Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. x

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)

[

] Yes

x No

 

Revenues for fiscal year ended May 31, 2007 were $0.

 

The aggregate market value of the voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity, as of August 24, 2007 (a date within the past 60 days) was $1,820,196.

 

The number of shares of the issuer’s Common Stock outstanding as of August 24, 2007 is 26,224,400.

 

Documents Incorporated By Reference: None

 

Transitional Small Business Disclosure Format (check one): Yes [ ] No [X ]

 

 

TABLE OF CONTENTS

 

 

Page

 

Glossary of Mining Terms

 

 

PART I

 

 

 

Item 1. Description of Business

 

 

Item 2. Properties

 

 

Item 3. Legal Proceedings

 

 

Item 4. Submission of Matters to a Vote of Security Holders

 

 

 

PART II

 

 

Item 5. Market for Common Equity and Related Stockholder Matters

 

 

Item 6. Management’s Discussion and Analysis or Plan of Operation

 

 

Item 7. Financial Statements

 

 

Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 

 

Item 8A. Controls and Procedures

 

 

Item 8B. Other Information

 

 

 

PART III

 

 

Item 9. Directors, Executive Officers, Promoters, Control Persons and Corporate Governance; Compliance with Section 16(a) of the Exchange Act

 

 

Item 10. Executive Compensation

 

 

Item 11. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

 

Item 12. Certain Relationships and Related Transactions, and Director Independence

 

 

Item 13. Exhibits

 

 

Item 14. Principal Accountant Fees and Services

 

 

 

 

Glossary of Mining Terms

 

Adularia. A potassium-rich alteration mineral – a form of orthoclase.

 

Air track holes. Drill hole constructed 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 leached using cyanide to determine gold and silver content down to a detection limit of as little as 1.0 parts per billion.

 

CSMT Survey. 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.

 

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 Sampling. Sampling of rocks or soil and determination of the absolute abundances of elements.

Geologic mapping. Producing a plan or sectional 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.

 

Leaching. Leaching is a cost effective process where ore is subjected to a chemical liquid that dissolves the mineral component from the ore, and then the liquid is collected and the metals extracted from it.

 

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 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.

 

Scoping Study. A detailed study of the various possible methods to mine a deposit.

 

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.

 

Trenching. A cost effective way of examining the structure and nature of mineral ores just beneath the surface. It involves digging long usually shallow trenches in carefully selected areas to expose unweathered rock and allow sampling.

 

Volcanic center. Origin of major volcanic activity

 

Volcanoclastic. Coarse, unsorted sedimentary rock formed from volcanic rocks.

 

 

Forward-Looking Statements

 

This Annual Report on Form 10-KSB contains forward-looking information. Forward-looking information includes statements relating to future actions, prospective products, future performance or results of current or anticipated products, sales and marketing efforts, costs and expenses, interest rates, outcome of contingencies, financial condition, results of operations, liquidity, business strategies, cost savings, objectives of management of Patriot Gold Corp. (the “Company” or “we”) and other matters. Forward-looking information may be included in this Annual Report on Form 10-KSB or may be incorporated by reference from other documents filed with the Securities and Exchange Commission (the “SEC”) by the Company. One can find many of these statements by looking for words including, for example, “believes,” “expects,” “anticipates,” “estimates” or similar expressions in this Annual Report on Form 10-KSB or in documents incorporated by reference in this Annual Report on Form 10-KSB. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information or future events.

 

The Company has based the forward-looking statements relating to the Company’s operations on management’s current expectations, estimates and projections about the Company and the industry in which it operates. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that we cannot predict. In particular, we have based many of these forward-looking statements on assumptions about future events that may prove to be inaccurate. Accordingly, the Company’s actual results may differ materially from those contemplated by these forward-looking statements. Any differences could result from a variety of factors, including, but not limited to general economic and business conditions, competition, and other factors.

 

 

 

PART I

Item 1.

Description of Business.

 

We are engaged in natural resource exploration and anticipate acquiring, exploring, and if warranted and feasible, developing natural resource properties. Currently we are in the exploration state and are undertaking exploration programs in Arizona and Nevada.

 

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.

