As filed with the Securities and Exchange Commission on May 5, 2005.
Registration Statement No. 333 -___
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
PACIFIC GOLD CORP.
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(Name of Small Business Issuer in its Charter)
Nevada 1041 91-1997728
------------------------------ ---------------------- -------------------
(State or jurisdiction of (Primary Standard (I.R.S. Employer
incorporation or organization) Industrial Identification No.)
Classification Number)
157 Adelaide Street, West - Suite 600
Toronto, Ontario, Canada M5H 4E7
(416) 214-1483
-------------------------------------------------------------
(Address and telephone number of principal executive offices)
Mitchell Geisler, Chief Operating Officer
Pacific Gold Corp.
157 Adelaide Street, West - Suite 600
Toronto, Ontario, Canada M5H 4E7
(416) 214-1483
---------------------------------------------------------
(Name, address and telephone number of agent for service)
Copies to:
Andrew D. Hudders, Esq.
Graubard Miller
405 Lexington Avenue - 19th Floor
New York, NY 10174
Telephone: (212) 818-8800 (x8614)
Facsimile (212) 818-8881
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
CALCULATION OF REGISTRATION FEE
===================================================================================================================
| | Proposed Maximum | Proposed Maximum |
Title of each Class of | Amount to be | Offering Price | Aggregate | Amount of
Securities to be Registered | Registered(1) | Per Share | Offering Price | Registration Fee
==================================|=================|=====================|=====================|==================
Common stock underlying original | | | |
issue discount convertible | | | |
debentures....................... | 17,333,333 | $.30(2) | $5,200,000 | $ 612.04
----------------------------------|-----------------|---------------------|---------------------|------------------
Common stock underlying common | | | |
stock purchase warrants.......... | 4,333,333 | $2.125(3) | $9,208,333 | $1,083.82
-------------------------------------------------------------------------------------------------------------------
TOTAL ....................................................................................$1,695.86
===================================================================================================================
(1) Pursuant to Rule 416, also being registered are such additional
securities as may become issuable pursuant to anti-dilution provisions
of the original issue discount convertible debentures and common stock
purchase warrants.
(2) Pursuant to Rule 457(g), the fee is based on the conversion rate per
share of common stock.
(3) Pursuant to Rule 457(g), the fee is based on the warrant exercise price
per share of common stock.
_____________________
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis under Rule 415 under the Securities Act
of 1933, as amended, check the following box: [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, as amended, please
check the following box and list the Securities Act registration statement
number of the earlier effective registration statement for the same offering.[ ]
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, check the following box. [ ]
The registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act or until the registration statement shall become effective on
such date as the Commission, acting pursuant to said Section 8(a), may
determine.
Information in this prospectus is not complete and may be changed. We
may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted or would be
unlawful prior to registration or qualification under the securities laws of any
state.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED MAY 5, 2005
PACIFIC GOLD CORP.
21,666,666 Shares of Common Stock
This prospectus covers up to 21,666,666 shares of common stock of
Pacific Gold Corp. that may be offered for resale, or otherwise disposed for the
account of, the selling stockholders set forth under the heading "Selling
Stockholders" beginning on page 23. All the shares of common stock will be
offered for resale after being issued by Pacific Gold to the selling
stockholders pursuant to conversion of outstanding convertible debentures and
upon exercise of outstanding common stock purchase warrants. The convertible
debentures and common stock purchase warrants were sold by Pacific Gold to the
selling stockholders in a private placement on April 7, 2005.
The shares of common stock are traded on the OTC Bulletin Board under
the symbol PCFG. The last sale price of the common stock on May 3, 2005 was
$0.60.
Pacific Gold will not receive any proceeds from the sale or other
disposition of the shares or interests therein by the selling stockholders. To
the extent that any of common stock purchase warrants are exercised, we will
receive the exercise price paid for the shares of common stock purchased
thereunder.
Investing in our common stock involves a high degree of risk. See "Risk
Factors" beginning on page 3 of this prospectus.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this prospectus is May ___, 2005
You should rely only on the information contained or incorporated by reference
in this prospectus. We have not authorized anyone to provide you with different
information. We are not making an offer of these securities in any state where
the offer is not permitted. You should not assume that the information in this
prospectus is accurate as of any date other than the date on the front page of
this prospectus.
Table of Contents
Page
Summary...................................................................3
Risk Factors..............................................................4
Use of Proceeds...........................................................8
Market Data...............................................................8
Dividend Policy...........................................................9
Management's Discussion and Analysis of...................................9
Financial Condition and Results of Operations.............................9
Business.................................................................11
Management...............................................................18
Executive Compensation...................................................19
Summary Compensation Table...............................................20
Principal Stockholders...................................................21
Description of Securities................................................21
Selling Stockholders.....................................................23
Plan of Distribution.....................................................23
Legal Matters............................................................25
Experts..................................................................25
Where You Can Find Additional Information................................26
2
Summary
This summary highlights information contained elsewhere in this
prospectus. You should read the entire prospectus carefully, paying particular
attention to the section entitled Risk Factors.
Generally about us
Pacific Gold is engaged in the identification, acquisition, exploration
and development of mining prospects believed to have gold mineralization. These
prospects may also contain mineralizations of metals often found with gold, such
as platinum and silver. At present, the focus of our business plan is to explore
and develop commercially viable prospects with gold mineralization that could be
the basis from which we might produce revenues. Exploration for and development
of a commercially viable mineralization of any metal includes a high degree of
risk which careful evaluation, experience and factual knowledge may not
eliminate. It is noteworthy that few prospects which are explored and developed
ever produce a significant return on invested capital.
We have four subsidiaries through which we hold prospects in Nevada and
Oregon. Our subsidiary Nevada Rae Gold, Inc. is in the later permitting stage
for its prospects in Nevada, and we plan on commencing excavation and processing
of mineralization bearing gravels this Fall. Our subsidiary, Grants Pass Gold
Inc. recovered gold from its alluvial prospects in 2004, and it plans to
continue operating in the future. In respect of the other prospects held,
Pacific Gold plans to conduct some preliminary evaluations to determine the
viability of pursuing operations on them in the future and to begin the
permitting process for Fernley Gold, Inc.
We also plan to acquire additional prospects to explore. We will seek
these near and adjacent to our current prospects, when and where the opportunity
presents itself. We will also consider locations in the other western states of
the United States and in Canada and Mexico. We will consider staking, leasing
and purchasing by the company in areas that appear to offer mineralization
possibilities through historic workings, existing reports and geological
configurations.
We have had minimal revenues to date. We have spent approximately
$1,700,000 to date to acquire and evaluate our prospects and in the commencement
of operations through Oregon Gold in 2004. We expect to incur substantial
additional expenses in the further implementation of our plan of operations
before we realize any revenues from our efforts. Because we are in the early
stages of implementing our business plan, we cannot indicate now if we will ever
be profitable.
On April 7, 2005, we obtained net proceeds, after expenses, of
$2,666,086 from the sale of $4,000,000 face amount original issue discount
convertible debentures and common stock purchase warrants. These proceeds are
expected to fund our planned operations for Nevada Rae and Oregon Gold for
approximately 24 months, and to the extent there are available funds for use for
Pacific Gold and Fernley Gold. We anticipate that we will need additional
capital to significantly expand our currently planned operations and to pursue
the prospects that our other subsidiaries hold and to acquire additional
prospects. We may need additional capital in the event we encounter unexpected
operating expenses and requirements.
Pacific Gold Corp. is referred to in this prospectus as Pacific Gold,
we or us. We were incorporated in Nevada in 1996. We have four wholly owned
subsidiaries, Nevada Rae Gold, Inc. and Fernley Gold, Inc., both Nevada
corporations and Oregon Gold, Inc. and Grants Pass Gold, Inc., both Oregon
corporations. We conduct our operations through these subsidiaries. Our mailing
address is at 157 Adelaide Street West, Suite 600, Toronto, Ontario, Canada M5H
4E7. Our telephone number is (416) 214-1483.
3
Risk Factors
You should consider carefully the following risks before you decide to
invest in our common stock.
We do not have a long history of running our business upon which investors may
evaluate our performance, and therefore investors bear all the risks of an early
stage company.
We are in the early stage of implementing our business plan. We have
engaged in activities of obtaining mineralization rights by staking, acquisition
and lease for two mining prospect areas, conducting exploratory activities,
obtaining geological and engineering reports and initial extraction from
alluvial deposits on one prospect area. We have not engaged in full scale
production. There is a significant amount of additional work and investment
necessary for us to demonstrate the efficacy of our business plan. You should
consider our business future based on the risks associated with our early stage
and our short of operating history. An investment in the company is speculative.
If we are not able to face and solve one or more of the challenges that a
developing company in the mining industry typically encounters, we will not
succeed in implementing our business plan.
We expect to face many challenges in the start up of our business.
These will include:
o Engaging and retaining the services of qualified geological,
engineering and mining personnel and consultants;
o Establishing and maintaining budgets;
o Implementing appropriate financial controls;
o Acquiring relevant mineralization data efficiently;
o Staking and evaluating appropriate prospects;
o Establishing initial exploration plans for mining prospects;
o Obtaining and verifying studies to determine mineralization
levels on our prospects;
o Ensuring the necessary exploratory and operational permits are
filed on a timely basis, and the necessary permits are maintained
and approved by the federal and state authorities; and
o Adhering to regulatory requirements.
The failure to address one or more of these above factors may impair
our ability to carry out our business plan. In that event, an investment in the
company would be substantially impaired.
We will be dependant on locating and hiring, at economical rates, independent
consultants and occasional workers for the implementation of our business plan
without whom we will not meet the expected timing of implementation of our
business plan.
To locate, obtain and evaluate prospects and to conduct excavation and
processing of the alluvial matrix, we have relied upon and will continue to rely
on consultants and occasional workers in addition to our own staff. These
persons will help us in the exploratory, development, extraction, and later
stages of our business plan. We may not be able to locate or employ persons with
the appropriate experience and skills to successfully execute our business plan.
The inability to do the proposed actions on a timely basis or at all may result
in the delay of implementing our business plan, thereby causing additional
expense or our business failure.
4
Mineral exploration has many inherent risks of operations that may prevent
ultimate success.
Mineral exploration has significant risks. Some of the exploratory
risks include the following:
o It is dependent on locating commercially viable mineralizations
in staked and leased prospects and skillful management of
prospects once found or located.
o Mineralization may vary substantially in a prospect, rendering
what was initially believed a profitable mineralization of little
or no value. This is particularly true in alluvial deposits where
sought mineralization is likely to be unevenly located within the
gravel composition and matrix.
o Mineral exploration and ultimate exploitation may be affected by
unforeseen changes including:
o Changes in the value of minerals,
o Changes in regulations,
o Environmental concerns,
o Technical issues relating to extraction, such as rock
falls, subsidence, flooding and weather conditions, and
o Labor issues.
Any of these individually or together could delay or halt
implementation of the business plan or raise costs to levels that may make it
unprofitable or impractical to pursue our business objectives.
Our business future is dependent on finding prospects with sufficient
mineralization, grade and consistency without which it may not be practical to
pursue the business plan, and investors will lose their investment.
Our business model depends on locating prospects with commercially
sufficient amounts of gold and other commercial metal mineralizations. Until
actual extraction and processing, we will not know if our prospects have
commercially viable mineralizations of metals that can be profitably marketed.
