UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
(Mark One)
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended September 30, 2007
------------------
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to
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Commission File Number
---------------------------------
Gold Run Inc.
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(Exact name of small business issuer as specified in its charter)
Delaware 20-4919927
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
330 Bay Street, Suite 820, Toronto Ontario M5H 2S8 Canada
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(Address of principal executive offices)
(416) 363-0151
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(Issuer's telephone number)
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(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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. Yes|X| No|_|
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes|_| No|X|
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes|_| No|_|
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
25,888,467 shares of Common Stock, par value $.000001 per share
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Transitional Small Issuer Disclosure Format (Check one): Yes|_| No|X|
GOLD RUN INC.
INDEX TO FORM 10-QSB
PART I - FINANCIAL INFORMATION
Item 1 Financial Statements
Item 2 Plan of Operation
Item 3 Controls and Procedures
PART II - OTHER INFORMATION
Item 1 Legal Proceedings
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
Item 3 Defaults Upon Senior Securities
Item 4 Submission of Matters to a Vote of Security Holders
Item 5 Other Information
Item 6 Exhibits
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
We did not obtain a review of the interim financial statements by an independent
accountant using professional review standards and procedures, although the
review is required by the form.
GOLD RUN INC.
(AN EXPLORATION STAGE ENTERPRISE)
BALANCE SHEETS
AS AT SEPTEMBER 30, 2007 AND DECEMBER 31, 2006
(stated in U.S. dollars)
(unaudited)
SEPTEMBER 30, DECEMBER 31,
2007 2006
------------ ------------
ASSETS
CURRENT ASSETS:
Cash $ 58,783 $ 855,346
GST receivable 8,634 --
Prepaid expenses 23,081 15,000
------------ ------------
Total current assets 90,498 870,346
------------ ------------
PROPERTY - MINERAL PROPERTY RIGHTS (Notes 3 and 4) 129,601 66,267
------------ ------------
OTHER ASSETS:
Reclamation bonds 33,635 33,635
Prepaid offering costs 171,677 105,177
Debt financing costs, net (Note 6) -- 157,947
------------ ------------
Total other assets 205,312 296,759
------------ ------------
TOTAL ASSETS $ 425,411 $ 1,233,372
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable and accrued liabilities (Note 5)
To related party $ 25,000 $ 50,253
To others 246,425 158,651
Accrued interest (Note 6) -- 50,144
------------ ------------
Total current liabilities 271,425 259,048
------------ ------------
PROMISSORY NOTES (Note 6) -- 1,610,500
------------ ------------
COMMITMENTS AND CONTINGENCIES (Notes 1, 3, 5, 6, 8 and 10)
SHAREHOLDERS' EQUITY (DEFICIT) (Note 6):
Common stock, $.000001 par value, 100,000,000 shares
authorized, 44,943,467 shares issued and outstanding 45 39
Additional paid-in capital 2,521,488 203,405
Deficit accumulated during the exploration phase (2,367,547) (839,620)
------------ ------------
Total shareholders' equity (deficit) 153,986 (636,176)
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) $ 425,411 $ 1,233,372
============ ============
The accompanying notes to financial statements are
an integral part of these balance sheets.
GOLD RUN INC.
(AN EXPLORATION STAGE ENTERPRISE)
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2007, AND
FOR THE PERIOD FROM INCEPTION (MAY 5, 2006) TO SEPTEMBER 30, 2007
(stated in U.S. dollars)
(unaudited)
Deficit
accumulated Total
Additional during the shareholders'
Number of Common paid-in exploration equity
shares stock capital stage (deficit)
------------ ------------ ------------ ------------ ------------
BALANCE, May 5, 2006 -- $ -- $ -- $ -- $ --
Initial private placement of shares 22,400,000 22 2,218 -- 2,240
Shares issued to President/Chief
Geologist (Note 6) 7,500,000 7 743 -- 750
Private placement of shares 9,550,000 10 9,540 -- 9,550
Fair value of share-based payments -- -- 190,904 -- 190,904
Net loss from inception to December 31, 2006 -- -- -- (839,620) (839,620)
------------ ------------ ------------ ------------ ------------
BALANCE, December 31, 2006 39,450,000 39 203,405 (839,620) (636,176)
Net loss for the nine-months ended September 30, 2007 -- -- -- (1,527,927) (1,527,927)
Fair value of share-based payments -- -- 96,539 -- 96,539
Private placement of shares (Note 6) 666,667 1 449,999 -- 450,000
Conversion of promissory notes to common stock 4,826,800 5 1,771,545 -- 1,771,550
------------ ------------ ------------ ------------ ------------
BALANCE, September 30, 2007 44,943,467 $ 45 $ 2,521,488 $ (2,367,547) $ 153,986
============ ============ ============ ============ ============
The accompanying notes to financial statements are
an integral part of these statements.
GOLD RUN INC.
(AN EXPLORATION STAGE ENTERPRISE)
STATEMENTS OF LOSS
FOR THE THREE-MONTH PERIODS ENDED SEPTEMBER 30, 2007 AND SEPTEMBER 30, 2006,
FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2007 AND SEPTEMBER 30, 2006,
AND FOR THE PERIOD FROM INCEPTION (MAY 5, 2006) TO SEPTEMBER 30, 2007
(stated in U.S. dollars)
(unaudited)
THREE-MONTH NINE-MONTH FROM
PERIOD ENDED PERIOD ENDED INCEPTION TO
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2007 2006 2007 2006 2007
------------ ------------ ------------ ------------ ------------
REVENUE $ -- $ -- $ -- $ -- $ --
------------ ------------ ------------ ------------ ------------
COSTS AND EXPENSES:
Exploration costs 136,562 88,424 304,041 88,424 600,078
Share-based payments (Note 6) 32,283 101,323 96,539 101,323 287,443
Consulting and professional fees (Note 8) 55,743 40,828 191,325 40,828 277,433
Travel 21,128 12,307 158,880 12,307 206,402
Legal (including $27,144 to related parties
for the nine-month period ended
September 30, 2007) (Note 8) 130,068 56,976 227,523 60,476 268,204
Amortization of debt financing costs (Note 6) -- -- 157,947 -- 187,227
Audit fees 5,000 14,000 26,000 14,000 53,500
Salaries 46,851 6,250 126,148 6,250 153,392
Office expense 5,729 101 18,076 101 38,962
General and administrative 48,730 12,705 84,545 12,705 97,464
Rent 7,386 -- 25,162 -- 34,057
Bank charges 2,320 1,425 3,590 1,445 5,317
Exchange rate gain (losses) 1,211 -- (2,743) -- (1,754)
------------ ------------ ------------ ------------ ------------
Total costs and expenses 493,011 334,339 1,417,033 337,859 2,207,725
------------ ------------ ------------ ------------ ------------
LOSS FROM OPERATIONS (493,011) (334,339) (1,417,033) (337,859) (2,207,725)
INTEREST EXPENSE ON PROMISSORY NOTES (Note 6) -- (48,974) (110,906) (48,974) (161,050)
INTEREST (EXPENSE) INCOME (23) 1,181 12 1,181 1,228
------------ ------------ ------------ ------------ ------------
NET LOSS $ (493,034) $ (382,132) $ (1,527,927) $ (385,652) $ (2,367,547)
============ ============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF SHARES 44,653,612 39,450,000 42,034,586 39,450,000 40,828,109
============ ============ ============ ============ ============
LOSS PER SHARE $ (0.011) $ (0.010) $ (0.036) $ (0.010) $ (0.058)
============ ============ ============ ============ ============
The accompanying notes to financial statements are
an integral part of these statements.