 

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.

 

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. 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 Solana Beach, 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.

 

On October 13, 2005, Mr. Ronald Blomkamp, the Chairman, President, Chief Executive Officer, Chief Operating Officer, Secretary, and a director resigned from each of his positions as an officer and director of the Company. On the same date, the Company’s board of directors voted to appoint Mr. Robert Coale as Chairman, President, Chief Executive Officer, Chief Operating Officer, and Secretary. Also on the same date, the Company’s board of directors elected Mr. Duncan Budge as a member of the board of directors of the Company.

 

On March 10, 2006 the Company granted stock options to Mr. Robert Coale, who is the Chairman, President, Chief Executive Officer, Chief Operating Officer, Secretary, and Director and to Mr. Robert Sibthorpe who is a director of the Company. In consideration therefor, Mr. Coale, Mr. Sibthorpe and the Company entered into Buy-Back Option Agreements, pursuant to which Messrs. Coale and Sibthorpe granted to the Company the option to purchase all or any portion of the 3,000,000 shares of the Company’s common stock that are owned by each of Mr. Coale and Mr. Sibthorpe respectively for a purchase price of $0.01 per share.

 

Also on March 10, 2006, the Registrant entered into a Redemption Agreement with Ronald Blomkamp, the Company’s former President and Chief Executive Officer pursuant to which the Company purchased from Mr. Blomkamp the 3,000,000 shares of the Company’s common stock that were owned by Mr. Blomkamp. The purchase price for such shares paid to Mr. Blomkamp by the Company was $0.01 per share, which amounted to an aggregate of $30,000. The purchased share were returned to treasury and cancelled.

 

Business Operations

 

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 are an exploration stage company. 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. Therefore, we anticipate selling or partnering 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 or partnering 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 properties we have optioned in Nevada and purchased in Arizona contain 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 selling or partnering of our properties, the purchase of small interests in producing properties, the purchase of properties 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 commercially viable 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.

 

Financing

 

In July 2003 we completed a private placement of shares and warrants which generated an aggregate of $367,500 in proceeds. The private placement we closed in November 2003 generated an additional $1,080,000 in gross proceeds. Also, $2,060,825 and $1,597,500 during the years ended May 31, 2004 and 2005, respectively, was obtained from the exercise of stock options issued under the Company’s 2003 stock option plan. There were no fund raising activities undertaken by the Company during the fiscal year ended May 31, 2007. With the funds currently

 

 

held by the Company, we are adequately funded for all work programs and option commitments for the next 12 months. If we were to develop any of our properties beyond the exploration activities currently being undertaken by the Company, we would need to raise further funding. If additional funding is required, management plans to seek the additional capital through private placements and public offerings of its common stock but there can be no assurances that management would be successful in its attempt to raise the additional funds.

 

Competition

 

The mineral exploration industry, in general, is intensively competitive and even if commercial quantities of ore are discovered, a ready market may not exist for sale of same. Numerous factors beyond our control may affect the marketability of any substances discovered. These factors include market fluctuations, the proximity and capacity of natural resource markets and processing equipment, government regulations, including regulations relating to prices, taxes, royalties, land tenure, land use, importing and exporting of minerals and environmental protection. The exact effect of these factors cannot be accurately predicted, but the combination of these factors may result in our not receiving an adequate return on invested capital.

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 cost 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.

 

Other than the normal bonding requirements, 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 Property (see below Item 2, entitled “Properties”) have been

 

 

obtained from the Arizona Department of Water Resources, Phoenix, Arizona. The “Intention to Drill Wells” permits were issued February 5, 2004.

 

In October 2004, we received the approval of a Notice of Intent for Exploration Drilling, and an environmental bond filed with the Nevada office of the Bureau of Land Management. With the proper approvals in place, we began drilling on the Bruner property on December 20, 2004 and completed the program in March 2005. This approval will be relied upon by the Company for its planned drilling program for the Bruner property later in 2007.

 

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.

 

Subsidiaries

 

We do not have any subsidiaries and we are not part of a group.

 

Factors that May Affect Future Results

 

1. We will require additional funds in the future to achieve our current business strategy and our inability to obtain funding will cause our business to fail.