Even if initial reports about mineralization in a particular prospect are
positive, subsequent activities may determine that the prospect is not
commercially viable. Thus, at any stage in the exploration and development
process, we may determine there is no business reason to continue, and at that
time, our financial resources may not enable us to continue exploratory
operations and will cause us to terminate our current business plan.
Regulatory compliance is complex and the failure to meet all the various
requirements could result in loss of a staked prospect, fines or other
limitations on the proposed business.
We will be subject to regulation by numerous Federal and state
governmental authorities, but most importantly, by the Federal Environmental
Protection Agency, the Federal Department of the Interior, the Bureau of Land
Management, in some instances the Forest Service, and comparable state agencies.
The failure or delay in making required filings and obtaining regulatory
approvals or licenses will adversely affect our ability to explore for viable
mineralizations and carry out subsequent aspects of our business plan. The
failure to obtain and comply with any regulations or licenses may result in
fines or other penalties, and even the loss of our rights over a prospect. We
expect compliance with these regulations to be a substantial expense in terms of
time and cost. Therefore, compliance with or the failure to comply with
applicable regulation will affect our ability to succeed in our business plan
and ultimately to generate revenues and profits.
5
Our business plan is premised on the price of gold in the global market, and it
continuing to be a desirable reserve and jewelry metal.
Our business plan depends on the price of gold in the global market and
the continuing desire to hold and use gold as a reserve metal and in jewelry.
The viability of any commercialization of a gold mineralization will depend on
the cost of mineral recovery versus the market price of the mineral and whether
or not it has uses in the markets. An increase in market use and price for gold
will encourage industry interest in United States mine development of smaller
operations such as our prospects and improve the likelihood of our overall
success. If the use of gold does not increase appreciably, then it is the belief
of Pacific Gold that current sources of gold will remain adequate for market
supply and sources like those we are attempting to identify and explore will
become marginalized. The viability of our business plan is also dependant on the
price of gold remaining at least at current prices. If prices fall substantially
from the current levels, then our costs will be such that there will be
insufficient profit margins and incentives to pursue our business plan. In that
event, Pacific Gold will have to curtail its business plan and investors will
lose their investment.
Competition may develop which will be better able to locate, stake and explore
new gold sources more cost effectively and quicker than Pacific Gold.
There are numerous junior and developed mining, exploration and
production companies in existence that may be attracted to the gold mining
business if the use of the mineral or price increase. We believe there are a
significant number of companies around the world that could command greater
resources than those available to Pacific Gold to locate, stake, explore and
extract gold resources if there were sufficiently improved economic incentives.
These companies likely would be able to reach production stages sooner than
Pacific Gold and obtain market share before us.
Pacific Gold will compete with other mining enterprises for appropriate
consultants and employees.
Pacific Gold will compete in the hiring of appropriate geological,
engineering, permitting, environmental and other operational experts to assist
with the location, exploration and development of staked prospects and
implementation of its business plan. We believe we will have to offer or pay
appropriate cash compensation and options to induce persons to be associated
with an early-stage exploration company. If Pacific Gold is unable to make
appropriate compensation packages available to induce persons to be associated
with it because of its limited resources, we will not be able to hire the
persons we need to carry out our business plan. In that event, investors will
have their investment impaired or it may be entirely lost.
Pacific Gold will require additional capital to fund expand operations, without
which, we will have to curtail our plans and investors may lose the potential of
their investment.
The current working capital is sufficient for its planned operations,
including the pursuit of the Nevada Rae and Oregon Gold prospects, for up to the
next 24 months. If we encounter unexpected expenses the current working capital
will not last that long. Therefore we may need additional capital sooner than
expected. For Pacific Gold to expand its operations in its current prospects and
acquire additional prospects, it is anticipated that it will need additional
capital. The mining business, in all of its aspects requires significant
capital. Without additional capital, Pacific Gold will have to curtail or
substantially modify its overall business plan or abandon elements of it.
6
Pacific Gold does not have any identified sources of additional capital, the
absence of which may prevent it from continuing its operations.
Pacific Gold does not have any arrangements with any investment banking
firms or institutional lenders. Because we will need additional capital in the
future, we will have to expend significant effort to raise operating funds.
These efforts may not be successful, and they may be disruptive to our
executives other responsibilities and our operations. In the absence of
necessary capital, Pacific Gold will have to limit or curtail operations.
Future sales of shares by our current stockholders and the selling stockholders
could adversely affect the market price of our common stock.
The current outstanding shares of common stock are either free trading
or may be sold subject to Rule 144 and its limitations. The 16,666,666 shares of
the selling stockholders may be sold pursuant to this prospectus whenever they
determine in whatever amount. Investors in the company should be aware that the
possibility of sales, in the future, may have a depressive effect on the price
of the common stock in any market which may develop and, therefore, the ability
of any investor to market his shares may depend upon the number of shares that
are offered and sold.
The market price of the shares may fluctuate greatly. Investors in the company
bear the risk that they will not recover their investment.
Trading in our common stock has been minimal from time to time and
subject to large volume and price fluctuation. Therefore, there is no clearly
established market for our shares at this time. The public market price is
likely to be influenced by the price at which and the amount of shares the
selling stockholders are attempting to sell at any point in time with the
possible effect of limiting the trading price or lowering it to their offering
price. Shares such as those of Pacific Gold are also subject to the activities
of persons engaged in short selling the securities which has the effect of
driving the price down. Therefore, the price of our common stock may fluctuate
widely. A full and stable trading market for our common stock may never develop
in which event, any holder of our shares may not be able to sell at the time he
elects or at all.
Because the common stock is a "penny stock," investors in our common stock may
not be able to resell shares they own in the public markets, therefore they may
not be able to recover their investment.
The shares are defined as penny stock under the Securities and Exchange
Act of 1934 and rules of the SEC. These rules impose additional sales practice
and disclosure requirements on broker-dealers who sell our shares to persons
other than certain accredited investors. For covered transactions, a
broker-dealer must make a suitability determination for each purchaser and
receive a purchaser's written agreement prior to sale. In addition, the
broker-dealer must make certain mandated disclosures in transactions of penny
stocks. Consequently, these rules may affect the ability of broker-dealers to
make a market in our common stock and may affect the investors' ability to
resell shares purchased in this offering. These transaction rules also may have
a depressive effect on the market because brokers cannot generally recommend an
investment in Pacific Gold. Therefore, in all likelihood, a public market will
be slow to develop, if at all.
7
A single stockholder has the ability to control our business direction.
Because one of our stockholders, an affiliate of which is also an
officer and director, owns about 76% of the shares of common stock, it is in a
position to control the election of our board of directors and the selection of
officers, management and consultants. This investor has also lent the company a
significant amount of working capital. Therefore, investors will be entirely
dependent on its judgment in implementing the business plan of Pacific Gold.
Use of Proceeds
All of the shares of common stock covered by this prospectus may be
sold or otherwise disposed of for the account of the selling stockholders.
Pacific Gold will not receive any of the proceeds from the sale or other
disposition of the shares or interests therein by the selling stockholders.
If the common stock purchase warrants are exercised, Pacific Gold will
receive the exercise price of $2.125 per share. If all the common stock purchase
warrants are exercised for cash assuming no adjustments to the exercise price
for anti-dilution protection, we would receive $7,083,333 in gross proceeds.
Market Data
The common stock is traded in the over-the-counter market and quoted on
the OTC BB under the symbol "PCFG" and quoted in the pink sheets published by
the National Quotations Bureau.
Our common stock is designated as "penny stock" and thus may be
illiquid. The SEC has adopted rules (Rules 15g-2 through l5g-6 of the Exchange
Act), which regulate broker-dealer practices in connection with transactions in
"penny stocks." Penny stocks generally are any non-NASDAQ equity securities with
a price of less than $5.00, subject to certain exceptions. The penny stock rules
require a broker-dealer to deliver a standardized risk disclosure document to
provide the customer with current bid and offer quotations for the penny stock,
the compensation of the broker-dealer and its salesperson in the transaction,
monthly account statements showing the market value of each penny stock held in
the customers account, to make a special written determination that the penny
stock is a suitable investment for the purchaser and receive the purchaser's
written agreement to the transaction. These disclosure requirements may have the
effect of reducing the level of trading activity, if any, in the secondary
market for a stock that is subject to the penny stock rules. Since our common
shares are subject to the penny stock rules, persons holding or receiving such
shares may find it more difficult to sell their shares. The market liquidity for
the shares could be severely and adversely affected by limiting the ability of
broker-dealers to sell the shares and the ability of stockholders to sell their
stock in any secondary market.
The trading volume in our common stock has been and is extremely
limited. The limited nature of the trading market can create the potential for
significant changes in the trading price for the common stock as a result of
relatively minor changes in the supply and demand for our common stock and
perhaps without regard to our business activities.
The market price of our common stock may be subject to significant
fluctuations in response to numerous factors, including: variations in our
annual or quarterly financial results or those of our competitors; conditions in
the economy in general; announcements of key developments by competitors; loss
of key personnel; unfavorable publicity affecting our industry or us; adverse
legal events affecting us; and sales of our common stock by existing
stockholders.
8
The high and low sales prices for the Common Stock during each quarter
are as set forth in the table below (such prices are without retail mark-up,
mark-down, or commissions).
QUARTER ENDED HIGH LOW
------------------ ----- -----
March 31, 2005 $2.14 $ .26
December 31, 2004 .50 .30
September 30, 2004 .59 .26
June 30, 2004 1.34 .25
March 31, 2004 .77 .11
December 31, 2003 1.23 .20
September 30, 2003 1.15 .51
June 30, 2003 1.50 .51
March 31, 2003 1.01 .05
We have 35 record holders of our common stock. We believe that in
addition to the record ownership there are in excess of 700 beneficial owners
who hold their shares in street name or through other nominees.
Dividend Policy
We plan to retain all earnings generated by our operations, if any, for
use in our business. Pursuant to the terms of the convertible debentures,
Pacific Gold may not pay any cash dividends while the principal is outstanding.
We do not anticipate paying any cash dividends to our stockholders in the
foreseeable future. The payment of future dividends on the common stock and the
rate of such dividends, if any, and when not restricted, will be determined by
our board of directors in light of our earnings, financial condition, capital
requirements and other factors.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Forward Looking Statements
From time to time, we or our representatives have made or may make
forward-looking statements, orally or in writing. Such forward-looking
statements may be included in, but not limited to, press releases, oral
statements made with the approval of an authorized executive officer or in
various filings made by us with the SEC. Words or phrases "will likely result",
"are expected to", "will continue", "is anticipated", "estimate", "project or
projected", or similar expressions are intended to identify "forward-looking
statements". Such statements are qualified in their entirety by reference to and
are accompanied by the above discussion of certain important factors that could
cause actual results to differ materially from such forward-looking statements.
Management is currently unaware of any trends or conditions other than
those previously mentioned in this management's discussion and analysis that
could have a material adverse effect on the our consolidated financial position,
future results of operations, or liquidity. However, investors should also be
aware of factors that could have a negative impact on our prospects and the
consistency of progress in the areas of revenue generation, liquidity, and
generation of capital resources. These include: (i) variations in revenue, (ii)
possible inability to attract investors for its equity securities or otherwise
raise adequate funds from any source should the company seek to do so, (iii)
increased governmental regulation, (iv) increased competition, (v) unfavorable
outcomes to litigation involving the company or to which the company may become
a party in the future and, (vi) a very competitive and rapidly changing
operating environment.
