Exercise prices for optioned shares and warrants outstanding as of February 28, 2005 ranged from $0.05 to $1.55. A summary of these options by range of exercise prices is shown as follows:
The Company was incorporated to allow for the issuance of up to 100,000,000 shares of $.001 par value common stock (as amended).
At inception, the Company issued 7,600,000 shares of common stock to its officers and directors for services performed and payments made on the Company’s behalf during its formation. This transaction was valued at approximately $.001 per share or an aggregate approximate $1,000.
PATRIOT GOLD CORP.
(An Exploration State Company)
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 6 - COMMON STOCK TRANSACTIONS (Continued)
On February 8, 1999, to provide initial working capital, the Company authorized a private placement sale of an aggregate of 7,600,000 (1,000,000 pre-split) shares of common stock at approximately $.05 per share. The private placement was completed April 1, 1999 and 7,630,400 shares were issued for approximately $50,200 in proceeds to the Company which were primarily used to pay operating expenses.
On June 12, 2003, the previous President of the Company, returned 5,320,000 (700,000 pre split) shares of common stock to the Company.
On July 25, 2003, the Company issued 350,000 shares of common stock and 1,400,000 warrants for $367,500 in cash to Almir Ramic, Paul Uppal and David Langley. Shares and warrants were issued for $1.05 per share. The warrants were determined to have no fair value at the time of their issuance and thus none of the proceeds were allocated to the warrants.
On September 2, 2003, the Company’s previous president converted his 13,500,000 shares of preferred stock into 13,500,000 shares of common stock. On January 24, 2004, Mr. Johnstone transferred 3,000,000 common shares to each of the three directors. Compensation expense of $16,254,000 was record in connection with the transfer.
During September, October and November 2003, 3,075,000 common shares were issued to various directors and consultants in connection with the exercising of stock options for $1,710,225 in cash. The exercise price ranged from $0.05 to $1.50.
On November 27, 2003, the Company issued 864,000 shares of common stock and 3,456,000 warrants for $1,080,000 in cash to Almir Ramic, Colin Worth and Jill Kurucz. Shares and warrants were issued for $1.25 per share. The warrants were determined to have no fair value at the time of their issuance and thus none of the proceeds were allocated to the warrants.
During the quarter ending February 29, 2004, 245,000 common shares were issued in connection with the exercising of stock options for cash of $189,600. The exercise price ranged from $0.75 to $1.03.
During March and April 2004, 1,335,000 common shares were issued in connection with the exercising of stock options for cash of $1,837,500. The exercise price ranged from $0.75 to $1.50.
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PATRIOT GOLD CORP.
(An Exploration State Company)
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 7 - PREFERRED STOCK
The Company has authorized a total of 20,000,000 shares of Preferred Stock with a par value of $.001. As of February 28, 2004, there are no preferred shares outstanding.
The Corporation is under no obligation to pay dividends on the Series A Redeemable Preferred Stock, and the stock is redeemable at the option of the Company.
In the event of any liquidation, dissolution or winding-up of the Corporation, the holders of outstanding shares of Series A Preferred shall be entitled to be paid out of the assets of the Corporation available for distribution to shareholders, before any payment shall be made to or set aside for holders of the Common Stock, at an amount of $.001 plus any unpaid and accrued dividends per share.
A holder of Series A Preferred has the right to one vote per share in the case of matters provided for in the General Corporation Law of the State of Nevada or the Amended and Restated Articles of Incorporation or Bylaws to be voted on by the holders of the Series A Preferred Stock as a separate class. In the case of matters to be voted on by the holders of Common Stock and the holders of Series A Preferred voting together as a single class, each share of Series A Preferred, has full voting rights and powers equal to the voting rights and powers of the holders of the Common Stock.
On June 11, 2003, the Company issued 13,500,000 Series A shares of preferred stock to its president for services rendered and recorded $13,500 in consulting expenses. The Series A shares have non-cumulative dividends of 7% of the redemption price when declared by the Board. On September 2, 2003, the Company’s previous president converted his 13,500,000 shares of preferred stock into 13,500,000 shares of common stock.
NOTE 8 - STOCK SPLIT
On June 17, 2003, the Company approved a forward split at a rate of one for seven and six-tenths so that each share of common stock will be equal to 7.6 shares. All references to shares in the accompanying financial statements have been adjusted for the stock split.