GOLD RUN INC.
(an exploration stage enterprise)
STATEMENT OF CASH FLOWS
FOR THE THREE-MONTH PERIODS ENDED SEPTEMBER 30, 2007 AND SEPTEMBER 30, 2006,
FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2007 AND SEPTEMBER 30, 2006,
AND FOR THE PERIOD FROM INCEPTION (MAY 5, 2006) TO SEPTEMBER 30, 2007
(stated in U.S. dollars)
(unaudited)
Three-month Nine-month From
period ended period ended inception to
September 30, September 30, September 30,
2007 2006 2007 2006 2007
--------- ----------- ----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(493,034) $ (382,132) $(1,527,927) $ (385,652) $(2,367,547)
--------- ----------- ----------- ----------- -----------
Adjustments to reconcile net loss to net cash used by
operating activities:
Amortization of debt financing costs -- 48,974 157,947 48,974 187,227
Share-based payments 32,283 101,323 96,539 101,323 287,443
Increase in prepaid expenses (8,081) (5,000) (8,081) (5,000) (23,081)
Increase in accounts payable and accruals 121,923 104,256 62,521 104,256 271,425
Increase in current assets (2,078) -- (8,634) -- (8,634)
Increase in accrued interest -- -- 110,906 -- 161,050
--------- ----------- ----------- ----------- -----------
Total adjustments 144,047 255,803 411,198 255,803 875,430
--------- ----------- ----------- ----------- -----------
Net cash used by operating activities (348,987) (126,329) (1,116,729) (129,849) (1,492,117)
--------- ----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments to acquire mineral property rights (33,333) (53,333) (63,334) (53,333) (129,601)
Payments to acquire reclamation bonds -- -- -- -- (33,635)
--------- ----------- ----------- ----------- -----------
Net cash used by investing activities (33,333) (53,333) (63,334) (53,333) (163,236)
--------- ----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash proceeds from the issuance of promissory notes -- 1,286,000 -- 1,286,000 1,610,500
Payments of debt financing costs -- (135,350) -- (135,350) (187,227)
Payments of offering costs (44,000) -- (66,500) -- (171,677)
Proceeds from sale of common shares,
net of offering costs 450,000 7,750 450,000 13,540 462,540
--------- ----------- ----------- ----------- -----------
Net cash provided by financing activities 406,000 1,158,400 383,500 1,164,190 1,714,136
--------- ----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH 23,680 978,738 (796,563) 981,008 58,783
CASH, beginning of period 35,103 2,270 855,346 -- --
--------- ----------- ----------- ----------- -----------
CASH, end of period $ 58,783 $ 981,008 $ 58,783 $ 981,008 $ 58,783
========= =========== =========== =========== ===========
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Interest paid $ -- $ -- $ -- $ -- $ --
========= =========== =========== =========== ===========
Taxes paid $ -- $ -- $ -- $ -- $ --
========= =========== =========== =========== ===========
Non-cash items-
Conversion of promissory notes and
related interest expense
into common stock $ -- $ -- $ 1,771,550 $ -- $ 1,771,550
========= =========== =========== =========== ===========
The accompanying notes to financial statements are
an integral part of these statements.
GOLD RUN INC.
(AN EXPLORATION STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM INCEPTION (MAY 5, 2006) TO SEPTEMBER 30, 2007
(stated in U.S. dollars)
(Unaudited)
NOTE 1. NATURE OF OPERATIONS
Gold Run Inc. ("the Company") is an exploration company engaged in the
acquisition and exploration of mineral properties in the State of Nevada. The
Company was incorporated on May 5, 2006 under the laws of the State of Delaware.
As of September 30, 2007, the Company has put in place the management team, has
leased four mineral properties and staked a fifth (see Note 3), has secured
initial equity financing (see Note 6), and has commenced exploration activities
on its leased properties. The Company has completed two offerings of promissory
notes that have been converted to common shares as of May 14, 2007 and has
completed a private placement of common shares on August 9, 2007 (see Note 6).
The recoverability of amounts shown as mineral property rights is dependent upon
the discovery of economically recoverable reserves, confirmation of the
Company's interest in the underlying mineral claims, the ability of the Company
to obtain necessary financing to complete the development of the properties and
the ability of the Company to obtain profitable production or proceeds from the
disposition thereof.
The Company has been in the exploration stage since its inception and has not
yet realized any revenue from its operations.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These financial statements have been prepared in accordance with accounting
principles generally accepted in the United States. The significant accounting
policies used in these financial statements are as follows:
(a) MEASUREMENT UNCERTAINTIES -
The preparation of financial statements in conformity with generally accepted
accounting principles 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 period. Actual results
may differ from those estimates.
Significant estimates used in the preparation of these financial statements
include, amongst other things, the estimated future operating results and net
cash flows from mineral properties, the anticipated costs of asset retirement
obligations including the reclamation of mine sites and the computation of
share-based payments.
(b) MINERAL PROPERTY RIGHTS -
All direct costs related to the acquisition of mineral property rights are
capitalized. Exploration costs are charged to operations in the period incurred
until such time as it has been determined that a property has economically
recoverable reserves, at which time subsequent exploration costs and the costs
incurred to develop a property are capitalized.
The Company reviews the carrying values of its other mineral property rights
whenever events or changes in circumstances indicate that their carrying values
may exceed their estimated net recoverable amounts. An impairment loss is
recognized when the carrying value of those assets is not recoverable and
exceeds its fair value. As of September 30, 2007, management has determined that
no impairment loss is required.
At such time as commercial production may commence, depletion of each mining
property will be provided on a unit-of-production basis using estimated proven
and probable recoverable reserves as the depletion base. In cases where there
are no proven or probable reserves, depletion is provided on a straight-line
basis over the expected economic life of the mine.
(c) ASSET RETIREMENT OBLIGATIONS -
The Company plans to recognize liabilities for statutory, contractual or legal
obligations, including those associated with the reclamation of mineral and
mining properties and any plant and equipment, when those obligations result
from the acquisition, construction, development or normal operation of the
assets. Initially, a liability for an asset retirement obligation will be
recognized at its fair value in the period in which it is incurred. Upon initial
recognition of the liability, the corresponding asset retirement cost will be
added to the carrying amount of the related asset and the cost will be amortized
as an expense over the economic life of the asset using either the
unit-of-production method or the straight-line method, as appropriate. Following
the initial recognition of the asset retirement obligation, the carrying amount
of the liability will be increased for the passage of time and adjusted for
changes to the amount or timing of the underlying cash flows needed to settle
the obligation.
The Company has posted reclamation bonds with the State of Nevada Reclamation
Bond Pool for two of its properties as required by the United States Bureau of
Land Management, to secure potential clean-up and land restoration costs if the
projects were to be abandoned or closed. The Company has recorded the cost of
these bonds as an asset in the accompanying balance sheets.
