As filed with the Securities and Exchange Commission on July 16, 2004
REGISTRATION NO. 333-112424
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 2 TO
FORM SB-2/A
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
PATRIOT GOLD CORP.
(Name of Small Business Issuer in its Charter)
Nevada 1040 86-0947048
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
#501-1775 Bellevue Avenue
West Vancouver, B.C., Canada V7V 1A9
(604)925-5257
(Address, including zip code, and telephone
number, including area code, of
registrant's principal executive
offices)
Laughlin Associates, Inc.
2533 North Carson Street
Carson City, Nevada 89706
(480) 481-3940
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies of communications to:
David Lubin, Esq.
92 Washington Avenue
Cedarhurst, NY 11516
Telephone No.: (516) 569-9629
Facsimile No.: (516) 569-5053
Approximate date of commencement of proposed sale to the public: From time to
time after the effectiveness of the registration statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, 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, 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 of 1933, 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 of 1933, 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,
please check the following box. |_|
CALCULATION OF REGISTRATION FEE
---------------------------------------- ---------------- ------------------- -------------------- -------------------
Title of each class of securities to Amount to be Proposed maximum Proposed maximum Amount of
be registered (1) registered offering price aggregate offering registration fee
per share price (2), (7)
---------------------------------------- ---------------- ------------------- -------------------- -------------------
Common Stock, par value $.001 per share 1,214,000 $ 2.15 $ 2,610,000 $ 330.69
---------------------------------------- ---------------- ------------------- -------------------- -------------------
Common Stock, par value $.001 per
share (3) 1,214,000 $ 2.15 $ 2,610,000 $ 330.69
---------------------------------------- ---------------- ------------------- -------------------- -------------------
Common Stock, par value $.001 per
share (4) 1,214,000 $ 2.15 $ 2,610,000 $ 330.69
---------------------------------------- ---------------- ------------------- -------------------- -------------------
Common Stock, par value $.001 per
share (5) 1,214,000 $ 2.15 $ 2,610,000 $ 330.69
---------------------------------------- ---------------- ------------------- -------------------- -------------------
Common Stock, par value $.001 per
share (6) 1,214,000 $ 2.15 $ 2,610,000 $ 330.69
---------------------------------------- ---------------- ------------------- -------------------- -------------------
Total 6,070,000 $ 13,050,500 $ 1,653.50
---------------------------------------- ---------------- ------------------- -------------------- -------------------
(1) In the event of a stock split, stock dividend or similar transaction
involving our common stock, the number of shares registered shall automatically
be increased to cover the additional shares of common stock issuable pursuant to
Rule 416 under the Securities Act of 1933, as amended.
(2) Fee calculated in accordance with Rule 457(c) of the Securities Act.
Estimated for the sole purpose of calculating the registration fee. We have
based the fee calculation on the average of the last reported bid and ask price
for our common stock on the OTC Bulletin Board on January 27, 2004.
(3) Represents shares of common stock issuable in connection with the exercise
of warrants. Each warrant entitles the holder to purchase shares of common stock
at an exercise price of $1.40 per share.
(4) Represents shares of common stock issuable in connection with the exercise
of warrants. Each warrant entitles the holder to purchase shares of common stock
at an exercise price of $1.45 per share.
(5) Represents shares of common stock issuable in connection with the exercise
of warrants. Each warrant entitles the holder to purchase shares of common stock
at an exercise price of $1.50 per share.
(6) Represents shares of common stock issuable in connection with the exercise
of warrants. Each warrant entitles the holder to purchase shares of common stock
at an exercise price of $1.55 per share. (7) Registration fee previously paid.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THE
SHAREHOLDERS 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.
PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION DATED JULY 16, 2004
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 OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
PATRIOT GOLD CORP.
1,214,000 SELLING STOCKHOLDERS SHARES OF COMMON STOCK
4,856,000 SHARES OF COMMON STOCK ISSUABLE IN
CONNECTION WITH EXERCISE OF WARRANTS
The prospectus relates to the resale by certain selling security holders of
Patriot Gold Corp. of up to 6,070,000 shares of our common stock in connection
with the resale of:
- up to 1,214,000 shares of our common stock which were issued
in two private placements; and
- up to 4,856,000 shares of our common stock which may be issued
upon exercise of certain warrants issued in connection with
the private placements.
The selling security holders may offer to sell the shares of common stock being
offered in this prospectus at fixed prices, at prevailing market prices at the
time of sale, at varying prices or at negotiated prices.
Our common stock is traded on the National Association of Securities Dealers OTC
Bulletin Board under the symbol "PGOL." On July 15, 2004, the closing sale price
of our common stock on the OTC Bulletin Board was $0.90.
OUR BUSINESS IS SUBJECT TO MANY RISKS AND AN INVESTMENT IN OUR COMMON STOCK WILL
ALSO INVOLVE A HIGH DEGREE OF RISK. YOU SHOULD CAREFULLY CONSIDER THE FACTORS
DESCRIBED UNDER THE HEADING "RISK FACTORS" BEGINNING ON PAGE 5 BEFORE INVESTING
IN OUR COMMON STOCK.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The information in this prospectus is not complete and may be changed. The
selling stockholder may not sell or offer these securities until this
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.
The date of this prospectus is _______, 2004
The following table of contents has been designed to help you find information
contained in this prospectus. We encourage you to read the entire prospectus.
TABLE OF CONTENTS
PROSPECTUS SUMMARY 3
RISK FACTORS 5
Risks Relating to the Offering 7
Risks Relating to Our Company 11
Risks Relating to Our Strategy and Industry 12
FORWARD-LOOKING STATEMENTS 12
THE OFFERING 13
USE OF PROCEEEDS 13
SELLING SECURITY HOLDERS 13
PLAN OF DISTRIBUTION 15
LEGAL PROCEEDINGS 17
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS
AND CONTROL PERSONS 17
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT 20
DESCRIPTION OF SECURITIES 22
PRIVATE PLACEMENTS 24
CONVERSION OF PREFERRED STOCK 24
EXPERTS 25
INTEREST OF NAMED EXPERTS AND COUNSEL 25
DISCLOSURE OF COMMISSION POSITION OF
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES 26
DESCRIPTION OF BUSINESS 26
DESCRIPTION OF PROPERTY 38
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OR OPERATION 38
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 41
MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS 41
EXECUTIVE COMPENSATION 44
FINANCIAL STATEMENTS 47
LEGAL MATTERS 65
WHERE YOU CAN FIND MORE INFORMATION 65
GLOSSARY OF TECHNICAL TERMS 65
Until ______, all dealers that effect transactions in these securities whether
or not participating in this offering, may be required to deliver a prospectus.
This is in addition to the dealer's obligation to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions. As used in this prospectus, the terms "we", "us", "our" and
"Patriot Gold Corp." means Patriot Gold Corp., unless otherwise indicated.
PROSPECTUS SUMMARY
OUR COMPANY
We are an exploration state company engaged in natural resource exploration and
anticipate acquiring, exploring, and if warranted and feasible, developing
natural resource properties. Currently we in the development stage and are
undertaking an exploration program in western Nevada. We were incorporated in
the State of Nevada on November 30, 1998 under the name Northern Ostrich Corp.
On June 11, 2003, we changed the name to "Patiot Gold Corp." Our offices are
currently located at #501-1775 Bellevue Avenue, West Vancouver, British
Columbia, Canada, V7V 1A9. Our telephone number is (604) 925-5257. We maintain a
website at www.patriotgoldcorp.com. Information contained on our website does
not form part of this prospectus.
NUMBER OF SHARES BEING OFFERED
The prospectus relates to the resale by certain selling security holders of
Patriot Gold Corp. of up to 6,070,000 shares of our common stock in connection
with the resale of:
* up to 1,214,000 shares of our common stock which were issued in a
private placement in July 2003 and a private placement in November
2003; and
* up to 4,856,000 shares of our common stock which may be issued upon
exercise of certain warrants issued in connection with the private
placements.
The selling security holders may sell these shares of common stock in the public
market or through privately negotiated transactions or otherwise. The selling
security holders may sell these shares of common stock through ordinary
brokerage transactions, directly to market makers or through any other means
described in the section entitled "Plan of Distribution".
NUMBER OF SHARES OUTSTANDING
There were 29,279,400 shares of our common stock issued and outstanding as at
June 30, 2004. USE OF PROCEEDS We will not receive any of the proceeds from the
sale of the shares of our common stock being offered for sale by the selling
security holders. However, we will receive proceeds from the exercise of the
warrants if and to the extent that any of the warrants are exercised. We will
incur all costs associated with this registration statement and prospectus.
SUMMARY FINANCIAL DATA
The following summary audited financial information for the years 2004 and 2003
includes balance sheet and statement of operations data from the audited
financial statements of Patriot Gold Corp. The information contained in this
table should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the financial statements
and accompanying notes included in this prospectus.
Patriot Gold Corp.
(in thousands, except per share date)
For the Year Ended For the Nine Months Ended
May 31, February 29,
2003 2002 2004 2003
----------------------------------------------------------------------------
Statement of (Unaudited)
Operation Data: Actual Actual Actual Actual
Net Sales $ - $ - $ - $ -
Operating Expense 23 3 (2,636) 16
Loss from Operations (23) (3) (2,636) (16)
Net Loss (23) (3) (2,636) (16)
Loss per Share $ - $ - $ (0.11) $ -
(in thousands)
(Unaudited)
May 31, February 29,
Balance Sheet Data 2003 2002 2004
-------------------------------------------------------------------------------------------------
Working Capital $ (14) $ (7) $ 3,078
Total Assets - - 3,108
Short-term Debt 14 7 30
Long-term Debt - - -
Total Stockholders' Equity (14) (7) 3,078
RISK FACTORS
An investment in our common stock involves a number of very significant risks.
You should carefully consider the following risks and uncertainties in addition
to other information in this prospectus in evaluating our company and its
business before purchasing shares of our company's common stock. Our business,
operating results and financial condition could be seriously harmed due to any
of the following risks. The risks described below are all of the material risks
that we are currently aware of that are facing our company. You could lose all
or part of your investment due to any of these risks.
RISKS RELATED TO THIS OFFERING
1. THE PRICE OF OUR COMMON STOCK MAY FLUCTUATE SIGNIFICANTLY AS A RESULT OF THE
SHARES WE ARE REGISTERING FOR THE SELLING STOCKHOLDERS AND YOU MAY FIND IT
DIFFICULT FOR YOU TO REALIZE THE CURRENT TRADING PRICE OF OUR COMMON STOCK.
Sales of a substantial number of shares of our common stock in the public market
could cause a reduction in the market price of our common stock. We have
29,279,400 shares of common stock issued and outstanding as of June 30, 2004.
When this registration statement is declared effective, the selling stockholders
may be reselling up to 6,070,000 shares of our common stock, of which 1,214,000
are included in the number of our issued and outstanding common shares as of
June 30, 2004, shown above. As a result of such registration statement, a
substantial number of shares of our common stock may become available for
immediate resale, which could cause a decrease in the market price of our common
stock. As a result of any such decreases in market price of our common stock,
purchasers who acquire shares from the selling stockholders may not be able to
sell their shares at current market prices, and such purchasers may lose some or
all of their investment. To the extent any of the selling stockholders exercise
any of their warrants, and then resell the shares of common stock issued to them
upon such exercise, the price of our common stock may decrease due to the
additional shares of common stock in the market, and, in addition, any
significant downward pressure on the price of our common stock as the selling
stockholder sells shares of our common stock could encourage short sales by the
selling stockholder or others. Any such short sales could place further downward
pressure on the market price of our common stock..
Any significant downward pressure on the price of our common stock as the
selling stockholders sell the shares of our common stock could encourage short
sales by the selling stockholders or others. Any such short sales could place
further downward pressure on the price of our common stock.
2. TRADING ON THE OTC BULLETIN BOARD MAY BE SPORADIC BECAUSE IT IS NOT A STOCK
EXCHANGE, AND STOCKHOLDERS MAY HAVE DIFFICULTY RESELLING THEIR SHARES.
Our common stock is quoted on the OTC Bulletin Board. Trading in stock quoted on
the OTC Bulletin Board is often thin and characterized by wide fluctuations in
trading prices, due to many factors that may have little to do with the
company's operations or business prospects. Moreover, the OTC Bulletin Board is
not a stock exchange, and trading of securities on the OTC Bulletin Board is
often more sporadic than the trading of securities listed on a quotation system
like Nasdaq or a stock exchange like Amex. Accordingly, you may have difficulty
reselling any of the shares you purchase from the selling stockholders.
3. THE EXERCISE OF THE WARRANTS AND OUTSTANDING OPTIONS WILL DILUTE THE
PERCENTAGE OF COMMON STOCK OWNED BY EACH OF OUR EXISTING STOCKHOLDERS.
The exercise of warrants and options into common stock will dilute existing
stockholders and affect the market price of our common stock. As of July 15,
2004, we had outstanding options and warrants to acquire as many as 5,496,000
shares of our common stock. This includes the warrants held by the selling
security holders to acquire shares of common stock. The exercise or conversion
of outstanding stock options, warrants or other convertible securities will
dilute the percentage ownership of our other stockholders. We lack control over
the timing of any exercise or the number of shares offered or sold if exercises
or conversions occur.
4. NASD SALES PRACTICE REQUIREMENTS MAY ALSO LIMIT A STOCKHOLDER'S ABILITY TO
BUY AND SELL OUR STOCK.
In addition to the "penny stock" rules described below, the NASD has adopted
rules that require that in recommending an investment to a customer, a
broker-dealer must have reasonable grounds for believing that the investment is
suitable for that customer. Prior to recommending speculative low priced
securities to their non-institutional customers, broker-dealers must make
reasonable efforts to obtain information about the customer's financial status,
tax status, investment objectives and other information. Under interpretations
of these rules, the NASD believes that there is a high probability that
speculative low priced securities will not be suitable for at least some
customers. The NASD requirements make it more difficult for broker-dealers to
recommend that their customers buy our common stock, which may have the effect
of reducing the level of trading activity in our common stock. As a result,
fewer broker-dealers may be willing to make a market in our common stock,
reducing a stockholder's ability to resell shares of our common stock.
5. STATE SECURITIES LAWS MAY LIMIT SECONDARY TRADING, WHICH MAY RESTRICT THE
STATES IN WHICH AND CONDITIONS UNDER WHICH YOU CAN SELL THE SHARES OFFERED BY
THIS PROSPECTUS.
If you purchase shares of our common stock sold in this offering by the selling
stockholders, you may not be able to resell the shares in any state unless and
until the shares of our common stock are qualified for secondary trading under
the applicable securities laws of such state or there is confirmation that an
exemption, such as listing in certain recognized securities manuals, is
available for secondary trading in such state. There can be no assurance that we
will be successful in registering or qualifying our common stock for secondary
trading, or identifying an available exemption for secondary trading in our
common stock in every state. If we fail to register or qualify, or to obtain or
verify an exemption for the secondary trading of, our common stock in any
particular state, the shares of common stock could not be offered or sold to, or
purchased by, a resident of that state. In the event that a significant number
of states refuse to permit secondary trading in our common stock, the market for
the common stock will be limited which could drive down the market price of our
common stock and reduce the liquidity of the shares of our common stock and a
stockholders' ability to resell shares of our common stock at all or at current
market prices, which could increase a stockholders' risk of losing some or all
of their investment.
RISKS RELATED TO OUR COMPANY
6. WE HAVE A GOING CONCERN OPINION FROM OUR AUDITORS, INDICATING THE POSSIBILITY
THAT WE MAY NOT ABLE TO CONTINUE TO OPERATE.
The Company has incurred net losses of $2,666,294 for the period from June 1,
2000 (inception of exploration state) to February 29, 2004. For the three months
ended February 29, 2004, we incurred a net loss of $1,139,994. Management
believes that the gross proceeds of $367,500 generated from the private
placement in July 2003, the gross proceeds of $1,080,000 generated from the
private placement in November 2003 and $1,723,650, we collected from the
exercise of stock options issued under our stock option plan will be sufficient
to continue our planned activities until May 31, 2005, the end of our next
fiscal year. However, we anticipate generating losses for the next 12 months.
Therefore we may be unable to continue operations in the future as a going
concern. Our plans to deal with this uncertainty include raising additional
capital or entering into a strategic arrangement with a third party. There can
be no assurance that our plans can be realized. No adjustment has been made in
the accompanying financial statements to the amounts and classification of
assets and liabilities which could result should we be unable to continue as a
going concern. If we cannot continue as a viable entity, our shareholders may
lose some or all of their investment in Patriot Gold.
7. SINCE WE LACK A SIGNIFICANT OPERATING HISTORY AND HAVE LOSSES WHICH WE EXPECT
TO CONTINUE INTO THE FUTURE, WE MAY NOT BE ABLE TO PURSUE OUR BUSINESS PLAN.
We have not conducted any business since May 2000 and in May 2001, our board of
directors determined that it was in the best interest of our stockholders to
become active again. We were not successful in finding the right operating
business to acquire or merge with and therefore we have determined to become a
natural resource exploration company and to seek opportunities in this field.
Natural resource exploration and development requires significant capital and
our assets and resources are extremely limited. Our ability to achieve and
maintain profitability and positive cash flow is dependent upon:
* our ability to acquire and develop natural resource properties
* our ability to generate revenues
* our ability to raise the capital necessary to continue the development
of our exploration plan.
8. WE EXPECT LOSSES TO CONTINUE IN THE FUTURE BECAUSE WE HAVE NO RESERVES AND,
CONSEQUENTLY, NO REVENUE TO OFFSET LOSSES.
Based upon current plans and the fact that we currently do not have any
reserves, we expect to incur operating losses in future periods. These losses
will occur because we do not have any income-producing reserves to offset the
expenses associated with the acquisition of, and exploration of the natural
resource properties We cannot guarantee that we will be successful in generating
revenues in the future. We recognize that if we are unable to generate
significant revenues from the exploration of our optioned mineral claims and the
production of minerals thereon, if any, we will not be able to earn profits or
continue operations.
There is no history upon which to base any assumption as to the likelihood that
we will prove successful, and we can provide investors with no assurance that we
will generate any operating revenues or ever achieve profitable operations. If
we are unsuccessful in addressing these risks, our business will most likely
fail.
9. WE WILL REQUIRE ADDITIONAL FUNDS TO ACHIEVE OUR CURRENT BUSINESS STRATEGY AND
OUR INABILITY TO OBTAIN ADDITIONAL FINANCING WILL INTERFERE WITH OUR ABILITY TO
EXPAND OUR CURRENT BUSINESS OPERATIONS.
If we want to maintain our interest in the MinQuest property, on or before July
25, 2004 we are required to incur no less than $75,000 in expenditures in
connection with exploration operations as well as paying MinQuest $20,000. We
are also currently in the process of negotiating the purchase of a mining
property in Arizona, which will require payment to the sellers of the property
of not less than $350,000. We may need to raise additional funds through public
or private debt or equity sales in order to fund our operations and fulfill our
contractual obligations. These financings may not be available when needed. Even
if these financings are available, it may be on terms that we deem unacceptable
or are materially adverse to your interests with respect to dilution of book
value, dividend preferences, liquidation preferences, or other terms. Our
inability to obtain financing would have an adverse effect on our ability to
implement our current exploration in Nevada, and as a result, could require us
to diminish or suspend our operations and possibly cease our operations.
In addition, a prolonged decline in the price of our common stock could result
in a reduction in the liquidity of our common stock and a reduction in our
ability to raise capital. Because our operations have been primarily financed
through the sale of equity securities, a decline in the price of our common
stock could be especially detrimental to our liquidity and our continued
operations. Any reduction in our ability to raise equity capital in the future
would force us to reallocate funds from other planned uses and would have a
significant negative effect on our business plans and operations, including our
ability to develop new products and continue our current operations. If our
stock price declines, we may not be able to raise additional capital or generate
funds from operations sufficient to meet our obligations.
10. IF WE DO NOT COMPLETE THE REQUIRED OPTION PAYMENT AND CAPITAL EXPENDITURE
REQUIREMENTS MANDATED IN OUR AGREEMENT WITH MINQUEST, WE WILL LOSE OUR INTEREST
IN THE PROPERTY AND OUR BUSINESS MAY FAIL.
In order to earn a 100% interest in the two Nevada mineral exploration
properties which we are currently exploring, we must pay MinQuest, Inc. and
incur expenditures relating to mining operations in accordance with the
following schedule:
(i) on or before July 25, 2004, $20,000 to MinQuest and $75,000 in
expenditures;
(ii) on or before July 25, 2005, $20,000 to MinQuest and an additional
$100,000 in expenditures;
(iii) on or before July 25, 2006, $20,000 to MinQuest and an additional
$100,000 in expenditures;
(iv) on or before July 25, 2007, $20,000 to MinQuest and an additional
$100,000 in expenditures; and
(v) on or before July 25, 2008, an additional $125,000 in expenditures.
If we have not incurred the requisite expenditures to maintain our option
in good standing, we have a 60-day period subsequent to July 25th to make
such payment along with such amount which shall be deemed to have been an
expenditure incurred by us during such period. Since our payment
obligations are non-refundable, if we do not make any payments, we will
lose any payments made and all our rights to the properties.
11. IF WE LOSE THE SERVICES OF ANY OF OUR MANAGEMENT TEAM, WE WILL BE REQUIRED
TO EXPEND SIGNIFICANT TIME AND EXPENSE IN FINDING QUALIFIED REPLACEMENTS SO THAT
OUR OPERATIONS MAY CONTINUE..
We are presently dependent to a great extent upon the experience, abilities and
continued services of Ronald Blomkamp, Robert Sibthorpe and Robert Coale. All
three individuals have an extensive background in the natural resource industry
and the loss of any of these individuals would negatively impact our operations.
If we lost the services of any of these individuals we would be forced to find
other qualified management to assist us in location and exploration of a
property. This would be costly to us in terms of both time and expenses. None of
these individuals has an employment agreement with us nor do we have key-man
life insurance on them. Therefore, the loss of the services of these individuals
would result in us spending time and money finding qualified replacements, which
would result in spending less time and money with respect to exploring this
property and continuing our operations.
12. THREE OF OUR DIRECTORS HAVE AGREED TO VOTE THEIR SHARES OF STOCK TOGETHER,
GIVING THEM CONTROL OF APPROXIMATELY 10.2% OF THE VOTING POWER OF THE COMPANY
AND THE ABILITY TO EXERCISE SIGNIFICANT INFLUENCE OVER MATTERS SUBMITTED FOR
SHAREHOLDER APPROVAL.
By virtue of the Shareholders' Agreement among Messrs. Blomkamp, Sibthorpe and
Coale, our directors, have the ability to nominate and appoint a majority to our
Board. Since the agreement also provides that the three shareholders shall vote
their 3,000,000 shares together, the three shareholders will control
approximately 10.2% of the outstanding voting power of our common stock and have
significant influence in determining the outcome of any corporate transaction or
other matter submitted to the shareholders for approval. This could have a
significant impact on mergers, acquisitions, and the sale of all or
substantially all of our assets, and also to prevent or cause a change of
control.
