Form 10-Q for PACIFIC GOLD CORP
16-May-2012
Quarterly Report
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward Looking Statements
From time to time, we or our representatives have made or may make forward-looking statements, orally or in writing. Such forward-looking statements may be included in, but not limited to, press releases, oral statements made with the approval of an authorized executive officer or in various filings made by us with the SEC. Words or phrases "will likely result", "are expected to", "will continue", "is anticipated", "estimate", "project or projected", or similar expressions are intended to identify "forward-looking statements". Such statements are qualified in their entirety by reference to and are accompanied by the above discussion of certain important factors that could cause actual results to differ materially from such forward-looking statements.
Management is currently unaware of any trends or conditions other than those previously mentioned in this management's discussion and analysis that could have a material adverse effect on our consolidated financial position, future results of operations, or liquidity. However, investors should also be aware of factors that could have a negative impact on our prospects and the consistency of progress in the areas of revenue generation, liquidity, and generation of capital resources. These include: (i) variations in revenue, (ii) possible inability to attract investors for its equity securities or otherwise raise adequate funds from any source should the company seek to do so, (iii) increased governmental regulation, (iv) increased competition, (v) unfavorable outcomes to litigation involving the company or to which the company may become a party in the future and, (vi) a very competitive and rapidly changing operating environment.
The above identified risks are not all inclusive. New risk factors emerge from time to time and it is not possible for management to predict all of such risk factors, nor can it assess the impact of all such risk factors on the company's business or the extent to which any factor or combination of factors may cause actual results to differ materially from those contained in any forward-looking statements. Accordingly, forward-looking statements should not be relied upon as a prediction of actual results.
The financial information set forth in the following discussion should be read with the consolidated financial statements of Pacific Gold included elsewhere herein.
Introduction
Pacific Gold is engaged in the identification, acquisition, and development of mining prospects believed to have known gold and/or tungsten mineral deposits. The main objective is to identify and develop commercially viable mineral deposits on prospects over which the company has rights that could produce revenues. These types of prospects may also contain mineral deposits of metals often found with gold and/or tungsten which also may be worth processing. Development of commercially viable mineral deposits of any metal includes a high degree of risk which careful evaluation, experience and factual knowledge may not eliminate, and therefore, we may never produce any significant revenues.
Pacific Gold Corp. has four wholly-owned operating subsidiaries: Nevada Rae Gold, Inc., Fernley Gold, Inc., Pilot Mountain Resources Inc., and Pacific Metals Corp., through which it holds various prospects in Nevada and Colorado. The Company intends to acquire through staking, purchasing and/or leasing arrangements additional prospects, from time to time, in which there may be gold, tungsten and/or other mineral deposit potential.
Nevada Rae Gold, Inc.
NRG has permitted the Black Rock Canyon Mine with the BLM and the Nevada State Division of Environmental Protection (NDEP). NRG built a gravel screening facility at the Black Rock Canyon Mine. The plant is in good physical condition. The plant consists of a 60 foot by 90 foot by 30 foot steel building with offices, plumbing, electrical and a sloped floor for drainage; additionally the site has fuel storage, settling ponds, security offices and the entire are is fenced in for security along with exterior lighting and security cameras that allow management remote access viewing of the site from any internet access point in the world. The plant equipment primarily consists of a grizzly hopper, conveyors, trommels, high gravity bowls, sand screw, and a variety of pumps, cyclones and small equipment. The Company currently plans to rent or lease earth moving equipment including bull dozers, haul trucks, excavators, front end loaders and other smaller pieces. The plant is serviced via power lines provided by NV Energy and via two water wells that the Company owns.
In general, the operations will require the excavation of the gravel within the prospect. Typically, the vegetation and minor soil cover will be stripped and side cast for future reclamation. The mineral deposit bearing gravel will be dug with an excavator until bedrock is reached, and material will be prescreened and then hauled to the mill site. The mill area will be about three miles away from the mine site. The mill site is equipped with two functioning wells for process water and is connected to the power grid. The mill and trommel unit are set up on the private, fee land owned by the company.
