The following discussion should be read in conjunction with the financial statements and the notes thereto which are included in this quarterly report. This discussion contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ substantially from those anticipated in any forward-looking statements included in this discussion as a result of various factors.
quarterly report, we have generated no revenues but we have incurred expenses related to the drilling and exploration of Handcamp.
We have no material income and/or assets other than Handcamp and have cumulative losses since inception through September 30, 2011 of approximately $113,500,000. We are a natural resources exploration stage company, formed for the purpose of exploring and discovering mineral properties. We are currently focused on the mining and resources sector and intend to attempt, subject to, among other factors, obtaining substantial financing, to continue to increase our holdings of gold and other precious metals. Our principal objective is to attempt to locate, mine for and sell mineral properties and to take advantage of the increased value of precious metals, and in so doing to become an efficient and profitable, precious metals exploration and mining company. We may also seek to enter into joint ventures with certain major mining companies rather than selling properties. In pursuing this goal, we currently intend to concentrate any funds we are able in the future to obtain, if any, to explore areas that we believe will have mineral resources. Our current plan is to attempt to move forward to the next stage of in-depth exploration, which consists of ground geophysics, trenching and drilling. This phase, we believe, will determine the extent of the deposit along with its value.
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Plan of Operations |
Our strategy is to stake, explore and develop new properties in geologically promising areas and to continue making acquisitions of select properties that have been identified as economically attractive, technically and geologically sound and have significant upside potential. |
We intend to build our business through the exploration and development of the existing Handcamp gold property; the acquisition, exploration, staking and development of future gold properties and the acquisition of producing gold properties. We plan to diversify our revenue sources by combining the secure and reliable revenue source of producing gold properties with the potential of gold exploration projects. In addition, we plan to explore and stake new gold properties, acquire development stage gold exploration properties, carry out exploration programs on the acquired properties, and develop any viable gold producing properties that we discover, acquire and are able to pursue, assuming that we are able to raise the requisite financing for such activities. We committed to examining all promising and viable properties that come to its attention with a particular interest in North American properties.
We operate with virtually no capital. Since our acquisition of the mineral rights related to Handcamp, we have funded an exploration program using investment capital from our parent company. We have recently been awarded a grant by the province of Newfoundland and Labrador to, in part, fund our exploration of Handcamp. Under the terms of the grant, the province contributed a sum equal to fifty percent (50%) of our costs of drilling on Handcamp up to a maximum of CDN $100,000. We are presently attempting to raise sufficient funds to purchase new gold properties and fund further exploration. We cannot assure you that we will be able to purchase any gold properties above and beyond Handcamp.
Our ultimate objective is to sell any mineral properties that we have been able to develop to a major mining company, or to enter into joint ventures with it. We expect that such a company, should the opportunity arise, will in all likelihood make the decision whether to enter into a joint venture or to purchase a property in its discretion.
We hope to develop relationships with certain major mining companies that could assist us in implementing our business plan; however, we cannot assure you that any such relationships will ever materialize. We expect that the price of each property will be determined by the anticipated amount and value of minerals it contains. If we are able to acquire a pool of gold assets, our management expects that we would attempt to sell them to a major mining company that would then bring Handcamp into production.
We believe that the stage at which the interest of a major mining company is likely to be elicited is very subjective and subject to numerous facts and circumstances that we cannot predict with any significant confidence. However, we do believe that such companies have in the past become interested in a mining property based solely on the discovery of one promising drill hole having, in the opinion of such mining company, significant potential to contain substantial economic value.
Irrespective of any interest shown by such a company, if any, we do not anticipate that our own activities will extend beyond conducting a preliminary feasibility study, where such a study is defined as having (i) established that a particular mining project appears viable, and (ii) concluded that an effective method of mineral processing can be adopted and is reasonably likely, in the reasonable opinion of a qualified person, to lead to the determination that all or a part of the mineral resource can be classified as a mineral reserve.
We carried out Phase I, the initial phase of exploratory drilling, during the summer of 2010. We have had the core
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samples obtained thereby analyzed. Based upon that review, management is cautiously optimistic about the results and is currently in the process of determining our next steps.