NOTE 9 - MINERAL PROPERTIES
The Company has an agreement with Minquest, Inc. which gives them the right to purchase 100% of the mining interests of two Nevada mineral exploration properties currently controlled by MinQuest, a natural resource exploration company. Together, these two properties consist of 28 mining claims on a total of 560 acres in the northwest trending Walker Lane located in western Nevada.
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PATRIOT GOLD CORP.
(An Exploration State Company)
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 9 - MINERAL PROPERTIES (Continued)
In order to earn a 100% interest in these two properties, the Company must pay MinQuest, Inc. and incur expenditures relating to mining operations in accordance with the following schedule: (i) on or before July 25, 2004, $20,000 to MinQuest and $75,000 in expenditures; (ii) on or before July 25, 2005, $20,000 to MinQuest and an additional $100,000 in expenditures; (iii) on or before July 25, 2006, $20,000 to MinQuest and an additional $100,000 in expenditures; (iv) on or before July 25, 2007, $20,000 to MinQuest and an additional $100,000 in expenditures; and (v) on or before July 25, 2008, an additional $125,000 in expenditures. If the Company has not incurred the requisite expenditures to maintain the option in good standing, the Company has a 60-day period subsequent to July 25th to make such payment along with such amount which shall be deemed to have been an expenditure incurred by us during such period. Since the payment obligations are non-refundable, if the Company does not make any payments, it will lose any payments made and all our rights to the properties. If all said payments are made, then the Company will acquire all mining interests in the property, subject to MinQuest retaining a 3% royalty of the aggregate proceeds. The Company has the right at anytime to discontinue making the payments if the exploration is determined to be unfeasible.
On February 19, 2004, the Company executed a formal agreement to purchase 100% mining interest in the Moss Mine property located in the historic Oatman gold mining district for $350,000. On February 27, 2004, $25,000 was paid in connection with this agreement and three months after signing, on June 14, 2004, an additional $25,000 was paid. On or before the 6-month anniversary from when we signed the definitive agreement, the balance of $300,000 was due to the sellers. On August 27, 2004, the Company paid the final $300,000 to the sellers.
As of February 28, 2005, $382,500 has been paid in connection with the acquisition of these rights and $838,722 has been paid for expenditures in exploration of these properties. As these properties are unproven, all $1,221,222 has been expensed.
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Item 2. Management’s Discussion and Analysis or Plan of Operation.
Certain statements contained in this report, including statements regarding the anticipated development and expansion of our business, our intent, belief or current expectations, primarily with respect to the future operating performance of the Company and the feasibility of the property in which we have an interest and other statements contained herein regarding matters that are not historical facts, are “forward-looking” statements. Future filings with the Securities and Exchange Commission, future press releases and future oral or written statements made by us or with our approval, which are not statements of historical fact, may contain forward-looking statements. Because such statements include risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. For a more detailed listing of some of the risks and uncertainties we face, please see the 2004 Form 10-KSB filed by us with the Securities and Exchange Commission.
All forward-looking statements speak only as of the date on which they are made. We undertake no obligation to update such statements to reflect events that occur or circumstances that exist after the date on which they are made.
OVERVIEW
We are a natural resource exploration company with an objective of acquiring, exploring, and if warranted and feasible, developing natural resource properties. Our primary focus in the natural resource sector is gold. We do not consider ourselves a “blank check” company required to comply with Rule 419 of the Securities and Exchange Commission, because we were not organized for the purpose of effecting, and our business plan is not to effect, a merger with or acquisition of an unidentified company or companies, or other entity or person. We do not intend to merge with or acquire another company in the next 12 months.
Though we have the expertise on our board of directors to take a resource property that hosts a viable ore deposit into mining production, the costs and time frame for doing so are considerable, and the subsequent return on investment for our shareholders would be very long term indeed. We therefore anticipate selling any ore bodies that we may discover to a major mining company. Most major mining companies obtain their ore reserves through the purchase of ore bodies found by junior exploration companies. Although these major mining companies do some exploration work themselves, many of them rely on the junior resource exploration companies to provide them with future deposits for them to mine. By selling a deposit found by us to these major mining companies, it would provide an immediate return to our shareholders without the long time frame and cost of putting a mine into operation ourselves, and it would also provide future capital for the company to continue operations.