During the first quarter of 2012, the Company completed its search for a suitable operations manager for the mine. Poor weather that occurred in the fourth quarter of 2011 continued in the first quarter of 2012, and daily maintenance of the screen plant was not efficient. In order to correct the plant throughput and improve the gold recovery the Company worked closely with an engineering firm to perform a complete review of the water process in the plant to improve the delivery of clean water and to optimize the plant desanding process. The Company worked to purchase and install the new water equipment as recommened by the consulting engineers. The Company has implemented a new screen plant maintenance schedule and is working on a new parts inventory system in order to improve the plant operating hours.
The Company screened approximately 10,629 cubic yards from the stockpile and newly mined gravels, in approximately 84 operating hours, and sold approximately 35 ounces of gold.
As at March 31, 2012 the mine had approximately a 17,000 cubic yard stockpile of gravel to be screened for gold.
Through March 31, 2012 the Company has invested approximately $9,860,000 into
NRG.
Pilot Mountain Resources Inc.
In August 2005, Pacific Gold Corp. established a new subsidiary called Pilot Mountain Resources Inc., which then acquired Project W. Project W is primarily a tungsten project located in Mineral County, Nevada. Elevated tungsten values occur throughout the area, and there are known mineral resources within the claim area. The property is located approximately 21 miles east of the town of Mina with access through an all-weather, county-maintained gravel road and a network of further trails. Mina is 168 miles southeast of Reno on Route 95. The claims are located at an average elevation of 6,500 feet.
Resource calculations from a feasibility study completed by Kaiser Engineers place the size of Project W at 9,061,600 tons, grading 0.386% Tungsten Tri-oxide (WO3) of combined proven, probable and possible ore, or approximately 35,000 tons of WO3.
The terms of the acquisition of Project W call for Pilot Mountain Resources Inc. to pay Platoro West a 2% gross royalty on all mineral sales from Project W. In addition to the claims, Pilot Mountain Resources Inc. received copies of previously prepared working documents and reports regarding Project W.
On February 10, 2011, Pilot Mountain Resources Inc. entered into an Option and Asset Sale Agreement ("Agreement") with Pilot Metals Inc., a subsidiary of Black Fire Minerals of Australia, whereby Pilot Metals has secured an option on the Project W Tungsten claims.
The basic monetary terms of the Agreement call for Pilot Metals to pay PMR $50,000 for a 100 day due diligence period on the mining claims. Within the initial 100 day option period, Pilot Metals has the right to exercise an additional 24 month option on the claims by paying a further $450,000. During the 24 month option period, Pilot Metals may conduct physical due diligence work including sampling, drilling or any other work on the claims it deems necessary.
At any point prior to the conclusion of the 24 month option period, Pilot Metals may exercise an option and election to either purchase 100% of the claims, for $1,500,000, paid as three annual installments of $500,000 each, and an additional $1,000,000 payment on the commencement of commercial mining operations, or Pilot Metals may elect to enter into a joint venture with Pilot Mountain Resources for the mining claims by paying a further $1,000,000 to PMR paid as two annual $500,000 installments, with each company owning 50% of the joint venture.
On May 12, 2011, Pilot Mountain Resources Inc. agreed with Pilot Metals Inc., to extend by 100 days the diligence period.
On September 9, 2011 Pilot Mountain Resources, Inc., received official notice and payment of $450,000, from Pilot Metals that it was electing to exercise its 24 month option, to purchase or joint venture the Project W claims.
Fernley Gold, Inc.
Fernley Gold, Inc. entered into a lease agreement in 2004 for the right to mine the property and claims known as Butcher Boy and Teddy. The property and claims are located 34 miles east of Reno, Nevada, just off highway I-80. The area known for placer gold, and commonly referred to as the Olinghouse Placers, has a rich mining history.
Financial Condition and Changes in Financial Condition
The Company had revenues from the sale of gold in the quarter ended March 31, 2012 of $47,283, with a negative gross margin of $39,388.
