ITEM 1. DESCRIPTION OF BUSINESS
General
American Goldfields Inc. (the “Company” or “we”), f/k/a Baymont Corporation, is a natural resource exploration stage company engaged in the acquisition and exploration of properties for deposits of gold or silver. We were incorporated on December 21, 2001 under the laws of the State of Nevada. Since then, we have engaged primarily in the acquisition and exploration of mining interests in properties that may potentially have deposits of gold and silver. To date, we have not earned any revenues.
In December 2001, we caused the incorporation of our wholly owned subsidiary, Baymont Explorations Inc., under the laws of British Columbia. Through this subsidiary we acquired a 75% undivided interest in a group of mineral claims known as the Bor Claims, being four mineral claims covering a total area of 247 acres located in the Omineca Mining Division of the Province of British Columbia, Canada. The interest was purchased from Lorne B. Warren of Smithers, British Columbia, the beneficial owner of the claims, for US$2,500. In April 2004 we terminated our interest in this property.
On various dates in 2004 and 2005, we entered into separate agreements with MinQuest Inc. (“MinQuest”) granting us an option to purchase 100% of MinQuest’s mining interests in six different properties located in various parts of the State of Nevada, which we plan to explore for the purpose of determining whether there are any commercially exploitable deposits of gold or silver. None of the properties presently has any mineral deposits. The properties are undeveloped and do not contain any open-pit or underground mines. There is no mining plant or equipment located on the properties, and there is no power supply to the properties. Our planned exploration program is exploratory in nature and no mineral reserves may ever be found.
On May 30, 2008, the Company entered into an Assignment and Assumption Agreement (the “Agreement”) with Patriot Gold Corp., a Nevada corporation (“Patriot”), to assign the exclusive option to an undivided right, title and interest in the Imperial Property to Patriot. Pursuant to the Agreement, Patriot assumed the rights, and agreed to perform all of the duties and obligations, of the Company arising under the Imperial Property Option Agreement.
On March 10, 2010, we caused the incorporation of our wholly owned subsidiary, Goldmin Exploration Inc., (“Goldmin”) under the laws of Nevada. On March 11, 2010 the Company entered into two Assignment Agreements, with Goldmin to assign the exclusive option to an undivided right, title and interest in the Gilman property; and the Crescent Fault, Bankop and Bullion Mountain, collectively named the Cortez property to Goldmin. Pursuant to the Assignment Agreements, Goldmin assumed the rights, and agreed to perform all of the duties and obligations, of the Company arising under the Gilman Property Option Agreement; and the Cortez Property Option Agreement.
Further exploration of all of our mineral claims is required before a final determination as to their viability can be made. No commercially viable mineral deposit may exist on our mineral claims. Our plan of operations is to carry out exploration work on these claims in order to ascertain whether they possess deposits of gold or silver. We can provide no assurance to investors that our mineral claims contain a commercially viable mineral deposit until appropriate exploratory work is done and an evaluation based on that work concludes further work programs are justified. At this time, we definitely have no reserves on our mineral claims.
Corporate History
From the date of its incorporation until February 5, 2004, the Company was controlled by Mr. Alfredo De Lucrezia, who was its sole officer and director and had legal and beneficial ownership of 6,000,000 (pre-forward split) shares of the Company’s common stock, or 66.8% of the issued and outstanding share capital of the Company. On February 5, 2004 Mr. Lucrezia appointed Donald Neal and Gregory Crowe to the Board and resigned as the Company’s sole officer. Mr. Neal was duly appointed as the Chief Executive Officer, Chief Financial Officer, Treasurer and Secretary of the Company. Mr. Neal’s appointment to the Board became effective on February 5, 2004, and Mr. Crowe became a member of the Board on February 23, 2004, ten days after the mailing of the Information Statement regarding such changes. On such date, Mr. Lucrezia resigned as a director of the Company.
On February 10, 2004, Mr. Lucrezia sold 3,000,000 shares of Common Stock to each of Donald Neal and Gregory Crowe pursuant to a Purchase and Sale Agreement dated as of such date. The purchase price for each share of common stock was $0.035, amounting in the aggregate to $105,000 for each of Messrs. Crowe and Neal. Immediately subsequent to this sale Mr. Lucrezia no longer held any shares of capital stock or other equity in the Company.