13. SINCE OUR OFFICERS AND DIRECTORS HAVE THE ABILITY TO BE EMPLOYED BY OR
CONSULT FOR OTHER COMPANIES, THEIR OTHER ACTIVITIES COULD SLOW DOWN OUR
OPERATIONS.
Our officers and directors are not required to work exclusively for us and do
not devote all of their time to our operations. Therefore, it is possible that a
conflict of interest with regard to their time may arise based on their
employment by other companies. Their other activities may prevent them from
devoting full-time to our operations which could slow our operations and may
reduce our financial results because of the slow down in operations. It is
expected that each of our directors will devote between 5 and 10 hours per week
to our operations on an ongoing basis, and when required will devote whole days
and even multiple days at a stretch when property visits are required or when
extensive analysis of information is needed.
14. WE MAY NOT HAVE ACCESS TO ALL OF THE SUPPLIES AND MATERIALS WE NEED TO BEGIN
EXPLORATION WHICH COULD CAUSE US TO DELAY OR SUSPEND OPERATIONS.
Competition and unforeseen limited sources of supplies in the industry could
result in occasional spot shortages of supplies and certain equipment such as
bulldozers and excavators that we might need to conduct exploration. We located
and negotiated with any suppliers of products, equipment and materials that are
required for our planned exploration activities. But future availability of
products, equipment and materials may from time to time fall into short supply
and we may therefore have to suspend our exploration plans until we do find the
products, equipment and materials we need. Such delayed or suspended operations
could cause us to incur greater losses and may affect our ability to obtain
needed funding to continue our operations and/or obtain credit from new
suppliers. If we fail to get such funding or credit, our business may fail.
15. FLUCTUATIONS IN EXCHANGE RATES COULD ADVERSELY AFFECT OUR RESULTS OF
OPERATIONS, STOCKHOLDERS' EQUITY AND FINANCIAL CONDITION.
Though we use the United States dollar for financial reporting purposes, our
primary functional currency is the Canadian dollar. At the end of each fiscal
year, we remeasure our assets, liabilities, stockholders' equity, revenue and
expense accounts. Our balance sheet accounts are translated at year-end exchange
rates, revenue and our expense accounts are translated at the average exchange
rates in effect during the year. We record currency translation gains and losses
as a separate component of stockholders' equity
Generally, the exchange rate of the Canadian dollar to the United States dollar
has been stable. However, because we do not currently engage in hedging
activities to protect against foreign currency risks, any fluctuation in the
exchange rate of the Canadian dollar could have a negative effect on the
remeasurement of assets, liabilities, revenues and expenses that we do at the
end of our fiscal year. Any such negative impact may result in a decrease of the
value of the assets, increase in our liabilities and a decrease of our
stockholders' equity.
RISKS RELATING TO OUR STRATEGY AND INDUSTRY
16. BECAUSE OF THE EARLY STAGE OF DEVELOPMENT AND THE NATURE OF OUR BUSINESS,
OUR SECURITIES ARE CONSIDERED HIGHLY SPECULATIVE. Our securities must be
considered highly speculative, generally because of the nature of our business
and the early stage of its development. We are engaged in the business of
exploring and, if warranted and feasible, developing natural resource
properties. Our current properties are in the exploration stage only and are
without known reserves of natural resources. Accordingly, we have not generated
any revenues nor have we realized a profit from our operations to date and there
is little likelihood that we will generate any revenues or realize any profits
in the short term. Any profitability in the future from our business will be
dependent upon locating and developing economic reserves of natural resources,
which itself is subject to numerous risk factors as set forth herein. Since we
have not generated any revenues, we will have to raise additional monies through
the sale of our equity securities or debt in order to continue our business
operations.
17. BECAUSE OF THE SPECULATIVE NATURE OF EXPLORATION AND DEVELOPMENT, THERE IS A
SUBSTANTIAL RISK THAT OUR BUSINESS WILL FAIL.
The search for valuable natural resources as a business is extremely risky. We
can provide investors with no assurance that the property we have optioned in
Nevada contains commercially exploitable reserves. Exploration for natural
reserves is a speculative venture involving substantial risk. Therefore,
determination of the existence of a reserve will depend on appropriate and
sufficient exploration work and the evaluation of legal, economic, and
environmental factors. Few properties that are explored are ultimately developed
into producing commercially feasible reserves. Problems such as unusual or
unexpected formations and other conditions are involved in mineral exploration
and often result in unsuccessful exploration efforts. Because the probability of
an individual prospect ever having reserves is extremely remote, in all
probability our properties do not contain any reserves, and any funds we spent
on exploration will probably be lost. If we fail to find a commercially viable
deposit on any of our properties, we would incur an impairment of our investment
in such properties and may result in losses in relation to amounts spent in the
exploration of our properties, which may not be recoverable, and, as a result,
we may go out of business unless we can find financing to acquire additional
exploration properties
18. IT IS POSSIBLE THAT THERE MAY BE NATIVE OR ABORIGINAL CLAIMS TO OUR PROPERTY
WHICH COULD RESULT IN US INCURRING ADDITIONAL EXPENSES TO EXPLORE ANY OF OUR
EXPLORATION PROPERTIES.
Although we believe that we have the right to explore our exploration
properties, we cannot substantiate that there are no native or aboriginal claims
to any such properties. If a native or aboriginal claim is made to any of our
exploration properties, We may be unable to explore such properties as permitted
or to enforce our rights with respect to such properties and we would have to
incur significant legal fees protecting our right to explore any such
properties. We may also have to pay third parties to settle such claims. If it
is determined that there is a legitimate claim to any of our exploration
properties, then we may be forced to return such exploration properties without
adequate or any consideration. Even if there is no legal basis for such claim,
the costs involved in resolving such matter may force us to delay or curtail our
exploration activities completely.
19. OUR EXPLORATION ACTIVITIES AND ANY FUTURE MINING ACTIVITIES THAT WE MAY HAVE
ARE, AND WILL BE, SUBJECT TO NUMEROUS ENVIRONMENTAL LAWS, REGULATIONS AND
PERMITTING REQUIREMENTS THAT CAN DELAY OUR EXPLORATION ACTIVITIES AND FUTURE
MINING ACTIVITIES AND COULD RESULT IN SIGNIFICANT FINES THAT WOULD HAVE A
MATERIAL ADVERSE EFFECT ON OUR BALANCE SHEET AND OUR RESULTS OF OPERATIONS
Our operations are subject to extensive federal, state and local laws and
regulations concerning the discharge of materials into the environment and the
remediation of chemical contamination. To satisfy such requirements, we may have
to make capital and other expenditures on an ongoing basis. For example,
environmental agencies continue to develop regulations implementing the Federal
Clean Air Act. Depending on the nature of the regulations adopted, we may be
required to incur additional capital and other expenditures in the next several
years for air pollution control equipment, to maintain or obtain operating
permits and approvals, and to address other air emission-related issues. Future
expenditures relating to environmental matters will necessarily depend upon the
application to our properties of future regulations and government decisions. It
is likely that we will be subject to increasingly stringent environmental
standards and the additional expenditures related to compliance with such
standards. Furthermore, if we fail to comply with applicable environmental
regulations, we could be subject to substantial fines or penalties and to civil
and criminal liability.
Under applicable state and federal laws, we may be responsible for, among other
things, all or part of the costs required to remove or remediate wastes or
hazardous substances at locations we have owned or operated at any time. The
discovery of previously unknown contamination or the imposition of new clean-up
requirements could require us to incur costs or become subject to new or
increased liabilities that could have a material adverse effect on our business,
financial condition and results of operations
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements which relate to future
events or our future financial performance. In some cases, you can identify
forward-looking statements by terminology such as "may", "should", "expects",
"plans", "anticipates", "believes", "estimates", "predicts", "potential" or
"continue" or the negative of these terms or other comparable terminology. These
statements are only predictions and involve known and unknown risks,
uncertainties and other factors, including the risks in the section entitled
"Risk Factors" on pages 4 to 12, that may cause our or our industry's actual
results, levels of activity, performance or achievements to be materially
different from any future results, levels of activity, performance or
achievements expressed or implied by these forward-looking statements.
While these forward-looking statements, and any assumptions upon which they are
based, are made in good faith and reflect our current judgment regarding the
direction of our business, actual results will almost always vary, sometimes
materially, from any estimates, predictions, projections, assumptions or other
future performance suggested herein. Except as required by applicable law,
including the securities laws of the United States, we do not intend to update
any of the forward-looking statements to conform these statements to actual
results.
THE OFFERING
This prospectus relates to the resale by certain selling security holders of
Patriot Gold Corp. of up to 6,070,000 shares of our common stock in connection
with the resale of:
* up to 1,214,000 shares of our common stock which were issued in a
private placement in July 2003 and a private placement in November
2003; and
* up to 4,856,000 shares of our common stock which may be issued upon
exercise of certain warrants issued in connection with the private
placements.
The selling security holders may offer to sell the shares of common stock being
offered in this prospectus at fixed prices, at prevailing market prices at the
time of sale, at varying prices or at negotiated prices. We will not receive any
proceeds from the resale of shares of our common stock by the selling
stockholders. However, if all the warrants were exercised, we would receive a
maximum of $7,162,600 as a result of such exercises. Notwithstanding, there is
no assurance that any of the warrants will be exercised by the warrant holders.
USE OF PROCEEDS
The shares of common stock offered hereby are being registered for the account
of the selling security holders named in this prospectus. As a result, all
proceeds from the sales of the common stock will go to the selling stockholders
and we will not receive any proceeds from the resale of the common stock by the
selling stockholders. We will, however, incur all costs associated with this
registration statement and prospectus, which are currently estimated to be
approximately $20,000. Although there is no assurance that any of the warrants
will be exercised, if they are exercised we would receive proceeds of up to
$7,162,600 (assuming all warrants are exercised prior to expiry). If we receive
any proceeds from the exercise of the warrants, these proceeds will be used for
general working capital purposes.
SELLING SECURITY HOLDERS
The selling security holders may offer and sell, from time to time, any or all
of the common stock issued and the common stock issuable to them upon exercise
of the warrants. Because the selling security holders may offer all or only some
portion of the 6,070,000 shares of common stock to be registered, no estimate
can be given as to the amount or percentage of these shares of common stock that
will be held by the selling security holders upon termination of the offering.
The following table sets forth certain information regarding the beneficial
ownership of shares of common stock by the selling security holders as of July
15, 2004, and the number of shares of common stock covered by this prospectus.
The number of shares in the table represents an estimate of the number of shares
of common stock to be offered by the selling stockholder. To our knowledge, none
of the selling security holders is a broker-dealer, or an affiliate of a
broker-dealer.
None of the selling security holders has any position, office or material
relationship with us. Except as otherwise, indicated, all securities are owned
directly.
The warrants issued in the July 2003 private placement are exercisable as
follows: 350,000 warrants at $1.40 per share, 350,000 warrants are exercisable
at $1.45 per share, 350,000 warrants are exercisable at $1.50 per share, and
350,000 warrants are exercisable at $1.55 per share. We reserved the right, in
our sole discretion, to decrease the exercise price of the warrants and extend
the expiration date of the warrants. These warrants currently expire on October
25, 2006.
The 864,000 Class A-1 warrants issued in the November 2003 private placement are
not exercisable until November 27, 2004, the 864,000 Class B-1 warrants are not
exercisable until November 27, 2005, the 864,000 Class C-1 warrants are not
exercisable until November 27, 2006 and the 864,000 Class D-1 warrants are not
exercisable until November 27, 2007. The exercise price of the Class A-1
warrants, the Class B-1 warrants, the Class C-1 warrants and the Class D-1
warrants are $1.40 per share, $1.45 per share, $1.50 per share and $1.55 per
share. Notwithstanding the foregoing, the following table assumes, for
beneficial ownership purposes only, that the Company may accelerate the exercise
date of the warrants issued in the November 2003 private placement so that they
become exercisable upon the effectiveness of this registration statement.
COMMON NUMBER OF NUMBER OF SHARES OWNED
NAME OF SELLING SHARES OWNED SHARES BY SELLING SECURITY HOLDER
SECURITY HOLDER AND POSITION, BY THE ISSUABLE AFTER
OFFICE OR MATERIAL SELLING UPON EXERCISE OFFERING AND PERCENT OF TOTAL
RELATIONSHIP WITH PATRIOT GOLD SECURITY OF ALL OF THE TOTAL SHARES ISSUED AND OUTSTANDING HELD
CORP. HOLDER (2) WARRANTS(2) REGISTERED BEFORE THE OFFERING(1)(2)
# OF % OF
SHARES CLASS
Almir Ramic 450,000 1,800,000(3) 2,250,000 0 7.2%
Colin Bruce Worth 320,000 1,280,000 1,600,000 0 5.2%
Jill Kurucz 224,000 896,000 1,120,000 0 3.7%
Paul Uppal 130,000 520,000 650,000 0 2.2%
David Langley 90,000 360,000 450,000 0 1.5%
(1) Assumes all of the shares of common stock offered in this prospectus
are sold, including shares issuable upon the exercise of the warrants,
and no other shares of common stock are sold or issued during this
offering period. Based on 29,279,400 common shares issued and
outstanding on June 30, 2004.
(2) The number of shares of common stock listed as beneficially owned by
such selling security holder represents the number of shares of common
stock currently owned and issueable upon exercise of warrants.
(3) The person indicated above purchased 130,000 units in the July 2003
private placement and 320,000 units in the November 2003 private
placement.
We may require the selling security holders to suspend the sales of the
securities offered by this prospectus upon the occurrence of any event that
makes any statement in this prospectus or the related registration statement
untrue in any material respect or that requires the changing of statements in
these documents in order to make statements in those documents not misleading.
We will file a post-effective amendment to this registration statement to
reflect any material changes to this prospectus.
PLAN OF DISTRIBUTION
The selling security holders may, from time to time, sell all or a portion of
the shares of common stock on any market upon which the common stock may be
listed or quoted (currently the National Association of Securities Dealers OTC
Bulletin Board in the United States), in privately negotiated transactions or
otherwise. Such sales may be at fixed prices prevailing at the time of sale, at
prices related to the market prices or at negotiated prices. The shares of
common stock being offered for resale by this prospectus may be sold by the
selling security holders by one or more of the following methods, without
limitation:
(a) an exchange distribution in accordance with the rules of the
applicable exchange;
(b) ordinary brokerage transactions and transactions in which the
broker solicits purchasers;
(c) privately negotiated transactions;
(d) market sales (both long and short to the extent permitted under the
federal securities laws);
(e) at the market to or through market makers or into an existing
market for the shares;
(f) through transactions in options, swaps or other derivatives
(whether exchange listed or otherwise); and
(g) a combination of any of the aforementioned methods of sale.
In the event of the transfer by any of the selling security holders of its
warrants or common shares to any pledgee, donee or other transferee, we will
amend this prospectus and the registration statement of which this prospectus
forms a part by the filing of a post-effective amendment in order to have the
pledgee, donee or other transferee in place of the selling stockholder who has
transferred his, her or its shares.
In effecting sales, brokers and dealers engaged by the selling security holders
may arrange for other brokers or dealers to participate. Brokers or dealers may
receive commissions or discounts from a selling stockholder or, if any of the
broker-dealers act as an agent for the purchaser of such shares, from a
purchaser in amounts to be negotiated which are not expected to exceed those
customary in the types of transactions involved. Broker-dealers may agree with a
selling stockholder to sell a specified number of the shares of common stock at
a stipulated price per share. Such an agreement may also require the
broker-dealer to purchase as principal any unsold shares of common stock at the
price required to fulfill the broker-dealer commitment to the selling
stockholder if such broker-dealer is unable to sell the shares on behalf of the
selling stockholder. Broker-dealers who acquire shares of common stock as
principal may thereafter resell the shares of common stock from time to time in
transactions which may involve block transactions and sales to and through other
broker-dealers, including transactions of the nature described above. Such sales
by a broker-dealer could be at prices and on terms then prevailing at the time
of sale, at prices related to the then-current market price or in negotiated
transactions. In connection with such resales, the broker-dealer may pay to or
receive from the purchasers of the shares commissions as described above.
The selling security holders and any broker-dealers or agents that participate
with the selling stockholders in the sale of the shares of common stock may be
deemed to be "underwriters" within the meaning of the Securities Act in
connection with these sales. In that event, any commissions received by the
broker-dealers or agents and any profit on the resale of the shares of common
stock purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act.
From time to time, any of the selling security holders may pledge shares of
common stock pursuant to the margin provisions of customer agreements with
brokers. Upon a default by a selling security holder, their broker may offer and
sell the pledged shares of common stock from time to time. Upon a sale of the
shares of common stock, the selling security holders intend to comply with the
prospectus delivery requirements under the Securities Act by delivering a
prospectus to each purchaser in the transaction. We intend to file any
amendments or other necessary documents in compliance with the Securities Act
which may be required in the event any of the selling stockholders defaults
under any customer agreement with brokers.
To the extent required under the Securities Act, a post effective amendment to
this registration statement will be filed disclosing the name of any
broker-dealers, the number of shares of common stock involved, the price at
which the common stock is to be sold, the commissions paid or discounts or
concessions allowed to such broker-dealers, where applicable, that such
broker-dealers did not conduct any investigation to verify the information set
out or incorporated by reference in this prospectus and other facts material to
the transaction.
We and the selling security holders will be subject to applicable provisions of
the Exchange Act and the rules and regulations under it, including, without
limitation, Rule 10b-5 and, insofar as a selling stockholder is a distribution
participant and we, under certain circumstances, may be a distribution
participant, under Regulation M. All of the foregoing may affect the
marketability of the common stock.
All expenses of the registration statement including, but not limited to, legal,
accounting, printing and mailing fees are and will be borne by us. Any
commissions, discounts or other fees payable to brokers or dealers in connection
with any sale of the shares of common stock will be borne by the selling
security holders, the purchasers participating in such transaction, or both.
Any shares of common stock covered by this prospectus which qualify for sale
pursuant to Rule 144 under the Securities Act, as amended, may be sold under
Rule 144 rather than pursuant to this prospectus.
BLUE SKY RESTRICTIONS ON RESALE
When a selling security holder wants to sell shares of our common stock under
this registration statement, the selling security holders will also need to
comply with state securities laws, also known as "Blue Sky laws," with regard to
secondary sales. All states offer a variety of exemption from registration for
secondary sales. Many states, for example, have an exemption for secondary
trading of securities registered under Section 12(g) of the Securities Exchange
Act of 1934 or for securities of issuers that publish continuous disclosure of
financial and non-financial information in a recognized securities manual, such
as Standard & Poor's. The broker for a selling security holder will be able to
advise a selling security holder which states our common stock is exempt from
registration with that state for secondary sales.
Any person who purchases shares of our common stock from a selling security
holder under this registration statement who then wants to sell such shares will
also have to comply with Blue Sky laws regarding secondary sales.
When the registration statement becomes effective, and a selling security holder
indicates in which state(s) he desires to sell his shares, the Company will be
able to identify whether it will need to register or will rely on an exemption
there from.
PENNY STOCK REGULATIONS
You should note that our stock is a penny stock. The Securities and Exchange
Commission has adopted Rule 15g-9 which generally defines "penny stock" to be
any equity security that has a market price (as defined) less than $5.00 per
share or an exercise price of less than $5.00 per share, subject to certain
exceptions. Our securities are covered by the penny stock rules, which impose
additional sales practice requirements on broker-dealers who sell to persons
other than established customers and "accredited investors". The term
"accredited investor" refers generally to institutions with assets in excess of
$5,000,000 or individuals with a net worth in excess of $1,000,000 or annual
income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock
rules require a broker-dealer, prior to a transaction in a penny stock not
otherwise exempt from the rules, to deliver a standardized risk disclosure
document in a form prepared by the SEC which provides information about penny
stocks and the nature and level of risks in the penny stock market. The
broker-dealer also must 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 and monthly account statements showing the market
value of each penny stock held in the customer's account. The bid and offer
quotations, and the broker-dealer and salesperson compensation information, must
be given to the customer orally or in writing prior to effecting the transaction
and must be given to the customer in writing before or with the customer's
confirmation. In addition, the penny stock rules require that prior to a
transaction in a penny stock not otherwise exempt from these rules, the
broker-dealer must 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 in the secondary market for the stock
that is subject to these penny stock rules. Consequently, these penny stock
rules may affect the ability of broker-dealers to trade our securities. We
believe that the penny stock rules discourage investor interest in and limit the
marketability of our common stock.
LEGAL PROCEEDINGS
We know of no existing or pending legal proceedings against our company, nor are
we involved as a plaintiff in any proceeding or pending litigation. There are no
proceedings in which any of our directors, officers or affiliates, or any
registered or beneficial shareholder, is an adverse party or has a material
interest adverse to our interest.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
All directors of our company hold office until the next annual general meeting
of the stockholders or until their successors are elected and qualified. The
officers of our company are appointed by our board of directors and hold office
until their earlier death, retirement, resignation or removal.
Our directors, executive officers and other significant employees, their ages,
positions held and duration each person has held that position, are as follows:
------------------------------- ---------------------------- ---------------------------- ----------------------------
POSITION HELD WITH THE
NAME COMPANY AGE DATE FIRST APPOINTED
------------------------------- ---------------------------- ---------------------------- ----------------------------
Ronald C. Blomkamp Chairman, President, Chief 58 July 21, 2003
Executive and Operating
Officer and Secretary
------------------------------- ---------------------------- ---------------------------- ----------------------------
Robert A. Sibthorpe Director 54 June 23, 2003
------------------------------- ---------------------------- ---------------------------- ----------------------------
Robert D. Coale Director 63 June 23, 2003
------------------------------- ---------------------------- ---------------------------- ----------------------------
Mr. Blomkamp spends an average of 5 - 10 hours per week on the business of the
Company. Each of Messrs. Sibthorpe and Coale spend an average of 5 - 10 hours
per week on the business of the Company.
BUSINESS EXPERIENCE
The following is a brief account of the education and business experience of
each director, executive officer and key employee during at least the past five
years, indicating each person's principal occupation during the period, and the
name and principal business of the organization by which he was employed.