 

Based upon current plans we expect to incur operating losses in future periods. This will happen because there are expenses associated with the acquisition and exploration of natural resource properties. While we have sufficient cash on hand to fund our operating needs to May 31, 2008, we will need to raise additional funds in the future through public or private debt or equity sales in order to fund our future operations and fulfill 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 Arizona and Nevada, and as a result, could require us to diminish or suspend our operations and possibly cease our existence. Obtaining additional financing would be subject to a number of factors, including the market prices for the mineral property and silver and copper. These factors may make the timing, amount, terms or conditions of additional financing unavailable to us.

 

2. If we do not complete the required option payments and capital expenditure requirements mandated in our respective agreements with MinQuest, we will lose our interest in that respective property and our business may fail.

 

If we do not make all of the property payments to MinQuest or incur the required expenditures in accordance with the respective property option agreements we will lose our option to purchase the respective property for which we have not made the payments and may not be able to continue to execute our business objectives if we are unable to find an alternate exploration interest. Since our payment obligations are non-refundable, if we do not make any payments, we will lose any

 

 

payments previously made and all our rights to the properties.

 

3. Because of our reliance on MinQuest our operations would be severely impacted should our relationship with MinQuest be terminated for any reason.

 

A portion of our Moss property was acquired from MinQuest and we optioned the Bruner and Vernal properties from MinQuest. In addition, to date all of our exploration activity on these properties has been undertaken by MinQuest. As a result, MinQuest has significant knowledge about our properties and it would be very difficult for us to replace MinQuest should our relationship with them be terminated for any reason. To date, there have not been any conflicts between the Company and MinQuest.

 

4. Because our Directors serve as Officers and Directors of other companies engaged in mineral exploration, a potential conflict of interest could negatively impact our ability to acquire properties to explore and to run our business.

 

All of our Directors and Officers work for other mining and mineral exploration companies. Due to time demands placed on our Directors and Officers, and due to the competitive nature of the exploration business, the potential exists for conflicts of interest to occur from time to time that could adversely affect our ability to conduct our business. The Officers and Directors’ full-time employment with other entities limits the amount of time they can dedicate to us as a director or officer. Also, our Directors and Officers may have a conflict of interest in helping us identify and obtain the rights to mineral properties because they may also be considering the same properties. To mitigate these risks, we work with several geologists in order to ensure that we are not overly reliant on any one of our Directors to provide us with geological services. However, we cannot be certain that a conflict of interest will not arise in the future. To date, there have not been any conflicts of interest between any of our Directors or Officers and the Company.

 

5. 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 properties we have in Arizona and Nevada contain 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.

 

6. Because we have not commenced business operations, we face a high risk of business failure due to our inability to predict the success of our business

 

We are in the initial stages of exploration of our mineral claims and thus have no way to evaluate the likelihood that we will be able to operate our business successfully. To date have been involved primarily in organizational activities, and the acquisition and exploration of the mineral claims. We have not earned any revenues as of the date of this report.

 

 

7. Because of the unique difficulties and uncertainties inherent in mineral exploration and the mining business, we face a high risk of business failure

 

Potential investors should be aware of the difficulties normally encountered by early-stage mineral exploration companies and the high rate of failure of such enterprises. The likelihood of success must be considered in light of the problems, expenses, difficulties, complications and delays encountered in connection with the exploration of the mineral properties that we plan to undertake. These potential problems include, but are not limited to, unanticipated problems relating to exploration, and additional costs and expenses that may exceed current estimates.

 

In addition, the search for valuable minerals involves numerous hazards. As a result, we may become subject to liability for such hazards, including pollution, cave-ins and other hazards against which we cannot insure or against which we may elect not to insure. The payment of such liabilities may have a material adverse effect on our financial position.

 

8. Because we anticipate our operating expenses will increase prior to our earning revenues, we may never achieve profitability

 

Prior to completion of our exploration stage, we anticipate that we will incur increased operating expenses without realizing any revenues. Therefore, we expect to incur significant losses into the foreseeable future. We recognize that if we are unable to generate significant revenues from the exploration of our mineral claims 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. Because access to our mineral claims may be restricted by inclement weather, we may be delayed in our exploration

 

Access to our mineral properties may be restricted through some of the year due to weather in the

area. As a result, any attempt to test or explore the property is largely limited to the times when weather permits such activities. These limitations can result in significant delays in exploration efforts. Such delays can have a significant negative effect on our results of operations.