The search for valuable natural resources as a business is extremely risky. We can provide investors with no assurance that the property we have optioned in Nevada contains commercially exploitable reserves. Exploration for natural reserves is a speculative venture involving substantial risk. Few properties that are explored are ultimately developed into producing commercially feasible reserves. Problems such as unusual or unexpected formations and other conditions are involved in mineral exploration and often result in unsuccessful
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exploration efforts. In such a case, we would be unable to complete our business plan and any money spent on exploration would be lost.
Natural resource exploration and development requires significant capital and our assets and resources are limited. Therefore, we anticipate participating in the natural resource industry through the purchase of small interests in producing properties, the purchase of property where feasibility studies already exist or by the optioning of natural resource exploration and development projects. To date we have acquired several properties and we have several properties under option. We have already conducted various kinds of exploration on these properties, including mapping, sampling, surveying and drilling, we expect to conduct further exploration of these properties. There has been no indication as yet that any mineral deposits exist on these properties, and there is no assurance that a commercially viable mineral deposit exists on any of our properties. Further exploration will be required before a final evaluation as to the economic and legal feasibility is determined.
In the following discussion, there are references to “patented” mining claims and “unpatented” mining claims. A patented mining claim is one for which the U.S. government has passed its title to the claimant, giving that person title to the land as well as the minerals and other resources above and below the surface. The patented claim is then treated like any other private land and is subject to local property taxes. An unpatented mining claim on U.S. government lands establishes a claim to the locatable minerals (also referred to as stakeable minerals) on the land and the right of possession solely for mining purposes. No title to the land passes to the claimant. If a proven economic mineral deposit is developed, provisions of federal mining laws permit owners of unpatented mining claims to patent (to obtain title to) the claim. If you purchase an unpatented mining claim that is later declared invalid by the U.S. government, you could be evicted.
MinQuest Property Option Agreement
Pursuant to a Property Option Agreement with MinQuest, we have the option to earn a 100% interest in the two Nevada mineral exploration properties that we are currently exploring. An overview of our activities and obligations with respect to these properties are set forth below.
Bruner Project
The property is located approximately 130 miles east-southeast of Reno, Nevada at the northern end of the Paradise Range. Access from Fallon, the closest town of any size, is by 50 miles of paved highway and 16 miles of gravel roads.
We hold the property via 16 unpatented mining claims (320 acres). We have an option on the property with MinQuest, Inc., a Nevada Corporation, which terminates if, prior to July 25, 2008, we fail to make any payments when due to MinQuest, Inc. or complete property expenditures as required by the option. The option will have been fully exercised, and we can earn a 100 percent interest in these claims if we make payments to MinQuest of $70,000 and spend $275,000 in exploration over a five year period ending on July 25, 2008. On July 25, 2003, we paid MinQuest $10,000 with respect to the Bruner property, and we owe an additional $60,000 which
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is due in four equal annual installments commencing on July 25, 2004. With the approval of MinQuest, we paid the first installment late on August 27, 2004. By July 25, 2004, we were to have spent $50,000 on exploration, and by that date we had spent $64,000 on exploration of the Bruner property. The $14,000 in excess of our required expenditures will be applied to our exploration commitment due by July 25, 2005. We are obligated to spend another $225,000 over the next four years as follows: $50,000 by each of July 25, 2005, 2006 and 2007 and $75,000 by July 25, 2008. As noted below, we expect to spend an estimated $130,000 on a five or six hole drilling program that began drilling on the Bruner property on December 20, 2004. We expect results from the drilling program to completed in the first quarter of 2005. MinQuest retains a three percent NSR production royalty.
Our exploration program to date at Bruner has included:
| | • | geologic mapping (producing a plan map of the rock types, structure and alteration), |
| | • | rock chip geochemical sampling (sample of soil, rock, silt, water or vegetation analyzed to detect the presence of valuable metals or other metals which may accompany them (e.g., Arsenic may indicate the presence of gold), |
| | • | a ground magnetic survey, and |
| | • | a Controlled Source Magneto Telluric survey (recording variations in a generated electrical field using sophisticated survey methods). |
In October 2004, we received the approval of a Notice of Intent for Exploration Drilling, and an environmental bond filed with the Nevada office of the Bureau of Land Management. A total of 18 drill sites have been located to target both extensions of the gold intercepts in previous drilling and geophysical anomalies found by a CSMT survey. A CSMT survey is an electromagnetic method used to map the variation of the Earth’s resistance to conduct electricity by measuring naturally occurring electric and magnetic fields at the Earth’s surface. With the proper approvals in place, we began drilling on the Bruner property on December 20, 2004. This drilling program is expected to continue through January 2005. We expect to drill a total of five to nine holes with depths ranging form 300 to 1,150 feet. This drilling program will test possible extensions of gold mineralization intersected in historic drilling as well as the large CSMT geophysical anomaly located under gravel cover. We expect the drilling program to be completed by the end of the first quarter of 2005.