Ronald C. Blomkamp has been our Chairman, President, Chief Executive and
Operating Officer and Secretary since July 21, 2003. For the five years prior to
becoming a director and officer to our company, Mr. Blomkamp acted on his own
behalf investing in the stock markets. With a focus on the natural resource
sector, his daily involvement in this area saw him making many strategic
partnerships amongst the various professionals working in this field. Prior to
this, he lived in South Africa and has worked extensively at the face of many of
the world's deepest gold mines and across several facets of the industry, and
has collaborated with the South African Chamber of Mines on rock mechanics,
safety and efficiency. He holds several patents relating to advanced mining
technology. Mr. Blomkamp holds a Diploma in Production Engineering from
Witwatersrand College for Advanced Technology in South Africa, and for sixteen
years from March of 1978 to 1994 worked at Edward L Bateman (now called ELB
Group), a publicly listed company and South Africa's leading mining services
company. During this time, he acted in a variety of capacities, including Group
Industrial Engineer (1978 - 1981), Engineering Manager (1981 - 1987), and
Technical Director (1987 to 1994), where he oversaw all aspects of plant
production and manufacturing as well as quality assurance and product
development. ELB Group's services included the design and production of mining
equipment for the processing of mineral ore, as well as equipment for mine
excavation and shaft drilling, and the production of equipment for separating
metals from the base rock component.
Robert A. Sibthorpe has been a director since June 23, 2003, and is an
exploration Geologist and Financial Analyst with more than 30 years of
multi-disciplinary experience in many aspects of the natural resource sector.
Since the beginning of 2003 he has acted as an independent consultant and
director. From March 2003, to November 2003 Mr Sibthorpe sat on the Board of
Freegold Ventures Corp., a Canadian listed public company that is an exploration
stage mining company , and since June of 2001 has provided independent
consulting services to Rare Earth Metals Corp., another Canadian listed public
company that is an exploration stage mining company. From January 2003 to March
2003 Mr. Sibthorpe was involved with project generation and review for Olympus
Pacific Minerals Ltd., a company listed on the Toronto Venture Exchange that is
an exploration stage mining company. From January, 2001 to January of 2003 Mr.
Sibthorpe acted as Senior Vice President of Business Development in Vancouver
for Ivanhoe Mines Ltd., a Toronto Stock Exchange listed public company that is a
reserve stage mid-tier copper and iron ore producer, where he was responsible
for evaluating new opportunities, and for advancing properties of merit already
held by the company. By forming and running a "Small Mines Unit", he was
directly responsible for placing into commercial production, an epithermal gold
deposit in Korea and advancing two other Asian gold properties to the
Feasibility Study level. From May of 1999 to January of 2001 Mr. Sibthorpe was
Senior Mining Analyst for Canaccord Capital Corp. (Vancouver), a private
Canadian brokerage house. In 1997 and 1998 Mr. Sibthorpe acted as an independent
consultant and director based out of Phoenix, Arizona, and from May 1997 to
August of 2000 acted as an outside director for InnovaCom Inc., a U.S. public
developmental stage technology company that focuses on video compression
technology. Mr. Sibthorpe also acts as a Director for Madison Enterprises, a
Toronto listed public company that is an exploration stage mining company, and
has done so since October of 1996. From June of 1986 to September of 1996 Mr.
Sibthorpe acted as Director and Senior Analyst Corporate Finance (Canada),
working in Toronto and Vancouver for Yorkton Securities Inc., a private
brokerage house. From June of 1979 to May of 1986 he worked at Midland Doherty
Ltd., a brokerage house, as Institutional Mining Analyst and was appointed a
Director and Head of Research for that firm. A graduate of the University of
Toronto in 1971, he began his career as a geologist conducting exploration
programs for mining companies in Canada, the Middle East and the Republic of
South Africa for ten years, and in 1978 completed an MBA at the University of
Toronto.
Robert D. Coale has been a director since June 23, 2003. He is a Professional
Engineer with a specialty in the mining sector. With two engineering degrees
(1963 - MetE. - Colorado School of Mines, 1971 - MSc. - University of the
Witwaterstrand in South Africa) and an MBA from the University of Minnesota
(1982), he has over 30 years of resource related business and management
experience. From November of 1999 to present, Mr. Coale has acted as Senior
Project Manager for EFS West, a privately held engineering and construction
company located in Van Nuys, CA. At EFS West, he is responsible for development
of natural gas and landfill gas (LFG) reciprocating internal combustion (RIC)
engine generator plants from 800 kW to more than 5 MW, and as design engineer
for liquefied and compressed natural gas storage and fueling facilities. He was
a member of the technical advisory board of Andean American Mining Co., a
publicly listed company that is a reserve stage gold mining company, from April
of 2002 to May of 2003. From April of 1996 to November of 1999 Mr. Coale acted
as a consulting Metallurgical/Environmental Engineer. During this time he was
also president of Yuma Copper Corp., a Canadian junior public mining company
that is an exploration stage cooper mining company, and was responsible for
managing activities during the exploration for copper oxides and development of
three separate properties in the Second Region of Chile. He also acted as a
member of the Board of Directors of Francisco Gold Corp., a Canadian publicly
listed junior resource exploration company that is an exploration stage mining
company. From September, 1992 to April, 1996 Mr. Coale again acted as a
consulting engineer. He was responsible for evaluation of mineral properties
worldwide including development of metallurgical processing design and closure
plans for industrial and mine sites. He was also responsible for the technical
direction and management of a group of engineers, scientists, and technicians
involved in landfill and mineral leaching facility design, construction, and
construction quality assurance. From August of 1989 to September of 1992 Mr.
Coale was Technical Director of Mine Reclamation Corporation, a privately-held
company located in Palm Springs, California that refurbishes spent mines for
other uses such as waste disposal. He was responsible for the direction of
technical development and environmental permitting of the Eagle Mountain
Project, a 20,000 tons per day municipal solid waste-by-rail landfill in
Southern California including design and engineering of landfill facilities
including liner system, leachate recovery and treatment, and transportation
(rail and truck) facilities.
Other than the Shareholders Agreement among our three directors which is
discussed below, there are no agreements with respect to the election of
Directors. We have not compensated our Directors for service on our Board of
Directors, any committee thereof, or reimbursed for expenses incurred for
attendance at meetings of our Board of Directors and/or any committee of our
Board of Directors.
There are no family relationships among our directors or officers.
We do not currently have a Code of Ethics applicable to our principal executive,
financial and accounting officers. We do not have a "financial expert" on the
board or an audit committee or nominating committee. Our directors, executive
officers and control persons have not been involved in any of the following
events during the past five years:
1. Any bankruptcy petition filed by or against any business of which
such person was a general partner or executive officer either at the
time of the bankruptcy or within two years prior to that time;
2. any conviction in a criminal proceeding or being subject to a
pending criminal proceeding (excluding traffic violations and other
minor offenses);
3. being subject to any order, judgment, or decree, not subsequently
reversed, suspended or vacated, of any court of competent jurisdiction,
permanently or temporarily enjoining, barring, suspending or otherwise
limiting his involvement in any type of business, securities or banking
activities; or
4. being found by a court of competent jurisdiction (in a civil
action), the Commission or the Commodity Futures Trading Commission to
have violated a federal or state securities or commodities law, and the
judgment has not been reversed, suspended, or vacated.
POTENTIAL CONFLICTS OF INTEREST
Since our sole officer and directors work for other natural resource exploration
companies, there exists the possibility of conflicts of interest between us, our
officer and directors and such other companies. For example, the officer or
director may locate a corporate opportunity and present it to another company
before presenting it to us.
Our officer and directors have been made aware that Nevada corporate law the
business opportunity must first be offered to us when and if:
(1) we are financially able to exploit the opportunity;
(2) the opportunity is within our line of business;
(3) we have an interest or expectancy in the opportunity; and
(4) by taking the opportunity, the director breaches his duty of care
or loyalty owed to us.
If the situation results in the officer or director being interested in the
matter, the interest will be disclosed to the other board members who shall
approve or disapprove of the action. Furthermore, our officer and directors will
keep in confidence all confidential information about us.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of July ___, 2004, certain information with
respect to the beneficial ownership of our common stock by each stockholder
known by us to be the beneficial owner of more than 5% of our common stock and
by each of our current directors and executive officers. Each person has sole
voting and investment power with respect to the shares of common stock, except
as otherwise indicated. Information relating to beneficial ownership of common
stock by our principal stockholders and management is based upon information
furnished by each person using "beneficial ownership" concepts under the rules
of the Securities and Exchange Commission. Under these rules, a person is deemed
to be a beneficial owner of a security if that person has or shares voting
power, which includes the power to vote or direct the voting of the security, or
investment power, which includes the power to vote or direct the voting of the
security. The person is also deemed to be a beneficial owner of any security of
which that person has a right to acquire beneficial ownership within 60 days.
Under the Securities and Exchange Commission rules, more than one person may be
deemed to be a beneficial owner of the same securities, and a person may be
deemed to be a beneficial owner of securities as to which he or she may not have
any pecuniary beneficial interest.
The following table assumes that there are 29,279,400 shares issued and
outstanding as of June 30, 2004.
Unless indicated otherwise, all addresses below are c/o Patriot Gold Corp.,
#501-1775 Bellevue Avenue, West Vancouver, British Columbia, Canada, V7V 1A9.
---------------------------------------- -------------------------------------- --------------------------------------
NAME OF BENEFICIAL OWNER AMOUNT AND NATURE OF BENEFICIAL PERCENTAGE OF CLASS
OWNERSHIP
---------------------------------------- -------------------------------------- --------------------------------------
Bruce Johnstone 4,500,000 (1) 15.43%
102 Donaghy Avenue,
North Vancouver, B.C.
Canada V7P 2L5
---------------------------------------- -------------------------------------- --------------------------------------
Robert A. Sibthorpe 3,200,000 (2) 10.9%
---------------------------------------- -------------------------------------- --------------------------------------
Robert D. Coale 3,100,000(3) 10.6%
---------------------------------------- -------------------------------------- --------------------------------------
Ronald C. Blomkamp 3,165,000(4) 10.8%
---------------------------------------- -------------------------------------- --------------------------------------
Directors and Officers as a Group (3 9,340,000 31.4%
individuals)
---------------------------------------- -------------------------------------- --------------------------------------
(1) In June 2003, we issued 13,500,000 Series A 7% Redeemable Preferred
Shares to Bruce Johnstone, our officer and director from October 2002
until July 2003. In September, Mr. Johnstone exchanged his 13,500,000
preferred shares for 13,500,000 shares of our common stock. On January
22, 2004, Mr. Johnstone transferred 9,000,000 shares of common stock to
our three directors without any compensation; the value of those shares
on January 24, 2004 was $19.35 million (based on $2.30, which was the
closing price of our common stock on the OTC at the close of trading on
January 22, 2004). The current value of those shares, as of June 30,
2004, was $6.21 million. . Mr. Johnstone transferred the shares to the
three of our directors in exchange for our agreement to register his
remaining shares of common stock. We entered into such an agreement in
order to align the interest of directors with those of our
shareholders.
(2) Includes 200,000 options pursuant to the Stock Option Plan to purchase
common stock at a purchase price of $0.05 per share.
(3) Includes 100,000 options pursuant to the Stock Option Plan to purchase
common stock at a purchase price of $0.05 per share.
(4) Includes 150,000 options pursuant to the Stock Option Plan to purchase
common stock at a purchase price of $0.05 per share. An additional
50,000 shares will vest on August 1, 2004.
Shareholders' Agreement
Messrs. Blomkamp, Sibthorpe and Coale are party to a Shareholders' Agreement
dated as of January 22, 2004. The agreement provides that for so long as the
person holds any of the 3,000,000 shares which he received from Bruce Johnstone,
the directors shall vote such shares to maintain three persons on our board.
Upon any vote to appoint representatives to the Board, each shareholder agreed
that he shall vote his shares for the other two shareholders. If one of the
three shareholders is no longer a shareholder, or if the Board or our
shareholders decided to remove one of the Board members, or the shareholder no
longer holds any of the 3,000,000 shares which he received from Mr. Johnstone,
then the other two shareholders agreed to vote their shares together to either
maintain the number of Board members as two or to nominate and appoint a third
Board member. The agreement also provides that for all other matters in which
shares are voted, the three shareholders shall vote their 3,000,000 shares
together as determined by the decision of two of the three shareholders. These
three shareholders had determined that such agreement would be beneficial in
maintaining control among themselves over the shares that they had received from
Mr. Johnstone.
The shareholders also agreed that he will not, directly or indirectly, sell,
pledge, gift or in any other way dispose of any of the 3,000,000 shares which he
received from Mr. Johnstone. This transfer restriction shall apply to such
shares in all situations during all times that such individual holds any of the
3,000,000 shares. Although the shareholders' agreement restricts transfers of
the shares received from Mr. Johnstone and held by the directors, a director can
no longer hold the shares which he received from Mr. Johnstone if he dies or if
the agreement is amended by the parties to permit a transfer. The Company is not
aware of any such amendment being contemplated by the parties.
We are unaware of any other contract or other arrangement the operation of which
may at a subsequent date result in a change in control of our company.
DESCRIPTION OF SECURITIES
We are authorized to issue 100,000,000 shares of common stock. As of July 15,
2004, we have issued 29,279,400 shares of common stock. Upon liquidation,
dissolution or winding up of the company, the holders of common stock are
entitled to share ratably in all net assets available for distribution to
stockholders after payment to creditors. The common stock is not convertible or
redeemable and has no preemptive, subscription or conversion rights. Each
outstanding share of common stock is entitled to one vote on all matters
submitted to a vote of stockholders. There are no cumulative voting rights.
The holders of outstanding shares of common stock are entitled to receive
dividends out of assets legally available therefore at such times and in such
amounts as our board of directors may from time to time determine. Holders of
common stock will share equally on a per share basis in any dividend declared by
the board of directors. We have not paid any dividends on our common stock and
do not anticipate paying any cash dividends on such stock in the foreseeable
future.
In the event of a merger or consolidation, all holders of common stock will be
entitled to receive the same per share consideration.
We authorized the issuance of up 20,000,000 shares of preferred stock, with
timing and terms at the discretion of our board. We could issue shares of voting
or convertible stock, or rights to purchase such shares could be issued, to
create voting impediments or to frustrate persons seeking to effect a takeover
or otherwise gain control of our company. The ability of our board to issue such
shares of preferred stock, with rights and preferences it deems advisable, could
discourage an attempt by a party to acquire control of the company by tender
offer or other means. Such issuances could therefore deprive stockholders of
benefits that could result from such an attempt, such as the realization of a
premium over the market price for their shares in a tender offer or the
temporary increase in market price that such an attempt could cause. Moreover,
the issuance of such additional shares of preferred stock to persons friendly to
the board could make it more difficult to remove incumbent managers and
directors from office even if such change were to be favorable to stockholders
generally. At the present time, we are not aware of any contemplated mergers,
tender offers or other plans by a third party to attempt to effect a change in
control of the company.
In June 2003, we issued 13,500,000 Series A 7% Redeemable Preferred Shares to
Bruce Johnstone, our former officer and director. In September 2003, Mr.
Johnstone exchanged his 13,500,000 preferred shares for 13,500,000 shares of our
common stock. The market price of a share of common shares on the date of said
exchange was $1.40 per share. No shares of preferred stock are issued as of the
date of this prospectus.
We have issued an aggregate of 3,735,000 options to purchase our common stock at
prices ranging from $0.05 - $1.50 per share pursuant to our Amended 2003 Stock
Option Plan, consisting of a share purchase plan and a share option plan, of
which 3,095,000 had been exercised at December 31, 2003. Shares fully vested at
December 31, 2003, totaled 3,300,000. We reserved 5,546,000 shares for grant
under the Amended 2003 Stock Option Plan and have issued 3,095,000 of such
shares to date.
We have outstanding 1,400,000 warrants to purchase 1,400,000 shares of our
common stock, which are exercisable until October 2006. 350,000 warrants are
exercisable at $1.40 per share, 350,000 warrants are exercisable at $1.45 per
share, 350,000 warrants are exercisable at $1.50 per share, and 350,000 warrants
are exercisable at $1.55 per share. We reserved the right, in our sole
discretion, to decrease the exercise price of the warrants and extend the
expiration date of the warrants. These warrants were issued in a private
placement to Almir Ramic, Paul Uppal and David Langley, three foreign investors
in July 2003 in connection with their purchase of units issued by us.
We have outstanding 3,456,000 warrants to purchase 3,456,000 shares of our
common stock, which we issued in the November 2003 private placement. The
864,000 warrants which are exercisable at $1.40 per share are not exercisable
until November 27, 2004; the 864,000 warrants which are exercisable at $1.45 per
share are not exercisable until November 27, 2005, the 864,000 warrants which
are exercisable at $1.50 per share are not exercisable until November 27, 2006,
and the 864,000 warrants which are exercisable at $1.55 per share are not
exercisable until November 27, 2007. All the warrants issued in the November
2003 private placement are exercisable until, and terminate on, November 27,
2009. We reserved the right, in our sole discretion, to accelerate the exercise
date of the warrants, to decrease the exercise price of the warrants and extend
the expiration date of the warrants. If we elect to exercise any of these
rights, in accordance with the provisions of the warrant agreement, we will give
notice to each holder of a warrant by (i) hand delivery, (ii) a nationally
recognized overnight courier, or by registered or (iii) certified mail, postage
prepaid, return receipt requested to the address of each holder as set forth in
the warrant agreement. These warrants were issued in a private placement to
Almir Ramic, Colin Bruce Worth and Jill Kurucz, three foreign investors, in
November 2003 in connection with their purchase of units issued by us.
Except for these warrants and options, there are no outstanding options,
warrants, or rights to purchase any of the securities of Patriot Gold Corp.
PRIVATE PLACEMENTS
On July 25, 2003 we issued Almir Ramic, Paul Uppal and David Langley, three
non-United States accredited investors, an aggregate of 350,000 shares of common
stock and 350,000 Class A warrants, 350,000 Class B warrants, 350 Class C
warrants and 350,000 Class D warrants in a private placement relying on the
exemption from the registration requirements of the Securities Act provided by
Regulation S and/or Section 4(2) of the Securities Act. The issuance of these
warrants was made to accredited investors without any general solicitation or
advertisement and a restriction on resale
Each Class A, Class B, Class C and Class D warrant is exercisable for three
years at a price of $1.40, $1.45, $1.50 and $1.55, respectively, for one share
of common stock.
The private offering of the Class A, Class B, Class C and Class D warrants
generated gross proceeds of $367,500. The proceeds are being used for working
capital.
On November 27, 2003 we issued Almir Ramic, Colin Bruce Worth and Jill Kurucz,
three non-United States accredited investors an aggregate of 864,000 shares of
common stock and 864,000 Class A-1 warrants, 864,000 Class B-1 warrants, 864,000
Class C-1 warrants and 864,000 Class D-1 warrants in a private placement relying
on the exemption from the registration requirements of the Securities Act
provided by Regulation S and/or Section 4(2) of the Securities Act. The issuance
of these warrants was made to accredited investors without any general
solicitation or advertisement and a restriction on resale
The Class A-1 warrants are exercisable on November 27, 2004 for a period of 5
years at an exercise price of $1.40 per share of common stock; the Class B-1
warrants are exercisable on November 27, 2005 for a period of 4 years at an
exercise price of $1.45; the Class C-1 warrants are exercisable on November 27,
2006 for a period of 3 years at an exercise price of $1.50; and the Class D-1
warrants are exercisable on November 27, 2007 for a period of 2 years at an
exercise price of $1.55 per share.
The private offering of the Class A-1, Class B-1, Class C-1 and Class D-1
warrants generated gross proceeds of $1,080,000. The proceeds are being used for
working capital.
CONVERSION OF PREFERRED STOCK
Bruce Johnstone was the sole president and officer of the Company from October
2002 until his resignation in July 2003. In June 2003, we issued 13,500,000
Series A 7% Redeemable Preferred Shares to Mr. Johnstone. Each preferred share
had the right to vote with the common shares on all matters requiring
stockholder vote. The preferred shares were entitled to receive, when and as
declared by our Board, a non-cumulative dividend at the rate of 7% per annum
equal to the redemption price. We had the right to redeem all or any portion of
the outstanding preferred shares at the redemption price plus any dividends that
were declared but not yet paid. The redemption price of the preferred shares was
the par value of said share, or $0.001 per share. In the event of a liquidation,
dissolution or winding up of the Company, the holder of the preferred shares was
entitled to receive, prior to any distributions to the holders of the common
stock, the redemption price for their outstanding shares together with any
declared but unpaid dividends. We issued the Series A 7% Redeemable Preferred
Shares in consideration for Mr. Johnstone's services as our sole officer and
director (and sole employee). Since the preferred shares voted with the common
shares and were entitled to a non-cumulative dividend, we believed that such
shares were the proper compensation to be issued.
When Mr. Johnstone ceased working for us, he requested that we exchange his
preferred shares for common shares. Since there was no need for either the
preferred shares to remain outstanding or for Mr. Johnstone to retain preferred
shares, as of September 2, 2003, we executed and delivered an agreement with Mr.
Johnstone whereby he exchanged his 13,500,000 Series A 7% Redeemable Preferred
Shares for 13,500,000 shares of our common stock. There was no additional
consideration between Mr. Johnstone and us for such exchange. However, Mr.
Johnstone agreed to consider transferring an aggregate of 9,000,000 shares of
his common stock to our current directors. We initially had agreed to file a
registration statement covering the 4,500,000 shares of common stock held by Mr.
Johnstone prior to December 31, 2003 or in the next registration statement we
prepare if filed prior to such date. Mr. Johnstone agreed to waive his
registration rights until December 31, 2004.
EXPERTS
The financial statements included in this prospectus included elsewhere in the
registration statement have been audited by Robison Hill & Co., independent
auditors, as stated in their report appearing herein and elsewhere in the
registration statement (which report expresses an unqualified opinion and have
been so included in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
INTEREST OF NAMED EXPERTS AND COUNSEL
No expert or counsel named in this prospectus as having prepared or certified
any part of this prospectus or having given an opinion upon the validity of the
securities being registered or upon other legal matters in connection with the
registration or offering of the common stock was employed on a contingency basis
or had, or is to receive, in connection with the offering, a substantial
interest, directly or indirectly, in the registrant or any of its parents or
subsidiaries. Nor was any such person connected with the registrant or any of
its parents, subsidiaries as a promoter, managing or principal underwriter,
voting trustee, director, officer or employee.
DISCLOSURE OF SEC POSITION OF
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Our bylaws provide that directors and officers shall be indemnified by us to the
fullest extent authorized by the Nevada General Corporation Law, against all
expenses and liabilities reasonably incurred in connection with services for us
or on our behalf. The bylaws also authorize the board of directors to indemnify
any other person who we have the power to indemnify under the Nevada General
Corporation Law, and indemnification for such a person may be greater or
different from that provided in the bylaws.
Insofar as indemnification for liabilities arising under the Securities Act
might be permitted to directors, officers or persons controlling our company
under the provisions described above, we have been informed that in the opinion
of the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable.
DESCRIPTION OF BUSINESS
HISTORY
We were incorporated in the State of Nevada on November 30, 1998. We were
originally organized to engage in the business of breeding, raising and
marketing ostriches, ostrich meat and ostrich by-products to the wholesale and
retail markets. We operated from November 30, 1998 through approximately May 31,
2000, when we ceased all operations due to lack of capital.