Operating expenses for the quarter ended March 31, 2012, totaled $624,805. The Company incurred labor, fuel and productions costs associated with the various mining activities. Equipment operating costs, tools and materials of $344,625 were incurred primarily to prepare the plant and equipment at Black Rock Canyon for operations. Legal and professional fees of $40,943 were incurred for services performed with respect to acquisitions and mining prospect evaluation, as well as SEC reporting compliance and accounting fees. The Company also incurred expenses related to geological studies, fieldwork, site visits, preparation of mining permit applications and consulting fees of $27,840. Interest expense totaled $411,323; of this amount, $343,496 was a non-cash expense that included amounts for interest on the convertible debentures that were not paid out in cash, $66,606 was interest accrued on debt and $1,221 was interest expensed for late fees on trade payables for the quarter. The remaining expenses relate to general administrative expenses. We believe we will incur substantial expenses for the near term as we build up operations at the Black Rock Canyon Mine and progress with our evaluations of future mining prospects.
The Company had no revenues from the sale of gold in the quarter ended March 31, 2011.
Operating expenses for the quarter ended March 31, 2011, totaled $176,816. The Company incurred labor, fuel and productions costs associated with the various mining activities. Equipment operating costs, tools and materials of $31,700 were incurred primarily to prepare the plant and equipment at Black Rock Canyon for operations. Legal and professional fees of $19,197 were incurred for services performed with respect to acquisitions and mining prospect evaluation, as well as SEC reporting compliance and accounting fees. The Company also incurred expenses related to geological studies, fieldwork, site visits, preparation of mining permit applications and consulting fees of $1,263. Interest expense totaled $53,574 for the quarter. The remaining expenses relate to general administrative expenses. We believe we will incur substantial expenses for the near term as we build up operations at the Black Rock Canyon Mine and progress with our evaluations of future mining prospects.
Liquidity and Capital Resources
Since inception to March 31, 2012, we have funded our operations from the sale of securities, issuance of debt and loans from a shareholder.
As of March 31, 2012, our assets totaled $1,648,382, which consisted primarily of mineral rights, land and water rights, and related equipment. Our total liabilities were $5,165,030 which primarily consisted of note payable to a shareholder of $1,223,031, accounts payable and accrued expenses of $1,650,120, notes payable to related parties of $420,106, and promissory notes of $987,900. We had an accumulated deficit of $28,567,445 and a working capital deficit of $3,516,617 at March 31, 2012.
At March 31, 2012, the balance of the note from a shareholder was $1,362,044 including accrued interest. The note bears interest at the rate of 10% and is due on January 2, 2013.
For the three months ended March 31, 2012, the convertible note holder has converted $360,000 in principal and $8,500 in accrued interest on the Convertible notes. An additional $387,102 was assigned to the convertible notes as discussed in note 7 to the financial statements. The face value of the notes including accrued interest at March 31, 2012 was $390,867. The notes are convertible into common shares of the company at a conversion rate of a 45% discount to the daily VWAP price of the common stock based on a five day period prior to the date of conversion, which rate will be subject to certain adjustments. The notes bear interest at the rate of 12%, and due within one year of the notes issuance date.
For the three months ended March 31, 2012, the Company issued additional $243,000 in promissory notes to non-related party. The promissory notes are due on January 2, 2013. Interest expense on the promissory notes accrues at a rate of 10% per annum. Interest accrued on the notes for the three months ended was $27,875. At March 31, 2012 the balance on the promissory notes was $1,021,819 including accrued interest, representing promissory notes owed to two individual debt holders.
For the year ended December 31, 2011, the Company has received additional net proceeds of $5,500 from related party notes payable. The notes are due on demand and are interest free. At March 31, 2012, the balance on the related party note was $420,106.
Our independent auditors, in their report on the financial statements, have indicated that the Company has experienced recurring losses from operations and may not have enough cash and working capital to fund its operations beyond the very near term, which raises substantial doubt about our ability to continue as a going concern. Management has made a similar note in the financial statements. As indicated herein, we have need of capital for the implementation of our business plan, and we will need additional capital for continuing our operations. We do not have sufficient revenues to pay our expenses of operations. Unless the company is able to raise working capital, it is likely that the Company either will have to cease operations or substantially change its methods of operations or change its business plan.
New Accounting Pronouncements
Pacific Gold does not expect the adoption of recently issued accounting pronouncements to have a significant impact on the Company, or any of its subsidiaries' operating results, financial position, or cash flow.