The drilling program that we began on December 20, 2004, as described in the preceding paragraph, is estimated to cost $130.000. If this drilling program produces favorable results, and a second phase is warranted, then we would follow up with additional reverse circulation drilling as well as some core drilling which would help to further delineate the underground geological structure. The total cost of a phase 2 work program would be around $70,000.
Pending favorable drilling results from the drilling program we began on December 20, 2004, we plan to conduct additional drill testing on the Bruner property, including both reverse circulation and core drilling. A proposed budget of $400,000 would include 10,000 feet of RC drilling and 2,000 feet of core. The RC rig would drill until reaching mineralized veins and then coring of the veins would occur. This program would not be completed until December 2005. If the drilling program we began on December 20, 2004, fails to intersect high-grade gold values (0.30 ounces per ton or above) the Bruner property will be dropped via termination of the option agreement.
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Vernal Project
The property is located approximately 140 miles east-southeast of Reno, Nevada on the west side of the Shoshone Mountains. Access from Fallon, the closest town of any size, is by 50 miles of paved highway and 30 miles of gravel roads.
We hold the property via 12 unpatented mining claims (240 acres). We have an option on the property with MinQuest, Inc., a Nevada Corporation, which terminates if, prior to July 25, 2008, we fail to make any payments when due to MinQuest, Inc. or complete property expenditures as required by the option. The option will have been fully exercised, and we can earn a 100 percent interest in these claims, if we make payments to MinQuest of $22,500 and spend $250,000 in exploration over a five year period ending July 25, 2008. On July 25, 2003, we paid MinQuest $2,500 with respect to the Vernal property, and we owe an additional $20,000 which is due in four equal annual installments commencing on July 25, 2004. With MinQuest’s approval, we paid the first installment of $5,000 late on August 27, 2004. By July 25, 2004 we were required to spend $20,000 on exploration, and we had already spent $21,500 on exploration of the Vernal property. The $1,500 excess of our required expenditure will be applied towards our exploration commitment due by July 25, 2005. We are obligated to spend another $205,000 over the next four years as follows: $50,000 by each of July 25, 2005, 2006, 2007 and $55,000 by July 25, 2008. As noted below, we expect to secure the proper permits for trenching from the U.S. Forest Service by the end of Spring 2005 and then spend an estimated $30,000 in the summer 2005 on trenching and additional geochemical sampling. MinQuest retains a three percent NSR production royalty.
Our exploration of the Vernal property to date has consisted of geologic mapping and rock chip geochemical sampling. Trenching and additional geochemical sampling is now planned for the summer of 2005 after we secure trenching permits from the U.S. Forest Service, which we expect will be completed by the end of Spring 2005. We currently have no plans for any drilling of the Vernal property. Trenching is a cost effective way of examining the structure and nature of mineral ores just beneath the surface. It involves digging long usually shallow trenches in carefully selected areas to expose unweathered rock and allow sampling. The cost of trenching and sampling at Vernal will be approximately $40,000. We currently have no plans for any drilling of the Vernal property, but if the trenching process proves up samples with significant gold values (0.10 ounces per ton or above) then a five to ten hole reverse circulation drill program totaling 5,000 feet and costing approximately $90,000 would be considered. This drilling could be completed by the end of 2005 pending no environmental permitting delays.