9
The above identified risks are not all inclusive. New risk factors
emerge from time to time and it is not possible for management to predict all of
such risk factors, nor can it assess the impact of all such risk factors on the
company's business or the extent to which any factor or combination of factors
may cause actual results to differ materially from those contained in any
forward-looking statements. Accordingly, forward-looking statements should not
be relied upon as a prediction of actual results.
The financial information set forth in the following discussion should
be read with the consolidated financial statements of Pacific Gold included
elsewhere herein.
Financial Condition and Changes in Financial Condition
Overall Operating Results:
Pacific Gold had gold revenues of $61,560 for the year ended December
31, 2004. Production costs associated with this revenue totaled $104,996
producing a negative margin of $43,436. All revenues came from gold sales
produced by our Grants Pass subsidiary in the last two fiscal quarters. We
anticipate positive profit margins in the near future based on production volume
increases and increased efficiency in equipment.
All gold produced by the company is sold in its raw form to a refinery.
The refinery credits the company based on the purity of the gold versus the spot
price for that day. Grants Pass Gold had an average purity of 88%, meaning that
we were credited 88% of the spot price. Refinery charges vary, but generally run
between 1-5% of the value of the gold that is smelted.
Operating expenses for 2004 totaled $847,796. Pacific Gold incurred
labor costs associated with the various mining activities. Labor costs were
$117,552 for the year. Legal and professional fees of $177,311 were incurred for
services performed with respect to acquisitions and mining prospect evaluation,
as well as SEC reporting compliance and accounting fees. Pacific Gold also
incurred expenses related to geological studies, fieldwork, site visits,
preparation of mining permit applications and consulting fees of $159,419.
Advertising and public relations expenses totaled $202,457. Interest expense
totaled $102,815 for the year. The remaining expenses relate to office, general
administrative, and stock transfer agent fees. We believe we will incur
substantial expenses for the near term as we progress with our evaluation
process of the mining prospects.
Operating expenses for 2003 totaled $222,895. Legal and professional
fees of $96,300 were incurred for services performed for the acquisition and
evaluation of the mining prospects as well as for SEC reporting compliance and
accounting fees. We also incurred expenses related to the geological studies,
field work and site visits of $66,800. Mineral rights expenses were $26,327. The
remaining expenses relate to advertising, office, general and administrative and
stock transfer agent fees.
Liquidity and Capital Resources:
We have funded our operations from the sale of securities and loans
from a stockholder. At December 31, 2004, we had unsecured loans from a
stockholder in an aggregate amount of $1,679,520, including accrued interest
since their making in mid-2003. The notes bear interest at the rate of 10% and
are due on June 30, 2005.
During the fourth quarter of fiscal year 2004, Pacific Gold sold 38,167
shares of common stock in a self underwritten public offering for total proceeds
of $11,450.
10
As of December 31, 2004, our assets totaled $687,360, which consisted
primarily of mineral rights, land and water rights, and related equipment. Our
total liabilities were $1,876,856 which are primarily the notes payable to
stockholder of $1,679,520 and an equipment loan of $74,473 including accrued
interest. We had an accumulated deficit of $1,290,102. Pacific Gold had a
working capital deficit of $1,867,881 at December 31, 2004.
On April 7, 2005, the company sold $4,000,000 in an aggregate principal
amount of original interest discount convertible debentures and 3,333,333 common
stock purchase warrants to purchase common stock for net proceeds to Pacific
Gold of $2,666,086, after expenses. The principal and interest in the aggregate
of $4,000,000 is due April 6, 2008. The notes may be converted into common stock
at the election of the holder at any time at the conversion rate of $.30 per
share, subject to various limitations, the principal one of which is that the
holder may not own more than 4.99% of the then outstanding common stock
immediately after the conversion. The warrants are exercisable at $2.125 per
share until April 6, 2008. The company paid $253,622 in commissions and expenses
in connection with debenture and warrant transaction. The debentures and
warrants were sold, and the common stock issuable on conversion and exercise
will be sold, under Section 4(2) of the Securities Act of 1933, as amended, on a
private placement basis, to foreign institutional, accredited investors.
As a result of the debenture transaction, we believe that we have
sufficient working capital for the next 24 months. We intend to use the working
capital to begin production at the Black Rock Canyon mine in Nevada, further
testing for Oregon Gold, permitting for Fernley Gold and working capital for
Pacific Gold, and asset acquisitions. We may require additional capital in order
to begin operations at additional prospects in the future.
New Accounting Pronouncements
Pacific Gold does not expect the adoption of recently issued accounting
pronouncements to have a significant impact on Pacific Gold's results of
operations, financial position, or cash flow.
Business
Introduction
Pacific Gold is engaged in the identification, acquisition, exploration
and development of mining prospects believed to have gold mineralization. The
business plan of the company is to focus on alluvial and placer deposits. The
main objective is to explore, identify, and develop commercially viable gold
mineralizations on prospects over which the company has rights that could
produce revenues. These types of prospects may also contain mineralization of
metals often found with gold, such as platinum and silver, which also may be
worth processing. Exploration and development for commercially viable
mineralization of any metal includes a high degree of risk which careful
evaluation, experience and factual knowledge may not eliminate, and therefore,
we may never produce any revenues.
Pacific Gold Corp. currently owns 100% of four operating subsidiaries;
Nevada Rae Gold, Inc., Oregon Gold, Inc., Grants Pass Gold, Inc., and Fernley
Gold, Inc. in which it holds various prospects in Nevada and Oregon. The company
intends to acquire through staking, purchasing and/or leasing arrangements
additional prospects, from time to time, in which there may be gold
mineralization potential.
11
Gold Orientation
Throughout history gold has been a desired metal for monetary purposes
and for jewelry. These uses continue today and are expected to be uses of the
metal well into the future. Because there is an active market for the metal, and
consistent demand and use, we believe that if we find a viable mineralization,
we will be able to sell any gold we produce with little difficulty. Of course,
there is no assurance that we will find any mineralization or one that is
commercially viable. Fundamentally, whether or not a mineralization is viable
depends on the cost of production versus the price at which we can dispose of
the metal. We believe that alluvial and placer deposits are less expensive to
operate to produce saleable product. We also believe that the required filings
and permits are easier to obtain for these kinds of prospects than for
underground mines. Based on the current estimates of operating costs and the
current price of gold in the global market, we believe these kinds of prospects
can be operated profitably if there is a sufficient percentage of the
mineralization in a particular prospect to be commercially viable.
We have obtained and in the future will seek prospects in areas where
there have been previous mining operations. We believe that this gives some
indication that there may be mineralizations within our prospects to justify the
cost of staking, maintenance and exploration.
Nevada Rae Gold, Inc.
The prospects held by Nevada Rae are located among the Crescent Valley
placer deposits, in the bullion mining district of Lander County, Nevada. They
are about two miles from the town of Crescent Valley, and some 50 miles west of
Elko, Nevada. The area is about 175 miles northeast of Reno, Nevada.
The area is accessible by an all-weather asphalt road and about 19
miles from Interstate 80. The property where the prospects are has an all
weather gravel road established in the 1970's for prior mining operations of
barite. The prospects also have access to electricity and water sufficient for
exploration, development and later extractive and milling activities if
warranted and undertaken.
The climate is typically hot and semi-arid with temperatures rising to
above 100 degrees Fahrenheit in the summer to below freezing in the winter.
Freezing temperatures are only sporadically encountered in the winter months of
December and January and are not likely to have serious affect on operations.
Precipitation is minimal and offers little or no operational problems.
The nearby towns appear to have a supply of skilled workers familiar
with earthmoving equipment and alluvial mining experience. Equipment also
appears to be available for purchase or lease. In the vicinity there is state
supplied electricity and water can be obtained from wells at approximately 560
feet. We have acquired 100% of two existing wells in the area which can supply
ample amounts of water for the operation as we intend to employ re-circulation
methodologies. We also have acquired 13.67 acres of fee land available adjacent
to the wells which can accommodate the mill, tailings ponds, workshop and
on-site office. The wells and adjacent land is approximately two miles from the
prospect acreage. This land and the two wells have been formally analyzed and
tested by the State of Nevada and Chemrox Technologies, an environmental
specialist firm that the company hired to provide it with professional services
in due diligence, mine planning, groundwater modeling, water restoration,
environmental permitting, and reclamation, and are determined to be in excellent
condition, free of any contaminants. The tests also confirmed that the certified
capacity of each well exceeds the output rates required by Nevada Rae to
successfully operate its proposed processing plant.
12
Production History
Gold mineralization was first discovered in 1907 in the Crescent Valley
area, and thereafter intermittent work was carried out up to World War II. In
the 1930s an exploration program was carried out with a number of shafts sunk in
the Mud Springs Gulch area. These studies identified quantities of gold
mineralization situated close to the bedrock at the bottom of the alluvial
areas. In the late 1970s there was barite mining and milling in the area using
open pits. In the mid-1980s the barite mining operations were purchased and
modified and there was some recovery of gold mineralization during the later
1980's and 1990's at low extractive rates.
History of Mining
The history of placer gold exploration and mining in the area is well
documented. Placer gold was first discovered in the project area in 1907 and
intermittent work was carried out until World War II. Most of the historical
work was carried out over a 3-4 mile section in Mud Springs Gulch, but there are
older exploration pits throughout the company's prospects. There appear to be
about thirty exploration shafts sunk through the gravels to bedrock. This work
was conducted in the 1930's, but there are no detailed results available. Little
work was done in the Black Rock Canyon during the historical period.
In 1978, Major Barite Inc. implemented an operation to mine and process
barite from several small, open pits within the project area. In 1982 the barite
market collapsed, and the company turned its attention to placer gold
exploration and development. There was a program of bulk sampling in the
drainages for gold. Trenches and pits were dug and processed from locations in
Black Rock Canyon, Mud Springs Gulch, Tub Springs Gulch and Rosebud Gulch. A
widespread occurrence of placer gold was discovered, but Major Barite Inc.
ceased operations in 1984. In 1984, the area was taken over by Mr. John Uhalde
who continued to explore and develop the placer gold resources in the project
until his death in 2001. Mr. Uhalde operated his placer mine under a small
miners permit.
The prospects are located within the Battle Mountain - Crescent Valley
Gold Tread in Lander County, Nevada. In the area are current mining operations
of the Placer Dome and Kennecott companies.
Local Geology
The prospects are located among the easterly alluvial deposits of the
Shoshone Mountain range and merge with the sediments of Crescent Valley. It is
posited that this area is the remains of a large, ancient lakebed. The project
consists of three main drainages: Black Rock Canyon, Mud Springs Gulch and Tub
Springs Gulch. The alluvial deposits are typically 100 to 300 feet wide and with
depths of up to 90 feet, but the alluvial - sedimentary material can reach
thicknesses in excess of 500 feet thick in areas. The thickness of the gravels
is judged to become progressively greater as one moves eastwards from the
mountains. It is estimated that the gravels are between 16 and 90 feet below the
surface with an average thickness of about 30 feet. The gravels are typically
dry and light brown pebble and occasionally boulder gravels. Oversized material
is rare. Compositionally, the coarse material is mainly rounded cherts and
metavolcanics with occasional weathered and variable granodiorite. The uppermost
layers, generally running about 6 to 8 feet in depth, will have to be removed to
access the gravels likely to have the mineralizations sought. It is believed
that the gravels will have little clay and will present few processing problems.
