclosures about Market Risk			19
	Item 4. Controls and Procedures			19
PART II – OTHER INFORMATION
	Item 1. Legal Proceedings			19
	Item 1A. Risk Factors			19
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			19
	Item 3. Defaults Upon Senior Securities			20
	Item 4. Mine Safety Disclosures			20
	Item 5. Other Information			20
	Item 6. Exhibits			20

 

 

PART I. FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

CAN-CAL RESOURCES LTD.

 

CONDENSED BALANCE SHEETS

 

		March 31,				December 31,
		2014				2013
ASSETS		(Unaudited)
Current assets:
Cash		$	12,655			$	1,388
Other current assets			3,827				8,122
Total current assets			16,482				9,510
Property and equipment, net of accumulated depreciation of $33,601 and $33,507, respectively			558				652
Total assets		$	17,040			$	10,162
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
Current liabilities:
Accounts payable		$	63,189			$	62,007
Accounts payable, related parties			180,506				180,506
Accrued expenses			13,876				17,603
Accrued expenses, related parties			582,944				541,700
Unearned rental revenues			29,792				9,167
Unearned revenues, related party			66,940				63,460
Notes payable, related parties, net of $82 and $448 of unamortized common stock warrants at March 31, 2014  and December 31, 2013, respectively			84,353				75,729
Total current liabilities			1,021,600				950,172
Total liabilities			1,021,600				950,172
Commitments and contingencies (See Note 9)
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 42,027,060 shares issued and outstanding as of March 31, 2014 and December 31, 2013, respectively			42,027				42,027
Additional paid-in capital			9,710,504				9,710,504
Accumulated (deficit) during exploration stage			(10,757,091	)			(10,692,541	)
Total stockholders' (deficit)			(1,004,560	)			(940,010	)
Total liabilities and stockholders' (deficit)		$	17,040			$	10,162

 

See accompanying unaudited notes to financial statements.

 

 

CAN-CAL RESOURCES LTD.

CONDENSED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

		For the Three Months Ended
		March 31,
		2014				2013
Material sales		$	–			$	–
Cost of sales			–				–
Gross loss			–				–
Operating expenses:
Exploration costs			3,568				11,570
General and administrative			35,778				59,322
Depreciation			94				93
Officer salary			30,000				30,000
Impairment of operating assets			–				–
Total operating expenses			69,440				100,985
Net operating loss			(69,440	)			(100,985	)
Other income (expense):
Other income			–				–
Interest income			–				–
Interest expense			(1,985	)			(1,748	)
Rental revenue			6,875				6,875
Gain (loss) on disposal of fixed assets			–				–
Gain on extinguishment of debts			–				–
Total other income (expense)			4,890				5,127
Loss before provision for income taxes			(64,550	)			(95,858	)
Provision for income taxes			–				–
Net loss from continuing operations			(64,550	)			(95,858	)
Income from discontinued operations:
Income from discontinued operations			–				–
Loss on disposal of operations (net of taxes)			–				–
Net loss		$	(64,550	)		$	(95,858	)
Weighted average number of common shares outstanding - basic and fully diluted			42,027,060				40,577,605
Net (loss) per share - basic and fully diluted		$	(0.00	)		$	(0.00	)

 

 

CAN-CAL RESOURCES LTD.

CONDENSED STATEMENT OF CASH FLOWS

(UNAUDITED)

 

		For the Three Months Ended
		March 31,
		2014				2013
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss		$	(64,550	)		$	(95,858	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization			94				93
Bad debts			–				–
(Gain) loss on sale of fixed assets			–				–
Gain on extinguishment of debts			–				–
Stock based compensation granted for services			–				–
Stock based compensation granted for financing and amortization of debt discount			–				122
Beneficial conversion feature on convertible debenture			–				–
Loss on disposal of investment property			–				–
Undistributed earnings of affiliate			–				–
Gain on discontinued operations			–				–
Loss on foreign currency translation			–				–
Impairment of operating assets			–				–
Decrease (increase) in assets:
Other current assets			4,295				6,681
Increase (decrease) in liabilities:
Accounts payable			1,182				17,618
Accounts payable, related parties			–				–
Accrued expenses			5,117				5,623
Accrued expenses, related parties			32,400				30,643
Unearned rental revenues			20,625				20,625
Unearned revenues, related party			3,480				–
Net cash provided by (used in) operating activities			2,643				(14,453	)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investment property			–				–
Proceeds from sale of investment property			–				–
Purchase of property and equipment			–				–
Proceeds from sale of property and equipment			–				–
Net cash used in investing activities			–				–
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from convertible debentures			–				–
Proceeds from notes payable			–				–
Principal payments on notes payable			–				–
Proceeds from notes payable, related parties			8,624				13,301
Principal payments on notes payable, related parties			–				–
Proceeds from the issuance of common stock			–				–
Net cash provided by financing activities			8,624				13,301
Net increase in cash			11,267				(1,152	)
Cash, beginning of period			1,388				1,316
Cash, end of period		$	12,655			$	130
Supplemental disclosures:
Interest paid		$	1,874			$	178
Income taxes paid		$	–			$	–