(d) INCOME TAXES -
Future tax assets and liabilities are recognized for the future tax consequences
attributable to the difference between financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Future tax
assets and liabilities are measured using enacted or substantively enacted tax
rates expected to be recovered or settled. This method also requires the
recognition of future tax benefits such as operating loss carry-forwards to the
extent that realization of such benefits is more likely than not.
(e) LOSS PER SHARE -
The basic loss per share for the nine-month period ended September 30, 2007, the
three-month period ended September 30, 2007 and for the period from inception
(May 5, 2006) to September 30, 2007 has been computed by dividing the net loss
by the weighted average number of common shares outstanding during the period.
Diluted loss per share reflects the potential dilution of common share
equivalents, such as outstanding stock options and share purchase warrants, in
the weighted average number of common shares outstanding during the period, if
dilutive. For this purpose, the "treasury stock method" is used for the assumed
proceeds upon the exercise of stock options and warrants that are used to
purchase common shares at the average market price during the year.
At September 30, 2007, none of the warrants were considered dilutive as the
exercise prices of these warrants substantially exceeded the Company's net
tangible book value per share.
(f) PREPAID OFFERING COSTS -
Prepaid offering costs are legal costs relating to the Company's proposed
initial public registration of its shares. These costs will be charged against
the proceeds of the Company's initial public offering, if such offering occurs,
or will be charged to expense if such offering does not occur.
(g) SHARE-BASED PAYMENTS -
Share-based payments consist of the estimated fair value of stock options
granted during the period, and are recorded as an expense and an addition to
additional paid-in capital in accordance with Statement of Financial Accounting
Standards No. 123 (Revised December 2004), SHARE-BASED PAYMENT.
(h) GOING CONCERN -
These financial statements have been prepared using US generally accepted
accounting principles applicable to a going concern which assumes that the
Company will be able to continue in operation for the foreseeable future and
will be able to realize its assets and discharge its liabilities in the normal
course of business. The Company had a net loss for the period from inception
(May 5, 2006) to September 30, 2007 and shareholders' equity at September 30,
2007 of $2,367,547 and $153,986 respectively. The Company's ability to meet its
obligations and continue as a going concern is dependent upon its ability to
obtain additional financing, achievement of profitable operations and/or the
discovery, development and sale of mining reserves. The Company cannot
reasonably be expected to earn revenue in the development stage of operations.
Although the Company plans to pursue additional financing, there can be no
assurance that the Company will be able to secure financing when needed or to
obtain such financing on terms satisfactory to the Company, if at all.
The financial statements do not reflect any adjustments in the carrying values
of the assets and liabilities, the reported expenses, and the balance sheet
classifications used that would be necessary if the going concern assumption
were not appropriate. Such adjustments could be material.
NOTE 3. EXPLORATION PROGRAM FUNDING OBLIGATION AND MINERAL PROPERTY RIGHTS
(a) EXPLORATION PROGRAM FUNDING OBLIGATION -
The Company committed, under an agreement with its President/Chief Geologist,
Mr. Dave Mathewson ("Mathewson"), to fund its mineral exploration program in the
following amounts, not later than the following dates:
August 1, 2007 $500,000
October 1, 2007 900,000
January 31, 2008 1,000,000
July 31, 2008 1,000,000
January 31, 2009 1,000,000
April 30, 2009 1,000,000
TOTAL: $5,400,000
The foregoing exploration-program funding schedule was revised under a Letter
Agreement between the Company and Mathewson dated June 22, 2007 (see Note 8).
The Company previously met its requirement to provide $600,000 worth of
exploration funding prior to March 31, 2007.
On September 17, 2007, the Company received a Notice of Default from Mathewson
stating that the it had failed to meet its obligation to provide an aggregate of
$1.1 million in exploration program funding through May 31, 2007 as required by
the Amended and Restated Agreement by and between the Company and Mathewson,
dated November 20, 2006, and as further amended on June 22, 2007.
The Notice of Default states that if the Company does not cure its default and
also furnish the additional $900,000 in exploration program funding due under
the Agreement on October 1, 2007 by October 17, 2007, then all of the
registrant's interests in its Crescent Valley North, Robinson Creek, Horse
Creek, Indian Creek, and Tempo properties would be forfeited to Mathewson. The
Company subsequently did not meet its requirement to provide an additional
$900,000 in funding by October 1, 2007 (see Note 10). These properties represent
all of the registrant's gold prospects.
Mathewson also proposed in the Notice of Default that an alternative cure for
these defaults and for the default of the Company's October 1, 2007 exploration
program funding payment that Mathewson anticipated would occur, would be for two
directors and officers to resign their positions with the Company, and for these
directors and certain related shareholders to surrender all of the Company's
shares of stock in which they have an ownership interest and to execute releases
of any and all claims that they may have against the Company. The Notice of
Default also states that this alternative cure must be made by October 17, 2007.
The two directors in question did not comply with Mathewson's demand and the
Company launched a lawsuit against them. Refer Note 10, Subsequent Events, for
further discussion of this lawsuit and of its settlement.
The Company and Mathewson are currently negotiating the terms of a further
revision to the Amended and Restated Agreement dated November 20, 2006, as
further amended on June 22,2007. Although there is no assurance that the Company
and Mathewson will enter into a revised agreement, it is anticipated that any
such agreement, in addition to setting out a revised funding schedule, would
include the provisions below.
In addition to funding its exploration program, the Company would be required to
raise sufficient capital to fund its other activities, including legal,
accounting, travel and other costs. The total capital, which would be required
for these other costs, is estimated to be approximately $9,000,000.
Furthermore, it is anticipated that the Company's funding obligations to
Mathewson would be deemed to be satisfied upon the earlier of:
(i) the date upon which the cumulative sum of $6,000,000 has been
expended on exploration costs, or
(ii) the date upon which funds in the amount of $6,000,000 (less the
amount of exploration costs previously expended) is set aside and
reserved to pay for exploration costs, provided the Company has also
set aside funds to pay for general and administrative expenses in an
amount equal to 50% of the funds set aside to pay for exploration
costs.
Should the Company be unable to complete the above funding obligations,
its rights to its leased CVN (see Note 3(b)), RC (see Note 3(c)), HC (see
Note 3(d)), and Tempo (see Note 3(e)) properties, as well as to its staked
IC (see Note 3(f)) property, would be cancelled at. Mathewson's option,
whereupon the rights to these five properties would revert to him. The
Company's CVN, RC and HC properties are leased from KM Exploration Ltd.
("the Lessor"), a Nevada corporation in which Mr. Mathewson has a 50%
ownership interest.
Upon termination of its leases for any reason, the Company would be
required to remove all the equipment it may have installed on the leased
property and would be responsible for reclamation of those areas disturbed
by the Company's activities. All of the Company's leases have been
accounted for as operating leases.
(b) CVN LEASE -
On July 17, 2006, the Company entered into a mining lease agreement with the
Lessor to lease a group of 151 unpatented lode mining claims known as the "CVN"
group.
The term of this lease is initially ten years. This lease may be extended in
five year increments thereafter for a total lease term of thirty years. The
Company can terminate the lease at any time upon 60 days advance notice.