In July 2003, members of our Board of Directors and geology team made an onsite inspection of both properties optioned by the company from MinQuest. From this visit, an exploration plan was determined and a schedule to begin work on the properties was organized to commence in the month of September 2003. On September 19, 2003 the company announced that an exploration program consisting of geologic mapping and surface geochemical sampling was underway on the Bruner property and that a Global Positioning System geophysical survey (electrical, magnetic and other means used to detect features, which may be associated with mineral deposits) conducted on the ground was scheduled for later that month. Such a survey measures the magnetic variations within the underlying rocks. Since then, a ground magnetics
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survey and detailed mapping and rock sampling of the western portion of the claim block on the Bruner property has been completed. The rock sampling is a collection of a series of small chips over a measured distance, which is then submitted for a chemical analysis, usually to determine the metallic content over the sampled interval. The magnetics indicate the presence of northwesterly and northerly trending faults under the pediment cover that may host gold mineralization. A fault, which is a break in the rock along which the movement has taken place, are often the sites for the deposition of metallic rich fluids. A pediment cover is a broad, gently sloping surface at the base of a steeper slope. Geologic mapping of rocks exposed in the western portion of the Patriot held claims show several small quartz bearing structures trending northwest and dipping steeply to the northeast. These small structures are thought to be related to a much larger vein, often filled with quartz, contained within a fault or break in the rock (a fault-hosted vein system) under gravel cover in the broad valley south of the mapping. Approximately 1 square mile of ground magnetics was completed at Bruner. The survey was done on 50 meter spaced lines, run north-south using a GPS controlled Geometrics magnetometer, which is the geophysical instrument used in collecting magnetic data with an attached GPS that allows the operator to more precisely determine the location of each station where the magnetic signature is taken. . The interpretation shows numerous northwest and north-south trending magnetic lows associated with faults. Magnetic lows are an occurrence that may be indicative of a destruction of magnetic minerals by later hydrothermal (hot water) fluids that have come up along these faults. These hydrothermal fluids may in turn have carried and deposited precious metals such as gold and/or silver. To the southeast, under gravel cover (where there is no exposure of rock at the surface), is a much more continuous northwest trending feature that has not been drill tested, and data is sufficiently encouraging that an expanded CSMT survey is recommended to trace these structures in the third dimension. Three or four north-south lines of CSMT are scheduled and further work is ongoing.
MinQuest Property at Moss Mine: The project area is 10 miles east of Bullhead City, Arizona and approximately 70 miles southeast of Las Vegas, Nevada. Access is via gravel roads from Bullhead City.
We hold the property in the Moss Mine region via 65 unpatented mining claims and 7 patented claims (1300 total acres). The unpatented claims are held under a lease/purchase agreement with MinQuest, Inc., a Nevada Corporation. On March 4, 2004, we signed the agreement that earned us a 100 percent interest in these claims by paying MinQuest a one time lease fee of $50,000. The fee of $50,000 was paid on July 7, 2004. A three percent NSR production royalty is retained by MinQuest. The patented claims are held collectively by numerous owners within the extended Williams family, and we have the right to purchase these patented claims from these owners under the terms of a letter of intent which is discussed in the subsequent section titled “Letter of Intent for the Williams Property at the Moss Mine Property”.
The Moss Mine was the first gold discovery made in the Oatman district. Discovered in 1864, the mine was worked discontinuously through the 1930’s. Production records are very poor, with past writers listing production equal to or greater than $250,000. The mine lay idle until the early 1980’s when a number of mining companies explored the district. These companies included Billiton Minerals, Magma Copper, Golconda Resources and Addwest Minerals.
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Our exploration of the MinQuest property has consisted of geologic mapping, vein geochemical sampling and drill testing of the identified veins. Drilling is in progress. Total project exploration cost is estimated to be $500,000.
Phase 1 drilling has been completed at the MinQuest property. A total of 36 holes were drilled totaling 2,471 meters (8,107 feet). Thirty holes were drilled on the Moss property, and six holes were drilled on one of the adjacent parcels of land.
A study of all drilling results at the Moss Mine indicates a tendency for total gold content to increase with intercept depth. Roughly 60% of the deeper holes have better intercepts than shallow holes. An example from the Patriot drilling tests the vein over a vertical extent of 300 feet. In this example the gold content nearly doubles between AR-5 and AR-23.
The most significant mining at Moss Mine occurred on narrow veins that trend sub-parallel to the Moss Mine vein and dip steeply northerly. These veins should intersect the Moss Mine vein at depth. The deepest vein intercepts at Moss are less than 400 feet. The Ruth vein should intersect the Moss Mine vein at 800-900 feet below the surface. If the Moss Mine vein is the feeder for the Ruth vein it must contain similar gold values at that level. The Moss Mine vein needs drill testing to a depth of 900 feet to determine its potential to contain high grade gold mineralization.
An expanded program of drilling is expected to begin in the first quarter of 2005. Approximately 12,000 feet of reverse circulation (RC) drilling is planned to test for possible high-grade (0.30 ounces per ton or above) down-dip extensions of the Moss vein. Depending on drilling costs, 10 to 15 holes are planned. Hole depth will range from 500 to 1,300 feet. The program budget, which includes significant contingency expenditures, is $643,700.