 

See accompanying unaudited notes to financial statements.

 

CAN-CAL RESOURCES LTD.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

 

Note 1 – Basis of Presentation

 

The accompanying unaudited condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions for Form 10-Q and regulation S-X as promulgated by the Securities and Exchange Commissions (“SEC”) 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, 2013 of Can-Cal Resources Ltd. (“Can-Cal” or 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 March 31, 2014 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.

 

Nature of Business

 

Can-Cal Resources, Ltd. Is a Nevada corporation incorporated on March 22, 1995.

 

The Company is an exploration company engaged in the exploration for precious metals, specifically focused on gold exploration projects. We have examined various prospective mineral properties for precious metals and acquired those deemed promising. We currently own, lease or have mining interest in four mineral properties in the southwestern United States (California and Arizona, as follows: Wikieup, Arizona; Cerbat, Arizona; Owl Canyon, California; and Pisgah, California).

 

As an exploration stage enterprise, the Company discloses the deficit accumulated during the exploration stage. An entity remains in the exploration stage until such time as proven or probable reserves have been established for its deposits. Upon the location of commercially mineable reserves, the Company plans to prepare for mineral extraction and enter the development stage. To date, the exploration stage of the Company’s operations consists of contracting with geologists who sample and assess the mining viability of the Company’s claims.

 

Note 2 – Going Concern

 

The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As shown in the accompanying financial statements, The Company incurred a net loss of $64,550 for the three months ended March 31, 2014. Also, the Company’s current liabilities exceed its current assets by $1,005,118 as of March 31, 2014. The future of the Company is dependent upon its ability to obtain financing and upon future profitable operations from the development of its new business opportunities. Management has plans to seek additional capital through private placements and public offerings of its common stock. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities that might be necessary in the event the Company cannot continue in existence.

 

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

 

 

 

CAN-CAL RESOURCES LTD.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

 

Note 3 – Related Party

 

Material Supply Agreement

 

On March 3, 2014, Can-Cal Resources entered into an amended Material Supply Agreement (“MSA”) with Candeo Lava Products, Inc. (“Candeo”), an Alberta, Canada Company controlled by a former Director and the brother of the Company’s current CEO. This amended MSA supersedes the original MSA entered into on April 9, 2013. The amended agreement entitles Candeo the exclusive right to purchase and remove up to 2,000,000 tons volcanic lava and cinders from Can-Cal’s Pisgah Mine Project during the agreement’s initial term of twenty (20) years. (The original agreement called for 1,000,000 tons during the initial term.) Provided Candeo has removed the initial amount during the primary term, Candeo is entitled the exclusive right to remove additional incremental amounts of 1,000,000 tons each. Candeo shall have the option to extend the term of the amended agreement for up to an additional thirty (30) years provided it is not in default under any of the provisions of the Agreement.

 

The price that Candeo shall pay to Can-Cal per ton of material removed by Candeo shall be the greater of Fifteen Dollars ($15.00 USD) per ton and the Net Sales Margins per ton realized by Candeo as follows:

 

·

During the first year of the term, 35% of the Net Sales Margins;

·

During the second year of the term, 40% of the Net Sales Margins;

·

During the third year of the term, 45% of the Net Sales Margins; and

·

50% of the Net Sales Margins thereafter.

 

The original MSA’s price was 33 1/3% of the Net Sales Margin and fifteen US dollars ($15.00 USD) per ton throughout the term of the Agreement.