On February 10, 2004, Messrs. Neal and Crowe entered into a Shareholders’ Agreement dated as of such date. The agreement provided that for so long as the person holds any of the 3,000,000 shares which he received from Alfredo De Lucrezia, the directors shall vote such shares to maintain two persons on our board, or such number as the shareholders agree. Upon any vote to appoint representatives to the Board, each shareholder agreed that he shall vote his shares for the other shareholder. If one of the 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. Lucrezia, then the other shareholder agreed to vote his shares to either maintain the number of Board members as one or to nominate a second Board member. The agreement also provided that for all other matters in which shares are voted, the two shareholders shall vote their 3,000,000 shares together as determined by the unanimous decision of the shareholders. Each of the shareholders also agreed that he would 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. Lucrezia. 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.
On February 23, 2004, the Company approved a 6:1 forward stock split. As a result of the stock split, an additional 44,928,565 shares of common stock were issued. The par value of the common stock remained unchanged at $0.001 per common share but the authorized number of common stock increased to 600,000,000 from 100,000,000.
On February 24, 2004, the Company and a majority of the Company’s stockholders authorized the changing of the Company’s name to American Goldfields Inc. The name change became effective March 31, 2004.
On March 31, 2004, each of Messrs. Neal and Crowe returned 15,000,000 shares (such number reflects the 6:1 stock split) of common stock to treasury for no proceeds. The Company did not record a gain or loss as a result of this transaction. Since it is customary for a mining exploration company to acquire properties with the issuance of stock, this is an option which Messrs. Neal and Crowe considered not only feasible and reasonable, but the only practicable method for the company to acquire property in light of the Company’s current financial condition. The stockholders/directors determined that they would prefer to dilute their personal equity interests in the Company now rather than have the stockholders incur significant dilution in the future when, and if, a potential seller feels that the directors of the company have too significant of an equity interest.
On May 26, 2004, Mr. Richard Kern joined the Board of Directors of the Company. Mr. Kern is also the President of MinQuest Inc. All of the Company’s current mineral properties have been optioned from MinQuest. In addition, MinQuest has been engaged by the Company as its principal exploration contractor for all exploration performed on the Company’s current properties. As a result, a significant portion of the Company’s expenses have been the result of activities performed directly by Mr. Kern or by subcontractors managed by Mr. Kern or MinQuest.
On January 11, 2006 the Company's Board of Directors elected Dr. David Gladwell as a member of the Board of Directors of the Company.
On July 12, 2006, the Company granted stock options to Mr. Neal. Pursuant to such agreement, Mr. Neal was granted 200,000 options, with each option entitling him to purchase one share of common stock at a price of $1.00 until July 12, 2016.
On July 12, 2006, the Company and Mr. Neal entered into an Agreement, pursuant to which the Company acquired 3,000,000 common shares of the Company’s stock owned by Mr. Neal for a purchase price of $0.01 per share. The payment of the $30,000 purchase price was made on April 30, 2007.
On July 14, 2006 Mr. Crowe resigned as a Director of the Company. In connection with his resignation, the Company and Mr. Crowe entered into a Redemption Agreement, dated July 14, 2006, pursuant to which Mr. Crowe agreed to sell the 3,000,000 common shares of the Company owned by Mr. Crowe to the Company at a price of $0.01 per share. The Company paid Mr. Crowe $30,000 and returned the shares to treasury for cancellation.
On September 15, 2006, the Company's Board of Directors elected Mr. Jared Beebe as a member of the Board of Directors of the Company.
On September 12, 2008, Mr. Neal resigned from his positions as President, Chief Executive Officer, Secretary, Treasurer, and Director of the Company.
On September 12, 2008, the Board of Directors of the Company appointed Richard Kern as President, Chief Executive Officer, Secretary, and Treasurer of the Company.
On August 1, 2009, the Company's Board of Directors elected Mr. Richard Kehmeier as a member of the Board of Directors of the Company.
On February 1, 2010, the Company's Board of Directors elected Mr. Ronald Sheets as a member of the Board of Directors of the Company.
Since May 2004, the Company has focused its exploration activity in the State of Nevada and the Company’s subsidiary, Baymont Explorations Inc. has been inactive. As a result, during the year ended January 31, 2007, Baymont Exploration Inc. was dissolved for failure to file Annual Reports with the Registrar of Companies in British Columbia. Baymont Explorations Inc. had no assets and its sole liability was to its Parent Company.