On or about May 1, 2001, the directors determined that it was in the best
interest of our stockholders to become active again and we began seeking
potential operating businesses and business opportunities with the intent to
acquire or merge with such businesses. We are considered an exploration state
stage company. Our offices are currently located at #501-1775 Bellevue Avenue,
West Vancouver, British Columbia, Canada, V7V 1A9. Our telephone number is (604)
925-5257. We maintain a website at www.patriotgoldcorp.com. Information
contained on our website does not form part of this prospectus.
Mr. Manfred Schultz and Mr. Gerald Hinkley were our sole officers and directors
from inception in November 1998, until they resigned on October 31, 2002. During
such time, Messrs. Schultz and Hinkley were responsible for maintaining the
company in compliance with all SEC and other rules and regulations and for
finding a suitable business opportunity to acquire or merge with the company. On
October 20, 2002, Mr. Bruce Johnstone was appointed to the board of directors
and as an officer. On October 31, 2002, Mr. Manfred Schultz and Mr. Gerald
Hinkley resigned as directors and officers of the company. The resignations were
offered for personal reasons and not for any disagreement with management of the
company or its policies. Both resigning directors and the company parted ways on
good terms.
In June 2003, we filed an Amended and Restated Articles of Incorporation with
the Secretary of State of the State of Nevada changing the name of our company
and authorizing the issuance of preferred stock.
On June 12, 2003, we issued 13,500,000 Series A 7% Redeemable Preferred Shares
to Mr. Bruce Johnstone, our director and officer, in consideration for his
services; this issuance having been previously approved by a vote of both the
Board of Directors and the majority stockholders. Each Series A 7% Redeemable
Preferred Share had the right to vote with the common shares on all matters
requiring stockholder vote, including without limitation the election of
directors. Mr. Johnstone received the shares in lieu of cash compensation for
the services he provided to us. These services included, without limitation, the
determination to transform the company from the then business of ostrich meat
production to the current business activity of resource exploration and ensuring
that the company would maintain its corporate existence. During this process,
Mr. Johnstone was responsible for finding and securing qualified directors for
the board, which made up the new management team for the company. Along with
this he was also responsible for arranging and closing our July 2003 private
placement financing. These funds provided the necessary funding to secure the
first resource exploration projects which Mr. Johnstone established when he
signed the Letter of Intent with Minquest Inc. on June 27, 2003.
On June 13, 2003, Messrs. Schultz and Hinkley, our former officers and
directors, returned a total of 700,000 shares of common stock to us for
cancellation. Given the fact that said individuals were no longer affiliated
with the company, at our request they agreed to return 70% of their holdings in
the company. We determined that having them maintain 30% of their initial
holdings in the company was adequate consideration for the four years' of
services which they had performed. Since Messrs. Schultz and Hinkley were
satisfied with our business plan to make the company a natural resource
exploration company, they did not request any consideration for the return of
their shares. On June 17, 2003, each issued and outstanding share of common
stock was forward split at a rate of one for seven and six-tenths (1:7.6) so
that each share of common stock became equal to 7.6 shares.
On June 17, 2003, we received a new trading symbol to reflect the company name
change and forward split of the common stock. The new trading symbol is PGOL.
On June 23, 2003 the Board adopted a resolution to (i) increase the number of
positions on the Board to a total of three and (ii) appointed to the newly
created positions Mr. Robert A. Sibthorpe of Vancouver, B.C. and Mr. Robert D.
Coale of Agoura Hills, CA.
On July 21, 2003. Mr. Bruce Johnstone resigned as an officer and director. The
resignation was offered for personal reasons and not for any disagreement with
management of the company or its policies. On July 21, 2003, Mr. Ronald C.
Blomkamp was appointed as the President, Chief Executive and Financial Officer
and Secretary and a director of the company.
PLAN OF OPERATION
We are a natural resource exploration company with an objective of acquiring,
exploring, and if warranted and feasible, developing natural resource
properties. Our primary focus in the natural resource sector is gold. We do not
consider ourselves a "blank check" company required to comply with Rule 419 of
the Securities and Exchange Commission, because we were not organized for the
purpose of effecting, and our business plan is not to effect, a merger with or
acquisition of an unidentified company or companies, or other entity or person.
We do not intend to merge with or acquire another company in the next 12 months.
Though we have the expertise on our board of directors to take a resource
property that hosts a viable ore deposit into mining production, the costs and
time frame for doing so are considerable, and the subsequent return on
investment for our shareholders would be very long term indeed. We therefore
anticipate selling any ore bodies that we may discover to a major mining
company. Most major mining companies obtain their ore reserves through the
purchase of ore bodies found by junior exploration companies. Although these
major mining companies do some exploration work themselves, many of them rely on
the junior resource exploration companies to provide them with future deposits
for them to mine. By selling a deposit found by us to these major mining
companies, it would provide an immediate return to our shareholders without the
long time frame and cost of putting a mine into operation ourselves, and it
would also provide future capital for the company to continue operations.
The search for valuable natural resources as a business is extremely risky. We
can provide investors with no assurance that the property we have optioned in
Nevada contains commercially exploitable reserves. Exploration for natural
reserves is a speculative venture involving substantial risk. Few properties
that are explored are ultimately developed into producing commercially feasible
reserves. Problems such as unusual or unexpected formations and other conditions
are involved in mineral exploration and often result in unsuccessful exploration
efforts. In such a case, we would be unable to complete our business plan and
any money spent on exploration would be lost.
Natural resource exploration and development requires significant capital and
our assets and resources are limited. Therefore, we anticipate participating in
the natural resource industry through the purchase of small interests in
producing properties, the purchase of property where feasibility studies already
exist or by the optioning of natural resource exploration and development
projects. To date we have several properties under option, and are in the early
stages of exploring these properties. There has been no indication as yet that
any mineral deposits exist on these properties, and there is no assurance that a
commercially viable mineral deposit exists on any of our properties. Further
exploration will be required before a final evaluation as to the economic and
legal feasibility is determined.
In the following discussion, there are references to "patented" mining claims
and "unpatented" mining claims. A patented mining claim is one for which the
U.S. government has passed its title to the claimant, giving that person title
to the land as well as the minerals and other resources above and below the
surface. The patented claim is then treated like any other private land and is
subject to local property taxes. An unpatented mining claim on U.S. government
lands establishes a claim to the locatable minerals (also referred to as
stakeable minerals) on the land and the right of possession solely for mining
purposes. No title to the land passes to the claimant. If a proven economic
mineral deposit is developed, provisions of federal mining laws permit owners of
unpatented mining claims to patent (to obtain title to) the claim. If you
purchase an unpatented mining claim that is later declared invalid by the U.S.
government, you could be evicted.
***See Map 1***
Map of Bruner and Vernal properties located in western Nevada
EXPLORATION PROGRAMS
BRUNER PROJECT: The property is located approximately 130 miles east-southeast
of Reno, Nevada at the northern end of the Paradise Range. Access from Fallon,
the closest town of any size, is by 50 miles of paved highway and 16 miles of
gravel roads.
We hold the property via 16 unpatented mining claims (320 acres). We have an
option on the property with MinQuest, Inc., a Nevada Corporation, which
terminates if, prior to July 25, 2008, we fail to make any payments when due to
MinQuest, Inc. or complete property expenditures as required by the option. The
option will have been fully exercised, and we can earn a 100 percent interest in
these claims if we make payments to MinQuest of $70,000 and spend $275,000 in
exploration over a five year period ending on July 25, 2008. To date we have
paid MinQuest $10,000 with respect to the Bruner property, and we owe an
additional $60,000 which is due in four equal annual installments commencing on
July 25, 2004. To date, we have spent $50,000 on exploration of the Bruner
property, and we are obligated to spend another $225,000 over the next four
years as follows: $50,000 by each of July 25, 2004, 2005, 2006 and 2007 and
$75,000 by July 25, 2008. As noted below, we expect to spend an estimated
$100,000 in the summer of 2004 on a six hole drilling program. A three percent
NSR production royalty is retained by MinQuest.
There is no drilled resource on our claims.
The original operators at the Bruner property are unknown. However, modern
exploration in the greater Bruner mining district began in 1979 and included the
following work:
o In 1979, Morrison Knudsen drilled nine core holes (DDH 79-1 to 79-9),
seven vertical, two angle, for 460 m (1,509 ft) in the Derelict -
Paymaster area. The core holes are holes left in the ground after the
process where a hollow drill bit with diamond chip teeth is used to
drill into the ground. The center of the hollow drill fills with the
core of the rock that is being drilled into, and when the drill is
extracted, a hole is left in the ground.
o In 1981-82, Lucky Chance Mining did exploration in the Duluth area,
however, there is no record of work completed.
o In 1983, Kennecott drilled fifteen RC holes (holes left after the
process of reverse circulation drilling) (BR or BRU 1 -15) for 2021 m
(6,630 ft) in the Penelas and Duluth mine areas.
o In 1987, Callahan Mining Co. and Inspiration Gold, as joint venture
partners, drilled 7 RC holes for 640 m (2,100 ft) , Bruno target area.
o In 1988, West Gold drilled 4 RC holes for 262 m (860 ft).
o In 1988, Miramar Mining Corp. acquired a lease on the Bruner properties
and subsequently farmed out the package to a series of companies:
o In 1988, Glamis Gold drilled 29 air track holes, which are
drill holes done with a small portable drill rig using an
air-driven hammer, for 528 m (1,733 ft) at the Paymaster and
Duluth-July mine areas.
o In 1988-1990, Newmont Exploration Ltd. drilled 74 (BRU-016 to
BRU-089) RC drill holes for 10,999 m (36,078 ft); conducted
detailed geologic mapping(producing a plan map of the rock
types, structure and alteration), sampling of underground
workings, geochemical surveys (which is sampling of rocks or
soil and determination of the absolute abundances of
elements), air and ground magnetic surveys (recording
variations in the earth's magnetic field and plotting same),
and ground radiometric survey (a survey of radioactive
materials on the land surface).
o In 1990-1992, Miramar Mining Corp. drilled 17 (BRU-90 to
BRU-106) RC drill holes for 1096 m (3,595 ft) in the
Duluth/Penelas area, and conducted BLEG (bulk leach
extractable gold) sampling and air photo interpretation. BLEG
sampling involves a large sample of soil or rock that is
bleached using cyanide to determine gold and silver content
down to a detection limit of as little as 1.0 parts per
billion.
o In 1993, Viceroy Precious Metals and Olympic Mining Company
performed an assay of Miramar's 1992 Duluth area drill holes,
ran additional ground magnetics east of the Bruner district
over a pediment target, and drilled 15 RC holes (BRU-107 to
BRU-121) for 1,896 m (6,220 ft); and
o In 1993-1995, Miramar Mining Corp performed additional
sampling, scintillometer survey (a survey of radioactive
minerals using a scintillometer, a hand-held, a highly
accurate measuring device) and drilled 17 RC holes (95-1 to
95-17) for 2,750 m (9,020 ft).
Our exploration program to date at Bruner has included:
geologic mapping(producing a plan map of the rock types, structure and
alteration), rock chip geochemical sampling (sample of soil, rock, silt, water
or vegetation analyzed to detect the presence of valuable metals or other metals
which may accompany them (e.g., Arsenic may indicate the presence of gold)), a
ground magnetic survey, and a Controlled Source Magneto Telluric
survey(recording variations in a generated electrical field using sophisticated
survey methods).
A five or six hole drilling program is planned for summer, 2004. The total cost
of this program is estimated to be $100.000.
The Bruner mining district is underlain by a sequence of intermediate to felsic
Tertiary volcanic rocks (which are quartz-rich rocks derived from volcanoes and
deposited between two and sixty-five million years ago) including ash flow
tuffs, tuffaceous sediments, and flows. A volcanic center, the origin of major
volcanic activity, is thought to underlay the district, with associated silicic
domes (a convex landform created by extruding quartz-rich volcanic rocks) and
plugs (landform similar to a dome, but smaller) intruding the volcanic section.
The exposed stratigraphic section measures over 2,500 feet in thickness. The
"Duluth Tuff", a variably crystal rich ash flow tuff is the host for gold and
silver mineralization. Flow banded silicic volcanics, volcanoclastics (coarse,
unsorted sedimentary rock formed from volcanic rocks) and andesite underlie the
tuff and flow-banded rhyolite overlies the host unit. Two generations of
intrusive rocks have been described within the district. Ore in the Bruner
district is hosted by vuggy, fractured, quartz-adularia (potassium-rich
alternation mineral)-veined and/or stockworked tuff. Mineralization is primarily
fault controlled, although some disseminated values do occur.
***See Map 2***
VERNAL PROJECT: The property is located approximately 140 miles east-southeast
of Reno, Nevada on the west side of the Shoshone Mountains. Access from Fallon,
the closest town of any size, is by 50 miles of paved highway and 30 miles of
gravel roads.
We hold the property via 12 unpatented mining claims (240 acres). We have an
option on the property with MinQuest, Inc., a Nevada Corporation, which
terminates if, prior to July 25, 2008, we fail to make any payments when due to
MinQuest, Inc. or complete property expenditures as required by the option. The
option will have been fully exercised, and we can earn a 100 percent interest in
these claims if we make payments to MinQuest of $22,500 and spend $250,000 in
exploration over a five year period ending July 25, 2008. . To date we have paid
MinQuest $2,500 with respect to the Vernal property, and we owe an additional
$20,000 which is due in four equal annual installments commencing on July 25,
2004. To date, we have spent $20,000 on exploration of the Vernal property, and
we are obligated to spend another $205,000 over the next four years as follows:
$25,000 by July 25, 2004 and $50,000 by each of July 25, 2005, 2006, 2007 and
2008. As noted below, we expect to spend an estimated $30,000 in the summer of
2004 on trenching and additional geochemical sampling. A three percent NSR
production royalty is retained by MinQuest.
Historical work includes several short audits constructed on the property
between 1907 and 1916. There appears to have been little or no production. There
is no drilled resource on our claims.
Our exploration of the Vernal property to date has consisted of geologic mapping
and rock chip geochemical sampling. Trenching and additional geochemical
sampling is planned for the summer of 2004. The estimated total cost through
trenching is $30,000.
The Vernal property is underlain by a thick sequence of Tertiary age rhyolitic
volcanic rocks including tuffs, flows and intrusives. A volcanic center is
thought to underlie the district, with an intruding rhyolite plug dome (a domal
feature formed by the extrusion of viscous quartz-rich volcanic rocks) thought
to be closely related to mineralization by the geologist of Amselco, the U.S.
subsidiary of a British company exploring the Vernal property, who in 1983
mapped, sampled and drilled the Vernal property. A 225 feet wide zone of poorly
outcropping quartz stockworks (a multi-directional quartz veinlet) and larger
veining trends northeast from the northern margin of the plug. The veining
consists of chalcedony containing 1-5% pyrite. Clay alteration of the host
volcanics is strong. Northwest trending veins are also present, but very poorly
exposed. Both directions carry gold values. Scattered vein float is found over
the plug. The most significant gold values in rock chips come from veining in
tuffaceous rocks north of the nearly east-west contact of the plug. This area
has poor exposure, but sampling of old dumps and pits show an open-ended gold
anomaly that measures 630 feet by 450 feet.
***See Map 3***
MOSS MINE PROJECT: The project area is 10 miles east of Bullhead City, Arizona
and approximately 70 miles southeast of Las Vegas, Nevada. Access is via gravel
roads from Bullhead City.
We hold the property via 65 unpatented mining claims and 7 patented claims(1300
total acres). The unpatented claims are held under a lease/purchase agreement
with MinQuest, Inc., a Nevada Corporation. We have earned a 100 percent interest
in these claims by paying MinQuest a one time lease fee of $50,000. A three
percent NSR production royalty is retained by MinQuest. The patented claims are
held collectively by numerous owners within an extended family, and we have the
right to purchase these patented claims from these owners under the terms of a
letter of intent which is discussed in the subsequent section titled "Letter of
Intent".
The Moss Mine was the first gold discovery made in the Oatman district.
Discovered in 1864, the mine was worked discontinuously through the 1930's.
Production records are very poor, with past writers listing production equal to
or greater than $250,000. The mine lay idle until the early 1980's when a number
of mining companies explored the district. These companies included Billiton
Minerals, Magma Copper, Golconda Resources and Addwest Minerals.
Our exploration of the Moss Mine project has consisted of geologic mapping, vein
geochemical sampling and drill testing of the identified veins. Drilling is in
progress. Total project exploration cost is estimated to be $500,000.
Phase 1 drilling has been completed at the Moss Mine Project. A total of 36
holes were drilled totaling 2,471 meters (8,107 feet). Geochemical results of
gold and silver assaying are currently being collected, plotted and
cross-sections constructed. Final results are still pending, and we expect to
have results by September 2004.
The project area is underlain by Tertiary quartz monzonite (a coarsely
crystalline rock composed primarily of the minerals quartz, plagioclase and
orthoclase) intruding tertiary volcanics. Precambrian basement rocks underlie
the volcanics. The veins consist of quartz-calcite and lesser adularia. The
principal vein is up to 45 feet thick and can be followed on surface for over
5,000 feet. The hanging wall of the veins commonly have several tens of feet of
stockwork veining. Gold values are somewhat erratic, but appear to be highest in
the thicker and deeper parts of the vein explored to date.
***See Map 4***
MINQUEST AGREEMENT
An agreement with Minquest, Inc. gives us the right to purchase 100% of the
mining interests of two Nevada mineral exploration properties currently
controlled by MinQuest, a natural resource exploration company. Together, these
two properties consist of 28 mining claims on a total of 560 acres in the
northwest trending Walker Lane located in western Nevada. We also entered into a
letter of intent in November 2003 to purchase a 100% interest in a mining
property located in the historic Oatman gold mining district. The property is
located some 5 miles northwest to the town of Oatman, with Kingsman, Arizona to
the east, Laughlin, Nevada to the west and Las Vegas, Nevada to the north.
Simultaneous with the execution and delivery of the Property Option Agreement,
we paid MinQuest $12,500. In order to earn a 100% interest in these two
properties, we must pay MinQuest, Inc. and incur expenditures relating to mining
operations in accordance with the following schedule: (i) on or before July 25,
2004, $20,000 to MinQuest and $75,000 in expenditures; (ii) on or before July
25, 2005, $20,000 to MinQuest and an additional $100,000 in expenditures; (iii)
on or before July 25, 2006, $20,000 to MinQuest and an additional $100,000 in
expenditures; (iv) on or before July 25, 2007, $20,000 to MinQuest and an
additional $100,000 in expenditures; and (v) on or before July 25, 2008, an
additional $125,000 in expenditures. If we have not incurred the requisite
expenditures to maintain our option in good standing, we have a 60-day period
subsequent to July 25th to make such payment along with such amount which shall
be deemed to have been an expenditure incurred by us during such period. Since
our payment obligations are non-refundable, if we do not make any payments, we
will lose any payments made and all our rights to the properties. If all said
payments are made, then we will acquire all mining interests in the property,
subject to MinQuest retaining a 3% royalty of the aggregate proceeds received by
us from any smelter or other purchaser of any ores, concentrates, metals or
other material of commercial value produced from the property, minus the cost of
transportation of the ores, concentrates or metals, including related insurance,
and smelting and refining charges, including penalties. Pursuant to the Property
Option Agreement, we have a one-time option to purchase up to 2% of MinQuest's
royalty interest at a rate of $1,000,000 for each 1%. We must exercise our
option 90 days following completion of a bankable feasibility study of the
Bruner and Vernal properties, which, as it relates to a mineral resource or
reserve, is an evaluation of the economics for the extraction (mining),
processing and marketing of a defined ore reserve that would justify financing
from a banking or financing institution for putting the mine into production.
With the expertise provided by our Board of Directors and consulting geology
professionals, all of whom have been compensated by way of the company stock
option plan, we now have the expertise required to decide if we should invest in
a particular project. This decision will be based on information that will be
provided by the vendor or the project and by information collected by our
experts through independent due diligence, and include at least the following:
* A description of the project and the location of the property;
* The lands that will be subject to the exploration project;
* The royalties, net profit interest or other charges applicable to the
subject lands;
* The estimated cost of any geophysical work contemplated; and
* The estimated acquisition costs, exploration costs and development
costs of the property.
In July 2003, members of our Board of Directors and geology team made an onsite
inspection of both properties optioned by the company from MinQuest. From this
visit, an exploration plan was determined and a schedule to begin work on the
properties was organized to commence in the month of September 2003. On
September 19, 2003 the company announced that an exploration program consisting
of geologic mapping and surface geochemical sampling was underway on the Bruner
property and that a Global Positioning System geophysical survery (electrical,
magnetic and other means used to detect features, which may be associated with
mineral deposits) conducted on the ground was scheduled for later that month.
Such a survey measures the magnetic variations within the underlying rocks.
Since then, a ground magnetics survey and detailed mapping and rock sampling of
the western portion of the claim block on the Bruner property has been
completed. The rock sampling is a collection of a series of small chips over a
measured distance, which is then submitted for a chemical analysis, usually to
determine the metallic content over the sampled interval. The magnetics indicate
the presence of northwesterly and northerly trending faults under the pediment
cover that may host gold mineralization. A fault, which is a break in the rock
along which the movement has taken place, are often the sites for the deposition
of metallic rich fluids. A pediment cover is a broad, gently sloping surface at
the base of a steeper slope. Geologic mapping of rocks exposed in the western
portion of the Patriot held claims show several small quartz bearing structures
trending northwest and dipping steeply to the northeast. These small structures
are thought to be related to a much larger vein, often filled with quartz,
contained within a fault or break in the rock (a fault-hosted vein system) under
gravel cover in the broad valley south of the mapping. Approximately 1 square
mile of ground magnetics was completed at Bruner. The survey was done on 50
meter spaced lines, run north-south using a GPS controlled Geometrics
magnetometer, which is the geophysical instrument used in collecting magnetic
data with an attached GPS that allows the operator to more precisely determine
the location of each station where the magnetic signature is taken. . The
interpretation shows numerous northwest and north-south trending magnetic lows
associated with faults. Magnetic lows may be indicative of a destruction of
magnetic minerals by later hydrothermal (hot water) fluids that have come up
along these faults. These hydrothermal fluids may in turn have carried and
deposited precious metals such as gold and/or silver. To the southeast, under
gravel cover (where there is no exposure of rock at the surface), is a much more
continuous northwest trending feature that has not been drill tested, and data
is sufficiently encouraging that an expanded CSMT survey is recommended to trace
these structures in the third dimension. Three or four north-south lines of CSMT
are scheduled and further work is ongoing. A CSMT survey is an electromagnetic
method used to map the variation of the Earth's resistance to conduct
electricity by measuring naturally occurring electric and magnetic fields at the
Earth's surface.