 

The amended MSA also agrees that Candeo will pre-purchase a minimum of ten thousand (10,000) tons at a purchase price of fifteen dollars ($15.00 USD) per ton for a total payment of $150,000 USD per year in each of the first three years of the term. The pre-purchased material shall remain on the property until Candeo commences its production operations, which will be subject to all necessary regulatory and other approvals required to remove the Finished Material from the Property, such as permits, certified weigh scale, productions plan, environmental reclamation plan (if applicable) and insurance all of which shall be the responsibility and at the sole cost of Candeo. The pre-purchased payments will not be refundable to Candeo but shall be credited against the first production payments. The original agreement called for Candeo to pre-purchase thirteen thousand, three hundred and thirty-five (13,335) tons of the Finished Material during the first year of the Term at a purchase price of fifteen US dollars ($15 USD) per ton, for a total payment of two hundred and twenty-five thousand US dollars ($225,000 USD).

 

On various dates from May 10, 2013 to December 31, 2013 and for the three months ended March 31, 2104, the Company received total proceeds of $66,940 from the prepaid sale of 4,460 tons of minerals at a price of $15 per ton. The materials have not been shipped as of the date of this filing.

 

Management Changes

 

On March 1, 2013, Dr. Michael Giuffre resigned from the Board of Directors.

 

On February 27, 2013, Mr. William J. Hogan resigned from the Board of Directors.

 

On August 12, 2012, Dr. Michael Giuffre was appointed to the Company’s Board of Directors. Compensation has not yet been determined.

 

On April 17, 2012, the Company appointed Ron Schinnour to the Board of Directors.

 

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

 

 

 

 

CAN-CAL RESOURCES LTD.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

 

Notes Payable, Related Parties

 

From time to time we have received and repaid loans from Officers and Directors to fund operations. These related party debts are fully disclosed in Note 5 below.

 

Compensation

 

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.

 

We owed accrued salaries to our CEO of $510,000 and $480,000 at March 31, 2014 and December 31, 2013, respectively.

 

On June 30, 2010, the Company entered into a consulting agreement, with a Board of Director’s consulting firm, Futureworth Capital Corp. The terms of the agreement include annual compensation of $60,000, payable monthly. The Company may elect to satisfy payment in shares of common stock in lieu of cash at a market value equal to $0.10 above the average closing trading price of the common stock for the preceding five (5) days from the date of such election. No payments have been made in cash or stock to date. As of March 31, 2014, we owe Futureworth Capital Corp. $180,000, as included in accounts payable, related parties, for service prior to, and during the service period under the consulting agreement. Mr. William Hogan resigned from the Board of Directors on February 27, 2013, and his compensation via his consulting agreement terminated as of December 31, 2012.

 

Share Based Compensation

 

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 year ended December 31, 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 year ended December 31, 2012.

 

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 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.

 

 

CAN-CAL RESOURCES LTD.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

 

Note 4 – Other Current Assets

 

Other current assets are prepaid expenses. As of March 31, 2014 and December 31, 2013, prepaid expenses consisted of the following:

 

		March 31,				December 31,
		2014				2013
Prepaid portion of UNLV research project as disclosed below		$	–			$	–
Annual Bureau of Land Management fees			3,827				6,147
Rental fees			–				1,975
		$	3,827			$	8,122

 

On April 23, 2012, May 10, 2012 and March 31, 2013, the Company paid $30,000, $5,000 and $6,000, 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 were amortized over the duration of the project on a straight line basis. The project used 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 March 31, 2014 and December 31, 2013, respectively:

 

		March 31,				December 31,
		2014				2013
Notes payable to the CEO, unsecured, bearing interest at 10%, due on demand.		$	79,353			$	70,729
Promissory note payable originated on November 30, 2012 with Futureworth Capital Corp., a consulting firm owned by our former Chairman of the Board of Directors, unsecured, bearing interest at 10%, matures on November 29, 2013. In connection with the promissory note, the Company granted warrants to purchase 20,000 shares of the Company’s common stock at an exercise price of $0.10. The warrants expire on November 29, 2014.			5,000				5,000
Total notes payable, related parties			84,353				75,729
Less: current portion			84,353				75,759
Notes payable, related parties, less current portion		$	–			$	–

 

The following presents components of interest expense by instrument type for the three months ended March 31, 2014 and 2013, respectively:

 

		March 31,				March 31,
		2014				2013
Interest on notes payable, related parties		$	1,999			$	1,448
Amortization of warrants granted on notes payable, related parties			–				122
Accounts payable related vendor finance charges			–				178
		$	1,999			$	1,748

 

 

 

CAN-CAL RESOURCES LTD.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

 

Note 6 – Changes in Securities

 

2014

 

None.