 

10. Because our President has only agreed to provide his services on a part-time basis, he may not be able or willing to devote a sufficient amount of time to our business operations, causing our business to fail

 

Mr. Coale, our sole officer, provides his management services to a number of companies. Because we are in the early stages of our business, Mr. Coale will not be spending a significant amount of time working for the Company. Mr. Coale expects to expend approximately five hours per week on our business. Later, if the demands of our business require the full business time of Mr. Coale, he is prepared to adjust his timetable to devote more time to our business. However, it still may not be possible for Mr. Coale to devote sufficient time to the management of our business, as and when needed, especially if the demands of Mr. Coale’s other interests increase. Competing demands on Mr. Coale’s time may lead to a divergence between his interests and the interests of other shareholders.

 

 

 

Risks Related To Legal Uncertainty and Regulations

 

11. As we undertake exploration of our mineral claims, we will be subject to compliance with government regulation that may increase the anticipated cost of our exploration programs

 

There are several governmental regulations that materially restrict mineral exploration. We will be subject to the federal, state and local laws of the United States, Arizona, and Nevada as we carry out our exploration program. We may be required to obtain work permits, post bonds and perform remediation work for any physical disturbance to the land in order to comply with these laws. While our planned exploration program budgets for regulatory compliance, there is a risk that new regulations could increase our costs of doing business and prevent us from carrying out our exploration programs.

 

Item 2. Description of Properties.

 

We do not lease or own any real property. We currently maintain our corporate office on a month-to-month basis at an amount of CDN $1,650 per month at #501-1775 Bellevue Avenue, West Vancouver, British Columbia, Canada, V7V 1A9. Management believes that our office space is suitable for our current needs.

 

In the following discussion relating to our interests in real property, 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 one purchases an unpatented mining claim that is later declared invalid by the U.S. government, one could be evicted.

 

 

Bruner and Vernal Properties

 


 

Map of our Bruner and Vernal properties located in western Nevada.

 

Acquisition of Interest

 

Pursuant to a Property Option Agreement, dated as of July 25, 2003, with MinQuest, Inc., a Nevada corporation (“MinQuest”), we have the option to earn a 100% interest in the Bruner and Vernal mineral exploration properties located in Nevada. 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, as further described below.

 

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.

 

On July 25, 2003, we paid MinQuest $12,500 with respect to the properties, and we owed an additional $80,000 which was due in four equal annual installments commencing on July 25, 2004. With the approval of MinQuest, we paid the first installment on August 27, 2004 and we paid the second installment on September 20, 2005. On July 25, 2006 and 2007 respectively we made the third and fourth installments of $20,000. The payment made on July 25, 2007 was the final payment due under the property option agreement for the Bruner and Vernal properties. By July 25, 2007, we were to have spent $375,000 on exploration, and by that date we had spent an aggregate of approximately $280,000 on exploration of the two properties resulting in a shortfall of $95,000. By way of letter agreement dated July 24, 2007 between the Company and MinQuest, MinQuest has agreed to extend the due date of the shortfall of $95,000 at July 25, 2007 until July 25, 2008. We are obligated to spend another $125,000 July 25, 2008. The effect of the change is that the Company is now obligated to incur $220,000 by July 25, 2008.

 

 

Bruner Property

 

Description and Location of the Bruner Property

 

 

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).

 

Exploration History of the Bruner Property

 

The original operators at the Bruner Property are unknown. Prospecting at the property began in the early 1900’s while mining was occurring on other properties located to the west. However, modern exploration of the property began in 1983 and included the following work:

 

 

o

In 1983, Kennecott drilled fifteen RC holes (holes left after the process of reverse circulation drilling) on the property.