The program will be completed by July 1, 2005. If successful, another round of drilling using both RC and core drilling rigs is scheduled for the second half of 2005. This program would include 15,000 feet of RC drilling, 3,000 feet of core drilling and metallurgical testing. This phase will cost approximately $750,000 and be completed near the end of 2005.
Encouraging drilling results to date warrant an initial Scoping Study level investigation, which is the determination of the indicated size and grade of the deposit and possible methods of mining and recovering the gold and silver. Tonnage and grade will be determined by outlining the mineralization on sections constructed every 100 feet across the deposit and using the average grade of the drilling intersections. An open pit is then designed that would allow extraction of the deposit. The option of underground mining is also considered. Tests are conducted to determine the best method of extracting the gold and silver. These tests would include the amenability of “heap leaching”. Heap leaching is the piling of ore on an impermeable liner, circulating gold/silver-dissolving solutions (normally cyanide) through the pile or “heap” and recovering the gold/silver from the circulating solution using carbon. Another method that would be tested is “milling” to recover the gold and silver. Milling involves crushing and grinding the ore into tiny particles that allow the gold/silver to be removed by simple gravity or by using chemicals in solution. Determination of the best methods of mining and recovery of the precious metals then allows production costs to be calculated. With this “scoping study” done one can then make an initial determination of whether the project is economically feasible. Planned to run concurrently
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with the above drilling, this study will cost about $50,000, and is expected to be completed before the end of 2005.
The project area is underlain by Tertiary quartz monzonite (a coarsely crystalline rock composed primarily of the minerals quartz, plagioclase and orthoclase) intruding tertiary volcanics. Precambrian basement rocks underlie the volcanics. The veins consist of quartz-calcite and lesser adularia. The principal vein is up to 45 feet thick and can be followed on surface for over 5,000 feet. The hanging wall of the veins commonly have several tens of feet of stockwork veining. Gold values are somewhat erratic, but appear to be highest in the thicker and deeper parts of the vein explored to date.
With the expertise provided by our Board of Directors and consulting geology professionals, all of whom have been compensated by way of the company stock option plan, we now have the expertise required to decide if we should invest in a particular project. This decision will be based on information that will be provided by the vendor or the project and by information collected by our experts through independent due diligence, and include at least the following:
| | • | A description of the project and the location of the property; |
| | • | The lands that will be subject to the exploration project; |
| | • | The royalties, net profit interest or other charges applicable to the subject lands; |
| | • | The estimated cost of any geophysical work contemplated; and |
| | • | The estimated acquisition costs, exploration costs and development costs of the property. |
Letter of Intent for Williams Property at the Moss Mine
In November 2003 we executed a letter of intent to purchase a 100% interest in the Moss Mine property owned by an extended family and which is located in the historic Oatman gold mining district. This property is unrelated to and separate from the MinQuest property also located in the Moss Mine region. Work already completed on this property includes a pre-feasibility study as well as 36,000 feet of primarily reverse circulation drilling which was done over twenty years ago. Reverse circulation drilling is a less expensive form of drilling that does not allow for the recovery of a tube or core of rock, in which the material is brought up from depth as a series of small chips of rock that are then bagged and sent in for analysis. Though this is a quicker and cheaper method of drilling, reverse circulation drilling does not necessarily give as much information about the underlying rocks.
The property is comprised of six patented claims, which as a group, we call the Williams property. These claims are held collectively by as many as 23 owners within an extended family who are represented by Barbara Williams, a realtor, and a member of this extended family, who put together the letter of intent and arranged for the signing of the agreement by the numerous owners. None of these owners, including Barbara Williams, has or has had any relationship or affiliation with us prior to the agreement for the Williams property.
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The letter of intent grants us an exclusive right to close on the purchase of the Williams property for six months from the date the contract is executed.
On February 19, 2004, we executed a formal agreement to purchase the Williams property for $350,000. On February 27, 2004 we deposited $25,000 with the title company, which was acting as escrow agent, and three months after signing, on June 14, 2004, we deposited an additional $25,000. When the title company, acting as escrow agent, received the signature pages from the various sellers, the initial $25,000 deposit was to be delivered to the sellers. On the three-month anniversary from when we signed the definitive agreement, the second $25,000 was to be delivered to the sellers. By mid July, 2004, the escrow agent had received 19 of the 23 signatures, which under Arizona law was enough to complete the transaction, and on July 24, 2004, the first and second deposits of $25,000 each were released to the sellers. On or before the 6-month anniversary from when we signed the definitive agreement, the balance of $300,000 was due to the sellers. As a result of our due diligence, we decided to complete the purchase of the Williams property. On August 27, 2004 we paid the final $300,000 to the escrow agent for the closing of the sale. The escrow agent will release the $300,000 to the sellers at the closing of the sale. Upon the closing of the sale, we will own 100% interest in the Williams property.