 

2013

 

None.

 

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.

 

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.

 

 

Note 7 – Options

 

Option Plan

 

Options granted for employee and consulting services - The 2003 Non-Qualified Option Plan was established by the Board of Directors in June 2003 and approved by shareholders in October 2003. A total of 1,500,000 shares of common stock are reserved for issuance under this plan.

 

 

CAN-CAL RESOURCES LTD.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

 

Options Granted

 

There were no options issued during the three months ended March 31, 2014 and during the year ended December 31, 2013.

 

Options Exercised

 

There were no options exercised during the three months ended March 31, 2014 and during the year ended December 31, 2013.

 

Options Cancelled

 

There were no options cancelled during the three months ended March 31, 2014 and during the year ended December 31, 2013.

 

 

Note 8 – Warrants

 

Warrants Granted

 

On November 30, 2012, the Company granted 20,000 common stock warrants to a former member of the Company’s Board of Directors with an exercise price of $0.10 per share for its common stock. These stock warrants were granted in connection with a $5,000 loan from the Director. These warrants are exercisable over two years from the date of grant at an exercise price of $0.10 per share.

 

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 on September 30, 2012.

 

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 on 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 on 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 on 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 from the date of grant at an exercise price of $0.15 per share.

 

On April 4, 2012, the Company granted a total of 874,982 common stock warrants amongst three individual investors with an exercise price of $0.08 per share for its common stock. These stock warrants were granted in connection with the sale of 874,982 shares of common stock in exchange for total proceeds of $52,499. These warrants are exercisable over two years from the date of grant at an exercise price of $0.08 per share.

 

 

CAN-CAL RESOURCES LTD.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

 

On April 4, 2012, the Company granted 416,667 common stock warrantsto a member of the Company’s Board of Directors with an exercise price of $0.08 per share for its common stock. These stock warrants were granted in connection with the sale of 874,982 shares of common stock in exchange for total proceeds of $25,000. These warrants are exercisable over two years from the date of grant at an exercise price of $0.08 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 from the date of grant 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 from the date of grant 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 from the date of grant 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 from the date of grant 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 from the date of grant 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 from the date of grant at an exercise price of $0.08 per share.

 

Warrants Expired

 

A total of 766,665 and 1,888,334 warrants expired during the three months ended March 31, 2014 and 2013, respectively.

 

Warrants Cancelled

 

There were no warrants cancelled during the three months ended March 31, 2014 and 2013.

 

The following is a summary of the common stock warrant activity as of March 31, 2014.

 

						Weighted
		Warrants				Average
		Outstanding				Exercise Price
Balance, January 1, 2013			15,280,394			$	0.14
Granted			–				–
Cancelled			–				–
Exercised			–				–
Expired			(5,824,584	)			(0.08	)
Balance, December 31, 2013			9,455,810				0.11
Granted			–				–
Cancelled			–				–
Exercised			–				–
Expired			(766,665	)			(0.08	)
Balance, March 31, 2014			8,689,145			$	0.14

 

 

CAN-CAL RESOURCES LTD.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

 

Note 9 – 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.

 

Mining reclamation costs - Mining and reclamation permits, and an air quality permit have been issued by the California regulatory agencies in the names of both, Twin Mountain, our joint venture partner, and the Company. The Company posted a cash bond in the amount of $1,379 (1% of the total bond amount) and Twin Mountain has posted the remainder of the $137,886 bond. If Twin Mountain defaults, we would be responsible for reclamation of the property, but reclamation costs incurred in that event would be paid in whole or part by the bond posted by us and Twin Mountain. Reclamation costs are not presently determinable.

 

 

Note 10 – Subsequent Events

 

The Company has evaluated subsequent events from March 31, 2014 through the date whereupon the financial statements were issued.

 

On June 3, 2014, a group of Can-Cal Resources Ltd. (“Can-Cal”) shareholders, under the direction of Ron Sloan (a former CEO and Director of Can-Cal) (the “Plaintiffs”) filed a shareholder derivative complaint in Nevada State Court against Can-Cal, as well as its current Directors (Thompson MacDonald, G.M. Hogan, and Ron Schinnour), William Hogan, FutureWorth Capital Corp. and Candeo Lava Products Inc. (“Candeo”) (collectively the “Defendants”). The Plaintiffs are alleging that, among other things, the Defendants took advantage of a corporate opportunity with the Can-Cal’s Pisgah Material property by undertaking a transaction involving Candeo instead of pursuing the opportunity within Can-Cal. The Defendant’s dispute these allegations and intend to defend the action vigorously. Currently the Defendants are involved in moving the lawsuit from state to federal court. Legal counsel for Can-Cal is Justin Jones, Esq. of Wolf, Rifkin, Shapiro, Schulman, and Rabkin, LLP of Las Vegas, Nevada.