At the Vernal property, mapping (the process of laying out a grid on the land
for area identification where samples are taken) and sampling (the process of
taking small quantities of soil and rock for analysis) has been initiated.
Mapping is the process where. Poorly exposed narrow masses of rock intersecting
other rocks and filling inclined or vertical fractures with quartz minerals
(quartz veining) in volcanic rock that has been sampled and submitted to a
chemical laboratory for analysis. Additional mapping and sampling is ongoing.
LETTER OF INTENT FOR THE MOSS MINE PROPERTY
In November 2003 we executed a letter of intent to purchase a 100% interest in
the Moss Mine property located in the historic Oatman gold mining district. Work
already completed on this property includes a pre-feasibility study as well as
36,000 feet of primarily reverse circulation drilling which was done over twenty
years ago. Reverse circulation drilling is a less expensive form of drilling
that does not allow for the recovery of a tube or core of rock, in which the
material is brought up from depth as a series of small chips of rock that are
then bagged and sent in for analysis. Though this is a quicker and cheaper
method of drilling, reverse circulation drilling does not necessarily give as
much information about the underlying rocks
The letter of intent grants us an exclusive right to close on the purchase of
the property for six months from the date the contract is executed.
On February 19, 2004, we executed a formal agreement to purchase the property
for $350,000. We deposited $25,000 with the title company as escrow agent and
three months after signing we deposited an additional $25,000. When the escrow
agent receives signature pages from the 10 sellers, the initial $25,000 deposit
shall be delivered to the seller. On the 3-month anniversary from when we signed
the definitive agreement, the second $25,000 belongs to the seller. On or before
the 6-month anniversary from when we signed the definitive agreement, the
balance of $300,000 is due to the seller.
Seller has delivered to us all information in their possession regarding the
property. During the six month period after the signing of the definitive
agreement we have the right to conduct our due diligence on the property and if
we decide not to proceed we have to give the Seller and escrow agent notice no
less than 10 days prior to the six-month anniversary of our intention not to
close. During this period we cannot perform mining or remove any ore from the
property. We are responsible for all costs and expenses associates with the
purchase of the property, including escrow fees, cost of feasibility study,
charges resulting from any tests, environmental assessments reports or surveys,
and any exploration activity costs. Once we have concluded our analysis and have
determined that it is feasible to close on the purchase of the property, doing
so will give us full rights to begin mining operations.
FINANCING
In July 2003 we completed a private placement of shares and warrants which
generated an aggregate of $367,500 in proceeds, and the private placement we
closed in November 2003 generated $1,080,000 in gross proceeds. In addition, a
further $1,723,650.00 was obtained from the exercise of stock options issued
under the company's stock option plan. With the funds currently held by the
company, we are adequately funded for all work programs and option commitments
for the next 12 months. Whether or not we will need to raise further funding
will be dependent on the outcome of work programs currently underway, and
whether we pursue additional prospects.
COMPETITION
The natural resource industry is highly competitive in all its phases.
Properties in which we have an interest will encounter strong competition from
many other natural resource companies, including many that possess substantial
financial resources, in acquiring economically desirable producing properties
and exploratory drilling prospects, and in obtaining equipment and labor to
operate and maintain their properties.
We feel that our competitive position compared to other resource exploration
companies is quite good. Many junior resource companies generally have very
little available capital for securing properties of merit, and also lack the
necessary capital required to start or carry on a work program that would be
needed to advance the property. These work programs can cost many hundreds of
thousands of dollars, and can sometimes even run into the millions. On a
relative basis, having raised over $3 million dollars through private placements
and the exercise of options, we are now funded with the necessary capital to
compete for even the most desirable properties and the resources to implement
work programs on the properties that we have secured. With our qualified and
experienced board of directors and group of consultants, who between them have
over 90 years of direct experience working in the geology, mining, and related
financial sectors, we have an outstanding management team that can appraise each
opportunity so as to obtain the best value for our shareholders investment. Many
junior resource companies feel themselves lucky to have only one such expert on
their board, let alone three, and with the addition of our consulting geologist,
we have four veteran resource experts who have experience working at and in many
cases leading exploration projects and mining development projects in many
locations all around the globe. We feel this positions us favorably in front of
most other junior resource exploration and mining companies.
GOVERNMENT REGULATION
The federal government and various state and local governments have adopted laws
and regulations regarding the protection of natural resources, human health and
the environment. We will be required to conduct all exploration activities in
accordance with all applicable laws and regulations. These may include requiring
working permits for any exploration work that results in physical disturbances
to the land and locating claims, posting claims and reporting work performed on
the mineral claims. The laws and regulations may tell us how and where we can
explore for natural resources, as well as environmental matters relating to
exploration and development. Because these laws and regulations change
frequently, the costs of compliance with existing and future environmental
regulations cannot be predicted with certainty.
Any exploration or production on United States Federal land will have to comply
with the Federal Land Management Planning Act which has the effect generally of
protecting the environment. Any exploration or production on private property,
whether owned or leased, will have to comply with the Endangered Species Act and
the Clean Water Act. The costs of complying with environmental concerns under
any of these acts varies on a case by case basis. In many instances the cost can
be prohibitive to development. Environmental costs associated with a particular
project must be factored into the overall cost evaluation of whether to proceed
with the project.
There are no costs to us at the present time in connection with compliance with
environmental laws. However, since we do anticipate engaging in natural resource
projects, these costs could occur at any time. Costs could extend into the
millions of dollars for which we could be liable. In the event of liability, we
would be entitled to contribution from other owners so that our percentage share
of a particular project would be the percentage share of our liability on that
project. However, other owners may not be willing or able to share in the cost
of the liability. Even if liability is limited to our percentage share, any
significant liability would wipe out our assets and resources.
Permits for drilling at the Moss Mine Project have been obtained from the
Arizona Department of Water Resources, Phoenix, Arizona. The "Intention to Drill
Wells" permits were issued February 5, 2004.
EMPLOYEES
We have commenced only limited operations. Therefore, we have no full time
employees. Our sole officer and three directors provide planning and
organizational services for us on a part-time basis.
DESCRIPTION OF PROPERTY
We do not lease or own any real property. We currently maintain our corporate
office at #501-1775 Bellevue Avenue, West Vancouver, British Columbia, Canada,
V7V 1A9. This office space is an office sharing arrangement being provided as an
accommodation to us by our former officer - where we can receive mail and
perform other minimal corporate functions. It is being provided without any cost
or expense to us. As our business operations grow, it will be necessary for us
to seek appropriate office space. Management believes suitable office space will
be available when it is needed.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Certain statements contained in this prospectus, including statements regarding
the anticipated development and expansion of our business, our intent, belief or
current expectations, our directors or officers, primarily with respect to the
future operating performance of Patriot Gold Corp. and the products we expect to
offer and other statements contained herein regarding matters that are not
historical facts, but are "forward-looking" statements. Future filings with the
Securities and Exchange Commission, future press releases and future oral or
written statements made by us or with our approval, which are not statements of
historical fact, may contain forward-looking statements, because such statements
include risks and uncertainties, actual results may differ materially from those
expressed or implied by such forward-looking statements.
All forward-looking statements speak only as of the date on which they are made.
We undertake no obligation to update such statements to reflect events that
occur or circumstances that exist after the date on which they are made.
OVERVIEW
As a natural resource exploration company our focus is to locate prospective
properties that may host mineral reserves that could eventually be put into
mining production. With this in mind, we have to this date identified and
secured several properties in the Walker Lane area of Nevada, and are working to
acquire a property in the historic Oatman mining district of Arizona. With
adequate funding to meet all our obligations on our current projects, as well as
those of any that are currently under review for acquisition, and a highly
qualified and well motivated management team, we are well positioned to carry
out the operations of a natural resource exploration company.
We do not intend to use any employees, with the exception of part-time clerical
assistance on an as-needed basis. Outside advisors, attorneys or consultants
will only be used if they can be obtained for a minimal cost or for a deferred
payment basis. Management is confident that it will be able to operate in this
manner and continue during the next twelve months.
PLAN OF OPERATION
During the twelve-month period ending May 31, 2005, we plan to continue to
establish reserves on our properties and to actively look for new prospective
properties in the United States. The funds in our treasury are sufficient to
meet all planned activities as outlined below, with a significant contingency
margin. As a result of this, we do not expect to enter into any new financing
arrangements during the next twelve months (ending May 31, 2005).
We continue to run our operations with the use of contract operators, and as
such do not anticipate a change to our company staffing levels. We remain
focused on keeping the staff compliment, which currently consists of our three
directors and one investor relations person, at a minimum to conserve capital.
Our staffing in no way hinders our operations, as outsourcing of necessary
operations continues to be the most cost effective and efficient manner of
conducting the business of the company.
We do not anticipate any equipment purchases in the next twelve months (ending
May 31, 2005).
Following is an overview of the project work to date, as well as anticipated
work for the next twelve months. Specific dates when work will begin, and how
long it will take to complete each step is problematic because of the variables
of weather, availability of work crews for a particular type of work, and the
results of work that is planned, the outcome of which will determine what the
next step on that project will be.
BRUNER AND VERNAL PROJECTS.
We expect that we will have fulfilled our exploration commitments with respect
to both Bruner and Vernal projects of $75,000 for the period ending July 25,
2004. Surveys (geology and geophysics) have been done showing likely areas for
drilling. A drill program is being formulated, and the planned timeframe for
this will depend on the seasonal weather and availability of work crews. We
expect to begin a drill program before October 2004, crews permitting, and this
program should last into the late fall of 2004. At the end of this Fall drill
program, we will need to wait for the technical results of the program before we
can plan the future work programs for winter/spring of 2005. We are committed to
incurring the expenditures of $100,000 by July 25, 2005.
MOSS MINE PROJECT.
We have done considerable drilling on the Moss Mine Project claims. A total of
36 holes were drilled totaling 8,107 feet. The easternmost section of the
property is where surface gold mineralization is present, and thirty reverse
circulation holes were drilled there bringing the drill coverage on this claim
to the second highest of all the claims in the project with the exception of the
Williams Main Zone. The coverage on this eastern section is generally 2 or 3
holes on 100-foot profiles (sections) testing grades and widths from 50 to 250
feet down dip.
Limited drilling was carried out on the Williams western area, and the results
obtained were generally in line with the values obtained by previous operators.
Geological information obtained may now provide a structural explanation for the
lack of success obtained here to date by previous operators.
A study of all drilling results at the Moss Mine indicates a tendency for total
gold content to increase with intercept depth. Approximately 60% of the deeper
holes have better intercepts than shallow holes. An example from the Patriot
drilling tests the vein over a vertical extent of 300 feet. In this example the
gold content nearly doubles between Hole AR-5 and Hole AR-23.
The most significant mining at Moss occurred on narrow veins that trend
sub-parallel to the Moss Mine vein and dip steeply northerly. These veins should
intersect the Moss Mine vein at depth. The deepest vein intercepts at Moss are
less than 400 feet. The Ruth vein should intersect the Moss Mine vein at 800-900
feet below the surface. If the Moss Mine vein is the feeder for the Ruth vein it
may contain similar gold values at that level. The Moss Mine vein needs drill
testing to a depth of 900 feet to determine its potential to contain high-grade
gold mineralization.
The economics of a deposit of this size and grade warrant a Scoping Study level
investigation. This could be done at a cost of approximately $50,000. Adit
samples are being forwarded to Vancouver to test its heap leaching potential.
The next step is estimation of its high grade underground potential. Models are
under review as a basis for a revised drilling plan, and discussions are
underway to plan out when the next work programs will be scheduled. We expect
that the plans for this next phase should be complete by late September 2004,
and if it is decided to proceed with drilling, we anticipate that by mid to late
October of 2004 crews may be available, and the conditions on the property more
hospitable, for the program to commence. The length of the drilling program is
difficult to estimate due to the depth of the drilling and a range of problems
that may be encountered during the process. However, we planned for a 3 month
period for this process.
RESULTS OF OPERATIONS
During the three and nine months ended February 29, 2004, we incurred a net loss
of $1,139,994 and $2,636,551, respectively compared to a net loss of $1,400 and
$16,225, for the comparative periods in 2003. During the years ended May 31,
2003 and 2002, we incurred a net loss of $23,302 and $2,630, respectively. Until
the execution of the Property Option Agreement with Minquest, we had no
operations, so our net loss for the three and nine months ended February 28,
2003 and the two years ended May 31, 2003 and 2002 were a result of professional
services and administrative expenses.
REVENUES
We had no revenues for the three and nine months ended February 29, 2004 and
February 28, 2003 and for the two years ending May 31, 2003 and 2002.
COST OF REVENUES
There was no cost of revenue for the three and nine months ended February 29,
2004 and February 28, 2003 and for the two years ending May 31, 2003 and 2002.
GENERAL AND ADMINISTRATIVE EXPENSES
For the three and nine months ended February 29, 2004, general and
administrative expenses (G&A) were $930,297 and $2,384,097, respectively,
compared to $1,400 and $16,225 for the three and nine months ended February 28,
2003. For the years ended May 31, 2003 and 2002, general and administrative
expenses were $11,215 and $2,630. The increase in G&A expenses from 2002 to 2003
is largely attributable to $2,136,543 in consulting fees as a result of the
issuance of stock options. We expect such expenses to continue in future
periods. As of July 6, 2004, the Company has received approximately $3.66
million for the exercise of stock options granted to consultants.
The value indicated above with regard to the consulting fees was arrived at
because of the stock options being issued at a discounted price to what the then
current market price of the stock was. This was necessary in order to attract
the best consultants in the field of geology, ground operations, corporate
development, and financial management to work for the company, without having to
compensate them by way of cash paid directly from the funds that we had raised
for project operations. Many of these consultants have already exercised these
options, and the result is a realization of addition funds collected by the
company.
LIQUIDITY AND CAPITAL RESOURCES
Our balance sheet as of February 29, 2004 reflects assets of $3,108,189
consisting of $3,105,509 in cash, $1,098 in receivables and $1,582 in prepaid
expenses. Total liabilities on the balance sheet as of February 29, 2004 reflect
current liabilities of $30,054, consisting of accounts payable.
Cash and cash equivalents from inception to date have been insufficient to
provide the operating capital necessary to operate. In November 2003 we issued
864,000 shares of common stock and 864,000 Class A warrants, 864,000 Class B
warrants, 864,000 Class C warrants and 864,000 Class D warrants. This private
offering generated gross proceeds of $1,080,000.00. The Class A-1 warrants are
exercisable on November 27, 2004 for a period of five years at an exercise price
of $1.40 per share of common stock; the Class B-1 warrants are exercisable on
November 27, 2005 for a period of four years at an exercise price of $1.45; the
Class C-1 warrants are exercisable on November 27, 2006 for a period of three
years an at exercise price of $1.50; and the Class D-1 warrants are exercisable
on November 27, 2007 for a period of two years at an exercise price of $1.55.
The Company has the right, in its sole discretion, to accelerate the exercise
date of the warrants, to decrease the exercise price of the warrants and/or
extend the expiration date of the warrants.
During the nine months ended February 29, 2004, $1,895,825 was obtained from the
exercise of stock options issued under our stock option plan.
GOING CONCERN CONSIDERATION
As indicated in the accompanying balance sheet, as of February 29, 2004 we had
$3,105,509 in cash available and accounts payable of $30,054. The cash was a
result of private placements from which the Company raised $1,447,500 and from
the exercise of stock options from which the Company received $1,895,825.
Management believes that the gross proceeds from the private placements and from
the exercise of stock options will be sufficient to continue our planned
activities until May 31, 2005, the end of our next fiscal year. However, we
anticipate generating losses and therefore we may be unable to continue
operations in the future as a going concern. In addition, if we want to maintain
our interest in the MinQuest property,on or before July 25, 2004 we are required
to incur no less than $75,000 in expenditures in connection with mining
operations as well as paying MinQuest $20,000. Our plans to deal with this
uncertainty include raising additional capital or entering into a strategic
arrangement with a third party. There can be no assurance that our plans can be
realized. No adjustment has been made in the accompanying financial statements
to the amounts and classification of assets and liabilities that could result
should be unable to continue as a going concern.
We currently have no agreements, arrangements or understandings with any person
to obtain funds through bank loans, lines of credit or any other sources.
Accordingly, our independent auditors included an explanatory paragraph in their
report on the accompanying financial statements regarding concerns about our
ability to continue as a going concern. Our financial statements contain
additional note disclosures describing the circumstances that lead to this
disclosure by our independent auditors.
OFF-BALANCE SHEET ARRANGEMENTS
We have no off-balance sheet arrangements.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
We have not been a party to any transaction, proposed transaction or series of
transactions in which the amount involved exceeded $60,000, and in which, to our
knowledge, any of our directors, officers, five percent beneficial security
holders or any member of the immediate family of the foregoing persons has had
or will have a direct or indirect material interest.
Our directors are party to a Shareholders' Agreement pursuant to which they
agreed to vote the 3,000,000 shares they each received from Bruce Johnstone for
each other. They also agreed not to sell or otherwise dispose of such shares.
There are no promoters associated or involved with the company. We have a single
individual who acts as an investor relations person to answer questions received
from phone callers. This individual has been compensated by way of stock options
under the company stock option plan. We have also hired Shareholder.com, a
fulfillment service provider, to collate all requests to the company for
investor information and to send out to these requests, an informational
pamphlet created by us, and supplied to Shareholder.com for distribution.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock is traded on the Over the Counter Bulletin Board sponsored by
the National Association of Securities Dealers, Inc. under the symbol "PGOL.OB".
The Over the Counter Bulletin Board does not have any quantitative or
qualitative standards such as those required for companies listed on the Nasdaq
Small Cap Market or National Market System. The high and low bid prices for our
common stock for the periods indicated below are as follows:
YEAR QUARTER HIGH LOW
2000 Fourth 0 0
2001 First 0 0
2001 Second 0 0
2001 Third 0 0
2001 Fourth 0.01 0.01
YEAR QUARTER HIGH LOW
2002 First 0.01 0.01
2002 Second 0.01 0.01
2002 Third 0.01 0.01
2002 Fourth 0.01 0.01
2003 First 0.01 0.01
2003 Second 1.05 0.01
2003 Third 2.03 1.02
2003 Fourth 2.05 1.30
2004 First 2.70 1.88
The above quotations reflect the inter-dealer prices without retail
mark-up,mark-down or commissions and may not represent actual transactions.
OUR TRANSFER AGENT
We have appointed Holladay Stock Transfer, Inc., with offices at 2939 North 67th
Place, Scottsdale, Arizona, 85215, phone number 480-481-3940, as transfer agent
for our shares of common stock. The transfer agent is responsible for all
record-keeping and administrative functions in connection with the common shares
of stock.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common stock nor do we
anticipate paying any in the foreseeable future. Furthermore, we expect to
retain any future earnings to finance our operations and expansion. The payment
of cash dividends in the future will be at the discretion of our Board of
Directors and will depend upon our earnings levels, capital requirements, any
restrictive loan covenants and other factors the Board considers relevant.
As of July 15, 2004, the shareholders' list of our common shares showed 108
registered shareholders and 29,279,400 shares outstanding.
Securities Authorized for Issuance under Equity Compensation Plans
We do not have any equity compensation plans that were approved by our
shareholders.
Set forth below is certain information as of May 31, 2003, the end of our most
recently completed fiscal year, regarding equity compensation plans that have
not been approved by our stockholders.
EQUITY COMPENSATION PLANS NOT APPROVED BY STOCKHOLDERS - AS OF MAY 31, 2004
Plan Category Number of securities to be Weighted average exercise Number of securities
issued upon exercise of price of outstanding
outstanding options, warrants options, remaining available for
and rights warrants and rights future issuance
----------------------------------------------------------------------------------------------------------------
2003 Stock Option Plan 5,240,000(1) $0.72 306,000
(1) Since the plan provides for appropriate adjustments in the event of stock
splits and other similar events, when our common stock was forward split on June
17, 2003, a corresponding adjustment was made to the option plan. Accordingly,
as of June 17, 2003 there were 2,546,000 shares available for issuance under the
Stock Option Plan. On September 22, 2003, we amended our Stock Option Plan by
increasing the number of shares available for issuance under the plan to
5,546,000 shares
As of May 6, 2004, there were a total of 5,240,000 options granted under the
plan with exercise prices ranging from $0.05 per share to $1.50 per share.
The following discussion describes material terms of grants made pursuant to the
stock option plans:
Pursuant to the 2003 Stock Option Plan, grants of shares can be made to
employees, officers, directors, consultants and independent contractors of
non-qualified stock options as well as for the grant of stock options to
employees that qualify as incentive stock options under Section 422 of the
Internal Revenue Code of 1986 ("Code") or as non-qualified stock options. The
Plan is administered by the Option Committee of the Board of Directors (the
"Committee"), which has, subject to specified limitations, the full authority to
grant options and establish the terms and conditions for vesting and exercise
thereof. Currently the entire Board functions as the Committee.
In order to exercise an option granted under the Plan, the optionee
must pay the full exercise price of the shares being purchased. Payment may be
made either: (i) in cash; or (ii) at the discretion of the Committee, by
delivering shares of common stock already owned by the optionee that have a fair
market value equal to the applicable exercise price; or (iii) with the approval
of the Committee, with monies borrowed from us.
Subject to the foregoing, the Committee has broad discretion to
describe the terms and conditions applicable to options granted under the Plan.
The Committee may at any time discontinue granting options under the Plan or
otherwise suspend, amend or terminate the Plan and may, with the consent of an
optionee, make such modification of the terms and conditions of such optionee's
option as the Committee shall deem advisable.
EXECUTIVE COMPENSATION
We have not paid, nor do we owe, any compensation to our executive officer for
the year ended May 31, 2003 and 2004. We have not paid any compensation to our
officers for the last three fiscal years.
We have no employment agreements with any of our executive officers or
employees.
On June 12, 2003, we issued 13,500,000 Series A 7% Redeemable Preferred Shares
to Mr. Bruce Johnstone, who was our sole officer and a director from October
2002 until July 2003. Mr. Johnstone exchanged all his preferred shares for
13,500,000 shares of common stock. Of said shares, he transferred 3,000,000 to
each of our current directors.
Bruce Johnstone, our sole officer as of the end of our fiscal year ended May
313, 2003, was not granted any options or SARs. Except as provided below, none
of our executive officers was granted any options or SARs during the fiscal year
ended May 31, 2004.
The following table sets forth information with respect to compensation we paid
up to and including the fiscal year ended May 31, 2004 to our executive officers
and directors.