 

 

o

In 1988-1990, Newmont Exploration Ltd. drilled approximately 10 RC drill holes; conducted detailed geologic mapping (producing a plan map of the rock types, structure and alteration), 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 1990-1995, Miramar Mining Corp. drilled 5 RC drill holes and conducted BLEG (bulk leach extractable gold) sampling and air photo interpretation. BLEG sampling involves a large sample of soil or rock that is leached using cyanide to determine gold and silver content down to a detection limit of as little as 1.0 parts per billion.

 

Geology of the Bruner Property Mineral Claims

 

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.

 

Current State of Exploration

 

The Bruner claims presently do not have any mineral reserves. The property that is the subject of our mineral claims is undeveloped and does not contain any open-pit or underground mines. There

 

 

is no mining plant or equipment located on the property that is the subject of the mineral claims. Currently, there is no power supply to the mineral claims. Our planned exploration program is exploratory in nature and no mineral reserves may ever be found.

 

Geological Exploration Program

In July 2003, members of our Board of Directors and geology team made an onsite inspection of Bruner Property. 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. The company completed an exploration program consisting of geologic mapping, surface geochemical sampling, and a Global Positioning System geophysical survey (electrical, magnetic and other means used to detect features, which may be associated with mineral deposits) was also conducted. 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. Faults, which are breaks 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 our claims shows several small quartz bearing structures trending northwest and dipping steeply to the northeast. These small structures are thought to be related to a much larger vein, often filled with quartz, contained within a fault or break in the rock (a fault-hosted vein system) under gravel cover in the broad valley south of the mapping. Approximately 1 square mile of ground magnetics was completed at Bruner. The survey was done on 50 meter spaced lines, run north-south using a GPS controlled Geometrics magnetometer, which is the geophysical instrument used in collecting magnetic data with an attached GPS that allows the operator to more precisely determine the location of each station where the magnetic signature is taken.

 

The interpretation shows numerous northwest and north-south trending magnetic lows associated with faults. Magnetic lows are an occurrence that may be indicative of a destruction of magnetic minerals by later hydrothermal (hot water) fluids that have come up along these faults. These hydrothermal fluids may in turn have carried and deposited precious metals such as gold and/or silver. A much more continuous northwest trending feature that has not been drill tested is located to the southeast, under gravel cover (where there is no exposure of rock at the surface). Data are 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.

 

Our exploration program to date at Bruner has included:

 

 

o

geologic mapping (producing a plan map of the rock types, structure and alteration);

 

o

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);

 

 

 

o

a ground magnetic survey; and

 

o

a Controlled Source Magneto-telluric survey (recording variations in a generated electrical field using sophisticated survey methods).

 

In October 2004, we received the approval of a Notice of Intent for Exploration Drilling, and an environmental bond filed with the Nevada office of the Bureau of Land Management. A total of 18 drill sites were located to target both extensions of the gold intercepts in previous drilling and in geophysical anomalies found by a CSMT survey. A CSMT survey is an electromagnetic method used to map the variation of the Earth’s resistance to conduct electricity by measuring naturally occurring electric and magnetic fields at the Earth’s surface. With the proper approvals in place, we began drilling on the Bruner property on December 20, 2004. This drilling program was completed in March 2005 at a total cost of approximately $153,800, with a total of 3,200 feet of reverse circulation (RC) drilling in 7 holes. The depths of the holes ranged from 300 to 750 feet. We have received assays for all holes and the results are encouraging enough that additional drilling was conducted.

 

Because of the favorable drilling results from the drilling program we began on December 20, 2004, we decided to conduct additional drill testing on the Bruner property, including both reverse circulation and core drilling. In April 2005, we filed an amended drilling plan with the Bureau of Land Management that allowed three fences of drill holes with the fences spaced 400 feet apart along the apparent trend of the mineralization. This program was completed in the fall of 2005 with 11 holes totaling 4,205 feet being drilled.

 

The Board of Directors has approved a 2007 exploration budget of approximately $120,000 for the Bruner Property. The program will include a 3-hole, 3,000 feet, RC drill program. The goal of this program is to follow up on the previous results from the programs completed in 2005. Planning for this program is currently ongoing.

 

 

Vernal Project

 

Description and Location of the Vernal Property

 

 


 

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).