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.
Compliance with Government Regulation
We are required to comply with all regulations, rules and directives of governmental authorities and agencies applicable to the exploration of minerals in the United States. 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 vary 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 other than the reclamation bonding requirements of the Bureau of Land Management. 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.
Employees
We have no employees as of the date of this report. Our sole officer and five directors provide planning and organizational services for us on a part-time consulting basis.
Any other services required will be conducted largely through consultants and other third parties.
Research and Development Expenditures
We have not incurred any research or development expenditures since our incorporation.
Subsidiaries
We previously incorporated a wholly-owned British Columbia subsidiary, Baymont Explorations Inc. Since May 2004, the Company has focused its exploration activity in the State of Nevada and the Company’s subsidiary, Baymont Explorations Inc. has been inactive. As a result, during the year ended January 31, 2007, Baymont Exploration Inc. was dissolved for failure to file Annual Reports with the Registrar of Companies in British Columbia. Baymont Explorations Inc. had no assets and its sole liability was to its Parent Company.
On March 10, 2010, we caused the incorporation of our wholly owned subsidiary, Goldmin Exploration Inc., (“Goldmin”) under the laws of Nevada. On March 11, 2010 the Company entered into two Assignment Agreements to assign the exclusive option to an undivided right, title and interest in the Gilman property; and the Crescent Fault, Bankop and Bullion Mountain, collectively named the Cortez property to Goldmin. Pursuant to the Assignment Agreements, Goldmin assumed the rights, and agreed to perform all of the duties and obligations, of the Company arising under the Gilman Property Option Agreement; and the Cortez Property Option Agreement. Goldmin Explorations Inc.’s only assets are the aforementioned agreements and it does not have any liabilities.
Patents and Trademarks
We do not own any patents or trademarks.
ITEM 1A.
ITEM 1A. RISK FACTORS
Factors that May Affect Future Results
1. We will require additional funds 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. We will 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 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 all of our mineral properties have been optioned from MinQuest and our sole Officer is also an Officer and Director of MinQuest, potential conflicts of interest could impact our business.
Mr. Kern joined the Board of Directors of the Company on May 26, 2004 and on September 12, 2008 he was appointed the Company’s President, Chief Executive Officer, Secretary, and Treasurer of the Company. Mr. Kern is also the president of MinQuest. All of the Company’s mineral properties have been optioned from MinQuest. As a result, MinQuest and Mr. Kern are related parties to the Company and both MinQuest and Mr. Kern receive substantial payments from the Company. In addition, the Company has agreed to use Mr. Kern as the primary contractor on exploration undertaken to date on all of its properties. The potential exists for conflicts of interest to occur from time to time that could adversely affect the Company’s ability conduct its business. Also, Mr. Kern is the most knowledgeable person regarding the historical and current state of exploration on the mineral properties currently optioned by the Company. If Mr. Kern were to terminate his relationship with the Company, the Company would be adversely affected while we found a suitable replacement. To date, there have not been any conflicts of interest between the Company and MinQuest or Mr. Kern.
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 contract 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 optioned in 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 the business successfully. We were incorporated on December 21, 2001 and 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.
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. We therefore 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 of the speculative nature of exploration of mineral properties, there is substantial risk that no mineral deposits will be found and this business will fail
The search for valuable minerals as a business is extremely risky. Exploration for minerals is a speculative venture necessarily involving substantial risk. The expenditures to be made by us in the exploration of the mineral claims may not result in the discovery of mineral deposits. 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.
10. Because of the inherent dangers involved in mineral exploration, there is a risk that we may incur liability or damages as we conduct our business
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.
11. 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.
12. 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. Kern, our sole officer, provides his management services to a number of companies. Because we are in the early stages of our business, Mr. Kern will not be spending all of his time working for the Company. Mr. Kern expects to expend approximately one day per week on our business. Later, if the demands of our business require the full business time of Mr. Kern, he is prepared to adjust his timetable to devote more time to our business. However, it still may not be possible for Mr. Kern to devote sufficient time to the management of our business, as and when needed, especially if the demands of Mr. Kern’s other interests increase. Competing demands on Mr. Kern’s time may lead to a divergence between his interests and the interests of other shareholders.