There is no information on the vertical distribution of gold
mineralization within the gravels. Through historical records from shaft-sinking
suggests that the gravel becomes courser with depth, coinciding with an increase
in the percentage of oversize boulders. It is believed that the best gold
mineralization levels are obtained at the bedrock interface.
13
Prospects
Nevada Rae has staked prospects covering approximately 920 acres of the
alluvial deposits among the Crescent Valley deposits mentioned above. In
addition, it leased approximately 440 acres of land adjacent to its staked
prospects from Corporate Creditors Committee LLC, by lease dated October 1,
2003. The lease covers acreage in Section 9, Township 29 North, Range 47 East,
Mount Diablo Meridian, Bullion Mining District, Lander County, Nevada. Under the
lease, it has the right to the gold, silver, platinum, palladium and other
precious and base metals within the placers and gravels of the leased premises,
with exclusive right to prospect and explore for, mine by open pit methods,
mill, prepare for market, store, sell and dispose of the same and use, occupy
and disturb so much of the surface as Pacific Gold determines useful, desirable
or convenient. The lease term is ten years, renewable for an additional ten
years.
Nevada Rae must pay an advance rental of $7,500 for the first year,
which amount is increased by $2,500 in each of the next five years to be $20,000
in the sixth year. For the last four years of the lease, the advance rental is
$20,000 per year. If the lease is renewed, the annual advance rental is $20,000.
The advance rental is credited to and recoverable from the production rental
amounts.
Nevada Rae will be obligated to pay a production rental of the greater
of four percent of the net smelter royalty (net ore value processed, less
production costs, excluding general administration costs) or $0.50 per yard of
material processed.
The lease is terminable upon notice of default by lessor after a 30-day
period in which cure must commence or be completed if capable of completion in
such period. Nevada Rae may terminate on 30 days advance notice.
Proposed Operations
In early March 2004, Nevada Rae submitted a Plan of Operations to the
Bureau of Land Management (BLM), and the Nevada State Division of Environmental
Protection (NSDEP). The Plan of Operations was submitted on behalf of the
company by Chemrox Technologies. In January 2005 the company received approval
for its Plan of Operations conditional on posting a surety bond with the BLM
which was posted in April 2005. Once the company receives the BLM permit and
acquires by lease or purchase certain necessary equipment, it will begin
implementation of the Plan of Operations. We believe the company will receive
the permit shortly and anticipates that it will commence operations during 2005.
The property is now referred to as the Black Rock Canyon Mine.
In connection with the Black Rock Canyon Mine, an application for a
Water Pollution and Control Permit was filed and approved by the Nevada
Department of Environmental Protection. The permit addresses the hydrology,
soil, sediment, vegetation, fluid sources, water usage and consumption, fluids
handling, diversion, storage and safety precautions, and stabilization and
management controls, among other items.
In general, the operations will require the excavation of the gravel
within the prospect. Typically, the vegetation and minor soil cover will be
stripped and side cast for future reclamation. The mineralization bearing gravel
will be dug with an excavator until bedrock is reached, and material will be
stockpiled adjacent to the cut. A power screen will be set up near the cut to
remove the one-inch and larger boulders and cobbles to reduce the volume of
concentrate to be transported to the milling area. It is estimated that as much
as 60% of the volume will be removed at this point without substantial
mineralization loss. A front end loader will feed the power screen from the
stockpile and load the trucks. The concentrate mill area will be about two miles
away. The mill site will be equipped with two functioning wells for process
water and can be connected to the national power grid. The mill is a fairly
portable plant and both the mill and power screening unit will be set up on the
private, fee land owned by the company.
14
The mill will consist of a feed hopper, trammol scrubber/screen to
remove the 1/4 inch and larger materials and to wash the gravel before it passes
into the centrifugal bowls for gold recovery. Tailing ponds will be established
to recirculate water and tailings will be returned to the cut once stacked and
dried. No chemicals will be used in the operations. Clean up of concentrates
will be done with a smaller centrifugal bowl and shaking table and gold flakes,
particles and dust will be dried and weighed before being shipped to the
refinery.
Oregon Operations
Grants Pass Gold, Inc.
Grants Pass has a number of prospects in the Siskiyou National Forest,
in Josephine County Oregon. These prospects cover approximately 280 acres of
placer deposits in one area and another 37 acres in a second, almost contiguous
area. The property is accessible from a gravel road that connects with a local
paved road. Maintenance of the gravel road is moderate. In some places a stream
must be forded for access. Generally, there is ample water from the perennial
stream bordering the prospects available for exploratory and later
implementation of the business plan. Water use is subject to meeting permitting
requirements. Power will be available through generators brought to and operated
onsite.
Grants Pass Gold currently owns the Defiance Mine and additional claims
in Josephine County, Oregon. Pre-production of the Defiance Mine, began in July
2004 and full production commenced in August 2004. Mining activity concluded for
the winter at the end of November.
During 2004, Grants Pass established its operating mill and completed
pre-production testing and development of its mining activities. It encountered
difficulties with some of the equipment purchased from the previous owner of the
mine which caused some delays. In addition, the company experienced delays while
establishing the water supply as a result of the summer months of 2004 being
extraordinarily dry. The water issues were satisfactorily resolved, and by the
end of September 2004, the prospect was in full production.
Production costs in August 2004 and September 2004 were $2,589 per
ounce of gold and $708 per ounce of gold, respectively. Once the equipment and
water issues were resolved, production efficiency rose dramatically, and the
cost per ounce decreased. Production costs in October 2004 were $615 per ounce
of gold and $475 per ounce in November. Based on results of the 2004 season, and
with some equipment upgrades, we anticipate future production costs being
between $150 and $200 per ounce and there will be an increase in the volume of
gold produced.
Oregon Gold, Inc.
Oregon Gold is engaged in the business of alluvial gold mineral
exploration and mining in Josephine County, Oregon. The company's business plan
is to complete the exploration and mineralization surveys on its Bear Bench
project, which will include an examination of the deposit configuration and
mineralization levels to determine the viability of the prospects.
15
A sample drilling program at Oregon Gold's project site within the
prospect during May 2004 confirmed the existence of gold mineralization. The
company's geological investigations indicated viable mineralization of gold and
certain other minerals in the areas surveyed. The company has staked fourteen
claims in the area which are collectively known as the Bear Bench Claims and
comprise almost 280 acres.
In addition to the sample drilling program, Oregon Gold has received
permission from the Forest Service to conduct an extensive trenching and
sampling project. We intend to conduct this testing during 2005.
Production History
Josephine County has experienced many decades of mining which continued
actively until the 1930s. Mineralization recovery, including recovery of gold,
has taken place on the property owned by Grants Pass. This extraction has
occurred since the late 1980s. The most recent local operations employed dredge
and hydraulic methods using contract mining crews on a seasonal basis.
Local Geography
The property covers an area of terrace gravels that run along the
flanks of a perennial stream. The terrace gravels are generally referred to as
boulder gravels comprised of boulders and cobbles, pebbles and cemented matrix.
The terrace gravels sit on an ultramafic bedrock. Mineralization in the
areainclude gold and platinum group elements that occur as nuggets, flakes,
nodules and fine-grained disseminations within the cemented matrix. In addition,
platinum occurs alloyed with nickel as teanite. Based on a site visit, the
gravel terrace is approximately 4,000 feet long, 600 feet wide and 50 feet
thick. The gravels commence at the surface, beneath the top and subsoil layers.
Fernley Gold, Inc.
Fernley Gold, Inc. entered into a lease agreement in 2004 for the right
to mine the property and claims known as Butcher Boy and Teddy. The property and
claims are located 34 miles east of Reno, Nevada, just off highway I-80. The
area known for placer gold, and commonly referred to as the Olinghouse Placers,
has a rich mining history.
Fernley Gold leased 640 acres including 35 claims, and the exclusive
right to mine for placer, lode and other minerals and metals. The lease includes
two water wells and water rights. The initial agreement is for a period of five
years, with Fernley Gold having the exclusive right to renew the lease on the
existing terms. Fernley Gold made a one-time payment of $10,000 to acquire the
lease, followed by two quarterly payments of $500, and currently makes payments
of $1,000 each month. The monthly payments are applied towards the royalty fees
that will become due to the Lessor. According to the royalty fee structure, the
company will pay 6% of the gross value of the recovered ore, less smeltering
expenses, when the price of spot gold is below $400 per ounce on the world
market. When gold is above the $400 threshold, the company will pay a 10%
royalty. During 2005, Fernley Gold anticipates additional sampling and testing,
followed by submission of its Plan of Operations.
16
The leased property is located in a rich mining area, with historical
data available, including extensive testing and mining operations. The most
up-to-date review of the data indicates the lease on the Butcher Boy property
contains proven, indicated, and potential reserves.
Regulation
The exploration and development of a mining prospect will be subject to
regulation by a number of federal and state government authorities. These
include the United States Environmental Protection Agency, the Bureau of Land
Management and, in certain cases, the United States Forest Service, as well as
the various state environmental protection agencies. The regulations address
many environmental issues relating to air, soil and water contamination and
apply to many mining related activities including exploration, mine
construction, mineral extraction, ore milling, water use, waste disposal and use
of toxic substances. In addition, we will be subjected to regulations relating
to labor standards, occupational health and safety, mine safety, general land
use, export of minerals and taxation to which we may become subject when we
complete the exploration phase. Many of the regulations require permits or
licenses to be obtained and the filing of Notices of Intent and Plans of
Operations, the absence of which or inability to obtain will adversely affect
the ability for us to conduct our exploration activities. The failure to comply
with the regulations and terms of permits and licenses may result in fines or
other penalties or in revocation of a permit or license or loss of a prospect.
We must comply with the annual staking and patent maintenance
requirements of the States of Nevada and Oregon and the United States Bureau of
Land Management. We must also comply with the filing requirements of our
proposed exploration and development, including Notices of Intent and Plans of
Operations. In connection with our exploration and assessment activities, we
have pursued necessary permits where exemptions have not been available
although, to date, most of these activities have been done under various
exemptions. We will need to file for water use and other extractive-related
permits in the future.
Competition
We expect to compete with many mining and exploration companies in
identifying and acquiring claims with gold mineralization. We believe that most
of our competitors have greater resources than us. We also expect to compete for
qualified geological and environmental experts to assist us in our exploration
of mining prospects, as well as any other consultants, employees and equipment
that we may require in order to conduct our operations. We cannot give any
assurances that we will be able to compete without adequate financial resources.
Employees
Pacific Gold has four employees and has engaged a chief financial
officer to commence in May 2005. We expect to hire geological experts, engineers
and other operations consultants and independent contractors and laborers from
time to time, for differing periods to facilitate the implementation of our
business plan. We believe that the experts, engineers, consultants and
independent contractors and laborers to be readily available at this time for
the company prospects.
Properties
Pacific Gold maintains offices at 477 Richmond Street Suite 508,
Toronto Ontario, M5V 3E7. The company has currently a one-year lease that
expires on January 15th, 2006. Pacific Gold pays $2,200 CDN per month in rent.