 

Exploration History of the Vernal Property

 

Historical work includes several short adits constructed on the property between 1907 and 1916. There appears to have been little or no mineral production.

 

Geology of the Vernal Mineral Claims

 

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 encountered by the geologists of Amselco, the U.S. subsidiary of a British company, who explored the Vernal Property back in the 1980’s, and who in 1983 mapped, sampled and drilled the Vernal Property. Amelsco has not been involved with the Vernal Property over the last 20 years and isnot associated with our option on the property or the exploration work we are doing there. A 225 foot wide zone of poorly outcropping quartz stockworks (a multi-directional quartz veinlet) and larger veining trends exists 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.

 

Current State of Exploration

 

The Vernal claims presently do not have any mineral reserves. The property that is the subject of our mineral claims is undeveloped and does not contain any open-pit or underground mines. There is no mining plant or equipment located on the property that is the subject of the mineral claim. Currently, there is no power supply to the mineral claim. Our planned exploration program is exploratory in nature and no mineral reserves may ever be found. There is no drilled resource on our claims.

 

Geological Exploration Program

In July 2003, members of our Board of Directors and geology team made an onsite inspection of Vernal. 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) have been completed. In March 2005, we initiated the process to secure the proper permits for trenching and geochemical sampling from the U.S. Forest Service. As a result of the Company not having immediate plans to conduct drilling on the Vernal Property in 2005, the Company stopped the permitting process before receiving permits for the Vernal Property.

 

Our exploration of the Vernal Property to date has consisted of geologic mapping and rock chip

 

 

geochemical sampling. The Board of Directors has approved a budget of approximately $55,000 (including the refundable bond of $15,000) for the Vernal Property. The program will include trenching and mapping. Permitting for this program is currently ongoing.

 

Moss Property

 

 

 

Moss Property

 

The Moss Property consists of 63 unpatented claims and 15 patented claims located in the Oatman District of Mohave County, Arizona. The Company acquired these claims in a series of transactions during fiscal 2004 and 2005.

 

Acquisition of Interest

 

Gintoff Claim

 

On November 14, 2003 the Company entered into a letter of intent to acquire a single patented claim from Gregory Gintoff. The total purchase price of $50,000 was made in two installments of $10,000 in December 2003 and $40,000 in February 2004.

 

MinQuest Claims

 

We hold the MinQuest claims via 62 unpatented mining claims that were acquired from MinQuest. On March 4, 2004, we signed the agreement that earned us a 100 percent interest in these claims by paying MinQuest a one-time lease fee of $50,000. The fee of $50,000 was paid on July 7, 2004. A three percent NSR production royalty is retained by MinQuest.

 

Williams Property

 

The property is comprised of six patented claims, which as a group, we call the Williams Property. These claims were held collectively by as many as 23 owners within an extended family who were represented by Barbara Williams, a realtor, and a member of this extended family, who put together the letter of intent and arranged for the signing of the agreement by the numerous owners. None of these owners, including Barbara Williams, has or has had any relationship or affiliation with us prior to the agreement for the Williams Property.

 

In October 2003, our director Robert Sibthorpe (who is a geologist by training) had evaluated the proposal for the purchase of the Williams Property. His recommendation was to visit the site, and if the visual inspection supported the information presented in the proposal, then an offer to purchase should be drawn up. In November 2003 we executed a letter of intent to purchase a 100% interest in Williams Property owned by the extended family. This property is unrelated to and separate from the MinQuest Claims. The sellers delivered to us all information in their possession regarding the Williams Property. During the six-month period after the signing of the letter of intent we had the right to conduct our due diligence on the Williams Property and if we decided not to proceed we had to give the sellers and escrow agent notice no less than 10 days prior to the six-month anniversary of our intention not to close. During this period we could not perform mining or remove any ore from the property. We were responsible for all costs and expenses associated with the purchase of the Williams Property, including escrow fees, cost of feasibility study, charges resulting from any tests, environmental assessments reports or surveys, and any exploration activity costs. Once we had concluded our analysis and had determined that it is feasible to close on the purchase of the Williams Property, doing so would give us full rights to begin mining operations.