Risks Related To Legal Uncertainty and Regulations
13. 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 program
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 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 exploration program.
ITEM 1B
ITEM 1B UNRESOLVED STAFF COMMENTS
There are no unresolved staff comments.
ITEM 2.
ITEM 2. DESCRIPTION OF PROPERTIES
We currently maintain our corporate office at 3481 E Sunset Road, Suite
Las Vegas, Nevada at a cost of approximately $100 per month. This rental is on a month-to-month basis.
We have interests in the following real properties:
GILMAN PROPERTY
Map of Gilman Property located in western Nevada.
On May 7, 2004, the Company completed the formal agreement with MinQuest for an option to acquire a 100% interest in a property known as the Gilman Property. The agreement requires minimum annual property option payments with a total of $85,000 required to be paid by May 15, 2009. The agreement also requires minimum annual exploration expenditures with a grand total of $450,000 in expenditures required to be incurred on the property by May 15, 2009. The agreement is subject to a 3% royalty payable to MinQuest with the Company being able to repurchase up to two-thirds of the royalty for $1,000,000 for each 1% repurchased. The Company is not required to use MinQuest for exploration undertaken on the Gilman Property. However, at its discretion, the Company has engaged MinQuest as the principal contractor for exploration performed to date.
On March 22, 2005, the Company executed an amendment to the Gilman Property Option Agreement. As a result of the amendment, the Company’s obligation to incur $50,000 in exploration expenditures on the Gilman Property by May 2005 was moved to May 2009. On May 29, 2006 by way of a letter agreement the Company and MinQuest agreed to adjust the exploration expenditure commitments such that the amount due to be spent by May 15, 2006 was moved to May 15, 2007. On April 21, 2009 MinQuest granted the Company a one year extension on its Gilman property obligations. The result is that the final property option payment of $15,000 and the property expenditure requirement of $175,000 due May 15, 2009 are now due May 15, 2010. All other terms and commitments of the original agreement remain unchanged.
To January 31, 2010, the Company had made the initial option payment of $10,000 due on signing as well as the $15,000 annual option payments due in May 2008, 2007, 2006 and 2005. In addition the Company has incurred approximately $154,000 in exploration expenditures on the property. At January 31, 2010 the Company had a shortfall in property expenditures of approximately $121,000. As a result of the extension granted by MinQuest, this amount is now due to be incurred by May 15, 2010. In the event the Company does not make the indicated option payments and incurring the exploration expenditures, when demanded, the Company will lose its interest in the property.
On March 11, 2010, the Company entered into an Assignment Agreement with its wholly owned subsidiary, Goldmin Exploration Inc., a Nevada corporation (“Goldmin”), to assign the exclusive option to an undivided right, title and interest in the Gilman Property to Goldmin. Pursuant to the Agreement, Goldmin assumed the rights, and agreed to perform all of the duties and obligations, of the Company arising under the Gilman Property Option Agreement.
Description and Location of the Gilman Property
The Gilman Property is located in Lander County, Nevada approximately 28 kilometers south of the town of Austin, 282 kilometers east of Reno. The property currently consists of 61 contiguous, unpatented mineral claims over the eastern flank of the Toiyabe Range on the North Toiyabe Peak and Kingston US Geological Survey 7 ½’ quadrangle mapsheets. The property is accessed from Austin by following State Highway 376 for 16 kilometers. A gravel road leads west 3.5 kilometers to the main area of interest on the property.
Land claims in the district are administered under Department of Interior, Bureau of Land Management (“BLM”) and Department of Agriculture, Forest Service (“USFS”) under the Federal Land Policy and Management Act of 1976. The Gilman claims cover portions of Sections 7, 8, 17, and 18 in Township 16 North, Range 44 East in Lander County, Nevada. None of the claims have been legally surveyed. All of the claims are on USFS administered lands, while the access to the property is across BLM land.
Three of the claims on the Gilman Property are registered in the name of Mr. Herb Duerr. Under a Letter Agreement dated July 25, 2002, MinQuest leased the three claims. The Letter Agreement permits MinQuest to assign the property and terms of the agreement to third parties. This agreement covers an approximate 1.6 kilometer area. MinQuest located an additional 16 claims which all fall within the area of interest covered by the agreement MinQuest has with Mr. Duerr. Mr. Duerr subsequently granted to MinQuest the rights necessary to allow MinQuest to enter into agreements with third parties for the additional 16 claims. To maintain the claims in good standing, maintenance fees totaling $135 per claim are payable to the BLM on or before September 1 of each year. Recording fees of approximately $15 per claim are required by Lander County each year.