 

There are no other subsequent events determined to be of merit for inclusion herein.

 

 

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, 2013 and 2012 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, 2013 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 March 31, 2014, we had cash on hand of $12,655 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 officer loan proceeds and advance payments received on material sales to a related party realized during the first three months of 2014 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 was supposed to purchase up to 100,000 tons of resources derived from the property to produce commercial products for resale. The agreement was for an initial period of ten (10) years, with an additional five (5) year extension at the option of the lessee. We were to 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. We continue to be hopeful that these sales will commence in the near term, however there can be no assurances. As a result, we entered into another agreement with a related party to monetize our materials on our Pisgah Mine Project.

 

On April 9, 2013, the Company entered into a Material Supply Agreement (“MSA”) with Candeo Lava Products, Inc., (“Candeo”) an Alberta, Canadian company controlled by a former Director and the brother of our current CEO. The agreement entitles Candeo to purchase certain volcanic lava or cinders from our Pisgah Mine Project that has been previously crushed and stockpiled (the “Finished Material”) at a price equal to the greater of 33 1/3% of the Net Sales Margin and fifteen US dollars ($15 USD) per ton. Under the agreement, Candeo is granted the exclusive right and privilege to remove up to 1 million tons (“Initial Amount”) of the Finished Material, and another million tons (“Additional Amount”) upon the successful of the initial million tons.

 

The Term of this agreement is for an initial period of ten (10) years from April 9, 2013, unless extended pursuant to the terms hereof. Candeo shall have the option to extend the Term of this Material Supply Agreement for [up to three (3)] additional five (5) year periods exercisable at any time with no less than three (3) months written notice prior to the expiration of the then current term, provided that the Candeo is not in default under any of the provisions of the MSA and that the whole of the Initial Amount and the Additional Amount of Finished Material have been completely removed from the Property.

 

Candeo will purchase thirteen thousand, three hundred and thirty-five (13,335) tons (the “Pre-Purchased Finished Material”) of the Finished Material during the first year of the Term at a purchase price of fifteen US dollars ($15 USD) per ton, for a total payment of two hundred and twenty-five thousand US dollars ($225,000 USD) (the “Pre-Purchased Payment”). The Pre-Purchased Finished Material will remain on the Property until Candeo commences its production operations, which will be subject to all necessary regulatory and other approvals required to remove the Finished Material from the Property, such as permits, certified weigh scale, productions plan, environmental reclamation plan (if applicable) and insurance all of which shall be the responsibility and at the sole cost of Candeo. The Pre-Purchased Payment will not be refundable to Candeo but shall be credited against the first Production Payment.

 

On various dates from May 10, 2013 to March 31, 2014, the Company received total proceeds of $66,940 from the prepaid sale of 4,463 tons of minerals at a price of $15 per ton. The materials have not been shipped as of the date of this filing.

 

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.

 

 

Results of Operations for the Three Months Ended March 31, 2014 and 2013:

 

		Three Months Ended
		March 31,
		2014				2013				Increase / (Decrease)
		Amount				Amount				$				%
Expenses:
Exploration costs		$	3,568			$	11,570				(8,002	)			(69%	)
General & administrative			35,778				59,322				(23,544	)			(40%	)
Depreciation			94				93				1				–
Officer salary			30,000				30,000				–				–
Total operating expenses			69,440				100,985				(31,545	)			(31%	)
Loss from operations			(69,440	)			(100,985	)			(31,545	)			(31%	)
Other income (expense):
Interest expense			(1,985	)			(1,748	)			237				14%
Rental revenue			6,875				6,875				–				–
Total other income (expense)			4,890				5,127				237				14%
Net loss		$	(64,550	)		$	(95,858	)			(31,308	)			(33%	)

 

Exploration costs

 

Exploration costs for the three months ended March 31, 2014 decreased by $8,002 (or 69%) from $11,570 for the three months ended March 31, 2013 to $3,568 for the three months ended March 31, 2104. The decrease is due primarily due to no geological activity and the decrease in BLM claim fees during the first quarter of 2014.