The company maintains a mailing address at 157 Adelaide Street West, Suite 600,
Toronto, Ontario, Canada, M5H 4E7.
17
Nevada Rae Gold, Inc. has staked 46 placer prospects covering almost
920 acres in Lander County, Nevada. Nevada Rae also acquired 13.67 acres of
private land in Lander County, Nevada.
Oregon Gold, Inc. has 14 placer prospects covering about 280 acres in
Josephine County, Oregon.
Grants Pass Gold, Inc. purchased a project known as the Defiance Mine,
a fully permitted, operational mine located in southwestern Oregon.
Fernley Gold, Inc. has entered into a lease agreement for the right to
mine 640 acres located 34 miles east of Reno, Nevada. The lease includes 35
claims, and the exclusive right to mine for placer, lode, and other minerals and
metals.
Nevada Rae Gold, Inc. leases an office on a short term basis in an
established office facility in Reno, Nevada, to allow company personnel and
representatives to be more readily accessible and more productive in performing
their roles on behalf of the company when on location in Nevada.
Management
Our directors and executive officers are as follows:
Name Age Position
Robert Landau 33 Chief Executive Officer and Chairman
Mitchell Geisler 34 Chief Operating Officer, Treasurer,
Secretary and Director
Mr. Robert Landau has been the chief executive officer of the company
since April 2005. He has been the president and director of ZDG Investments
Limited since May 1999. Mr. Landau's experience includes the founding and
financing of development stage businesses. Previously, he was an Actuarial
Consultant with a large multi-national consulting firm. He has a Bachelor of
Commerce - Actuarial Science and Finance degree from the University of Toronto
in Toronto, Ontario, Canada.
Mr. Mitchell Geisler has been the president and chairman of the board
from January 2001 to April 2005 when he became the chief operating officer upon
the appointment of Mr. Landau as chief executive officer. Mr. Geisler has been
the treasurer and secretary of the company since October 2002. Mr. Geisler has
more than 15 years of experience in the hospitality and services industry. From
1998 to 2001, Mr. Geisler was president and operator of the Toronto-based 52
Restaurants Inc. Mr. Geisler is a graduate of Toronto's York University in
Toronto, and also studied at the University of Tel Aviv. Mr. Geisler, until June
2003, was a director and president and treasurer of GL Energy and Exploration,
Inc., a development stage company engaged in the mineral exploration business.
Mr. Geisler was also a director of Uranium Strategies, Inc., both mineral
exploratory stage companies.
18
Directors
Each director will hold office until the next meeting of stockholders
or until his successor is duly appointed and qualified. Directors do not receive
any compensation for their services at this time. In the future, if Pacific Gold
has non-employee directors, it expects it will provide a compensation package
primarily based on stock options and reimbursement for direct expenses.
Committees of the Board of Directors
The board of directors of Pacific Gold has no committees. In the
future, it may establish audit and compensation committees.
Independence of Directors
Our common stock is traded on the over-the-counter bulletin board.
Therefore, the company is not required to have independent members of the board
of directors. Mr. Landau and Mr. Geisler are not independent directors, as they
are employees of the company.
Certain Relationships and Related Transactions
During 2003, ZDG Investments Ltd. lent working capital to the company.
ZDG Investments Ltd., which owns 5,000 shares of common stock is related to ZDG
Holdings Inc., a significant stock holder of the company of which Robert Landau
is the president. At December 31, 2004, we had unsecured loans from ZDG
Investments Inc. in the aggregate amount of $1,679,520, including accrued
interest. The notes bear interest at the rate of 10% and are due on June 30,
2005.
Limitation on Directors' Liabilities
The bylaws of Pacific Gold provide for full indemnification of its
directors and officers under Nevada law. Nevada law provides that a corporation
may indemnify any person who is a party to a suit or action or threatened to be
made a party to a suit or action, unless the action is by the corporation or is
a derivative action on behalf of the corporation when the suit or action is
based on his actions on behalf of the corporation or is based on his actions
taken at the request of the corporation, and the actions were taken in good
faith for the best interests of the corporation. Indemnification will include
expenses, attorney fees, judgments, fines and settlement amounts. Where a
director or officer is successful on the merits of any suit or action brought
against him by reason of his actions for or on behalf of the corporation, he
shall be fully indemnified. Pacific Gold may advance expenses in connection with
a suit or action against its directors and officers if approved by the
stockholders or directors who are not part of the action. Pacific Gold may
obtain insurance for any of the indemnification obligations or may provide other
financial arrangements such as establishment of a trust fund or program of self
insurance.
Executive Compensation
The following table sets forth all compensation awarded to, earned by,
or paid for all services rendered to us during the fiscal years ended December
31, 2004, 2003 and 2002, by our chief operating officer and our other executive
officers whose total compensation exceeded $100,000 during the year ended
December 31, 2004.
19
LONG TERM COMPENSATION
-----------------------------------
AWARDS
------------------------ PAYOUTS
ANNUAL COMPENSATION RESTRICTED SECURITIES -------
------------------------- STOCK UNDERLYING LTIP ALL OTHER
NAME AND YEAR SALARY BONUS OTHER AWARD OPTIONS PAYOUTS COMPENSATION
PRINCIPAL POSITION (1) ($) ($) ($) ($) SARS(#) ($) ($)
-------------------- ---- ------- ----- ----- ---------- ---------- ------- ------------
Mitchell Geisler, 2004 $36,000 $0 $0 $0 $0 $0 $0
President & Director 2003 $0 $0 $0 $0 $0 $0 $6,000
2002 $0 $0 $0 $0 $0 $0 $0
----------------------------------
(1) For the fiscal year ended December 31, 2004. There was no compensation
for this officer for the fiscal year ended December 31, 2003. Mr.
Geisler became the chief operating officer in April 2005.
(2) On December 8, 2003, Pacific Gold issued an aggregate of 60,000 shares
of common stock to Mr. Geisler as compensation and reimbursement for
services and expenses in connection with the abandoned acquisition
program of certain prospects and other assets in Oregon, various site
visits and due diligence activities on behalf of the company, incurred
during 2003. These shares have been valued at $6,000. The shares were
issued under the equity performance plan, the shares of which were
registered for issuance by Pacific Gold.
(3) There was no compensation paid in 2002.
Compensation Arrangements for Executive Officers
Commencing May 1, 2005, Pacific Gold will compensate Mr. Robert Landau,
the chief executive officer and a director, by accruing $8,000 per month to be
paid in shares of common stock calculated at the then market price, in arrears,
to be issued at a mutually determined time, from time to time, and will
compensate Mr. Mitchell Geisler, the chief operating officer, treasurer,
secretary and director, with a $60,000 annual salary and accruing $2,000 per
month to be paid in shares of common stock calculated at the market price, in
arrears, to be issued at a mutually determined time, from time to time. The
shares will be issued under the 2002 performance equity plan.
In addition, Pacific Gold will grant options to Messrs. Landau and
Geisler under the 2002 performance equity plan in the amount of 300,000 and
250,000 shares, respectively, vesting over two years at six month intervals, at
the market price on the date of grant.
Employee Benefit Plans
Pacific Gold adopted a performance equity plan in 2002 authorizing up
to 3,000,000 shares of common stock for structuring compensation arrangements
and to provide an equity incentive for employees and others who are awarded
shares under the 2002 plan. None of the awards as provided under the 2002 plan
are allocated to any particular person or class of persons among those eligible
to receive awards. We issued 160,000 shares under this plan during 2003 and an
aggregate of 100,000 shares and share options during 2004.
20
Principal Stockholders
The following table sets forth the beneficial ownership of our common
stock by all stockholders that hold 5% or more of the outstanding shares of our
common stock, each director and executive officer.
Name and Address Shares Percent
of Beneficial Owner Beneficially Owned(1) of Class(2)
------------------------------------ --------------------- -----------
Robert Landau(3) 16,705,000 76.2%
Mitchell Geisler(4) 1,000,000 4.6%
ZDG Holdings Inc.(5) 16,680,000 76.1%
All directors and executive officers
as a group (two persons)............ 17,705,000 80.7%
------------------------------------
* Less than 1%.
(1) Unless otherwise noted, we believe that all persons named in the table
have sole voting and investment power with respect to all common shares
beneficially owned by them, subject to community property laws, where
applicable.
(2) There are 21,925,667 shares of common stock currently issued and
outstanding. Each person beneficially owns a percentage of our
outstanding common shares which such person has the right to vote or
dispose and can acquire within 60 days of April 13, 2005 upon the
exercise or conversion of options, warrants or convertible securities.
(3) Includes 16,680,000 shares of common stock held by ZDG Holdings Inc.
and 5,000 shares of common stock held by ZDG Investments over which Mr.
Landau has voting and dispositive control, although he disclaims
pecuniary interest in a portion of the shares held by those entities.
Mr. Robert Landau's address is c/o Pacific Gold Corp., 157 Adelaide
Street West, Suite 600, Toronto, Ontario, Canada.
(4) The business address of Mr. Geisler is c/o Pacific Gold Corp., 157
Adelaide Street West, Suite 600, Toronto, Ontario, M5H 4E7.
(5) The business address of ZDG Holdings Inc. is 23 Sandfield Road,
Toronto, Ontario, M3B 2B6. Mr. Robert Landau, the chief executive
officer of the company is also the president of ZDG Holdings Inc. and
has voting and dispositive control over their shares of common stock.
Description of Securities
Common Stock
Our certificate of incorporation authorizes us to issue up to
100,000,000 shares of common stock, par value $.001 per share. There are
21,925,667 shares issued and outstanding as of the date of this prospectus. Upon
completion of this offering, assuming all the convertible debentures are
converted and the common stock purchase warrants are exercised and there are no
anti-dilution adjustments, there will be 38,592,333 shares of common stock
issued and outstanding.
21
Holders of common stock are entitled to receive dividends as may be
declared by our board of directors from funds legally available for these
dividends. Upon liquidation, holders of shares of common stock are entitled to a
pro rata share in any distribution available to holders of common stock. The
holders of common stock have one vote per share on each matter to be voted on by
stockholders, but are not entitled to vote cumulatively. Holders of common stock
have no preemptive rights. All of the outstanding shares of common stock are,
and all of the shares of common stock to be issued in connection with this
offering will be, validly issued, fully paid and non-assessable.
Preferred Stock
Pacific Gold is authorized to issue up to 5,000,000 shares of preferred
stock, $.001 par value. There are no shares of preferred stock issue and
outstanding as of the date of this prospectus.
The preferred stock may be characterized as "blank check" stock. This
means that the board of directors, without any action by the stockholders of
common stock, have the right, from time to time, to designate some or all of the
preferred stock into one or more series, and fix for each series the number of
shares, full or limited voting powers, and the designations, preferences,
participating, optional and other special rights, and the qualifications,
limitations or restrictions of the various aspects of a series. Because of this
ability of the board of directors, the preferred stock may be issued quickly and
contain provisions that may have an anti-takeover effect, which may not be in
some or all of the interests of subordinate preferred stock and common
stockholders. In addition, because the board of directors may create convertible
and paid-in-kind features for a series of preferred stock, if these features use
common stock, Pacific Gold may become committed to issue or issue additional
common stock from time to time. Any commitment for additional common stock to be
issued or actually issued pursuant to the terms of any series of preferred stock
may have various results including: (i) an absolute dilutive effect on the
current stockholders percentage ownership of the then outstanding common stock
and depending on the amount paid for the issued series of preferred stock and
payable on conversion, if any amount is to be paid, a financial dilutive effect
on previously issued equity securities of the company, including the common
stock, (ii) the potential issuance may cause "overhang" issues and impair the
marketability or price of the common stock in any public market on which the
common stock may be traded, or (iii) may require the company to issue additional
common stock at time that is in opportune for Pacific Gold or its stockholders.