Until production is achieved, the following lease payments are required:
Anniversary of effective date Annual lease
of agreement payment
------------------------------------------------ ------------
Upon signing of the lease $13,333
Years 1 through 4 13,333
Years 5 through 9 26,667
All years thereafter 43,333
Once production is achieved from this property, the lease requires the Company
to pay the Lessor the greater of:
(i) a royalty on production equal to 3% of net smelter returns, or
(ii) the lease payments as per the above table.
The Company has the right at any time during the lease agreement to purchase a
maximum of two "points" of the Lessor's three percent (3%) gold production
royalty, thereby reducing the Lessor's gold production royalty to one percent
(1%). Each "point" is equivalent to 1% of net smelter returns. The purchase
price for each royalty "point" shall be as follows:
Average price of gold for the Price per royalty
preceding thirty days point
----------------------------- -----------------
$300.00 per ounce and lower $2,000,000
$300.01 to $400.00 per ounce 2,500,000
$400.01 to $500.00 per ounce 3,000,000
$500.01 to $600.00 per ounce 4,000,000
$600.01 to $700.00 per ounce 5,000,000
$700.01 to $800.00 per ounce 6,000,000
$800.01 to $900.00 per ounce 7,000,000
The Company shall have the right to purchase less than a full royalty "point,"
at a pro-rata price.
(c) RC LEASE -
On July 17, 2006, the Company entered into a mining lease agreement with the
Lessor to lease a group of 91 unpatented lode mining claims known as the "RC"
group.
The term of this lease is initially ten years. This lease may be extended in
five year increments thereafter for a total lease term of thirty years. The
Company can terminate the lease at any time upon 60 days advance notice.
Until production is achieved, the following lease payments are required:
Anniversary of effective date Annual lease
of agreement payment
----------------------------- ------------
Upon signing of the lease $10,000
Years 1 through 4 10,000
Years 5 through 9 20,000
All years thereafter 32,500
Once production is achieved from this property, the lease requires the Company
to pay the Lessor the greater of:
(i) a royalty on production equal to 2.5% of net smelter returns, or
(ii) the lease payments as per the above table.
The Company has the right at any time during the lease agreement to purchase a
maximum of one-and-one-half (1.5) "points" of the Lessor's two-and-one-half
percent (2.5%) gold production royalty, thereby reducing the Lessor's gold
production royalty to one percent (1%). Each "point" is equivalent to 1% of net
smelter returns. The purchase price for each royalty "point" shall be as
follows:
Average price of gold for the Price per royalty
preceding thirty days point
----------------------------- -----------------
$300.00 per ounce and lower $2,000,000
$300.01 to $400.00 per ounce 2,500,000
$400.01 to $500.00 per ounce 3,000,000
$500.01 to $600.00 per ounce 4,000,000
$600.01 to $700.00 per ounce 5,000,000
$700.01 to $800.00 per ounce 6,000,000
$800.01 to $900.00 per ounce 7,000,000
The Company shall have the right to purchase less than a full royalty "point,"
at a pro-rata price.
(d) HC LEASE -
On July 17, 2006, the Company entered into a mining lease agreement with the
Lessor to lease a group of 189 unpatented lode mining claims known as the "HC"
group.
The term of this lease is initially ten years. This lease may be extended in
five year increments thereafter for a total lease term of thirty years. The
Company can terminate the lease at any time upon 60 days advance notice.
Until production is achieved, the following lease payments are required:
Anniversary of effective date Annual lease
of agreement payment
----------------------------- ------------
Upon signing of the lease $10,000
Years 1 through 4 10,000
Years 5 through 9 20,000
All years thereafter 32,500
Once production is achieved from this property, the lease requires the Company
to pay the Lessor the greater of:
(i) a royalty on production equal to 2.5% of net smelter returns, or
(ii) the lease payments as per the above table.
The Company has the right at any time during the lease agreement to purchase a
maximum of one-and-one-half (1.5) "points" of the Lessor's two-and-one-half
percent (2.5%) gold production royalty, thereby reducing the Lessor's gold
production royalty to one percent (1%). Each "point" is equivalent to 1% of net
smelter returns. The purchase price for each royalty "point" shall be as
follows:
Average price of gold for the Price per royalty
preceding thirty days point
----------------------------- -----------------
$300.00 per ounce and lower $2,000,000
$300.01 to $400.00 per ounce 2,500,000
$400.01 to $500.00 per ounce 3,000,000
$500.01 to $600.00 per ounce 4,000,000
$600.01 to $700.00 per ounce 5,000,000
$700.01 to $800.00 per ounce 6,000,000
$800.01 to $900.00 per ounce 7,000,000
The Company shall have the right to purchase less than a full royalty "point,"
at a pro-rata price.
(e) TEMPO LEASE -
The Company entered into a lease with the Lyle F. Campbell Trust of Reno, Nevada
on May 18, 2007. The lease is for an initial period of ten years and may be
extended in five year increments for up to a total term of 99 years. The Company
may terminate this lease at any time. Until production is achieved, lease
payments (deemed "advance minimum royalties") consist of an initial payment of
$5,000, which was made upon the effectiveness of the lease, followed by annual
payments according to the following schedule:
Due date of advance Amount of advance
minimum royalty payment minimum royalty payment
- ---------------------------------------- ------------------------------------
January 15, 2008 $10,000
January 15, 2009 15,000
January 15, 2010 30,000
January 15, 2011 45,000
January 15, 2012 and annually thereafter The greater of $60,000 or the dollar
during the term of the lease equivalent of 90 ounces of gold
In the event that the Company produces gold or other minerals from this
property, the lease payments will be the greater of (i) the advance minimum
royalty payments according to the table above, or (ii) a production royalty
equal to 4% of the gross sales price of any gold, silver, platinum or palladium
recovered plus 2% of the gross sales price of any other minerals that the
Company has recovered.
The lease expressly states that the Company has no rights to any oil, gas,
hydrocarbons and geothermal resources that may be found on the property.
Under certain conditions, the Lyle F. Campbell Trust may elect to take its
production royalty in cash rather than in kind. In the event that the Company
produces gold or other minerals from this property and pays the Lyle F. Campbell
Trust a production royalty, then, within any one calendar year, the Company may
use 100% of that year's advance royalty payment as a credit against its
royalties payable for that year. If royalty payments payable for that year are
greater than the Company's advance royalty payment paid for that year, then the
Company can credit all advance minimum royalty payments made in previous years
against 50% of the production royalty payable for that year.
In the event that the Lessor is paid a production royalty by the Company, the
Company has the option to repurchase up to two points of the royalty payable on
gold, silver, platinum or palladium, which would have the effect of thereafter
permanently reducing the Lessor's production royalty on gold, silver, platinum
or palladium from 4% to 2% of the Company's gross sales price for those
minerals. The purchase price for each royalty "point" shall be according to the
following schedule:
Royalty point Purchased price
------------- ---------------
First 1% $1,500,000
Second 1% 3,000,000
The Company does not have the option to purchase the remaining 2% production
royalty on gold, silver, platinum or palladium or the 2% production royalty
applicable to all other minerals.