 

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 March 31, 2014 decreased by $23,544 (or 40%) from $59,322 for the three months ended March 31, 2013 to $35,778 for the three months ended March 31, 2014. The decrease is principally due to reduction in insurance costs, travel expenses, and professional fees.

 

Officer salary

 

Officer salary for the three months ended March 31, 2014 and 2013 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.

 

 

 

 

 

 

LIQUIDITY AND CAPITAL RESOURCES

 

The following table summarizes total current assets, total current liabilities and working capital at March 31, 2014 and December 31, 2013

 

		March 31,				December 31,				Increase / (Decrease)
		2014				2013				$				%
Current Assets		$	17,040			$	10,162				6,878				68%
Current Liabilities		$	1,021,600			$	950,172				71,428				8%
Working Capital (deficit)		$	(1,004,560	)		$	(940,010	)			64,550				7%

 

Internal and External Sources of Liquidity

 

During the three months ended March 31, 2014, our operating activities generated cash of $2,643 while our financing activities provided cash of $8,624. The cash provided by operating activities during the three months ended March 31, 2014 was principally a result of rental income from Twin Mountain Rock Venture in the amount of $27,500, related party sales of certain volcanic lava or cinders from our Pisgah Mine Project to Candeo Lava Products, Inc. in the amount of $4,869, and accrued expenses to related parties of $32,400 (primarily accrued officer salary of $30,000) against the operating loss of $64,550.

 

Financing Activities. During the three months ended March 31, 2014, we raised $8,624 received from loan advances from our CEO, Mr. Michael Hogan. These proceeds have been used to maintain operations and comply with our reporting requirements.

 

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 March 31, 2014, our cash balance was $12,655. Our plan for satisfying our cash requirements for the next nine months of 2014 is through additional debt and/or equity financing and prepayments on material sales to Candeo Lava Products, Inc. On various dates from May 10, 2013 to September 3, 2013, the Company received total proceeds of $66,940 from the prepaid sale of 4,463 tons of minerals at a price of $15 per ton. We anticipate our current cash reserves will be sufficient to support operations through October 31, 2014, 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.

 

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 must be reevaluated 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.

 

 

PART II--OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

On June 3, 2014, a group of Can-Cal Resources Ltd. (“Can-Cal”) shareholders, under the direction of Ron Sloan (a former CEO and Director of Can-Cal) (the “Plaintiffs”) filed a shareholder derivative complaint in Nevada State Court against Can-Cal, as well as its current Directors (Thompson MacDonald, G.M. Hogan, and Ron Schinnour), William Hogan, FutureWorth Capital Corp. and Candeo Lava Products Inc. (“Candeo”) (collectively the “Defendants”). The Plaintiffs are alleging that, among other things, the Defendants took advantage of a corporate opportunity with the Can-Cal’s Pisgah Material property by undertaking a transaction involving Candeo instead of pursuing the opportunity within Can-Cal. The Defendant’s dispute these allegations and intend to defend the action vigorously. Currently the Defendants are involved in moving the lawsuit from state to federal court. Legal counsel for Can-Cal is Justin Jones, Esq. of Wolf, Rifkin, Shapiro, Schulman, and Rabkin, LLP of Las Vegas, Nevada.

 

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.

 

We did not sell any unregistered securities under private placement exemptions pursuant to Section 4(2) and Regulation S of the Securities Act of 1933 during the three month period ended March 31, 2014.

 

Issuer Purchases of Equity Securities

 

We did not repurchase any of our equity securities during the three month period ended March 31, 2014.

 

 

Item 3. Defaults Upon Senior Securities.

 

None.

 

 

Item 4. Mine safety disclosures.

 

Not applicable.

 

 

Item 5. Other Information.

 

None.

 

 

Item 6. Exhibits.

 

			Incorporated by reference
Exhibit	Exhibit Description	Filed herewith	Form	Period ending	Exhibit	Filing date
10.1	Material Supply Agreement, Candeo Lava Products, Inc. , dated April 9, 2013		10-Q	June 30, 2013	10.1	August 19, 2014
10.2	Amended and Restated Material Supply Agreement, Candeo Lava Products Inc., dated March 3, 2014	X
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

 

 

 

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)

 

 

By: /s/ Michael Hogan                                                                     

Michael Hogan, President and Chief Executive Officer

(On behalf of the Registrant and as Principal Financial

Officer)

 

 

Date: December 23, 2014