SUMMARY OF ANNUAL COMPENSATION
Annual Compensation Long-term compensation
Awards Payouts
--------------- ------ --------- ---------- --------------- ------------ ------------------ ---------- ---------------
Names and Salary Bonus Other annual Restricted Securities LTIP All other
Principal ($) ($) compensation stock underlying payouts compensation
position ($) award(s) options/SARs(#) ($) ($)
($)
--------------- ------ --------- ---------- --------------- ------------ ------------------ ---------- ---------------
--------------- ------ --------- ---------- --------------- ------------ ------------------ ---------- ---------------
Ron Blomkamp NA NA NA NA 200,000 (1) NA NA
President,
Chief
Executive and
Financial
Officer and
Director
--------------- ------ --------- ---------- --------------- ------------ ------------------ ---------- ---------------
Robert A. NA NA NA NA 200,000 (2) NA NA
Sibthorpe
Director
--------------- ------ --------- ---------- --------------- ------------ ------------------ ---------- ---------------
Robert D. NA NA NA NA 100,000 (3) NA NA
Coale
Director
--------------- ------ --------- ---------- --------------- ------------ ------------------ ---------- ---------------
None of our officers and directors have received any other compensation from us
other than as indicated above.
(1) Ron Blomkamp, who became our sole executive officer and a
Director in July 2003, was granted the right to purchase an
aggregate of 200,000 options pursuant to the 2003 Stock Option
Plan.
(2) Robert A. Sibthorpe, who became a director in June 2003, was
granted the right to purchase an aggregate of 200,000 options
pursuant to the 2003 Stock Option Plan.
(3) Robert D. Coale, who became a director in June 2003, was
granted the right to purchase an aggregate of 100,000 options
pursuant to the 2003 Stock Option Plan.
OPTION/SAR GRANTS
(INDIVIDUAL GRANTS)
----------------------------- -------------------------- -------------------- --------------- ------------------------
Number Of Securities Percent Of Total
Underlying Options/SARs Options/SARs
Granted (#) Granted To Exercise or
(b) Employees In Base Price
Name Fiscal Year Ended ($/Sh) Expiration Date
(a) May 31, 2004 (c) (d) (e)
----------------------------- -------------------------- -------------------- --------------- ------------------------
Ron Blomkamp 200,000 40% $0.05 10/1/13
----------------------------- -------------------------- -------------------- --------------- ------------------------
Robert A. Sibthorpe 200,000 40% $0.05 6/23/13
----------------------------- -------------------------- -------------------- --------------- ------------------------
Robert D. Coale 100,000 20% $0.05 6/23/14
----------------------------- -------------------------- -------------------- --------------- ------------------------
AGGREGATE OPTION/SAR EXERCISES
AND FISCAL QUARTER END OPTIONS/SAR VALUES
------------------------------------ ------------------- -------------------- -------------------- -------------------
Number Of
Unexercised Value Of
Securities Unexercised
Underlying In-The-Money
Options/SARs At Option/SARs At
Shares Acquired FY-End (#) FY-End ($)
On Exercise Value Realized Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable
(a) (b) (c) (d) (e)
------------------------------------ ------------------- -------------------- -------------------- -------------------
Ron Blomkamp -- -- 200,000
------------------------------------ ------------------- -------------------- -------------------- -------------------
Robert A. Sibthorpe -- -- 200,000
------------------------------------ ------------------- -------------------- -------------------- -------------------
Robert D. Coale -- -- 100,000
------------------------------------ ------------------- -------------------- -------------------- -------------------
(1) Based on the closing price for our common stock on May 31, 2004 of $0.85 per
share.
Our officer and directors have no other arrangements from the company pursuant
to which they received or are to receive any other compensation other than as
indicated above.
FINANCIAL STATEMENTS
PATRIOT GOLD CORP.
(FORMERLY NORTHERN OSTRICH CORP.)
(AN EXPLORATION STATE COMPANY)
-:-
INDEPENDENT AUDITOR'S REPORT
MAY 31, 2003 AND 2002
CONTENTS
Page
Independent Auditor's Report...............................................................................F - 1
Balance Sheets
May 31, 2003 and 2002......................................................................................F - 2
Statements of Operations for the
Year Ended May 31, 2003 and 2002 and the Cumulative Period
June 1, 2000 (Inception of Exploration State) to May 31, 2003..........................................F - 3
Statement of Stockholders' Equity
Since November 30, 1998 (Inception) to May 31, 2003.....................................................F - 4
Statements of Cash Flows for the
Year Ended May 31, 2003 and 2002 and the Cumulative Period
June 1, 2000 (Inception of Exploration State) to May 31, 2003...........................................F - 6
Notes to Financial Statements..............................................................................F - 7
INDEPENDENT AUDITOR'S REPORT
Patriot Gold Corp.
(Formerly Northern Ostrich Corp.)
(An Exploration State Company)
We have audited the accompanying balance sheet of Patriot Gold Corp.
(Formerly Northern Ostrich Corp.) (An Exploration State Company) as of May 31,
2003 and 2002, and the related statements of operations and cash flows for the
two years ended May 31, 2003 and 2002 and the cumulative period June 1, 2000
(inception of exploration state) to May 31, 2003, and the statements of
stockholders' equity since November 30, 1998 (inception) to May 31, 2003. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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 financial statements referred to above present
fairly, in all material respects, the financial position of Patriot Gold Corp.
(Formerly Northern Ostrich Corp.) (An Exploration State Company) as of May 31,
2003 and 2002, and the results of its operations and its cash flows for the
years ended May 31, 2003 and 2002 and the cumulative period June 1, 2000
(inception of exploration state) to May 31, 2003, in conformity with accounting
principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from operations
and has a net capital deficiency that raise substantial doubt about its ability
to continue as a going concern. Management's plans in regard to these matters
are also described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Respectfully Submitted,
/s/ Robison, Hill & Co.
Certified Public Accountants
Salt Lake City, Utah
August 13, 2003
F - 1
PATRIOT GOLD CORP.
(Formerly Northern Ostrich Corp.)
(An Exploration State Company)
BALANCE SHEETS
May 31,
--------------------------------------
2003 2002
------------------ ------------------
Current Assets - Cash & Cash Equivalents $ - $ -
------------------ ------------------
Total Assets: $ - $ -
================== ==================
Liabilities - Accounts Payable $ 14,059 $ 6,816
------------------ ------------------
Stockholders' Equity:
Preferred Stock, Par Value $.001
Authorized 20,000,000 shares,
No shares issued at May 31, 2003 and 2002 - -
Common Stock, Par Value $.001
Authorized 100,000,000 shares,
Issued 15,230,400 shares at
May 31, 2003 and 2002 15,230 15,230
Paid-In Capital 45,810 41,838
Currency Translation Adjustment (4,274) (16,361)
Deficit Accumulated Since Inception of Exploration State (29,743) (6,441)
Retained Deficit (41,082) (41,082)
------------------ ------------------
Total Stockholders' Equity (14,059) (6,816)
------------------ ------------------
Total Liabilities and
Stockholders' Equity $ - $ -
================== ==================
The accompanying notes are an integral part of these financial statements.
F - 2
PATRIOT GOLD CORP.
(Formerly Northern Ostrich Corp.)
(An Exploration State Company)
STATEMENTS OF OPERATIONS
Cumulative
Since
June 1, 2000
For the Years Ended Inception of
May 31, Exploration
-------------------------------------
2003 2002 State
----------------- ------------------ ------------------
Revenues $ - $ - $ -
Cost of Revenues - - -
----------------- ------------------ ------------------
Gross Margin - - -
Expenses:
General & Administrative 23,302 2,630 29,743
----------------- ------------------ ------------------
Net Loss from Operations (23,302) (2,630) (29,743)
Other Income (Expense)
Interest, Net - - -
----------------- ------------------ ------------------
Net Loss $ (23,302) $ (2,630) $ (29,743)
================= ================== ==================
Basic & Diluted loss per share $ - $ -
================= ==================
The accompanying notes are an integral part of these financial statements.
F - 3
PATRIOT GOLD CORP.
(Formerly Northern Ostrich Corp.)
(An Exploration State Company)
STATEMENT OF STOCKHOLDERS' EQUITY
Deficit
Cumulative Accumulated
Currency During
Preferred Stock Common Stock Paid-In Translation Retained Exploration
Shares Par Value Shares Par Value Capital Adjustment Deficit State Total
------ ------ ----------- ------- ------- ------- ------- ------- -----------
Balance at November 30, 1998 -- $ -- -- $ -- $ -- $ -- $ -- $ -- $ --
(inception)
November 30, 1998 Issuance of
Stock for services and payment
of accounts payable -- -- 1,000,000 1,000 -- -- -- -- 1,000
April 1, 1999 Issuance of Stock
for cash pursuant to private
placement -- -- 1,004,000 1,004 49,196 -- -- -- 50,200
Net Loss -- -- -- -- -- -- (38,305) -- (38,305)
Currency Translation Adjustment -- -- -- -- -- (15,996) -- -- (15,996)
------ ------ ----------- ------- ------- ------- ------- ------- -----------
Total Comprehensive Loss -- -- -- -- -- (15,996) (38,305) -- (54,301)
------ ------ ----------- ------- ------- ------- ------- ------- -----------
Balance at May 31, 1999 -- -- 2,004,000 2,004 49,196 (15,996) (38,305) -- (3,101)
Retroactive Adjustment for 1:7.6
Stock Split June 17, 2003 -- -- 13,226,400 13,226 (13,226) -- -- -- --
------ ------ ----------- ------- ------- ------- ------- ------- -----------
Restated Balance May 31, 1999 -- -- 15,230,400 15,230 35,970 (15,996) (38,305) -- (3,101)
Net Loss -- -- -- -- -- -- (2,777) -- (2,777)
Currency Translation Adjustment -- -- -- -- -- (489) -- -- (489)
------ ------ ----------- ------- ------- ------- ------- ------- -----------
Total Comprehensive Loss -- -- -- -- -- (489) (2,777) -- (3,266)
------ ------ ----------- ------- ------- ------- ------- ------- -----------
Balance at May 31, 2000 -- -- 15,230,400 15,230 35,970 (16,485) (41,082) -- (6,367)
F - 4
PATRIOT GOLD CORP.
(Formerly Northern Ostrich Corp.)
(An Exploration State Company)
STATEMENT OF STOCKHOLDERS' EQUITY
(Continued)
Deficit
Cumulative Accumulated
Currency During
Preferred Stock Common Stock Paid-In Translation Retained Exploration
Shares Par Value Shares Par Value Capital Adjustment Deficit State Total
------ ------ ----------- ------- ------- ------- ------- ------- -----------
Contributed Capital -- $ -- -- $ -- $ 3,788 $ -- $ -- $ -- $ 3,788
Net Loss -- -- -- -- -- -- -- (3,811) (3,811)
Currency Translation Adjustment -- -- -- -- -- 172 -- -- 172
------ ------ ----------- ------- ------- ------- ------- ------- -----------
Total Comprehensive Loss -- -- -- -- -- 172 -- (3,811) (3,639)
------ ------ ----------- ------- ------- ------- ------- ------- -----------
Balance at May 31, 2001 -- -- 15,230,400 15,230 39,758 (16,313) (41,082) (3,811) (6,218)
Contributed Capital -- -- -- -- 2,080 -- -- -- 2,080
Net Loss -- -- -- -- -- -- (2,630) (2,630)
Currency Translation Adjustment -- -- -- -- -- (48) -- -- (48)
------ ------ ----------- ------- ------- ------- ------- ------- -----------
Total Comprehensive Loss -- -- -- -- -- (48) -- (2,630) (2,678)
------ ------ ----------- ------- ------- ------- ------- ------- -----------
Balance at May 31, 2002 -- -- 15,230,400 15,230 41,838 (16,361) (41,082) (6,441) (6,816)
Contributed Capital -- -- -- -- 3,972 -- -- -- 3,972
Net Loss -- -- -- -- -- -- (23,302) (23,302)
Currency Translation Adjustment -- -- -- -- -- 12,087 -- -- 12,087
------ ------ ----------- ------- ------- ------- ------- ------- -----------
Total Comprehensive Loss -- -- -- -- -- 12,087 -- (23,302) (11,215)
------ ------ ----------- ------- ------- ------- ------- ------- -----------
Balance at May 31, 2003 -- $ -- 15,230,400 $15,230 $45,810 $(4,274) $(41,082) $(29,743) $ (14,059)
====== ====== =========== ======= ======= ======= ======= ======= ===========
The accompanying notes are an integral part of these financial statements.
F - 5
PATRIOT GOLD CORP.
(Formerly Northern Ostrich Corp.)
(An Exploration State Company)
STATEMENTS OF CASH FLOWS
Cumulative
Since
June 1, 2000
For the Years Ended Inception of
May 31, Exploration
-------------------------------------
2003 2002 State
----------------- ------------------ ------------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net Loss $ (23,302) $ (2,630) $ (29,743)
Adjustments to reconcile net loss to net
cash used in operating activities:
Currency translation adjustment 12,087 (48) 12,234
Increase (Decrease) in accounts payable 7,243 598 7,669
Issuance of common stock for expenses - - -
----------------- ------------------ ------------------
Net Cash Used in operating activities (3,972) (2,080) (9,840)
----------------- ------------------ ------------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Net cash used in investing activities - - -
----------------- ------------------ ------------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from contributed capital 3,972 2,080 9,840
----------------- ------------------ ------------------
Net Cash Provided by Financing Activities 3,972 2,080 9,840
----------------- ------------------ ------------------
Net (Decrease) Increase in
Cash and Cash Equivalents - - -
Cash and Cash Equivalents
at Beginning of Period - - -
----------------- ------------------ ------------------
Cash and Cash Equivalents
at End of Period $ - $ - $ -
================= ================== ==================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ - $ - $ -
Income taxes $ - $ - $ -
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES: None
The accompanying notes are an integral part of these financial statements.
F - 6
PATRIOT GOLD CORP.
(Formerly Northern Ostrich Corp.)
(An Exploration State Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED MAY 31, 2003 AND 2002
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of accounting policies for Patriot Gold Corp. is presented
to assist in understanding the Company's financial statements. The accounting
policies conform to generally accepted accounting principles and have been
consistently applied in the preparation of the financial statements.
Nature of Operations and Going Concern
The accompanying financial statements have been prepared on the basis
of accounting principles applicable to a "going concern", which assume that the
Company will continue in operation for at least one year and will be able to
realize its assets and discharge its liabilities in the normal course of
operations.
Several conditions and events cast doubt about the Company's ability to
continue as a "going concern". The Company has incurred net losses of
approximately $30,000 for the period from June 1, 2000 (inception of exploration
state) to May 31, 2003 and requires additional financing in order to finance its
business activities on an ongoing basis. The Company is actively pursuing
alternative financing and has had discussions with various third parties,
although no firm commitments have been obtained. In the interim, shareholders of
the Company have committed to meeting its minimal operating expenses.
The Company's future capital requirements will depend on numerous
factors including, but not limited to, locating a merger or acquisition
candidate and/or acquiring interests in various business opportunities.
These financial statements do not reflect adjustments that would be
necessary if the Company were unable to continue as a "going concern". While
management believes that the actions already taken or planned, will mitigate the
adverse conditions and events which raise doubt about the validity of the "going
concern" assumption used in preparing these financial statements, there can be
no assurance that these actions will be successful.
If the Company were unable to continue as a "going concern", then
substantial adjustments would be necessary to the carrying values of assets, the
reported amounts of its liabilities, the reported expenses, and the balance
sheet classifications used.
F - 7
PATRIOT GOLD CORP.
(Formerly Northern Ostrich Corp.)
(An Exploration State Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED MAY 31, 2003 AND 2002
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Organization and Basis of Presentation
The Company was incorporated under the laws of the State of Nevada on
November 30, 1998. On June 11, 2003, the Company changed its name to Patriot
Gold Corp.
Nature of Business
The Company has no products or services as of May 31, 2003. The Company
operated from November 30, 1998 through approximately May 31, 2000 in the
production of ostrich meat. On June 1, 2000, the Company ceased operations.
The Company has recently decided to become a natural resource
exploration company and will seek opportunities in this field. The Company
anticipates engaging in the acquisition, exploration, and if warranted and
feasible, development of natural resource properties. Since June 1, 2000, the
Company is in the exploration state.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents to the extent the funds are not being held for investment
purposes.
Pervasiveness of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles required management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Concentration of Credit Risk
The Company has no significant off-balance-sheet concentrations of
credit risk such as foreign exchange contracts, options contracts or other
foreign hedging arrangements. The Company maintains the majority of its cash
balances with one financial institution, in the form of demand deposits.
F - 8
PATRIOT GOLD CORP.
(Formerly Northern Ostrich Corp.)
(An Exploration State Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED MAY 31, 2003 AND 2002
(Continued)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Foreign Currency Translation
The Company's functional currency is the Canadian dollar and the
reporting currency is the U.S. Dollar. All elements of financial statements are
translated using a current exchange rate. For assets and liabilities, the
exchange rate at the balance sheet date is used. Stockholders' Equity is
translated using the historical rate. For revenues, expenses, gains and losses
the weighted average exchange rate for the period is used. Translation gains and
losses are included as a separate component of stockholders' equity. Gain and
losses resulting from foreign currency transactions are included in net income.
Loss per Share
The reconciliations of the numerators and denominators of the basic
loss per share computations are as follows:
Per-Share
Income Shares Amount
------ ------ ------
(Numerator) (Denominator)
For the Year Ended May 31, 2003
BASIC LOSS PER SHARE
Loss to common shareholders $ (23,302) 15,230,400 $ -
================== =================== ==================
For the Year Ended May 31, 2002
BASIC LOSS PER SHARE
Loss to common shareholders $ (2,630) 15,230,400 $ -
================== =================== ==================
There are no dilutive potential common stock equivalents as of May 31,
2003 and 2002. The effect of any outstanding common stock equivalents would be
anti-dilutive for May 31, 2003 and 2002 and are thus not considered.
F - 9
PATRIOT GOLD CORP.
(Formerly Northern Ostrich Corp.)
(An Exploration State Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED MAY 31, 2003 AND 2002
(Continued)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Comprehensive Income
The Company has adopted SFAS No. 130, "Reporting Comprehensive Income",
which establishes standards for reporting and display of comprehensive income,
its components and accumulated balances. The Company is disclosing this
information on its Consolidated Statement of Stockholders' Equity. Comprehensive
income is comprised of net income (loss) and all changes to capital deficit
except those resulting from investments by owners and distribution to owners.
Stock Based Compensation
The Company accounts for the fair value of its stock compensation
grants in accordance with FASB Statement 123. The fair value of each stock
option granted is estimated using the Black- Scholes option-pricing model.
NOTE 2 - INCOME TAXES
As of May 31, 2003, the Company had a net operating loss carryforward
for income tax reporting purposes of approximately $70,825 that may be offset
against future taxable income through 2022. Current tax laws limit the amount of
loss available to be offset against future taxable income when a substantial
change in ownership occurs. Therefore, the amount available to offset future
taxable income may be limited. No tax benefit has been reported in the financial
statements, because the Company believes there is a 50% or greater chance the
carryforwards will expire unused. Accordingly, the potential tax benefits of the
loss carryforwards are offset by a valuation allowance of the same amount.
NOTE 3 - EXPLORATION STATE COMPANY/ GOING CONCERN
The Company has not begun principal operations and as is common with a
company in the exploration state, the Company has had recurring losses.
Continuation of the Company as a going concern is dependent upon obtaining the
additional working capital necessary to be successful in its planned activity,
and the management of the Company has developed a strategy, which it believes
will accomplish this objective through additional equity funding and long term
financing, which will enable the Company to operate for the coming year.
F - 10
PATRIOT GOLD CORP.
(An Exploration State Company)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED MAY 31, 2003 AND 2002
(Continued)
NOTE 4 - RELATED PARTY TRANSACTIONS
As of May 31, 2003, all activities of the Company have been conducted
by corporate officers from either their homes or business offices. There are no
commitments for future use of the facilities.
NOTE 5 - STOCK OPTIONS
Pursuant to a 2003 Stock Option Plan, grants of shares can be made to
employees, officers, directors, consultants and independent contractors of
non-qualified stock options as well as for the grant of stock options to
employees that qualify as incentive stock options under Section 422 of the
Internal Revenue Code of 1986 ("Code") or as non-qualified stock options. The
Plan is administered by the Option Committee of the Board of Directors (the
"Committee"), which has, subject to specified limitations, the full authority to
grant options and establish the terms and conditions for vesting and exercise
thereof. Currently the entire Board functions as the Committee.
In order to exercise an option granted under the Plan, the optionee
must pay the full exercise price of the shares being purchased. Payment may be
made either: (i) in cash; or (ii) at the discretion of the Committee, by
delivering shares of common stock already owned by the optionee that have a fair
market value equal to the applicable exercise price; or (iii) with the approval
of the Committee, with monies borrowed from us.
Subject to the foregoing, the Committee has broad discretion to
describe the terms and conditions applicable to options granted under the Plan.
The Committee may at any time discontinue granting options under the Plan or
otherwise suspend, amend or terminate the Plan and may, with the consent of an
optionee, make such modification of the terms and conditions of such optionee's
option as the Committee shall deem advisable.
On May 26, 2003, the Board of Directors approved a stock option plan
whereby 2,546,000 common shares have been set aside for employees and
consultants to be distributed at the discretion of the Board of Directors. As of
May 31, 2003 and 2002, no stock options have been granted or are outstanding.
Subsequent to year end, 2,365,000 stock options were granted to various
directors and consultants for an exercise price ranging from $0.05 to $1.03 per
share.
F - 11
PATRIOT GOLD CORP.
(Formerly Northern Ostrich Corp.)
(An Exploration State Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED MAY 31, 2003 AND 2002
(Continued)
NOTE 6 - COMMON STOCK TRANSACTIONS
The Company was incorporated to allow for the issuance of up to
100,000,000 shares of $.001 par value common stock (as amended).
At inception, the Company issued 7,600,000 shares of common stock to
its officers and directors for services performed and payments made on the
Company's behalf during its formation. This transaction was valued at
approximately $.001 per share or an aggregate approximate $1,000.
On February 8, 1999, to provide initial working capital, the Company
authorized a private placement sale of an aggregate of 7,600,000 (1,000,000
pre-split) shares of common stock at approximately $.05 per share. The private
placement was completed April 1, 1999 and 7,630,400 shares were issued for
approximately $50,200 in proceeds to the Company which were primarily used to
pay operating expenses.
NOTE 7 - PREFERRED STOCK
The Company has authorized a total of 20,000,000 shares of Series A 7%
Redeemable Preferred Stock with a par value of $.001. As of May 31, 2003, no
preferred shares were issued.
The Corporation is under no obligation to pay dividends on the Series A
Redeemable Preferred Stock, and the stock is redeemable at the option of the
Company.
In the event of any liquidation, dissolution or winding-up of the
Corporation, the holders of outstanding shares of Series A Preferred shall be
entitled to be paid out of the assets of the Corporation available for
distribution to shareholders, before any payment shall be made to or set aside
for holders of the Common Stock, at an amount of $.001 plus any unpaid and
accrued dividends per share.