The preferred stock does not have any pre-emptive rights.
Original Discount Convertible Debentures
Pacific Gold issued original discount convertible debentures in the
aggregate principal amount of $4,000,000, with a maturity date of April 6, 2008.
The company received an aggregate of $2,666,086 in net proceeds after expenses.
The debentures are unsecured. They may be converted into common stock at the
rate of $.30 per share, at any time, subject to certain limitations. The
principal limitation is that the amount converted at any one time may not result
in shares exceeding 4.99% of the outstanding common stock immediately after the
conversion. If the company fails to deliver the certificates on conversion in a
timely manner, it will pay liquidated damages and be liable for by-ins imposed
on the holder. The conversion rate is subject to adjustment for stock dividends,
stock splits, subsequent equity sales at less than the defined base conversion
rate and corporate reorganization events. The debentures may not be prepaid
unless consent is received from the holders.
Common Stock Purchase Warrants
In connection with the issuance of the debentures, Pacific Gold issued
to the holders of the convertible debentures an aggregate of 3,333,333 common
stock purchase warrants. The warrants may be exercised for until April 6, 2008,
at an exercise price of $2.125 per share. The warrants may not be exercised in
an amount that results in the holder having more than 4.99% of the outstanding
common stock immediately after the exercise. If the company fails to deliver the
certificates on exercise in a timely manner, it will pay liquidated damages and
be liable for by-ins imposed on the holder. The exercise price is subject to
adjustment for stock dividends, stock splits, subsequent equity sales at less
than the defined base exercise price and corporate reorganization events.
22
Transfer Agent
The transfer agent and registrar for common stock is Olde Monmouth
Stock Transfer Co. Inc., 200 Memorial Parkway, Atlantic Highlands, New Jersey,
07716.
Selling Stockholders
The following table provides certain information about the selling
stockholders' beneficial ownership of our common stock at May 3, 2005 and
assumes all the convertible debentures and common stock purchase warrants are
converted or exercised without regard to any conversion or exercise limitations
or anti-dilution adjustments. It also assumes the sale of all of the shares
offered by the selling stockholders under this prospectus. Unless otherwise
indicated, the selling stockholder possesses sole voting and investment power
with respect to the securities shown.
Prior to Offering After Offering
-------------------------- --------------------------
Number of Number of
Shares Percentage Number of Shares Percentage
Beneficially Of Shares Beneficially Of
Owned Class to be Sold Owned Class
------------ ---------- ----------- ------------ ----------
Crescent International Inc.(1) 5,416,666 4.99%(3) 5,416,666 -0- -0-
Palisades Master Fund LP(2) 17,250,000 4.99%(3) 17,250,000 -0- -0-
-----------------------------
(1) Mel Craw and Maxi Brezzi, as Managers of GreenLight (Switzerland) SA,
the investment advisor to Crescent International Ltd. exercise
dispositive and voting power with respect to the shares of common stock
owned by Crescent International Ltd. Messrs. Craw and Brezzi disclaim
beneficial ownership of such shares.
(2) Mr. David Batista has authority regarding the portfolio management
decisions of the shares of common stock owned by the selling security
holder. Mr. Batista may be deemed to have dispositive and voting power
over the shares of common stock owned by the selling security holder.
However, Mr. Batista does not have the right to receive dividends from,
or the proceeds from the sale of, such common stock held by the selling
shareholder and disclaims any beneficial ownership of such shares of
such common stock.
(3) The convertible debentures and warrants may only be exercised up to an
amount that would cause the holder to have 4.99% of the outstanding
common stock at any one time.
Plan of Distribution
Each selling stockholder of the common stock offered for sale hereunder
and any of their pledgees, assignees and successors-in-interest may, from time
to time, sell any or all of their shares of common stock on the over-the-counter
bulletin board or any other stock exchange, market or trading facility on which
the shares are traded or in private transactions. These sales may be at fixed or
negotiated prices. A selling stockholder may use any one or more of the
following methods when selling shares:
23
o ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
o block trades in which the broker-dealer will attempt to sell the
shares as agent but may position and resell a portion of the
block as principal to facilitate the transaction;
o purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
o an exchange distribution in accordance with the rules of the
applicable exchange;
o privately negotiated transactions;
o settlement of short sales entered into after the date of this
prospectus;
o broker-dealers may agree with the selling stockholders to sell a
specified number of such shares at a stipulated price per share;
o a combination of any such methods of sale;
o through the writing or settlement of options or other hedging
transactions, whether through an options exchange or otherwise;
or
o any other method permitted pursuant to applicable law.
The selling stockholders may also sell shares under Rule 144 under the
Securities Act of 1933, as amended, if available, rather than under this
prospectus.
Broker-dealers engaged by the selling stockholders may arrange for
other brokers-dealers to participate in sales. Broker-dealers may receive
commissions or discounts from the selling stockholders (or, if any broker-dealer
acts as agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated, but, except as set forth in a supplement to this prospectus, in the
case of an agency transaction not in excess of a customary brokerage commission
in compliance with NASDR Rule 2440; and in the case of a principal transaction a
markup or markdown in compliance with NASDR IM-2440.
In connection with the sale of the common stock or interests therein,
the selling stockholders may enter into hedging transactions with broker-dealers
or other financial institutions, which may in turn engage in short sales of the
common stock in the course of hedging the positions they assume. The selling
stockholders may also sell shares of the common stock short and deliver these
securities to close out their short positions, or loan or pledge the common
stock to broker-dealers that in turn may sell these securities. The selling
stockholders may also enter into option or other transactions with
broker-dealers or other financial institutions or the creation of one or more
derivative securities which require the delivery to such broker-dealer or other
financial institution of shares offered by this prospectus, which shares such
broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such transaction).
24
The selling stockholders and any broker - dealers or agents that are
involved in selling the shares may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales. In such event, any
commissions received by such broker - dealers or agents and any profit on the
resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act. Each selling stockholder has
informed us that it does not have any written or oral agreement or
understanding, directly or indirectly, with any person to distribute the common
stock. In no event shall any broker-dealer receive fees, commissions and markups
which, in the aggregate, would exceed eight percent (8%).
The company is required to pay certain fees and expenses incurred by
the company incident to the registration of the shares. We have agreed to
indemnify the selling stockholders against certain losses, claims, damages and
liabilities, including liabilities under the Securities Act.
Because the selling stockholders may be deemed to be "underwriters"
within the meaning of the Securities Act, they will be subject to the prospectus
delivery requirements of the Securities Act. In addition, any securities covered
by this prospectus which qualify for sale pursuant to Rule 144 under the
Securities Act may be sold under Rule 144 rather than under this prospectus.
Each selling stockholder has advised us that they have not entered into any
written or oral agreements, understandings or arrangements with any underwriter
or broker-dealer regarding the sale of the resale shares. There is no
underwriter or coordinating broker acting in connection with the proposed sale
of the resale shares by the selling stockholders.
We agreed to keep this prospectus effective until the earlier of (i)
the date on which the shares may be resold by the selling stockholders without
registration and without regard to any volume limitations by reason of Rule
144(e) under the Securities Act or any other rule of similar effect or (ii) all
of the shares have been sold pursuant to the prospectus or Rule 144 under the
Securities Act or any other rule of similar effect. The resale shares will be
sold only through registered or licensed brokers or dealers if required under
applicable state securities laws. In addition, in certain states, the resale
shares may not be sold unless they have been registered or qualified for sale in
the applicable state or an exemption from the registration or qualification
requirement is available and is complied with.
Under applicable rules and regulations under the Securities Exchange
Act of 1934, as a mended, any person engaged in the distribution of the resale
shares may not simultaneously engage in market making activities with respect to
the common stock for a period of two business days prior to the commencement of
the distribution. In addition, the selling stockholders will be subject to
applicable provisions of the Exchange Act and the rules and regulations
thereunder, including Regulation M, which may limit the timing of purchases and
sales of shares of the common stock by the selling stockholders or any other
person. We will make copies of this prospectus available to the selling
stockholders and have informed them of the need to deliver a copy of this
prospectus to each purchaser at or prior to the time of the sale.
Legal Matters
Graubard Miller, will opine as to the validity of the common stock
offered by this prospectus and legal matters for us.
Experts
Our financial statements have been included in the registration
statement in reliance upon the report of Malone & Bailey, PC, independent
registered public accountants, appearing in the registration statement, and upon
the authority of this firm as experts in accounting and auditing.
25
Where You Can Find Additional Information
We intend to furnish our stockholders annual reports, which will
include financial statements audited by independent accountants, and all other
periodic reports as we may determine to furnish or as may be required by law,
including Sections 13(a) and 15(d) of the Exchange Act.
We have filed with the SEC a registration statement on Form SB-2 under
the Securities Act with respect to the securities offered by this prospectus.
This prospectus does not contain all the information set forth in the
registration statement and the accompanying exhibits, as permitted by the rules
and regulations of the SEC. For further information, please see the registration
statement and accompanying exhibits. Statements contained in this prospectus
regarding any contract or other document which has been filed as an exhibit to
the registration statement are qualified in their entirety by reference to these
exhibits for a complete statement of their terms and conditions. The
registration statement and the accompanying exhibits may be inspected without
charge at the offices of the SEC and copies may be obtained from the SEC's
principal office at 450 Fifth Street, N.W., Washington, D.C. 20549, upon payment
of the fees prescribed by the SEC. Electronic reports and other information
filed through the Electronic Data Gathering, Analysis, and Retrieval System,
known as EDGAR, are publicly available on the SEC's website, http://www.sec.gov.
26
INDEX TO FINANCIAL STATEMENTS
TABLE OF CONTENTS
PAGE
Report of Malone & Bailey, PC independent accountants................. F-2
Balance Sheet as of December 31, 2004................................. F-3
Statements of Operations for the years ended December 31, 2004
and 2003.............................................................. F-4
Statements of Stockholders' Equity for the years ended
December 31, 2004 and 2003............................................ F-5
Statements of Cash Flows for the years ended December 31, 2004
and 2003.............................................................. F-6
Notes to Financial Statements......................................... F-7
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Pacific Gold Corp.
Toronto, Ontario, Canada
We have audited the accompanying consolidated balance sheet of Pacific Gold
Corp. as of December 31, 2004 and the related consolidated statements of
operations, stockholders' deficit, and cash flows and for each of the years
ended December 31, 2004 and 2003. These consolidated financial statements are
the responsibility of Pacific Gold's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Pacific
Gold Corp. as of December 31, 2004 and the results of its consolidated
operations and its cash flows for the years ended December 31, 2004 and 2003, in
conformity with accounting principles generally accepted in the United States of
America.
Malone & Bailey, PC
Houston, Texas
www.malone-bailey.com
March 23, 2005
F-2
PACIFIC GOLD CORP.