All of the Gilman Property is within the Toiyabe National Forest, administered by the USFS. Exploration within national forest lands must be permitted by the USFS. Prior to undertaking exploration activities a Plan of Operations must be submitted to the USFS for review. An environmental assessment and public input is required necessitating an approximate four month lead time before undertaking any disturbance. A reclamation bond to cover costs of such disturbances is required to be posted with the USFS. Access to the Gilman Property is across BLM administered land. As there are existing roads and tracks in place, no permit is required to cross these lands. No permits have been applied for or are currently issued for the Gilman Property.
Exploration History of the Gilman Property
There is no known production or history data from the Gilman Property, but several pits and two adits are evidence of prior exploration activities. Numerous companies conducted property reviews and sampled the showings in the area, which have locally returned high concentrations of gold.
Geology of the Gilman Mineral Claims
The geology of the property is described in a December, 2002 report by Geoffrey N. Goodall, President of Global Geological Consultants Ltd., a private consulting firm. Mineralization on the Gilman Property is associated with a steep, easterly dipping and northerly trending range front fault. Jasperoid and massive quartz veining have developed along the fault zone and local east trending faults offset the jasperoid. Sulphide rich quartz veining occurs at the base of the silicified fault zone. Sulphides identified at Gilman include pyrite, arsenopyrite, galena, chalcopyrite and sphalerite. The primary focus of exploration at the Gilman Property is for structurally hosted high-grade gold/silver mineralization. Mineralization at Gilman consists of a gossanous shear zone and quartz veins along the base of a range front fault zone. Gold, silver, and copper associated with the fault system have been located in the area.
Current State of Exploration
The Gilman claims presently do not have any mineral reserves. The property that is the subject to 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.
Geological Exploration Program
Evaluation of the Gilman claims to January 31, 2007 had consisted of the preparation of a topographic base map, and surface and underground geochemical sampling. In addition, as part of the permitting process the Company undertook an archeological review of the property. During 2008, the Company received a permit to drill on the Gilman Property. The Board of Directors approved an $112,500 (excluding reclamation bond and claim filing fees) drilling budget that includes three reverse circulation holes for a total of 3,000 feet of drilling. The program began in January 2008 with the goal of testing a previously untested range front fault hosted quartz vein system. Testing has been initiated at the northern end of a mile-long target zone. Due to heavy snowfall only one hole was drilled in January 2008 before the rig had to be removed from the property. It is hoped that the drill program will resume in the near future.
IMPERIAL PROPERTY
Map of Imperial Property located in western Nevada.
On June 30, 2004, the Company entered into an agreement with MinQuest for an option to acquire a 100% interest in a property known as the “Imperial Property.” The Company made the first scheduled option payment of $60,000 upon signing the agreement. The agreement requires certain additional minimum annual property option payments with a total of $80,000 required to be paid by July 1, 2008. The agreement also requires minimum annual exploration expenditures with a grand total of $500,000 in expenditures required to be incurred on the property by July 1, 2009. The property option agreement is subject to a 3% royalty payable to MinQuest. The Company is required to use MinQuest for exploration conducted on the Imperial Property.
To January 31, 2008, the Company had made the initial option payment of $60,000 upon signing the agreement as well as the $20,000 option payments due in July 2007, 2006 and 2005. In addition the Company has incurred approximately $277,000 in exploration expenditures on the property.
On May 30, 2008, the Company entered into an Assignment and Assumption Agreement (the “Agreement”) with Patriot Gold Corp., a Nevada corporation (“Patriot”), to assign the exclusive option to an undivided right, title and interest in the Imperial Property to Patriot. Pursuant to the Agreement, Patriot assumed the rights, and agreed to perform all of the duties and obligations, of the Company arising under the Imperial Property Option Agreement. Simultaneous with the execution and delivery of the Agreement, the Company received $250,000 from Patriot, which amount represents the full payment and satisfaction for the assignment by the Company to Patriot of the Imperial Property Option Agreement and all rights and obligations with respect thereto. Included in the assignment were, without limitation, all sums incurred by the Company in connection with the Imperial Property, specifically (i) the refunding of the reclamation bond previously paid by the Company to the Bureau of Land Management in Nevada in the amount of $13,255; (ii) the approximately $277,000 of expenditures incurred by the Company prior to the Agreement; and (iii) the $120,000 paid to MinQuest Inc. by the Company as option payments under the Imperial Property Option Agreement.