A holder of Series A Preferred has the right to one vote per share in
the case of matters provided for in the General Corporation Law of the State of
Nevada or the Amended and Restated Articles of Incorporation or Bylaws to be
voted on by the holders of the Series A Preferred Stock as a separate class. In
the case of matters to be voted on by the holders of Common Stock and the
holders of Series A Preferred voting together as a single class, each share of
Series A Preferred, has full voting rights and powers equal to the voting rights
and powers of the holders of the Common Stock.
F - 12
PATRIOT GOLD CORP.
(Formerly Northern Ostrich Corp.)
(An Exploration State Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED MAY 31, 2003 AND 2002
(Continued)
NOTE 8 - SUBSEQUENT EVENTS
On June 11, 2003, the Company filed amended articles of incorporation
with the State of Nevada changing the Company's name to Patriot Gold Corp.
On June 17, 2003, the Company approved a forward split at a rate of one
for seven and six- tenths so that each share of common stock will be equal to
7.6 shares. All references to shares in the accompanying financial statements
have been adjusted for the stock split.
F - 13
PATRIOT GOLD CORP.
(An Exploration State Company)
BALANCE SHEETS
(Unaudited)
February 29, May 31,
------------------ ------------------
2004 2003
------------------ ------------------
ASSETS:
Current Assets:
Cash $ 3,105,509 $ -
GST Receivables 1,098 -
Prepaid Expenses 1,582 -
------------------ ------------------
Total Assets $ 3,108,189 $ -
================== ==================
LIABILITIES & STOCKHOLDERS' EQUITY:
Current Liabilities:
Accounts Payable $ 30,054 $ 14,059
------------------ ------------------
Stockholders' Equity:
Preferred Stock, Par Value $.001
Authorized 20,000,000 shares,
No shares issued at February 29, 2004
and May 31, 2003 - -
Common Stock, Par Value $.001
Authorized 100,000,000 shares,
Issued 27,939,400 and 15,230,400 shares at
February 29, 2004 and May 31, 2003 27,939 15,230
Paid-In Capital 5,757,572 45,810
Currency Translation Adjustment - (4,274)
Deficit Accumulated Since Inception of Exploration State (2,666,294) (29,743)
Retained Deficit (41,082) (41,082)
------------------ ------------------
Total Stockholders' Equity 3,078,135 (14,059)
------------------ ------------------
Total Liabilities and Stockholders' Equity $ 3,108,189 $ -
================== ==================
The accompanying notes are an integral part of these financial statements.
F - 14
PATRIOT GOLD CORP.
(An Exploration State Company)
STATEMENTS OF OPERATIONS
(Unaudited)
Cumulative
Since
For the Three Months For the Nine Months June 1, 2000
Ended Ended Inception of
February 29, February 28, February 29, February 28, Exploration
2004 2003 2004 2003 State
----------------- --------------- ----------------- --------------- -----------------
Revenues $ - $ - $ - $ - $ -
Cost of Revenues - - - - -
----------------- --------------- ----------------- --------------- -----------------
Gross Margin - - - - -
Expenses:
Mining Costs 119,697 - 162,454 - 162,454
General & Administrative 1,020,297 1,400 2,474,097 16,225 2,503,840
----------------- --------------- ----------------- --------------- -----------------
Net Loss from Operations (1,139,994) (1,400) (2,636,551) (16,225) (2,666,294)
Other Income (Expense)
Interest, Net - - - - -
----------------- --------------- ----------------- --------------- -----------------
Net Loss $ (1,139,994)$ (1,400)$ (2,636,551)$ (16,225) $ (2,666,294)
================= =============== ================= =============== =================
Basic & Diluted loss per
Share $ (0.04) $ - $ (0.11) $ -
================= =============== ================= ===============
Weighted Average Shares
Outstanding 27,854,785 15,230,400 24,930,951 15,230,400
================= =============== ================= ===============
The accompanying notes are an integral part of these financial statements.
F - 15
PATRIOT GOLD CORP.
(An Exploration State Company)
STATEMENTS OF CASH FLOWS
(Unaudited)
Cumulative
Since
June 1, 2000
For the Nine Months Ended Inception of
February 29, February 28, Exploration
2004 2003 State
----------------- ------------------ ------------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net Loss $ (2,636,551) $ (16,225) $ (2,666,294)
Adjustments to Reconcile Net Loss to Net
Cash Used in Operating Activities:
Currency Translation Adjustment 4,274 12,930 16,508
Compensation Expense of Stock Options 2,277,646 - 2,277,646
Common Stock Issued for Services 103,500 - 103,500
Change in Operating Assets and Liabilities:
(Increase) Decrease in Receivables (1,098) - (1,098)
(Increase) Decrease in Prepaid Expenses (1,582) - (1,582)
Increase (Decrease) in Accounts Payable 15,995 723 23,664
----------------- ------------------ ------------------
Net Cash Used in Operating Activities (237,816) (2,572) (247,656)
----------------- ------------------ ------------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Net Cash Used in Investing Activities - - -
----------------- ------------------ ------------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from Sale of Common Stock 3,343,325 - 3,343,325
Proceeds from Contributed Capital - 2,572 9,840
----------------- ------------------ ------------------
Net Cash Provided by Financing Activities 3,343,325 2,572 3,353,165
----------------- ------------------ ------------------
Net (Decrease) Increase in
Cash and Cash Equivalents 3,105,509 - 3,105,509
Cash and Cash Equivalents
at Beginning of Period - - -
----------------- ------------------ ------------------
Cash and Cash Equivalents
at End of Period $ 3,105,509 $ - $ 3,105,509
================= ================== ==================
F - 16
PATRIOT GOLD CORP.
(An Exploration State Company)
STATEMENTS OF CASH FLOWS
(Continued)
(Unaudited)
Cumulative
Since
June 1, 2000
For the Nine Months Ended Inception of
February 29, February 28, Exploration
2004 2003 State
----------------- ------------------ ------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ - $ - $ -
Income taxes $ - $ - $ -
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
During 2003, the Company granted 3,735,000 stock options to various
directors and consultants for an exercise price ranging from $0.05 to $1.50 per
share. Consulting expense of $1,380,659 was recorded.
On June 11, 2003, the Company issued 13,500,000 shares of preferred
stock to its president for services rendered. Consulting expense of $13,500 was
recorded.
On July 25, 2003, the Company issued 350,000 Class A warrants, 350,000
Class B warrants, 350,000 Class C warrants, and 350,000 Class D warrants. Each
warrant is exercisable, commencing October 25, 2003, for a period of three years
at a price of $1.40, $1.45, $1.50 and $1.55, respectively, for one share of
common stock.
On November 27, 2003, the Company issued 864,000 Class A warrants,
864,000 Class B warrants, 864,000 Class C warrants, and 864,000 Class D
warrants. The Class A warrants are exercisable on November 27, 2004 for a period
of five years at an exercise price of $1.40 per share of common stock; the Class
B warrants are exercisable on November 27, 2005 for a period of four years at an
exercise price of $1.45; the Class C warrants are exercisable on November 27,
2006 an at exercise price of $1.50; and the Class D warrants are exercisable on
November 27, 2007 at an exercise price of $1.55. The Company has the right, in
its sole discretion, to accelerate the exercise date of the warrants, to
decrease the exercise price of the warrants and/or extend the expiration date of
the warrants.
The accompanying notes are an integral part of these financial statements.
F - 17
PATRIOT GOLD CORP.
STATEMENT OF STOCKHOLDERS' EQUITY
Deficit
Cumulative Accumulated
Currency During
Preferred Stock Common Stock Paid-In Translation Retained Exploration
Shares Par Value Shares Par Value Capital Adjustment Deficit State Total
----- ----- ----------- ------- -------- -------- -------- -------- --------
Balance at May 31, 2003 -- $-- 15,230,400 $15,230 $ 45,810 $ (4,274) $(41,082) $(29,743) $(14,059)
June 11, 2003, Issuance of
Preferred Shares for Services 13,500,000 13,500 -- -- -- -- -- -- 13,500
June 12, 2003, Surrender of
Shares from Former Officer/
Directors -- -- (5,320,000) (5,320) 5,320 -- -- -- --
July 25, 2003, Shares and
Warrants Issued for Cash -- -- 350,000 350 367,150 -- -- -- 367,500
July, 2003 Compensation from
Issuance of Stock Options
Below Fair Market Value -- -- -- -- 141,102 -- -- -- 141,102
September 2, 2003, Preferred
Shares Converted to Common (13,500,000)(13,500) 13,500,000 13,500 -- -- -- -- --
September 12, 2003, Stock
Options Exercised -- -- 200,000 200 9,800 -- -- -- 10,000
September 17, 2003, Stock
Options Exercised -- -- 930,000 930 45,570 -- -- -- 46,500
September 22, 2003, Stock
Options Exercised -- -- 525,000 525 25,725 -- -- -- 26,250
September 23, 2003, Stock
Options Exercised -- -- 105,000 105 8,895 -- -- -- 9,000
F - 18
PATRIOT GOLD CORP.
STATEMENT OF STOCKHOLDERS' EQUITY
(Continued)
Deficit
Cumulative Accumulated
Currency During
Preferred Stock Common Stock Paid-In Translation Retained Exploration
Shares Par Value Shares Par Value Capital Adjustment Deficit State Total
----- ----- ----------- ------- -------- -------- -------- -------- --------
September 26, 2003, Stock
Options Exercised -- -- 465,000 465 602,785 $ -- -- -- 603,250
September, 2003 Compensation
From Issuance of Stock
Options Below Fair Market
Value -- -- -- -- 992,520 -- -- -- 992,520
October 1, 2003, Stock Options
Exercised -- -- 5,000 5 3,995 -- -- -- 4,000
October 15, 2003, Stock
Options Exercised -- -- 625,000 625 900,625 -- -- -- 901,250
October, 2003 Compensation
From Issuance of Stock
Options Below Fair Market
Value -- -- -- -- 33,900 -- -- -- 33,900
November 12, 2003, Stock
Options Exercised -- -- 220,000 220 109,780 -- -- -- 110,000
November 27, 2003, Common
Stock and Warrants Issued for
Cash -- -- 864,000 864 1,079,136 -- -- -- 1,080,000
F - 19
PATRIOT GOLD CORP.
STATEMENT OF STOCKHOLDERS' EQUITY
(Continued)
Deficit
Cumulative Accumulated
Currency During
Preferred Stock Common Stock Paid-In Translation Retained Exploration
Shares Par Value Shares Par Value Capital Adjustment Deficit State Total
----- ----- ----------- ------- -------- -------- -------- -------- --------
November 2003, Compensation
From Issuance of Stock
Options Below Fair Market
Value -- -- -- -- 213,112 -- -- -- 213,112
December 22, 2003, Stock
Options Exercised -- -- 20,000 20 20,580 -- -- -- 20,600
December 2003, Compensation
From Issuance of Stock
Options Below Fair Market
Value -- -- -- -- 229,504 -- -- -- 229,504
January 2, 2004, Stock Options
Exercised -- -- 220,000 220 164,780 -- -- -- 165,000
January 24, 2004, Capital
Contributed for Director
Compensation -- -- -- -- 90,000 -- -- -- 90,000
February 2004, Compensation
From Issuance of Stock
Options Below Fair Market
Value -- -- -- -- 667,483 -- -- -- 667,483
Net Loss -- -- -- -- -- -- -- (2,636,551)(2,636,551)
Currency Translation Adjustment -- -- -- -- -- 4,274 -- -- 4,274
----- ----- ----------- ------- -------- -------- -------- -------- --------
Total Comprehensive Loss -- -- -- -- -- 4,274 -- (2,636,551)(2,636,277)
----- ----- ----------- ------- -------- -------- -------- -------- --------
Balance at February 29, 2004
(Unaudited) -- -- 27,939,400 $27,939 $5,757,572 $ -- $(41,082)$(2,666,294)$3,078,135
===== ===== =========== ======= ======= ======== ======= ======== ========
The accompanying notes are an integral part of these financial statements.
F - 20
PATRIOT GOLD CORP.
(An Exploration State Company)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of accounting policies for Patriot Gold Corp. is presented
to assist in understanding the Company's financial statements. The accounting
policies conform to generally accepted accounting principles and have been
consistently applied in the preparation of the financial statements.
Interim Reporting
The unaudited financial statements as of February 29, 2004 and for the
three and nine month period then ended reflect, in the opinion of management,
all adjustments (which include only normal recurring adjustments) necessary to
fairly state the financial position and results of operations for the three and
nine months. Operating results for interim periods are not necessarily
indicative of the results which can be expected for full years.
Nature of Operations and Going Concern
The accompanying financial statements have been prepared on the basis
of accounting principles applicable to a "going concern", which assume that the
Company will continue in operation for at least one year and will be able to
realize its assets and discharge its liabilities in the normal course of
operations.
Several conditions and events cast doubt about the Company's ability to
continue as a "going concern". The Company has incurred net losses of $2,576,294
for the period from June 1, 2000 (inception of exploration state) to February
29, 2004 and requires additional financing in order to finance its business
activities on an ongoing basis. The Company is actively pursuing alternative
financing and has had discussions with various third parties, although no firm
commitments have been obtained. However, management believes that the money
raised from the private placements in July and November 2003, will be sufficient
to continue planned operations for the remainder of the current fiscal year.
The Company's future capital requirements will depend on numerous
factors including, but not limited to, acquiring interests in various mining
opportunities and the success of its current mining operations.
These financial statements do not reflect adjustments that would be
necessary if the Company were unable to continue as a "going concern". While
management believes that the actions already taken or planned, will mitigate the
adverse conditions and events which raise doubt about the validity of the "going
concern" assumption used in preparing these financial statements, there can be
no assurance that these actions will be successful.
F - 21
PATRIOT GOLD CORP.
(An Exploration State Company)
NOTES TO FINANCIAL STATEMENTS
(Continued)
(Unaudited)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Nature of Operations and Going Concern (Continued)
If the Company were unable to continue as a "going concern", then
substantial adjustments would be necessary to the carrying values of assets, the
reported amounts of its liabilities, the reported expenses, and the balance
sheet classifications used.
Organization and Basis of Presentation
The Company was incorporated under the laws of the State of Nevada on
November 30, 1998. On June 11, 2003, the Company changed its name to Patriot
Gold Corp.
Nature of Business
The Company has no products or services as of February 29, 2004. The
Company operated from November 30, 1998 through approximately May 31, 2000 in
the production of ostrich meat. On June 1, 2000, the Company ceased operations.
In June 2003, Management decided to change the direction of the Company
and has decided to become a natural resource exploration company and will seek
opportunities in this field. The Company is currently engaging in the
acquisition, exploration, and if warranted and feasible, development of natural
resource properties. Since June 1, 2000, the Company is in the exploration
state.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents to the extent the funds are not being held for investment
purposes.
Pervasiveness of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles required management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F - 22
PATRIOT GOLD CORP.
(An Exploration State Company)
NOTES TO FINANCIAL STATEMENTS
(Continued)
(Unaudited)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Foreign Currency
Prior to the quarter ending August 31, 2003, the Company's primary
functional currency was the Canadian dollar. During, the quarter ended August
31, 2003, the Company underwent some significant changes in its operations.
Prior to May 31, 2000, the company was in the business of producing ostrich meat
in Canada. Subsequently on June 1, 2000, the Company ceased operations remained
dormant until June 2003, when the Company decided to enter the mining industry
in the United States. Due to the change in direction the Company was headed, the
majority of its operations and transactions would be located in the United
States and the majority of the transaction would be in U.S. dollars. This was
considered "a significant change in economic facts and circumstances" per SFAS
52, Appendix A and thus the Company changed its functional currency from the
Canadian dollar to the U.S. dollar.
The Company's primary functional currency is the U.S. dollar. However,
the Company still has a few transactions with Canadian suppliers. Transaction
gains and losses are included in income. However, for the three and nine months
ended February 29, 2004 and 2003, no transaction gains or losses occurred.
Concentration of Credit Risk
The Company has no significant off-balance-sheet concentrations of
credit risk such as foreign exchange contracts, options contracts or other
foreign hedging arrangements. The Company maintains the majority of its cash
balances with one financial institution, in the form of demand deposits.
Loss per Share
Net income (loss) per share is computed by dividing the net income by
the weighted average number of shares outstanding during the period. The effect
of the Company's common stock equivalents would be anti-dilutive for February
29, 2004 and February 28, 2003 and are thus not considered.
F - 23
PATRIOT GOLD CORP.
(An Exploration State Company)
NOTES TO FINANCIAL STATEMENTS
(Continued)
(Unaudited)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Comprehensive Income
The Company has adopted SFAS No. 130, "Reporting Comprehensive Income",
which establishes standards for reporting and display of comprehensive income,
its components and accumulated balances. The Company is disclosing this
information on its Consolidated Statement of Stockholders' Equity. Comprehensive
income is comprised of net income (loss) and all changes to capital deficit
except those resulting from investments by owners and distribution to owners.
Stock Options
The Company has adopted SFAS No. 123, "Stock Option and Purchase
Plans", which establishes standards for reporting compensation expense for stock
options that have been issued. The fair value of each stock option granted is
estimated using the Black-Scholes option-pricing model.
Exploration and Development Costs
On June 1, 2000, the Company ceased operations and until June 2003
conducted minimal administrative activities. The Company has been in the
exploration state since that time and has not yet realized any revenue from its
planned operations. It is primarily engaged in the acquisition, exploration and
development of mining properties. Mineral exploration costs and payments related
to the acquisition of the mineral rights are expensed as incurred. When it has
been determined that a mineral property can be economically developed as a
result of establishing proven and probable reserves, the costs incurred to
acquire and develop such property will be capitalized. Such costs will be
amortized using the units-of-production method over the estimated life of the
probable reserve.
Advertising Costs
Advertising costs are expensed as incurred. There was no advertising
expense for the three and nine months ended February 29, 2004 and February 28,
2003.
F - 24
PATRIOT GOLD CORP.
(An Exploration State Company)
NOTES TO FINANCIAL STATEMENTS
(Continued)
(Unaudited)
NOTE 2 - INCOME TAXES
As of February 29, 2004, the Company had a net operating loss
carryforward for income tax reporting purposes of approximately $2,617,000 that
may be offset against future taxable income through 2022. Current tax laws limit
the amount of loss available to be offset against future taxable income when a
substantial change in ownership occurs. Therefore, the amount available to
offset future taxable income may be limited. No tax benefit has been reported in
the financial statements, because the Company believes there is a 50% or greater
chance the carryforwards will expire unused. Accordingly, the potential tax
benefits of the loss carryforwards are offset by a valuation allowance of the
same amount.
NOTE 3 - EXPLORATION STATE COMPANY/ GOING CONCERN
The Company has not begun principal operations and as is common with a
company in the exploration state, the Company has had recurring losses.
Continuation of the Company as a going concern is dependent upon obtaining the
additional working capital necessary to be successful in its planned activity,
and the management of the Company has developed a strategy, which it believes
will accomplish this objective through additional equity funding and long term
financing, which will enable the Company to operate for the coming year.
NOTE 4 - RELATED PARTY TRANSACTIONS
As of February 29, 2004, all activities of the Company have been
conducted by corporate officers from either their homes or business offices.
There are no commitments for future use of the facilities.
On June 12, 2003, the Company issued 13,500,000 Series A 7% Redeemable
Preferred Shares to Mr. Bruce Johnstone, a former director and sole officer.
Subsequently, Mr. Johnstone converted these shares into the same number of
common shares and transferred 3,000,000 shares to each of the three directors,
Ronald C. Blomkamp, Robert D. Coale and Robert A. Sibthorpe. Compensation
expense of $90,000 was record in connection with the transfer.
NOTE 5 - STOCK OPTIONS / WARRANTS
Pursuant to a 2003 Stock Option Plan, grants of shares can be made to
employees, officers, directors, consultants and independent contractors of
non-qualified stock options as well as for the grant of stock options to
employees that qualify as incentive stock options under Section 422 of the
Internal Revenue Code of 1986 ("Code") or as non-qualified stock options. The
Plan is administered by the Option Committee of the Board of Directors (the
"Committee"), which has, subject to specified limitations, the full authority to
grant options and establish the terms and conditions for vesting and exercise
thereof. Currently the entire Board functions as the Committee.
F - 25
PATRIOT GOLD CORP.
(An Exploration State Company)
NOTES TO FINANCIAL STATEMENTS
(Continued)
(Unaudited)
NOTE 5 - STOCK OPTIONS / WARRANTS (Continued)
In order to exercise an option granted under the Plan, the optionee
must pay the full exercise price of the shares being purchased. Payment may be
made either: (i) in cash; or (ii) at the discretion of the Committee, by
delivering shares of common stock already owned by the optionee that have a fair
market value equal to the applicable exercise price; or (iii) with the approval
of the Committee, with monies borrowed from us.
Subject to the foregoing, the Committee has broad discretion to
describe the terms and conditions applicable to options granted under the Plan.
The Committee may at any time discontinue granting options under the Plan or
otherwise suspend, amend or terminate the Plan and may, with the consent of an
optionee, make such modification of the terms and conditions of such optionee's
option as the Committee shall deem advisable.
On May 26, 2003, the Board of Directors approved a stock option plan
whereby 2,546,000 common shares have been set aside for employees and
consultants to be distributed at the discretion of the Board of Directors. On
September 22, 2003, the Board of Directors amended the stock option plan to
allow 3,000,000 additional options. As of February 29, 2004, 5,020,000 stock
options were granted to various directors and consultants for an exercise price
ranging from $.05 to $1.50 per share.
In most cases the fair value of the stock issued was higher then the
exercise price. Compensation expense of $2,277,646 has been recorded in
connection with the granting of the stock options as of February 29, 2004. The
Black-Scholes option pricing model was used to calculate to estimate the fair
value of the options granted. The following assumptions were made:
Risk Free Rate (Equal to Libor) 1.028%
Expected Life of Option 10years
Expected Volatility of Stock 0.00%
Expected Dividend yield of Stock 0.00
On July 25, 2003, the Company issued 350,000 Class A warrants, 350,000
Class B warrants, 350,000 Class C warrants, and 350,000 Class D warrants. Each
warrant is exercisable, commencing October 25, 2003, for a period of three years
at a price of $1.40, $1.45, $1.50 and $1.55, respectively, for one share of
common stock. The warrants were determined to have no value at the time of their
issuance. The shares and warrants were issued to David Langley, Almir Ramic and
Paul Uppal.
On November 27, 2003, the Company issued 864,000 Class A warrants,
864,000 Class B warrants, 864,000 Class C warrants, and 864,000 Class D
warrants. The Class A warrants are
F - 26
PATRIOT GOLD CORP.