CONSOLIDATED BALANCE SHEET
December 31, 2004
ASSETS
Current Assets
Cash $ 5,975
Prepaid expenses 3,000
-----------
Total Current Assets 8,975
Property and equipment
Proved Developed
Acquisition and development costs 225,195
Less: accumulated depletion (283)
Probable Undeveloped
Acquisition and development costs 10,000
Equipment 358,842
Less: accumulated depreciation (29,039)
Water rights and wells 90,000
Land 23,670
-----------
Total property and equipment, net 678,385
-----------
Total Assets $ 687,360
===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Accounts payable $ 122,863
Accrued interest due to shareholder 108,978
Note payable 70,000
Notes payable - Shareholder 1,575,015
-----------
Total Current Liabilities 1,876,856
-----------
Commitments
Stockholders' Deficit
Preferred stock, $.001 par value; 5,000,000 shares
authorized, no shares issued and outstanding --
Common stock, $.001 par value, 100,000,000 shares
authorized, 21,888,167 shares issued and outstanding 21,888
Additional paid in capital 78,718
Retained deficit (1,290,102)
-----------
Total Stockholders' Deficit (1,189,496)
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 687,360
===========
See accompanying summary of accounting policies
and notes to financial statements.
F-3
PACIFIC GOLD CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 2004 and 2003
2004 2003
------------ ------------
Revenue - Mineral Sales $ 61,560 $ --
Production costs 104,996 --
------------ ------------
Gross Loss (43,436) --
------------ ------------
Operating expenses
Mineral rights expense 11,240 26,327
General and administrative 808,136 196,568
Depreciation and depletion 23,322 --
Gain on sale of equipment (902) --
------------ ------------
Total operating expenses 847,796 222,895
------------ ------------
Net Loss from Operations (891,232) (222,895)
------------ ------------
Other income and expense
Interest expense 102,815 4,928
------------ ------------
NET LOSS $ (994,047) $ (227,823)
============ ============
Basic and diluted loss per share $ (.05) $ (.01)
Weighted average shares outstanding 21,822,798 21,660,603
See accompanying summary of accounting policies
and notes to financial statements.
F-4
PACIFIC GOLD CORP.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
Years Ended December 31, 2004 and 2003
Additional
Common Stock Paid in Retained
Shares $ Capital Earnings Totals
---------- ----------- ----------- ----------- -----------
Balances,
December 31, 2002 21,640,000 $ 21,640 $ 33,360 $ (68,233) $ (13,233)
Stock for services 160,000 160 15,840 -- 16,000
Net loss -- -- -- (227,822) (227,822)
----------- ----------- ----------- ----------- -----------
Balances,
December 31, 2003 21,800,000 21,800 49,200 (296,055) (225,055)
Stock for services 50,000 50 15,950 -- 16,000
Stock for cash 38,167 38 11,412 -- 11,450
Stock option expense -- -- 2,156 -- 2,156
Net loss -- -- -- (994,047) (994,047)
----------- ----------- ----------- ----------- -----------
Balances,
December 31, 2004 21,888,167 $ 21,888 $ 78,718 $(1,290,102) $(1,189,496)
=========== =========== =========== =========== ===========
See accompanying summary of accounting policies
and notes to financial statements.
F-5
PACIFIC GOLD CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2004 and 2003
2004 2003
----------- -----------
Cash Flows Used in Operating Activities
Net income (loss) $ (994,047) $ (227,823)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and depletion 29,322 --
Gain on sale of equipment (902) --
Impairment of organization costs 980 --
Stock issued for services 16,000 16,000
Stock option expense 2,156 --
Changes in:
Prepaid expenses (3,000) 1,331
Accounts payable 91,920 27,927
Accrued interest 102,821 6,157
----------- -----------
Net Cash Used in Operating Activities (754,750) (177,388)
----------- -----------
Cash Flows Used in Investing Activities
Purchases and development of property
and equipment (289,299) (100,000)
Proceeds from sale of equipment 20,500 --
Organization costs -- (980)
----------- -----------
Net Cash Used in Investing Activities (268,799) (100,000)
----------- -----------
Cash Flows From Financing Activities
Payments on notes payable (111,000) --
Proceeds from stockholder advances 1,239,124 283,876
Payments on stockholder advances (123,507) --
Proceeds from the sale of common stock 11,450 --
----------- -----------
Net Cash From Financing Activities 1,016,067 283,876
----------- -----------
Net change in cash (7,482) 6,488
Cash at beginning of year 13,457 6,969
----------- -----------
Cash at end of year $ 5,975 $ 13,457
=========== ===========
Cash paid during the year for:
Interest $ -- $ --
Income taxes -- --
Non-cash financing and investing activities:
Purchase of equipment, water rights and land
through notes payable to the sellers $ 181,000 $ --
Purchase of equipment from shareholder
through notes payable 157,006 --
See accompanying summary of accounting policies
and notes to financial statements.
F-6
Pacific Gold Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of business. Pacific Gold Corp. ("Pacific Gold") was originally
incorporated in Nevada on December 31, 1996 under the name of Demand
Financial International, Ltd. On October 3, 2002, Demand Financial
International, Ltd. changed its name to Blue Fish Entertainment, Inc.
On August 5, 2003, the name was changed to Pacific Gold Corp. Pacific
Gold is engaged in the identification, acquisition, exploration and
mining of prospects believed to have gold mineralization. Pacific Gold
through its subsidiaries currently owns claims, property and leases in
Oregon and Nevada. Its Defiance Mine property in Oregon began producing
gold in commercial quantities in mid-2004.
In the prior year, Pacific Gold was presented as a development stage
enterprise. Beginning in the quarter ended September 30, 2004, Pacific
Gold was no longer considered development stage.
The accompanying consolidated financial statements include all of the
accounts of Pacific Gold Corp. and its wholly-owned subsidiaries,
Grants Pass Gold, Inc., Oregon Gold, Inc., Nevada Rae Gold, Inc. and
Fernley Gold, Inc. All significant intercompany accounts and
transactions have been eliminated.
Use of Estimates. In preparing financial statements, management makes
estimates and assumptions that affect the reported amounts of assets
and liabilities in the balance sheet and revenue and expenses in the
statement of expenses. Actual results could differ from those
estimates.
Cash and Cash Equivalents. For purposes of the statement of cash flows,
Pacific Gold considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Revenue Recognition. Pacific Gold recognizes revenue from the sale of
gold when persuasive evidence of an arrangement exists, services have
been rendered, the sales price is fixed or determinable, and
collectibility is reasonably assured, which is determined when it ships
gold to the refinery.
Inventories. Inventories are stated at the lower of average cost or net
realizable value. Costs included are limited to those directly related
to mining. There was no inventory as of December 31, 2004.
Property and equipment are valued at cost. Additions are capitalized
and maintenance and repairs are charged to expense as incurred. Gains
and losses on dispositions of equipment are reflected in operations.
Depreciation is provided using the straight-line method over the
estimated useful lives of the assets, which are 3 to 20 years.
Impairment of Long-Lived Assets. Pacific Gold reviews the carrying
value of its long-lived assets annually or whenever events or changes
in circumstances indicate that the historical cost-carrying value of an
asset may no longer be appropriate. Pacific Gold assesses
recoverability of the carrying value of the asset by estimating the
undiscounted future net cash flows, which depend on estimates of metals
to be recovered from proven and probable ore reserves, and also
identified resources beyond proven and probable reserves, future
production costs and future metals prices over the estimated remaining
mine life. If undiscounted cash flows are less that the carrying value
of a property, an impairment loss is recognized based upon the
estimated expected future net cash flows from the property discounted
at an interest rate commensurate with the risk involved. If the future
net cash flows are less than the carrying value of the asset, an
impairment loss is recorded equal to the difference between the asset's
carrying value and fair value.
F-7
All mine-related costs, other than acquisition costs, are expensed
prior to the establishment of proven or probable reserves. Reserves
designated as proven and probable are supported by a final feasibility
study, indicating that the reserves have had the requisite geologic,
technical and economic work performed and are legally extractable at
the time of reserve determination. Once proven or probable reserves are
established, all development and other site-specific costs are
capitalized.
Capitalized development costs and production facilities are depleted
using the units-of-production method based on the estimated gold which
can be recovered from the ore reserves processed. Lease development
costs for nonproducing properties are amortized over their remaining
lease term if limited. Maintenance and repairs are charged to expense
as incurred.
The fair value of an asset retirement obligation is recognized in the
period in which it is incurred if a reasonable estimate of fair value
can be made. The present value of the estimated asset retirement costs
is capitalized as part of the carrying amount of the long-lived asset.
For Pacific Gold, asset retirement obligations primarily relate to the
abandonment of ore-producing property and facilities.
Income taxes. Pacific Gold recognizes deferred tax assets and
liabilities based on differences between the financial reporting and
tax bases of assets and liabilities using the enacted tax rates and
laws that are expected to be in effect when the differences are
expected to be recovered. Pacific Gold provides a valuation allowance
for deferred tax assets for which it does not consider realization of
such assets to be more likely than not.
Loss per Share. The basic net loss per common share is computed by
dividing the net loss by the weighted average number of common shares
outstanding. Diluted net loss per common share is computed by dividing
the net loss adjusted on an "as if converted" basis, by the weighted
average number of common shares outstanding plus potential dilutive
securities. For the years ended December 31, 2004 and 2003, potential
dilutive securities had an anti-dilutive effect and were not included
in the calculation of diluted net loss per common share.
Pacific Gold adopted the disclosure requirements of Financial
Accounting Standard No. 123, Accounting for Stock-Based Compensation
(FAS No. 123) and FAS No. 148 with respect to pro forma disclosure of
compensation expense for options issued. For purposes of the pro forma
disclosures, the fair value of each option grant is estimated on the
grant date using the Black-Scholes option-pricing model.
Pacific Gold applies APB No. 25 in accounting for its stock option
plans and, accordingly, no compensation cost has been recognized in
Pacific Gold's financial statements for stock options under any of the
stock plans which on the date of grant the exercise price per share was
equal to or exceeded the fair value per share. However, compensation
cost has been recognized for warrants and options granted to
non-employees for services provided. There were 50,000 options and no
warrants granted as of December 31, 2004. The following table
illustrates the effect on net loss and net loss per share if Pacific
Gold had applied the fair value provisions of FASB Statement No. 123,
Accounting for Stock-Based Compensation, to stock-based employee
compensation.
F-8
2004 2003
----------- ----------
Net loss as reported $ (994,047) $ (227,822)
Add: stock based compensation
determined under intrinsic
value-based method 2,156 --
Less: stock based compensation
determined under fair value-
based method (14,134) --
----------- ----------
Pro forma net loss $(1,006,025) $ (227,822)
=========== ==========
Basic and diluted net loss per common share:
As reported $ (0.05) $ (0.01)
Pro forma (0.05) (0.01)
The weighted average fair value of the stock options granted during
2004 and 2003 was $0.28 and $0 per share option, respectively.
Variables used in the Black-Scholes option-pricing model include (1)
1.50% risk-free interest rate, (2) expected option life is the actual
remaining life of the options as of each year end, (3) expected
volatility was 146%, and (4) zero expected dividends.
Recently issued accounting pronouncements. In December 2004, the FASB
issued SFAS No. 123R, "Accounting for Stock-Based Compensation" SFAS
No. 123R establishes standards for the accounting for transactions in
which an entity exchanges its equity instruments for goods or services.