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Cash Requirements |
We operate with virtually no capital. Since our acquisition of the mineral rights associated with Handcamp, we have funded an exploration program using capital contributed to us by our parent company. We are currently attempting to raise sufficient funds to fund further exploration and estimate that we will require an additional $1,000,000 to fund exploration work on the Handcamp property as well as for working capital. We are in discussions with prospective investors to provide such funding and anticipate that the receipt of such funds would enable us to satisfy our cash requirements for a period of six (6) months. We have no long term debt and have been able to meet our past financial obligations, including operational expenses, exploration expenses and acquisition costs, on a current basis. |
In order to finance further exploration beyond the time period discussed immediately above, we believe that we will need to raise a minimum of $1,500,000, which we anticipate would enable us to satisfy our cash requirements for a period of twelve (12) months and complete Phase II. However, we cannot assure you that this amount would be sufficient to enable us to fully fund our anticipated cash requirements during this period. In addition, we cannot assure you that the requisite financing, whether over the short or long term, will be raised within the necessary time frame or on terms acceptable to us, if at all. Should we be unable to raise sufficient funds we may be required to curtail our operating plans if not cease them entirely. As a result, we cannot assure you that we will be able to operate profitably on a consistent basis, or at all, in the future.
None of the above figures refers to the financing that we would have to raise in order to contemplate making acquisitions of any other gold properties. While our business strategy includes acquiring additional gold properties, if possible, we have no present intention to acquire additional properties from our parent company or any other source, in large part because we do not presently have the means to make any further acquisitions. We would have to raise additional financing over and above the sums discussed above in order to contemplate making acquisitions of any additional gold properties.
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Going Concern |
As of the date of this quarterly report, there is substantial doubt regarding our ability to continue as a going concern as we have not generated sufficient cash flow to fund our proposed business. |
We have suffered recurring losses from operations since our inception. In addition, we have yet to generate an internal cash flow from our business operations or successfully raised the financing required to develop our proposed business. As a result of these and other factors, our independent auditor has expressed substantial doubt about our ability to continue as a going concern. Our future success and viability, therefore, are dependent upon our ability to generate capital financing. The failure to generate sufficient revenues or raise additional capital may have a material and adverse effect upon us and our shareholders.
Management’s plans with regard to these matters encompass the following actions: (i) obtaining funding from new investors to alleviate our working capital deficiency, and (ii) implementing a plan to generate sales. Our continued existence is dependent upon our ability to resolve our liquidity problems and increase profitability in our current business operations. However, the outcome of management’s plans cannot be ascertained with any degree of certainty. Our financial statements do not include any adjustments that might result from the outcome of these risks and uncertainties.
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Liquidity and Capital Resources |
We had a cash balance of $45,881 as of the date of this quarterly report. These funds were used to pay vendors of our parent company. Our principal source of funds has been capital contributions supplied by our parent company. |
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Cash flow from operations. |
To date, we have generated no cash flow from operations. |
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Cash flows from shareholders. |
Capital contributions provided by our parent company aggregated $853,255 as of September 30, 2011. |
Should we be unable to obtain further capital contributions from our parent company or otherwise raise sufficient funds, we will be required to curtail our operating plans if not cease them entirely. Our parent company has extremely limited capital available. We cannot assure you that we will receive further capital contributions from our parent company in the future or otherwise generate the necessary funding to operate or develop our business.
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Please see “Cash Requirements” above for our existing plans with respect to raising the capital we believe will be required.
In the event that we are able to obtain the necessary financing to move forward with our business plan, we expect that our expenses will increase significantly as we attempt to grow our business. Accordingly, the above estimates for the financing required may not be accurate and must be considered in light these circumstances.
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Variables and Trends |
Other than the current exploration of the Handcamp gold property, we have no operating history with respect to our exploration, acquisition and development of gold properties. However, our parent company and certain of our officers and directors, including Ken Stead and Timothy Stead, have significant mining exploration, acquisition and development experience. |
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Commitments |
As of the date of this quarterly report, our only material capital commitment was the continued funding of the exploration of the Handcamp gold property. We anticipate that any further capital commitments that may be incurred will be financed principally through the issuance of our securities. However, we cannot assure you that additional capital resources and financings will be available to us on a timely basis, on acceptable terms, or at all. |
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Off Balance Sheet Arrangements |
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. |
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Critical Accounting Policies |
We prepare financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”), which requires us to make estimates and assumptions that affect the amounts reported in our combined and consolidated financial statements and related notes. We periodically evaluate these estimates and assumptions based on the most recently available information, our own historical experience and various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from those estimates. Some of our accounting policies require higher degrees of judgment than others in their application. We believe the following accounting policies involve the most significant judgments and estimates used in the preparation of our financial statements. |
Business Activities. We have not yet earned any revenue from operations. Accordingly, our activities have been accounted for as those of a “Development Stage Enterprise” as set forth in Financial Accounting Standards Board Statement No. 7, “Accounting and Reporting for Development Stage Enterprises” (“SFAS No. 7”). Among the disclosures required by SFAS No. 7 are that our financial statements be identified as those of a development stage operation, and that the statements of operations, stockholders’ equity and cash flows disclose activity since the date of our inception.