The lease requires the Company to perform $25,000 worth of physical work
annually on the property for 2007, 2008 and 2009. Starting in 2010 and
thereafter, the Company must perform a minimum of $50,000 worth of work annually
on the property, of which at least $25,000 is physical work.
(f) STAKED CLAIMS -
INDIAN CREEK ('IC') -
In January, 2007, the Company spent $25,000 on staking 88 claims comprising a
contiguous claim group, named Indian Creek by the Company, located on the
Independence-Eureka gold trend about five miles south of the Company's RC
project.
NOTE 4. PROPERTY
Property consists of the cost of mineral property rights, as follows at
September 30, 2007 and December 31, 2006:
September 30, 2007 December 31, 2006
--------------------------------------- ---------------------------------------
Acquisition Acquisition
Acquisition related Acquisition related
cost legal fees Total cost legal fees Total
CVN lease $26,667 $12,312 $38,979 $13,333 $12,312 $25,645
RC lease 20,000 10,311 30,311 10,000 10,311 20,311
HC lease 20,000 10,311 30,311 10,000 10,311 20,311
TMP lease 5,000 -- 5,000 -- -- --
IC staked 10,000 15,000 25,000 -- -- --
----------- ----------- ----------- ----------- ----------- -----------
TOTAL: $81,667 $47,934 $129,601 $33,333 $32,934 $66,267
=========== =========== =========== =========== =========== ===========
NOTE 5. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Included in accounts payable and accrued liabilities are the following accounts
payable and accrued liabilities at September 30, 2007 and December 31, 2006:
September 30, December 31,
2007 2006
------------ ------------
Accrued consulting and accounting fees $15,985 $17,600
Accrued legal fees 182,088 11,289
Accrued exploration and field employee costs 12,174 93,906
Accrued office expenses / G&A 3,998 15,350
Accrued employee deductions 2,180 5,506
Accrued audit fees 30,000 15,000
------------ ------------
Accounts payable and accrued expenses to other than related
parties 246,425 158,651
Accrued legal fees - related party 25,000 50,253
------------ ------------
TOTAL: $271,425 $208,904
============ ============
NOTE 6. COMMON STOCK AND WARRANTS
(a) WARRANTS -
Upon formation of the Company, the founding shareholders subscribed for a total
of 22,400,000 shares of common stock at a price of $0.0001 per share plus share
purchase warrants entitling the holders to purchase a total of 9,900,000 shares
at a price of $1.00 per share, all for total consideration of $2,240. Given that
the Company is in the exploration stage, management has allocated the full
consideration paid to common stock.
At September 30, 2007 and December 31, 2006, all 9,900,000 warrants are
outstanding with an exercise price of $1.00. The warrants expire on May 8, 2009.
Refer also Note 10, Subsequent Events, for a change in the total warrants
outstanding occurring after the reporting period ended September 30, 2007.
(b) COMMITMENT TO ISSUE ADDITIONAL SHARES -
At the same time that the Company and its President/Chief Geologist entered into
an employment agreement, the parties also entered into a separate agreement
providing for the President/Chief Geologist to purchase 7,500,000 shares of the
Company's common stock at a price of $0.0001 per share. Under the terms of that
agreement, once the Company has met its funding obligation (defined as the
Company having raised a total of $6,000,000 for exploration costs by April 30,
2009, at various dates and in amounts as described in Note 3), the Company is
obligated to issue additional shares to the President/Chief Geologist (at a
price of $0.0001 per share) in sufficient number so that the President/Chief
Geologist would continue to hold 15% of the then issued and outstanding shares
of the Company. In the event that the President/Chief Geologist should hold more
than 15% of the issued and outstanding shares at the time the Company meets its
funding obligation, those excess shares will be deemed to be automatically
cancelled. Shares issued by the Company pursuant to the acquisition of
additional mineral property rights will be deducted from the total of the shares
then issued and outstanding for the purposes of calculating the 15% the
President/Chief Geologist is entitled to. Shares sold or transferred to other
employees of the Company by the President/Chief Geologist must be included for
purposes of calculating the 15% the President/Chief Geologist is entitled to.
These shares are restricted as to sale for the first eighteen months and then
subject to certain restrictions on the sale of these shares for an additional
eighteen months.
(c) SHARE-BASED PAYMENTS AND EMPLOYMENT AGREEMENT -
On September 15, 2006, the Company and its Chief Executive Officer entered into
an employment agreement which provides, amongst other compensation, an option to
purchase 1,500,000 shares of common stock over a five-year period at a price of
$0.25 for the first 500,000 shares and $0.50 for the remaining 1,000,000 shares.
The option vests as follows:
Number of shares
----------------
Upon signing of the agreement 300,000
Pro-rata on a daily basis until September 15, 2007 400,000
Pro-rata on a daily basis from September 15, 2007 until September 15, 2008 400,000
Pro-rata on a daily basis from September 15, 2008 until September 15, 2009 400,000
----------------
TOTAL: 1,500,000
================
The fair value of the options was estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions: dividend
yield of 0%; expected volatility of 100%; risk free interest rate of 4.70%; and
an expected average life of three years. The fair value of the 716,438 options
vested during the period from inception (May 5, 2006) to September 30, 2007 is
estimated to be $287,443. The Company has expensed $32,283 in the statement of
loss for the quarter ended September 30, 2007 and has expensed $96,539 in the
statement of loss for the nine-month period ended September 30, 2007; recorded
as additional paid-in capital.
The Company expensed $40,828 for both the corresponding quarter and nine-month
period ended September 30, 2006.
The employment agreement also contains a provision which, in the event of
termination without cause, would require the Company to pay the Chief Executive
Officer $125,000 (Canadian funds).
On October 31, 2006, the Company entered into an agreement with a consultant,
which provides the consultant with an option to purchase 100,000 shares of
common stock over a two-year period at a price of $0.50 per share (Canadian
funds). The fair value of the option is estimated using the Black-Scholes option
pricing model with the following assumptions: dividend yield of 0%; expected
volatility of 100%; risk free interest rate of 4.70%; and an expected average
life of two years. The fair value of the option granted is estimated to be
$28,390 and has been expensed in the statement of loss for the year ended
December 31, 2006 and recorded as additional paid-in capital.
(d) PROMISSORY NOTES CONVERTED INTO COMMON SHARES -
The Company completed two private placements of two-year non-transferable 10%
convertible promissory notes payable annually. Interest accrued and was payable
on the annual anniversary date of each note. Note-holders were also entitled to
receive one full year of interest if the Company successfully registered its
common chares with the Securities and Exchange Commission ("SEC") before the
annual anniversary date of the convertible promissory notes, which it did.
The promissory notes were converted into common shares of the Company at a
conversion price of $0.25 per share in the case of Series 1 notes and $0.50 per
share in the case of Series 2 notes upon the date of the Company's registration
statement being declared effective by the SEC on May 14, 2007.
At May 14, 2007, the Company converted promissory notes totaling $583,500 and
related accrued interest expense of $58,350 (Series 1) and $1,027,000 and
related interest expense of $102,700 (Series 2) into 4,826,800 shares of common
stock. Total debt financing costs associated with these converted promissory
notes equals $187,227. Previously unamortized debt financing costs of $157,947,
associated with the issuance of these convertible promissory notes, were
expensed during the nine-month period ended September 30, 2007.