This Statement focuses primarily on accounting for transactions in
which an entity obtains employee services in share-based payment
transactions. SFAS No. 123R requires that the fair value of such equity
instruments be recognized as expense in the historical financial
statements as services are performed. Prior to SFAS No. 123R, only
certain pro forma disclosures of fair value were required. SFAS No.
123R shall be effective for small business issuers as of the beginning
of the first interim or annual reporting period that begins after
December 15, 2005. The impact of the adoption of this new accounting
pronouncement would be similar to the calculation of the pro forma
impact on net income of SFAS No. 123 included above.
Pacific Gold does not expect the adoption of any other recently issued
accounting pronouncements to have a significant impact on its results
of operations, financial position or cash flow.
NOTE 2 - PROPERTY AND EQUIPMENT
Pacific Gold acquired Oregon Gold, from a related party in August 2003
for $100,000, of which $75,195 was capitalized. In May 2004, Grants
Pass Gold, a subsidiary of Pacific Gold, acquired the Defiance Mine in
this same local formation for $150,000.
In October 2003, Pacific Gold's subsidiary Nevada Rae Gold, Inc.
acquired its Crescent Valley mining claims in Lander County, Nevada.
Additional water rights and wells were acquired in March 2004 for
$90,000 and 13.67 acres of land for $23,670. Nevada Rae Gold resources
fall on claims that are approximately 40% leased and 60% owned by
Pacific Gold.
In May 2004, Pacific Gold acquired a leasehold interest in the Butcher
Boy property in Nevada through its new wholly-owned subsidiary, Fernley
Gold, Inc. The initial agreement is for a period of five years, with
Fernley Gold having the exclusive right to renew the lease on the
existing terms. Fernley Gold made a one-time payment of $10,000 to
acquire the lease.
F-9
NOTE 3 - NOTE PAYABLE
In May 2004, Pacific Gold's subsidiary Grants Pass Gold, Inc. purchased
equipment for $100,000, payable at $5,000 per month with interest at
10%. $30,000 in principal payments have been made, and $70,000 is still
due. Payments have been suspended pending resolution of a dispute
regarding the equipment condition when purchased.
NOTE 4 - INCOME TAXES
Pacific Gold uses the liability method, where deferred tax assets and
liabilities are determined based on the expected future tax
consequences of temporary differences between the carrying amounts of
assets and liabilities for financial and income tax reporting purposes.
During 2004 and 2003, Pacific Gold incurred net losses and, therefore,
has no tax liability. The net deferred tax asset generated by the loss
carry-forward has been fully reserved. The cumulative net operating
loss carry-forward is approximately $1,265,000 at December 31, 2004,
and will expire in the years 2012 through 2024.
At December 31, 2004, deferred tax assets consisted of the following:
Deferred tax assets
Net operating losses $ 430,105
Less: valuation allowance (430,105)
---------
Net deferred tax asset $ --
=========
NOTE 5 - SHAREHOLDER NOTES PAYABLE
Pacific Gold owes $1,575,015 to a shareholder as of December 31, 2004.
The amount due is represented by three notes, with interest at 10% and
due on June 30, 2005. At December 31, 2004, accrued interest on these
notes totaled $108,978.
Note 6 - COMMON STOCK
In 2004, Pacific Gold issued 38,167 shares for $11,450 cash.
In 2003 and 2004, respectively, Pacific Gold issued 160,000 and 50,000
shares to a consultant as compensation expense. The shares were valued
at $16,000 each year.
NOTE 7 - STOCK OPTION PLAN
In 2002 Pacific Gold adopted the 2002 Performance Equity Plan ("the
Plan"). The Plan provides for the granting of stock options to
employees and consultants. Pacific Gold has reserved 3,000,000 shares
of common stock for issuance under the Plan.
F-10
Options under the Plan may be granted for periods of up to ten years
and at an exercise price equal to the estimated fair value of the
shares on the date of grant as determined by the Board of Directors. To
date, options granted generally are exercisable immediately as of the
effective date of the option agreement.
Summary information regarding options is as follows:
Weighted
Average
Options Share Price
------- -----------
Outstanding at December 31, 2003 -- --
Year ended December 31, 2004:
Granted 50,000 $0.35
------- -----------
Outstanding at December 31, 2004 50,000 $0.35
======= ===========
The above options expire on December 31, 2006.
NOTE 8 - OPERATING LEASE
Pacific Gold rents its offices under a lease expiring in January 2006,
with monthly payments of $1,800. Rent expense in 2004 and 2003 was $0,
as it was provided office services without charge. Such costs were
immaterial to the financial statements and accordingly are not
reflected herein.
NOTE 9 - MAJOR CUSTOMERS
In 2004, all gold sales were made to one refinery. Many refineries are
available with similar pricing and just one was chosen for convenience.
In 2003, Pacific Gold had no revenue.
NOTE 10 - SUBSEQUENT FINANCING
On April 7, 2005, Pacific Gold issued convertible debentures with a
face value of $4,000,000 with attached warrants for net proceeds of
$2,666,086 after a $1,080,292 discount and various fees and expenses
totaling $253,622. A description of the notes is as follows:
o Maturity: The notes mature on April 7, 2008. The noteholders may
elect at any time to convert their notes into shares of common
stock at the conversion price (as described below). Each lender
is limited to total ownership of 4.99% of the outstanding shares
of Pacific Gold at any time, so the ability to convert is
limited.
o Interest: Interest is represented by the $1,080,292 discount. If
Pacific Gold elects to prepay the notes, each holder must consent
and an additional 30% or up to $1,200,000 is due in addition to
the $4,000,000 total face value.
F-11
o Conversion and conversion price: The number of shares of common
stock shall be determined by dividing the amount owed by $.30.
The conversion price may be adjusted from time to time upon the
occurrence of certain specified events.
o Warrants: In connection with the financing, 3,333,333 warrants
were issued with an exercise price of $2.125 per share and a
3-year life.
The proceeds from the notes have been discounted for the relative fair
value of the warrants, the discount, and beneficial conversion feature.
All discounts will be amortized over the life of the notes. A summary
of the notes is as follows:
Notes
Payable
-----------
Face value $ 4,000,000
Less: Relative fair value of:
discount ( 477,191)
warrants (1,755,910)
beneficial conversion feature (1,766,898)
-----------
Carrying amount of notes on April 7, 2005 $ 0
===========
F-12
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The laws of Nevada permit the indemnification of directors, employees,
officers and agents of Nevada corporations. Our bylaws provide that we shall
indemnify to the fullest extent permitted by Nevada law any person whom we are
able to indemnify under that law.
The provisions of Nevada law that authorize indemnification limit their
application only to circumstances where the indemnified person acted in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the corporation and with respect to any criminal action or
proceeding had no reasonable cause to believe his conduct was unlawful. The
statute does not affect a director's responsibilities under any other law, such
as the federal securities laws.
To the extent that we indemnify our management for liabilities arising
under securities laws, we have been informed by the SEC that this
indemnification is against public policy and is therefore unenforceable.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses payable by us in connection with the
distribution of the securities being registered are as follows:
SEC Registration and Filing Fee.............................. $ 1,695.86
Legal Fees and Expenses...................................... 15,000.00
Accounting Fees and Expenses................................. 10,000.00
Financial Printing and Engraving............................. 1,000.00
Blue Sky Fees and Expenses................................... 2,500.00
Miscellaneous................................................ 4,804.14
----------
TOTAL.............................................. $35,000.00
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
In January 2001, the Registrant issued 9,000,000 shares (subsequently
increased to 18,000,000 shares by a dividend of one share for each outstanding
share of common stock for the class) in payment for services. The Registrant
recognized $9.00 in expense. The issuance was made on the basis of an exemption
under Section 4(2) of the Securities Act of 1933. The recipient, Mr. Geisler,
was considered knowledgeable about the Registrant as its officer and director,
and is a sophisticated investor with experience in early-stage companies.
On April 7, 2005, the Registrant sold $4,000,000 face amount of
convertible original discount debentures and 3,333,333 common stock purchase
warrants for net proceeds before expenses of approximately $2,900,000. The
Registrant paid approximately $253,600 in expenses in connection with this
offering. The issuance was made on the basis of an exemption under Section 4(2)
of the Securities Act of 1933 to two foreign investors, both of which certified
to the Registrant that they were accredited investors and that they had the
ability to assess an investment in the Registrant.
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ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
Exhibit No. Description of Document
5.1 Opinion of Graubard Miller*
10.1 Form of Convertible Debenture**
10.2 Form of Common Stock Purchase Warrant**
23.1 Consent of Malone & Bailey, PC*
23.2 Consent of Graubard Miller (Contained in Exhibit 5.1)*
----------------------
* Filed herewith
** Incorporated by reference from Form 8-K filed April 8, 2005
ITEM 28. UNDERTAKINGS
The undersigned issuer undertakes:
(a) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement to:
(1) include any prospectus required by section 10(a)(3) of the
Securities Act;
(2) reflect in the prospectus any facts or events arising
after the effective date of the registration statement;
(3) include any additional or changed material information
regarding the plan of distribution;
(4) for determining liability under the Securities Act, we
will treat each post-effective amendment as a new registration
statement of the securities offered, and the offering of the
securities at that time shall be deemed to be the initial bona
fide offering; and
(5) file a post-effective amendment to remove from
registration any of the securities that remain unsold at the end
of the offering.
(b) As indemnification for liability arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant under the above provisions, or otherwise, we have been advised that
in the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment of expenses incurred or paid by a director, officer or
controlling person in the successful defense of any action, suit or proceeding)
is asserted by any director, officer or controlling person in connection with
the securities being registered, we will, unless in the opinion of our counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by us is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
II-2
(c) We undertake:
(1) For the purpose of determining any liability under the
Securities Act, the information omitted from the form of
prospectus filed as part of this registration statement in
reliance upon Rule 430A and contained in a form of prospectus
filed by us under Rule 424(b)(1) or (4) or 497(h) under the
Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a
form of prospectus shall be deemed to be a new registration
statement relating to the securities offered in the prospectus
and the offering of such securities at that time shall be deemed
to be the initial bona fide offering of the securities.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing this Form SB-2 and authorized this
registration statement to be signed on its behalf by the undersigned, hereunto
duly authorized, in Toronto, Ontario on May 4, 2005.
PACIFIC GOLD CORP.
By: /s/ Robert Landau
-----------------------
Robert Landau
Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Act of 1933, this Form
SB-2 registration statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
----------------- ------------------------------------ ------------
/s/ Robert Landau Chief Executive Officer and Director May 4, 2005
----------------- (Principal Executive Officer)
Robert Landau
/s/ Mitchell Geisler Chief Operating Officer, Secretary May 4, 2005
-------------------- and Treasurer (Principal Financial
Mitchell Geisler Officer and Principal Accounting
Officer)
II-4
Exhibit Index
Exhibit No. Description of Document
----------- -------------------------------------------------------
5.1 Opinion of Graubard Miller*
10.1 Form of Convertible Debenture**
10.2 Form of Common Stock Purchase Warrant**
23.1 Consent of Malone & Bailey, PC*
23.2 Consent of Graubard Miller (Contained in Exhibit 5.1)*
- ----------------------
* Filed herewith
** Incorporated by reference from Form 8-K filed April 8, 2005
II-5