Seller has delivered to us all information in their possession regarding the property. During the six month period after the signing of the definitive agreement we had the right to conduct our due diligence on the property and if we decided not to proceed we had to give the sellers and escrow agent notice no less than 10 days prior to the six-month anniversary of our intention not to close. During this period we could not perform mining or remove any ore from the property. We were responsible for all costs and expenses associates with the purchase of the property, including escrow fees, cost of feasibility study, charges resulting from any tests, environmental assessments reports or surveys, and any exploration activity costs. Once we had concluded our analysis and had determined that it is feasible to close on the purchase of the property, doing so would give us full rights to begin mining operations.
Due Diligence Performed on the Williams Property
In October 2003, our director Robert Sibthorpe (who is a geologist by training) evaluated a proposal for the purchase of the Moss mine in Arizona. His recommendation was to visit the site, and if the visual inspection supported the information presented in the proposal, then an offer to purchase should be drawn up. At the recommendation of Mr. Sibthorpe, on January, 2004, Mr. Robert Coale (P.Eng.), another one of our directors visited the site to see the overall geological setting and occurrence of mineralization and evaluate the drilling program proposed by MinQuest, the company that we would contract to co-ordinate any work programs undertaken. At this time, the recent metallurgical data and reports that had been collected from the sellers were reviewed for study. Mr. Coale’s analysis revealed that reagent (liquid chemicals used for leaching) consumptions are acceptable and deleterious compounds (things present in the ore that would be difficult to work with) are not apparent. He recommended bulk sampling at a selected location in the future once the definition of the ore body is further advanced through drilling. On January 31, 2004 Robert Sibthorpe wrote a report with a summery of the property, and reviewing the Draft Budget supplied by Richard Kern, our work program contractor, that was laid out for the drilling program planned for the property. The drilling was conducted throughout the spring and early summer of 2004, and in June, 2004, Mr. Sibthorpe wrote a report
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incorporating the results of the drilling program which encouraged us to pursue the project. Also in June 2004, Mr. Kern sent a Memo to the Company regarding the potential at the Williams property. Mr. Kern’s recommendation was that we should proceed with the purchase of the Williams property.
Based on the information gathered in this due diligence process, and on the recommendation of our board members and consultants, the decision to proceed with the purchase of the Williams property was made. On August 27, 2004, the final payment of $300,000 was paid to the escrow agent for the closing of the sale. On November 11, 2004, the escrow agent released the $300,000 to the sellers for the closing of the sale, and, as a result, we now own 100% interest in the Williams property.
RESULTS OF OPERATIONS
For the quarter ended February 28, 2005 compared to the same period in 2004 are not necessarily indicative of the results that may be expected for the year ended May 31, 2005.
The Company had no sales and sales revenues from continuing operations for the three months ended February 28, 2005 and no sales for the three months ended February 29, 2004 from continuing operations.
The Company had no selling and marketing expenses from continuing operations for the three months ended February 28, 2005 and the three months ended February 29, 2004. Mining Costs were $347,835 and $870,674 for the three and nine months ended February 28, 2005 and $119,697 and $162,454 the three and nine months ended February 29, 2004. These expenses include money paid for acquiring mineral rights and exploration costs related to these rights. General and administrative expenses were $22,168 and $98,919 for the three and nine months ended February 28, 2005 and $18,583,244 and $20,636,524 for the three and nine months ended February 29, 2004. The decrease in general and administrative expenses from 2004 to 2005 is largely attributable to consulting fees as a result of the issuance of stock options to various consultants that were issued at a discounted price. The Company felt this was necessary in order to attract the best consultants in the field of geology, ground operations, corporate development and financial management to work for the Company, without having to compensate them by way of cash paid directly from the funds that have been raised for project operations. Compensation expense was determined using the Black-Scholes method. We expect such expenses to continue in the future.
The Company recorded a net loss from continuing operations of $348,277 and $945,448 for the three and nine months ended February 28, 2005 compared to a net loss of $18,702,941 and $20,798,978 for the same periods in 2004. The decrease in net loss from 2004 to 2005 is largely attributable to the Company not issuing stock options to consultants at a discounted exercise price.