(e) INITIAL PUBLIC OFFERING OF COMMON SHARES -
The Company's registration statement on Form SB-2 for an initial public offering
in the amount of $8 million on an all-or-none basis was declared effective by
the SEC on May 14, 2007 at which time the Company commenced receiving investment
subscriptions. The Company subsequently changed the terms of its offering to a
$3 million / $8 million mini-max offering and filed an amended registration
statement with the SEC on June 27, 2007. The Company continued to receive
subscriptions from investors after filing the amendment. All subscription funds
were deposited into and held in an escrow account. On July 24, 2007, the SEC
notified the Company that because of the changed offering terms, the revised
offering could not continue, and all funds in escrow should be returned to the
subscribers. Accordingly, the Company terminated the offering, and the funds
were returned. The Company plans to file an amended registration statement with
the SEC and resume its offering upon the amended registration statement being
declared effective. No subscription funds were held in escrow as of September
30, 2007 (December 31, 2006: Nil).
(f) PRIVATE PLACEMENT OF COMMON SHARES -
On August 9, 2007, the Company concluded a private placement of 666,667 shares
of its Common Stock at a price of $.75 per share, for an aggregate purchase
price of $500,000. This private placement was conducted under Regulation S
promulgated under the Securities Act of 1933, as amended (Rules 901 through 905
and preliminary notes). The securities issued in this private placement were
sold to a single foreign accredited investor as defined in Rule 501 promulgated
under the Securities Act of 1933, as amended. For the year ended December 31,
2006, the Company had received proceeds of $12,540 from the private placement of
common shares.
NOTE 7. INCOME TAXES
The components of the Company's deferred tax asset are as follows at September
30, 2007:
September 30, December 31,
2007 2006
------------ ------------
Net operating loss carry-forward $828,641 $227,000
Stock-based compensation 100,605 67,000
------------ ------------
Total deferred tax asset 929,246 294,000
Valuation allowance (929,246) (294,000)
------------ ------------
NET DEFERRED TAX ASSET $ -- $ --
============ ============
The Company has recorded a valuation allowance sufficient to fully reserve the
deferred tax asset as realization of the deferred tax asset is not reasonably
assured because of the Company's loss since inception. Management evaluates the
need for a valuation allowance periodically.
As of September 30, 2007, the Company had net operating loss carry-forwards of
approximately $2,300,000 that may be used in future years to offset federal
taxable income. Such carry-forwards expire in December 2027.
NOTE 8. RELATED PARTY TRANSACTIONS
For quarter and the nine-month period ended September 30, 2007, the Company
incurred consulting fees and paid expenses of $28,242 and $162,300 respectively
to a firm of which a director is a partner, and to a consulting firm controlled
by the same director. The cumulative consulting fees and expenses incurred from
this firm from inception (May 5, 2006) to September 30, 2007 are $231,529. This
director subsequently resigned as part of the settlement referred to in Note 10.
The company paid $20,000 and $30,000 to this firm for consulting fees and
expenses incurred, for the quarter and the nine-month period ended September 30,
2006 respectively.
For the nine-month period ended September 30, 2007, the Company paid operating
expenses of $22,779 to a company of which a director is a controlling partner.
The cumulative from inception to September 30, 2007 expense is $34,968.
The Company paid Nil in operating expenses to this company for the corresponding
quarter and nine-month period ended September 30, 2006.
For the nine-month period ended September 30, 2007, the Company paid legal fees
of $27,144 to a legal firm controlled by two directors (Nil for the quarter
ended September 30, 2007). For the period from inception (May 5, 2006) to
December 31, 2006 the Company incurred legal expenses of $85,253 with this firm,
of which $20,000 has been capitalized to mineral property rights, $17,500 has
been charged to debt financing costs (see Note 6), $25,000 has been charged to
offering costs, and the remainder has been charged to legal expense.
The Company incurred $30,000 in legal fees with this firm, for both the quarter
and the nine-month period ended September 30, 2006, of which $12,500 was charged
to offering costs.
On June 22, 2007, the Company and its President/Chief Geologist, Mr. Dave
Mathewson, entered into a letter agreement by which Mr. Mathewson agreed to a
revised schedule of payments of the Company's exploration program funding
obligation. The schedule agreed upon in this letter agreement is set forth in
Note 3(a).
NOTE 9. CONCENTRATIONS OF CREDIT RISK
At September 30, 2007, substantially all of the Company's cash is held in
accounts with a Canadian Chartered Bank. The amounts held in these Canadian
accounts are insured under the Canadian Deposit Insurance Company to a maximum
of $100,000 CDN (as of September 30, 2007) per each deposit account. Amounts
denominated in US dollars are not insured. The Company has not experienced
losses on such accounts, nor does the Company believe that there is significant
risk of loss on such accounts in Canada.
As of September 30, 2007, all of the Company's mineral property rights were
geographically concentrated in the State of Nevada.
NOTE 10. SUBSEQUENT EVENTS
The Company failed to meet its exploration-program funding obligation to provide
$900,000 in exploration program funding by October 1, 2007, in accordance with
the exploration-funding schedule revised under a Letter Agreement between the
Company and Mathewson, dated June 22, 2007 (see Note 8). This default is in
addition to the Company's failure to provide $500,000 in required exploration
funding before August 1, 2007 (see Note 8), per the same schedule.
On September 24, 2007, the Company sued two founders and directors. This
litigation is disclosed in the Company's Form 8-K filed on October 1, 2007. The
lawsuit, which was commenced on September 24, 2007 in the Ontario (Canada)
Superior Court of Justice in Toronto (Court File No. 07-CL-7186), arose out of
certain directors alleged undisclosed control of a competing gold exploration
company through which they allegedly usurped the registrant's rightful corporate
business opportunities. The lawsuit also alleges their breach of fiduciary duty,
breach of directors' duties, wrongful interference with the registrant's
economic interests, breach of contract, conspiracy and unjust enrichment.
The Company settled this lawsuit in October 2007. As part of the settlement,
these two directors resigned, and renounced all affiliations with the Company
and, together with some other of their business affiliates and associates,
assigned and transferred to the Company for nominal consideration a total of
19,055,000 shares of the Company's common stock held by them, constituting
approximately 90% of their collective shareholdings. Additionally, these two
directors assigned and transferred to the Company 6,600,000 of the Company's
warrants, constituting 100% of the warrants held by them. As a result of the
above, the Company now has 25,888,467 outstanding shares of common stock and
3,300,000 outstanding warrants; prior to the settlement, there were 44,943,467
shares and 9,900,000 warrants outstanding.
* * *
ITEM 2. PLAN OF OPERATION
We intend to conduct a staged exploration program on each of our five
properties, which are all at the very early stages of exploration. The follow-up
stages of our exploration programs are dependent upon the results obtained
during the earlier stages. We have spent approximately $600,000 on our
exploration programs to date.