Basis of Presentation. Our financial statements are presented on the accrual basis of accounting in accordance with generally accepted accounting principles in the United State of America, whereby revenues are recognized in the period earned and expenses when incurred. We follow SFAS No. 7 in preparing our financial statements.
Management’s Use of Estimates. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
Comprehensive Income (Loss) We adopted Financial Accounting Standards Board Statement of Financial Accounting Standards No. 130, “Reporting Comprehensive Income,” which establishes standards for the reporting and display of comprehensive income and its components in the financial statements. There were no items of comprehensive income (loss) applicable to us during the period covered in the financial statements.
Long-Lived Assets. In accordance with SFAS No. 144, we review and evaluate our long-lived assets for impairment whenever events or changes in circumstances indicate that their net book value may not be recoverable. When such factors and circumstances exist, including those noted above, we compare the assets’ carrying amounts against the estimated undiscounted cash flows to be generated by those assets over their estimated useful lives. If the
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carrying amounts are greater than the undiscounted cash flows, the fair values of those assets are estimated by discounting the projected cash flows. Any excess of the carrying amounts over the fair values are recorded as impairments in that fiscal period.
Statement of Cash Flows. For purposes of the statement of cash flows, we consider all highly liquid investments (i.e., investments which, when purchased, have original maturities of three months or less) to be cash equivalents.
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Fair Value of Financial Instruments |
Our financial instruments consist of cash and cash equivalents. The fair value of cash and cash equivalents approximates the recorded amounts because of the liquidity and short-term nature of these items. |
Advertising Costs. Advertising costs are expensed as incurred. We do not incur any direct-response advertising costs.
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Recent Accounting Pronouncements |
We have reviewed all recently issued, but not yet effective, accounting pronouncements and do not believe that any future adoption of such pronouncements will have a material impact on our financial condition or the results of our operations. |
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ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. |
Not Applicable |
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ITEM 4. | CONTROLS AND PROCEDURES |
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Disclosure Controls and Procedures |
Each of our principal executive and principal financial officer has evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a - 15(e) and 15d - 15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this quarterly report. Based on their evaluation, each such person concluded that our disclosure controls and procedures were not effective due to material weaknesses in our internal control over financial reporting that applied as of December 31, 2010 and continued to apply as of September 30, 2011. Our management intends, during the 2011 fiscal year, to design and implement processes and procedures that will provide reasonable assurance regarding the reliability of our financial reporting and preparation of financial statements for external purposes in accordance with generally accepted accounting principles. |
Changes in Internal Control over Financial Reporting. Our management has evaluated whether any change in our internal control over financial reporting occurred during the last fiscal quarter. Based on that evaluation, management concluded that there has been no change in our internal control over financial reporting during the relevant period that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
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ITEM 1. | LEGAL PROCEEDINGS |
None | |
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ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
None | |
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ITEM 3. | DEFAULTS UPON SENIOR SECURITIES |
None | |
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ITEM 4. | REMOVED AND RESERVED |
None | |
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ITEM 5. | OTHER INFORMATION |
None | |
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ITEM 6. | EXHIBITS AND 8K |
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(a) | Documents furnished as exhibits hereto: |
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Exhibit No. | Description |
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31.1. | Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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31.2 | Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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32.1 | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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101.INS | XBRL Instance Document |
101.SCH | XBRL Taxonomy Extension Schema Document |
101.CAL | XBRL Taxonomy Calculation Linkbase Document |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB | XBRL Taxonomy Label Linkbase Document |
101.PRE | XBRL Taxonomy Presentation Linkbase Document |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| KAT GOLD HOLDINGS CORP. |
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November 21, 2011 | By: | |
| | s/ Kenneth Stead | |
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| | Kenneth Stead, Chief Executive Officer |
| | (Principal Executive Officer) |
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November 21, 2011 | By: | s/ David M. Barnes | |
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| | David M. Barnes, Chief Financial Officer |
| | (Principal Accounting Officer) |
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