(An Exploration State Company)
NOTES TO FINANCIAL STATEMENTS
(Continued)
(Unaudited)
NOTE 5 - STOCK OPTIONS / WARRANTS (Continued)
exercisable on November 27, 2004 for a period of five years at an exercise price
of $1.40 per share of common stock; the Class B warrants are exercisable on
November 27, 2005 for a period of four years at an exercise price of $1.45; the
Class C warrants are exercisable on November 27, 2006 an at exercise price of
$1.50; and the Class D warrants are exercisable on November 27, 2007 at an
exercise price of $1.55. The Company has the right, in its sole discretion, to
accelerate the exercise date of the warrants, to decrease the exercise price of
the warrants and/or extend the expiration date of the warrants. The warrants
were determined to have no value at the time of their issuance. The shares and
warrants were issued to Jill Kurucz, Almir Ramic and Colin Worth.
The following table sets forth the options and warrants outstanding as
of February 29, 2004. There were no options or warrants were outstanding as of
February 28, 2003.
Weighted
Option / Average Weighted
Warrants Exercise Average
Shares Price Fair Value
------------------ --------------- ----------------
Options & warrants outstanding, May 31, 2003 - $ - -
Granted, Exercise price more than fair value 3,895,000 0.79 0.64
Granted, Exercise price less than fair value 5,981,000 1.29 1.89
Expired - -
Exercised (3,315,000) 0.57
------------------
Options & warrants outstanding, February 29, 2004 6,561,000 $ 1.32
================== ===============
Exercise prices for optioned shares and warrants outstanding as of
February 29, 2004 ranged from $0.05 to $1.55. A summary of these options by
range of exercise prices is shown as follows:
Weighted- Weighted-
Weighted- Shares/ Average Average
Shares / Average Warrants Exercise Price Contractual
Exercise Warrants Exercise Currently Currently Remaining
Price Outstanding Price Exercisable Exercisable Life
------------------ ------------------ --------------- ------------------ --------------------- -----------------
$0.05 550,000 $ 0.05 550,000 $ 0.05 10 years
0.75 to 0.80 230,000 0.76 230,000 0.76 10 years
1.03 80,000 1.03 80,000 1.03 10 years
1.40 to 1.45 2,428,000 1.43 700,000 1.43 5 years
1.50 to 1.55 2,953,000 1.52 1,225,000 1.50 5years
F - 27
PATRIOT GOLD CORP.
(An Exploration State Company)
NOTES TO FINANCIAL STATEMENTS
(Continued)
(Unaudited)
NOTE 6 - COMMON STOCK TRANSACTIONS
The Company was incorporated to allow for the issuance of up to
100,000,000 shares of $.001 par value common stock (as amended).
At inception, the Company issued 7,600,000 shares of common stock to
its officers and directors for services performed and payments made on the
Company's behalf during its formation. This transaction was valued at
approximately $.001 per share or an aggregate approximate $1,000.
On February 8, 1999, to provide initial working capital, the Company
authorized a private placement sale of an aggregate of 7,600,000 (1,000,000
pre-split) shares of common stock at approximately $.05 per share. The private
placement was completed April 1, 1999 and 7,630,400 shares were issued for
approximately $50,200 in proceeds to the Company which were primarily used to
pay operating expenses.
On June 12, 2003, the previous President of the Company, returned
5,320,000 (700,000 pre split) shares of common stock to the Company.
On July 25, 2003, the Company issued 350,000 shares of common stock and
1,400,000 warrants for $367,500 in cash to Almir Ramic, Paul Uppal and David
Langley. Shares and warrants were issued for $1.05 per share. The warrants were
determined to have no fair value at the time of their issuance and thus none of
the proceeds were allocated to the warrants.
On September 2, 2003, the Company's previous president converted his
13,500,000 shares of preferred stock into 13,500,000 shares of common stock
During September, October and November 2003, 3,075,000 common shares
were issued to various directors and consultants in connection with the
exercising of stock options for $1,710,225 in cash. The exercise price ranged
from $.05 to $1.50.
On November 27, 2003, the Company issued 864,000 shares of common stock
and 3,456,000 warrants for $1,080,000 in cash to Almir Ramic, Colin Worth and
Jill Kurucz. Shares and warrants were issued for $1.25 per share. The warrants
were determined to have no fair value at the time of their issuance and thus
none of the proceeds were allocated to the warrants.
During the quarter ending February 29, 2004, 240,000 common shares were
issued in connection with the exercising of stock options for cash of $185,600.
The exercise price ranged from $.75 to $1.03.
F - 28
PATRIOT GOLD CORP.
(An Exploration State Company)
NOTES TO FINANCIAL STATEMENTS
(Continued)
(Unaudited)
NOTE 7 - PREFERRED STOCK
The Company has authorized a total of 20,000,000 shares of Preferred
Stock with a par value of $.001. As of November 30, 2003, there are no preferred
shares outstanding.
The Corporation is under no obligation to pay dividends on the Series A
Redeemable Preferred Stock, and the stock is redeemable at the option of the
Company.
In the event of any liquidation, dissolution or winding-up of the
Corporation, the holders of outstanding shares of Series A Preferred shall be
entitled to be paid out of the assets of the Corporation available for
distribution to shareholders, before any payment shall be made to or set aside
for holders of the Common Stock, at an amount of $.001 plus any unpaid and
accrued dividends per share.
A holder of Series A Preferred has the right to one vote per share in
the case of matters provided for in the General Corporation Law of the State of
Nevada or the Amended and Restated Articles of Incorporation or Bylaws to be
voted on by the holders of the Series A Preferred Stock as a separate class. In
the case of matters to be voted on by the holders of Common Stock and the
holders of Series A Preferred voting together as a single class, each share of
Series A Preferred, has full voting rights and powers equal to the voting rights
and powers of the holders of the Common Stock.
On June 11, 2003, the Company issued 13,500,000 Series A shares of
preferred stock to its president for services rendered and recorded $13,500 in
consulting expenses. The Series A shares have non-cumulative dividends of 7% of
the redemption price when declared by the Board. On September 2, 2003, the
Company's previous president converted his 13,500,000 shares of preferred stock
into 13,500,000 shares of common stock.
NOTE 8 - STOCK SPLIT
On June 17, 2003, the Company approved a forward split at a rate of one
for seven and six- tenths so that each share of common stock will be equal to
7.6 shares. All references to shares in the accompanying financial statements
have been adjusted for the stock split.
F - 29
PATRIOT GOLD CORP.
(An Exploration State Company)
NOTES TO FINANCIAL STATEMENTS
(Continued)
(Unaudited)
NOTE 9 - MINERAL PROPERTIES
The Company has an agreement with Minquest, Inc. which gives them the
right to purchase 100% of the mining interests of two Nevada mineral exploration
properties currently controlled by MinQuest, a natural resource exploration
company. Together, these two properties consist of 28 mining claims on a total
of 560 acres in the northwest trending Walker Lane located in western Nevada.
In order to earn a 100% interest in these two properties, we must pay
MinQuest, Inc. and incur expenditures relating to mining operations in
accordance with the following schedule: (i) on or before July 25, 2004, $20,000
to MinQuest and $75,000 in expenditures; (ii) on or before July 25, 2005,
$20,000 to MinQuest and an additional $100,000 in expenditures; (iii) on or
before July 25, 2006, $20,000 to MinQuest and an additional $100,000 in
expenditures; (iv) on or before July 25, 2007, $20,000 to MinQuest and an
additional $100,000 in expenditures; and (v) on or before July 25, 2008, an
additional $125,000 in expenditures. If we have not incurred the requisite
expenditures to maintain our option in good standing, we have a 60-day period
subsequent to July 25th to make such payment along with such amount which shall
be deemed to have been an expenditure incurred by us during such period. Since
our payment obligations are non-refundable, if we do not make any payments, we
will lose any payments made and all our rights to the properties. If all said
payments are made, then we will acquire all mining interests in the property,
subject to MinQuest retaining a 3% royalty of the aggregate proceeds. The
Company has the right at anytime to discontinue making the payments if the
exploration is determined to be unfeasible.
As of February 29, 2004, $75,000 has been paid for in connection with
the acquisition of these rights and $87,454 has been paid for expenditures in
exploration of these properties. As these properties are unproven, the $162,454
has been expensed.
NOTE 10 - SUBSEQUENT EVENTS
On March 5, 2004, the Company issued 220,000 in additional stock
options with an exercise price of $.75. Consulting expense of $409,904 will be
recorded as a result of these stock options.
F - 30
LEGAL MATTERS
The legality of the issuance of the securities offered pursuant to this
prospectus will be passed upon for us by David Lubin & Associates, Cedarhurst,
New York.
WHERE YOU CAN FIND MORE INFORMATION
You may read and copy any report, proxy statement or other information we file
with the Commission at the Public Reference Room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. You may obtain information on the operation of the
Public Reference Room by calling the Commission at 1-800-SEC-0330. In addition,
we file electronic versions of these documents on the Commission's Electronic
Data Gathering Analysis and Retrieval, or EDGAR, System. The Commission
maintains a web site at http://www.sec.gov that contains reports, proxy
statements and other information filed with the Commission.
We have filed a registration statement on Form SB-2 with the Commission to
register shares of our common stock to be sold by the selling stockholders and
to register additional shares to be sold. This prospectus is part of that
registration statement and, as permitted by the Commission's rules, does not
contain all of the information set forth in the registration statement. For
further information with respect to us or our common stock, you may refer to the
registration statement and to the exhibits and schedules filed as part of the
registration statement. You can review a copy of the registration statement and
its exhibits and schedules at the public reference room maintained by the
Commission, and on the Commission's web site, as described above. You should
note that statements contained in this prospectus that refer to the contents of
any contract or other document are not necessarily complete. Such statements are
qualified by reference to the copy of such contract or other document filed as
an exhibit to the registration statement.
GLOSSARY OF TECHNICAL TERMS
ADULARIA. A potassium-rich alteration mineral.
AIR TRACK HOLES. Drill hole done with a small portable drill rig using an
air-driven hammer.
BLEG SAMPLING. Bulk leach sampling. A large sample of soil or rock that is
bleached using cyanide to determine gold and silver content down to a detection
limit of as little as 1.0 parts per billion.
CONTROLLED SOURCE MAGNETO TELLURIC SURVEY. The recording of variations in a
generated electrical field using sophisticated survey methods.
CORE HOLES. A hole in the ground that is left after the process where a hollow
drill bit with diamond chip teeth is used to drill into the ground. The center
of the hollow drill fills with the core of the rock that is being drilled into,
and when the drill is extracted, a hole is left in the ground.
FELSIC TERTIARY VOLCANIC ROCKS. Quartz-rich rocks derived from volcanoes and
deposited between two and sixty-five million years ago.GEOCHEMICAL SAMPLING.
Sample of soil, rock, silt, water or vegetation analyzed to detect the presence
of valuable metals or other metals which may accompany them. For example,
Arsenic may indicate the presence of gold.
GEOCHEMICAL SURVEY. Sampling of rocks or soil and determination of the absolute
abundances of elements. GEOLOGIC MAPPING. Producing a plan map of the rock
types, structure and alteration.
GEOPHYSICAL SURVEY. Electrical, magnetic and other means used to detect
features, which may be associated with mineral deposits
GROUND MAGNETIC SURVEY. Recording variations in the earth's magnetic field and
plotting same.
GROUND RADIOMETRIC SURVEY. A survey of radioactive minerals on the land surface.
MAGNETIC LOWS. An occurrence that may be indicative of a destruction of magnetic
minerals by later hydrothermal (hot water) fluids that have come up along these
faults. These hydrothermal fluids may in turn have carried and deposited
precious metals such as gold and/or silver.
PLUG. Landform similar to a dome, but smaller.
QUARTZ MONZONITE. A coarsely crystalline rock composed primarily of the minerals
quartz, plagioclase and orthoclase.
QUARTZ STOCKWORKS. A multi-directional quartz veinlets.
RC HOLES. Short form for Reverse Circulation Drill holes. These are holes left
after the process of Reverse Circulation Drilling.
RESOURCE. An estimate of the total tons and grade of a mineral deposit.
REVERSE CIRCULATION DRILLING. A less expensive form of drilling that does not
allow for the recovery of a tube or core of rock. The material is brought up
from depth as a series of small chips of rock that are then bagged and sent in
for analysis. This is a quicker and cheaper method of drilling, but does not
necessarily give as much information about the underlying rocks.
RHYOLITE PLUG DOME. A domal feature formed by the extrusion of viscous
quartz-rich volcanic rocks.
SCINTILLOMETER SURVEY. A survey of radioactive minerals using a scintillometer,
a hand-held, highly accurate measuring device.
SILICIC DOME. A convex landform created by extruding quartz-rich volcanic rocks
TERTIARY. That portion of geologic time that includes abundant volcanism in the
western U.S.
VOLCANIC CENTER. Origin of major volcanic activity
VOLCANOCLASTIC. Coarse, unsorted sedimentary rock formed from volcanic rocks.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS.
Our officers and directors are indemnified as provided by the Nevada Revised
Statutes and our bylaws.
Under the Nevada Revised Statutes, director immunity from liability to a company
or its shareholders for monetary liabilities applies automatically unless it is
specifically limited by a company's Articles of Incorporation. Our Articles of
Incorporation do not specifically limit our directors' immunity. Excepted from
that immunity are: (a) a willful failure to deal fairly with the company or its
shareholders in connection with a matter in which the director has a material
conflict of interest; (b) a violation of criminal law, unless the director had
reasonable cause to believe that his or her conduct was lawful or no reasonable
cause to believe that his or her conduct was unlawful; (c) a transaction from
which the director derived an improper personal profit; and (d) willful
misconduct.
Our bylaws provide that we will indemnify our directors and officers to the
fullest extent not prohibited by Nevada law; provided, however, that we may
modify the extent of such indemnification by individual contracts with our
directors and officers; and, provided, further, that we shall not be required to
indemnify any director or officer in connection with any proceeding, or part
thereof, initiated by such person unless such indemnification: (a) is expressly
required to be made by law, (b) the proceeding was authorized by our board of
directors, (c) is provided by us, in our sole discretion, pursuant to the powers
vested us under Nevada law or (d) is required to be made pursuant to the bylaws.
Our bylaws also provide that we may indemnify a director or former director of
subsidiary corporation and we may indemnify our officers, employees or agents,
or the officers, employees or agents of a subsidiary corporation and the heirs
and personal representatives of any such person, against all expenses incurred
by the person relating to a judgment, criminal charge, administrative action or
other proceeding to which he or she is a party by reason of being or having been
one of our directors, officers or employees.
Our directors cause us to purchase and maintain insurance for the benefit of a
person who is or was serving as our director, officer, employee or agent, or as
a director, officer, employee or agent or our subsidiaries, and his or her heirs
or personal representatives against a liability incurred by him as a director,
officer, employee or agent.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to our directors, officers and control persons pursuant to the
foregoing provisions or otherwise, we have been advised that, in the opinion of
the Securities and Exchange Commission, such indemnification is against public
policy, and is therefore unenforceable.
Item 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses in connection with the issuance and
distribution of the securities being registered hereby. All such expenses will
be borne by the registrant; none shall be borne by any selling stockholders.
Securities and Exchange
Commission registration fee $ 1,653.50
Legal fees and expenses (1) 15,000
Accounting fees and expenses (1) $ 2,500
Miscellaneous (1) $ 1,000
Total (1) $20,153.50
(1) Estimated.
Item 26. RECENT SALES OF UNREGISTERED SECURITIES.
On June 12, 2003, we issued 13,500,000 Series A 7% Redeemable Preferred Shares
to Mr. Bruce Johnstone, a former director and officer of the Company, for
services provided to the Company by Mr. Johnstone. The dollar value of these
preferred shares issued to Mr. Johnstone was $13,500. The services included,
without limitation, the determination to transform the company from the then
business of ostrich meat production to the current business activity of resource
exploration and ensuring that the company would maintain its corporate
existence. During this process, Mr. Johnstone was responsible for finding and
securing qualified directors for the board, which made up the new management
team for the company. Along with this he was also responsible for arranging and
closing our July 2003 private placement financing. These funds provided the
necessary funding to secure the first resource exploration projects which Mr.
Johnstone established when he signed the Letter of Intent with Minquest Inc. on
June 27, 2003. Each preferred share has the right to vote with the common shares
on all matters requiring stockholder vote. The shares were issued in
consideration for services provided to us. The issuance was made pursuant to an
exemption under Section 4(2) of the Securities Act of 1933, as amended and did
not involve a public offering.
On July 25, 2003 we issued to each of Almir Ramic, Paul Uppal and David Langley,
three non-United States accredited investors, an aggregate of 350,000 shares of
common stock and 350,000 Class A warrants, 350,000 Class B warrants, 350,000
Class C warrants and 350,000 Class D warrants in consideration for an aggregate
of $367,500. Each warrant is exercisable, commencing October 25, 2003, for a
period of three years at a price of $1.40, $1.45, $1.50, and $1.55,
respectively, for one share of common stock. The issuance was made to accredited
investors without any general solicitation or advertisement and a restriction on
resale pursuant to an exemption under Section 4(2) of the Securities Act of
1933, as amended and did not involve a public offering.
On September 2, 2003, we executed and delivered an agreement with Bruce
Johnstone, a former officer and director, whereby the 13,500,000 shares of
Series A 7% Redeemable Preferred Stock held by Mr. Johnstone were exchanged for
13,500,000 shares of our common stock. The issuance was made to the conversion
of an existing security held by a former officer of the Company that was issued
without any general solicitation or advertisement and include a restriction on
resale, pursuant to an exemption under Section 4(2) of the Securities Act of
1933, as amended and did not involve a public offering.
On November 27, 2003 we issued to each of Almir Ramic, Colin Bruce Worth and
Jill Kurucz, three non-United States accredited investors, an aggregate of
864,000 shares of common stock and 864,000 Class A-1 warrants, 864,000 Class B-1
warrants, 864,000 Class C-1 warrants and 864,000 Class D-1 warrants in
consideration for an aggregate of $1,080,000. The Class A-1 warrants are
exercisable on November 27, 2004 for a period of 5 years at an exercise price of
$1.40 per share of common stock; the Class B-1 warrants are exercisable on
November 27, 2005 for a period of 4 years at an exercise price of $1.45; the
Class C-1 warrants are exercisable on November 27, 2006 for a period of 3 years
at an exercise price of $1.50; and the Class D-1 warrants are exercisable on
November 27, 2007 for a period of 2 years at an exercise price of $1.55 per
share. The issuance was made pursuant to an exemption under Section 4(2) of the
Securities Act of 1933, as amended and did not involve a public offering.
Item 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
The following exhibits are filed as part of this registration statement:
EXHIBIT DESCRIPTION
3.1 Articles of Incorporation of Registrant. (a)
3.2 Registrant's Restated Articles of Incorporation. (b)
3.3 By-Laws of Registrant. (a)
4.1 Specimen common stock certificate. **
4.2 Form of Class A Warrant. (c)
4.3 Form of Class B Warrant. (c)
4.4 Form of Class C Warrant. (c)
4.5 Form of Class D Warrant. (c)
4.6 Warrant Agreement - July 2003 private placement. (c)
4.7 Form of Class A-1 Warrant. #
4.8 Form of Class B-1 Warrant. #
4.9 Form of Class C-1 Warrant. #
4.10 Form of Class D-1 Warrant. #
4.11 Warrant Agreement - November 2003 private placement. **
5.1 Opinion of David Lubin & Associates regarding the legality of the
securities being registered. #
10.1 Property Option Agreement dated as of July 25, 2003 between MinQuest
Inc. and Patriot Gold Corporation. (c)
10.2 Stock Option Plan. (d)
10.3 Agreement dated as of September 2, 2003 by and between Patriot Gold
Corp. and Bruce Johnstone. (e)
10.4 Shareholders' Agreement dated as of January 22, 2004, among Patriot
Gold Corp., Ron Blomkamp, Robert Sibthorpe and Robert Coale. #
10.5 Agreement dated January 22, 2004 executed by Bruce Johnstone with
respect to registration rights. **
10.6 Letter of Intent dated November 13, 2003 between Patriot Gold Corp. and
Ms. Barbara Williams. **
10.7 Purchase Contract dated February 19, 2004 between the Company, the
parties identified therein as the Seller and First American Title
Insurance Company of Yavapai County, as escrow agent. (f)
10.8 Binding Letter Agreement, dated March 4, 2004, by and between the
Company and MinQuest, Inc. **
23.1 Consent of Robison, Hill & Co. **
23.2 Consent of David Lubin & Associates (included in Exhibit 5.1). #
** Filed herewith.
# Previously filed with the Company's registration statement on Form SB-2,
Registration No. 333-112424, submitted to the SEC on February 2, 2004.
(a)Previously filed with the Company's Form 10SB12g submitted to the SEC on June
25, 2001, SEC file number 0-32919.
(b)Previously filed as an exhibit to the Company's Information Statement
submitted to the SEC on May 21, 2003.
(c) Previously filed as exhibits to the Company's May 31, 2003 Form 10-KSB
submitted to the SEC on August 26, 2003.
(d) Previously filed as Exhibit 4.1 to the Company's Form S-8 on May 30, 2003,
SEC File Number 333-105691, as amended by the Company's Post-Effective Amendment
of Form S-8 filed on September 23, 2003.
(e) Previously filed as an exhibit to the Company's August 31, 2003 Form 10-QSB
submitted to the SEC on October 14, 2003.
(f) Previously filed as an exhibit to the Company's February 29, 2004 Form
10-QSB submitted to the SEC on April 9, 2004.
Item 28. UNDERTAKINGS.
(A) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) Reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information
set forth in the registration statement; and
(iii)Include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
(B) Undertaking Required by Regulation S-B, Item 512(e).
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or controlling persons pursuant
to the foregoing provisions, or otherwise, the Registrant has been advised that
in the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel that the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue. (C) Undertaking Required by
Regulation S-B, Item 512(f)
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Exchange
Act of 1934 that is incorporated by reference in the registration statement
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at the time shall be deemed
to be the initial bona fide offering thereof.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
hasduly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of West Vancouver, British
Columbia, on the 16th day of July , 2004.
PATRIOT GOLD CORP.
By: /s/ Ronald C. Blomkamp
----------------------------------
Ronald C. Blomkamp
President, Chief Executive Officer, Chief Financial
Officer and Secretary ((principal executive
officer, principal financial officer and
accounting officer)
SIGNATURE TITLE DATE
--------------------------- ------------------------------------- --------------
President, Chief Executive Officer,
Chief Financial Officer and Secretary
July 16, 2004
/s/ Ronald C. Blomkamp
---------------------------
Ronald C. Blomkamp
--------------------------- ------------------------------------- --------------
* Director July 16, 2004
---------------------------
Robert A. Sibthorpe
--------------------------- ------------------------------------- --------------
Director July16, 2004
*
---------------------------
Robert D. Coale
--------------------------- ------------------------------------- --------------
* By: /s/ / Ronald C. Blomkamp July 16, 2001
-------------------------
Attorney-in-Fact