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LIQUIDITY AND CAPITAL RESOURCES
Our balance sheet as of February 28, 2005 reflects assets of $3,746,408 consisting of $3,743,943 in cash and $2,465 in other current assets. Total liabilities on the balance sheet as of February 28, 2005 reflect current liabilities of $65,667, consisting of accounts payable.
Cash and cash equivalents from inception to date have been insufficient to provide the operating capital necessary to operate. In November 2003, we issued 864,000 shares of common stock and 864,000 Class A warrants, 864,000 Class B warrants, 864,000 Class C warrants and 864,000 Class D warrants. This private offering generated gross proceeds of $1,080,000. The Class A warrants became exercisable on November 27, 2004 for a period of five years at an exercise price of $1.40 per share of common stock; the Class B warrants are exercisable on November 27, 2005 for a period of four years at an exercise price of $1.45; the Class C warrants are exercisable on November 27, 2006 an at exercise price of $1.50; and the Class D warrants are exercisable on November 27, 2007 at an exercise price of $1.55.
Going Concern Consideration
As indicated in the accompanying balance sheet, as of February 28, 2005 we had $3,743,943 in cash available and current liabilities of $65,667. The cash was as a result of the private placement in which the Company received $1,447,500 and from the exercise of stock options from which the Company received $3,658,325. Management believes that the gross proceeds from the private placements and from the exercise of stock options will be sufficient to continue our planned activities until May 31, 2005, the end of our current fiscal year. However, we anticipate generating losses and therefore we may be unable to continue operations in the future as a going concern. In addition, if we want to maintain our interest in the MinQuest property, on or before July 25, 2005 we are required to incur no less than $100,000 in expenditures in connection with mining operations as well as paying MinQuest $20,000. Our plans to deal with this uncertainty include raising additional capital or entering into a strategic arrangement with a third party. There can be no assurance that our plans can be realized. No adjustment has been made in the accompanying financial statements to the amounts and classification of assets and liabilities that could result should be unable to continue as a going concern.
We currently have no agreements, arrangements or understandings with any person to obtain funds through bank loans, lines of credit or any other sources.
Accordingly, our independent auditors included an explanatory paragraph in their report on the accompanying financial statements regarding concerns about our ability to continue as a going concern. Our financial statements contain additional note disclosures describing the circumstances that lead to this disclosure by our independent auditors.
Off-balance sheet arrangements
We have no off-balance sheet arrangements.
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Item 3. Controls and Procedures.
The Company’s president acts both as the Company’s chief executive officer and chief financial officer and is responsible for establishing and maintaining disclosure controls and procedures for the Company.
(a) Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s President, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based upon the evaluation, the Company’s President concluded that, as of the end of the period, the Company’s disclosure controls and procedures were effective in timely alerting him to material information relating to the Company required to be included in the reports that the Company files and submits pursuant to the Exchange Act.
(b) Changes in Internal Controls
Based on his evaluation as of November 30, 2004, there were no significant changes in the Company’s internal controls over financial reporting or in any other areas that could significantly affect the Company’s internal controls subsequent to the date of his most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
PART II -OTHER INFORMATION
Item 1. Legal Proceedings.
We are not involved in any pending legal proceedings nor are we aware of any pending or contemplated proceedings against us. We know of no legal proceedings pending or threatened, or judgments entered against any of our directors or officers in their capacity as such.
Item 2. Changes in Securities. None.
Item 3. Defaults upon Senior Securities. | None. |
Item 4. | Submission of matters to a vote of Security Holders. | None. |
Item 5. | Other information. None. |
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Item 6. | Exhibits and Reports on Form 8-K. |
Exhibit 31 - Certification of Principal Executive and Financial Officer pursuant to Rule 13a-14 of the Securities and Exchange Act of 1934 as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 32 – Certification of Principal Executive and Financial Officer Pursuant to 18 U.S.C Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(b) | Reports on Form 8-K. None. |
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SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) of the Securities Exchange act of 1934, as amended, the Registrant has duly caused this report to be signed on behalf by the undersigned, thereunto duly authorized.
| PATRIOT GOLD CORP. |
| |
Date: April 11, 2005 | By: /s/ Ronald C. Blomkamp |
| Ronald C. Blomkamp |
| President, Chief Executive Officer, Chief Financial Officer, Secretary and Treasurer |
| |
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