We intend to shortly file an amendment to our registration statement and proceed
with our initial public offering, which we expect will be for a minimum of
$4,000,000 and a maximum of $10,000,000. We anticipate that the proceeds from
our initial public offering will be sufficient to fund our exploration program
as it is currently planned and described herein. We further anticipate that the
proceeds from our initial public offering will be sufficient for us to meet our
exploration program funding obligations for the next twelve months under our
agreement with David Mathewson, our President and Chief Geologist, with whom we
are currently in the process of renegotiating the agreement to better reflect
our current financial situation and anticipated future activities.
We estimate that we will require approximately $3.3 million through November 14,
2008 to pay for initial and follow-up work on our currently held projects, what
we anticipate will be our renegotiated exploration program funding obligations
with Mr. Mathewson, estimated administrative expenses, lease payments and
estimated claim maintenance costs. We plan to rely upon the proceeds from our
anticipated initial public offering, an amended registration statement for which
we plan to file shortly, to fund our operations through November 14, 2008.
We have commenced the initial exploration work on four of our properties. The
total planned initial exploratory work for all five properties is estimated to
be approximately $988,000. Completing the first stage for all five properties,
and a second stage of work on 3 of the properties is estimated to cost
approximately $1,678,000. We will require the proceeds of our planned initial
public offering to perform the initial exploration work on all five of our
properties and to follow-up our initial exploratory work on three of our
properties.
In addition we intend to seek out and acquire additional mining prospects in
Nevada and elsewhere. In the event that we acquire additional mining prospects,
we may decide to accordingly modify our planned exploration programs for our
existing properties.
We believe that necessary equipment and operators for our exploratory activities
are available from several local sources in Elko and Reno, Nevada.
EXPLORATION PROGRAM FOR CRESCENT VALLEY NORTH PROPERTY
Five drill sites have already been permitted and at least three core holes will
be drilled to further examine the bonanza vein model and provide initial target
tests. These holes must be drilled to at least 1,500 feet, with the option of
drilling to 2,000 feet. We anticipate drilling approximately 5,000 total feet of
core during the initial phase of this exploration program. The estimated costs
for the initial phase of this exploration program are approximately $340,000,
consisting of:
o Drilling costs at approximately $60 per foot, for a total of $300,000.
o Site preparation costs of approximately $5,000.
o Assaying costs at approximately $6 per foot, for a total of $30,000.
o Core splitting and miscellaneous materials and labor at approximately
$1 per foot, for a total of $5,000.
Depending upon the results obtained in the initial exploratory phase, we may
immediately commence with next phase of the exploration program. The second
phase will be will be a similar size program to provide additional
characterization and definition on the model and prospectively intersected
mineralization. Our projected cost for the second phase is an additional
$340,000, for a total cost of approximately $680,000 for the initial and second
phases of this exploration program.
EXPLORATION PROGRAM FOR ROBINSON CREEK PROPERTY
A gravity survey consisting of 273 stations surveyed at approximately 125 meter
intervals along lines spaced approximately 250 meters apart was completed in
October 2006. The data achieved from this survey provided quality definition on
underlying rock densities and helped guide the site locations and design
approach for drilling by allowing us to estimate lithologic types, relative
depth to lithologic types and structural contacts.
In October and November 2006, five drill sites were permitted and bonded for
initial exploration. Two reverse circulation holes were drilled in December 2006
and January 2007 for purposes of testing two of the five target sites. We could
not access the three remaining sites because of difficult weather and ground
conditions.
Hole RC06-1 was completed in December 2006 to a depth of 1140 feet when we had
to stop because of difficult hole conditions. The cutting samples indicated
scattered weakly anomalous gold values from 25 to 100 ppb (parts per billion).
We believe that a structural complication may have displaced the targeted
Webb-Devil's Gate limestone contact downward, below 1500 feet of depth. The
right rock units of Chainman Formation that overlies the Webb Formation were
intersected in the drill hole.
Hole RC06-2 was completed in January 2007 to a depth of 1500 feet. The rock
formation that was drilled appears to be entirely Chainman Formation. The top of
the Webb Formation may have been encountered at 1470 feet, which indicates that
the targeted Webb-Devils Gate limestone contact is at an excessive depth at this
location. Several zones of thin mafic intrusions were intersected in this hole.
We believe that these intrusions provide favorable indication of target
prospectivity at this site.
The estimated costs for the initial phase of this exploration program are
approximately $180,000, consisting of:
o Gravity survey and assessment report have been completed at a cost of
$20,000.
o Site preparation costs of approximately $15,000 (a portion of which
has already been expended).
o Drilling costs at approximately $25 per foot, for a total of $125,000
(a portion of which has already been expended).
o Assay costs of approximately $20,000 (a portion of which has already
been expended).
Excluded from our exploration costs for this property is our reclamation bond in
the amount of $14,447 filed with the State of Nevada Commission on Mineral
Resources, effective from October 26, 2006 through June 30, 2007.
We may commence with the second phase of our exploration program depending upon
the results obtained in the initial phase. The second phase consists of a
similar amount of drilling, including angle drilling, and is expected to cost an
additional $150,000. The total cost for the initial and second phases of our
exploration program for this property is approximately $330,000.
EXPLORATION PROGRAM FOR HORSE CREEK PROPERTY
In October 2006, we completed a 552-station gravity survey at 125-meter station
intervals along lines spaced approximately 250 meters apart. When conditions
permit, we will conduct a ground examination of the interpretable features
indicated by this gravity survey to assist us with targeting. The results of
this gravity survey appear to provide good definition on several
northwest-trending structural features that are consistent with earlier
targeting on the property. In addition, a strong gravity high was indicated
within the northern area of the property. This gravity high data may indicate
shallow depth to prospective lower-plate rock units. We do not plan to start
drilling at this property until late 2007 at the earliest. We will obtain a
reclamation bond prior to commencing drilling on this property. No previous
drilling has been conducted in the vicinity of this gravity high. The estimated
cost of the initial phase of this exploration program is approximately $45,000,
consisting of:
o Gravity survey and assessment report have been completed at a cost of
$30,000.
o 500 rock and soil samples sufficient to characterize target locations
along the prospective structural zones expected to cost approximately
$30 per sample, for a total of $15,000.
We may start drilling on this property depending upon the results that we obtain
from our preliminary work. At this time, we estimate that the additional costs
of drilling two or three initial reverse circulation test holes to a total
footage of 5,000 feet to be $200,000 ($40 per foot).
EXPLORATION PROGRAM FOR INDIAN CREEK PROPERTY
We completed a detailed gravity survey of this property in May of 2007 and are
currently conducting an extensive surface sampling program. Targets to be
pursued by drilling are becoming evident and are in the process of being further
defined by mapping and sampling. We intend to drill three exploratory holes to a
depth of approximately 1,500 feet each. We will obtain a reclamation bond prior
to commencing drilling. The total cost of this initial phase of our exploration
program is estimated to be $253,000, consisting of:
o Initial staking and claim filings were completed at a cost of $28,000.
o Gravity survey and assessment report at a cost of $30,000.
o All rock and soil samples are expected to cost $15,000.
EXPLORATION PROGRAM FOR TEMPO MINERAL PROSPECT PROPERTY
A gravity survey to expand and enhance the existing gravity data is currently in
progress. Once the gravity survey is completed and evaluated by our contract
geophysicist, and the target opportunities are further defined, we intend to
drill two exploratory holes to a depth of up to approximately 2000 feet each. We
will obtain a reclamation bond prior to commencing drilling. The total cost of
this initial phase of our exploration program is estimated to be $170,000,
consisting of:
o Gravity survey and assessment report expected to cost $50,000.
o Drilling costs at approximately $25 per foot, for a total of $100,000.
o Assaying is expected to cost $20,000.
At this time, we are unable to estimate the costs of continuing our exploration
program on this property past the initial stage.
PRODUCT RESEARCH AND DEVELOPMENT
None, except for our exploration activities.
PURCHASE/SALE OF PLANT AND SIGNIFICANT EQUIPMENT
We intend to conduct our exploration activities by leasing equipment and by
contracting with third parties for various services on an as-needed basis. At
this time, we do not anticipate purchasing any equipment, although this may
change depending upon the success of our exploration activities.
CHANGES TO NUMBER OF EMPLOYEES
We intend to conduct our exploration activities by engaging geologists,
engineers, contractors and other personnel on an as-needed, consulting basis. At
this time, we do not anticipate hiring additional employees, although this may
change depending upon the success of our exploration activities.
OFF-BALANCE SHEET ARRANGEMENTS
None.
ITEM 3. CONTROLS AND PROCEDURES
After having conducted an evaluation as required by Rules 13a-15(b) and
15d-15(b) promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), our Chief Executive Officer, John M. Pritchard, and our Chief
Financial Officer, Ernest Cleave, have concluded that our disclosure controls
and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange
Act, are effective as of the end of the period covered by this report to ensure
that information required to be disclosed by us in reports that we file or
submit under the Exchange Act (i) is recorded, processed, summarized and
reported within the time periods specified in Securities and Exchange Commission
rules and forms and (ii) is accumulated and communicated to our management,
including our Chief Executive Officer and Chief Financial Officer, as
appropriate to allow timely decisions regarding required disclosures. There was
no change in our internal control over financial reporting during our most
recent fiscal quarter that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On September 24, 2007, we commenced a lawsuit in the Ontario (Canada) Superior
Court of Justice in Toronto against D. Richard Brown, Trevor Michael, Tamara
Brown, 2120315 Ontario Inc. (an Ontario company controlled by Mr. Michael), and
certain business affiliates of Messrs. Brown and Michael. Messrs. Brown and
Michael were formerly our officers and directors (See Item 5 below). This
lawsuit, the substance of which is a public record, bears Court File No.
07-CL-7186, and is between Gold Run Inc. as Plaintiff and D. Richard Brown,
Tamara Brown, Trevor Michael, 2120315 Ontario Inc., Allan Bezanson, Steve Jakob,
Donald F. Locke, Neil Mark, Robert Mark and Troy Ternowetsky as Defendants. This
lawsuit arose out of Messrs. Brown and Michael's alleged undisclosed control of
a competing gold exploration company through which they were alleged, among
other things, to have usurped our rightful corporate business opportunities. The
lawsuit alleged, among other things, breach of fiduciary duty, breach of
directors' duties, wrongful interference with the registrant's economic
interests, breach of contract, conspiracy and unjust enrichment. As relief, we
sought injunctive relief and damages in the amount of $12.2 million.
This litigation was settled in October, 2007. Under the terms of the settlement,
Messrs. Brown and Michael resigned as directors, renounced all affiliations to
and with us, and, together with the other defendants, assigned and transferred
to us for nominal consideration a total of 19,055,000 shares of our common stock
held by them, constituting approximately 90% of their collective shareholdings.
Additionally, Messrs. Brown and Michael have assigned and transferred to us 6.6
million of our warrants, constituting 100% of the warrants held by them. As a
result of the above, as of November 14, 2007, we have 25,888,467 outstanding
shares of common stock; prior to the settlement, we had 44,943,467 shares
outstanding.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On August 7, 2007, we sold 666,667 shares of our unregistered and
restricted common stock, par value $0.000001 per share, to a single foreign
(Kuwaiti) citizen and resident in a private placement under Regulation S
promulgated under the Securities Act of 1933, as amended. We realized proceeds
of $500,000 from this sale, which was used for working capital. Our purchase
agreement with this foreign investor was amended on August 30, 2007 to include
certain anti-dilution protections upon the commencement of our anticipated
amended public offering.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
The following is an index of the exhibits appended to or incorporated by
reference in this report:
Certificate of Incorporation* Exhibit 3.1
By-Laws* Exhibit 3.2
Form of Dealer Warrant* Exhibit 4.1
Form of Unit Warrant* Exhibit 4.2
Form of $.25 Convertible Note* Exhibit 4.3
Form of $.50 Convertible Note* Exhibit 4.4
Copy of John M. Pritchard Option Agreement* Exhibit 4.5
Form of Stock Certificate** Exhibit 4.6
Opinion on Legality and Consent of Counsel* Exhibit 5.1
Copy of Crescent Valley North Lease* Exhibit 10.1
Copy of Robinson Creek Lease* Exhibit 10.2
Copy of Horse Creek Lease* Exhibit 10.3
Copy of Founders Agreement* Exhibit 10.4
Copy of Seed Investor Agreement* Exhibit 10.5
Copy of Trevor Michael / 2120315 Ontario Inc.
Consulting Agreement* Exhibit 10.6
Copy of Amended and Restated Agreement with David
"Dave" Mathewson* Exhibit 10.7
Copy of David "Dave" Mathewson Employment Agreement* Exhibit 10.8
Copy of John M. Pritchard Employment Agreement* Exhibit 10.9
Copy of Brion Theriault Employment Agreement* Exhibit 10.10
Form of Mathewson-Theriault Stock Assignment Agreement* Exhibit 10.11
Copy of Share Purchase Agreement between Trevor Michael
and Gordon Cooper* Exhibit 10.12
Copy of Share Purchase Agreement between Trevor Michael
and Jasbir Gill* Exhibit 10.13
Copy of Escrow Agreement* Exhibit 10.14
Copy of Amendment to Escrow Agreement* Exhibit 10.15
Copy of Letter Agreement with David Mathewson* Exhibit 10.16
Copy of Tempo Mineral Prospect Lease* Exhibit 10.17
Rule 13a-14(a)/15d-14a(a) Certification of John Pritchard Exhibit 31.1
Rule 13a-14(a)/15d-14a(a) Certification of Ernest Cleave Exhibit 31.2
Section 1350 Certification Exhibit 32.1
Copy of September 27, 2006 David Mathewson Letter* Exhibit 99.1
Copy of October 18, 2006 David Mathewson Letter* Exhibit 99.2
NOTE:
*These exhibits were previously filed by Gold Run Inc. with the Commission
accompanying Form SB-2, including pre-effective and post-effective amendments,
and are hereby incorporated by reference herein.
**This exhibit was previously filed by Gold Run Inc. with the Commission
accompanying Form 10-QSB dated May 21, 2007 for the quarter ending March 31,
2007, and is hereby incorporated by reference herein.
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.
GOLD RUN INC.
Date: November 19, 2007 /s/ John M. Pritchard
----------------------------
John M. Pritchard
Chief Executive Officer
Date: November 19, 2007 /s/ Ernest Cleave
----------------------------
Ernest Cleave
Chief Financial Officer