HERCULES PROPERTY
Map of Hercules Property located in western Nevada.
On October 22, 2004, the Company entered into an agreement with MinQuest for an option to acquire a 100% interest in a property known as the “Hercules Property.” Concurrent with the signing of the agreement, the Company made the first property option payment of $20,000. The agreement requires certain additional minimum annual property option payments totaling $200,000 and minimum annual exploration expenditures totaling $4,050,000 to be paid or incurred by November 25, 2014. The agreement is subject to a 3% royalty payable to MinQuest with the Company being able to repurchase up to two-thirds of the royalty for $3,000,000. On May 29, 2006 by way of a letter agreement, the Company and MinQuest agreed to adjust the timing of exploration expenditures such that an aggregate amount of approximately $300,000 was to be spent by September 1, 2006. On April 21, 2009 MinQuest granted the Company a one year extension on its Hercules property obligations. The result is that the $20,000 property option payments due annually on November 25, 2008 through 2014 inclusive are now due on November 25, 2009 through 2015 inclusive. The annual property expenditure requirements of $500,000 required to be incurred annually by November 25, 2009 through 2014 respectively are now due to be incurred by November 25, 2010 through November 25, 2015.
To January 31, 2010, the Company had made the initial option payment of $20,000 due on signing as well as the $20,000 option payments due in November 2007, 2006 and 2005, however is in default of the November 2009 option payment. In addition the Company has incurred approximately $792,200 in exploration expenditures on the property. At January 31, 2010 the Company had a shortfall in property expenditures of approximately $257,800. As a result of the extension granted by MinQuest, this amount was due to be incurred by November 25, 2009, but is currently in default, pending financing. The Company is at risk of losing its interest in the property by not making the indicated option payments and incurring the exploration expenditures, when demanded.
Description and Location of the Hercules Property
The Hercules Property is located in Lyon County, Nevada, approximately 40 kilometers southwest of Reno. Access is via 11 kilometers of paved and dirt road from Dayton. The property consists of 40 unpatented claims. Land claims in the district are administered under Department of Interior, Bureau of Land Management (“BLM”) under the Federal Land Policy and Management Act of 1976. MinQuest holds a 100% interest in these claims via unpatented mining claims.
Exploration History of the Hercules Property
The Hercules Property was first discovered in 1860 by pioneers during the famous “Washoe Rush”. Production from high grade veins started as early as 1870 and occurred as late as 1956. The Hercules Mine, located on the property, had production of 5,000 ounces of gold and 20,000 ounces of silver as indicated from stopping. Recent exploration efforts began in the early 1980’s when placer mining was attempted on the eastern portion of the property, below the Hercules Mine. Since then, Asamera, St. Joe, Horizon Gold, Phelps Dodge and Adamas\GSL have conducted exploration efforts totaling over US$2,000,000 in expenditures. Drilling undertaken by predecessor companies are as follows:

St. Joe
RC holes for 2,715 feet (882 m)

Asamera
Core holes for 4,314 feet (1,400 m)

Horizon Gold
1986-90
RC holes for 18,091 feet (5,874 m)

Phelps-Dodge
1995-97
RC holes for a total of 8,805 feet (2,859 m)
A total of 33,925 feet (11,015 m) in 176 holes have been completed on the property. The vast majority of the drilling targeted shallow open pit heap-leachable gold mineralization. No systematic exploration of the high-grade vein targets has been completed.
Geology of the Hercules Mineral Claims
The property lies within the Walker Lane structural corridor. The Walker Lane is characterized by a strong northwesterly structural fabric causing easterly rifting. As with much of the Walker Lane rocks at Hercules consist dominantly of Tertiary age pyroclastic volcanics and volcaniclastic sediments cover the entire property. The pyroclastic rocks have been intruded by several volcanic vents and plugs. Thin post-mineral basalt and rhyodacite of Pliocene age cover mineralization on the northern and western sides of the property.
The Hercules Property contains one of the most significant untested Comstock-type vein systems in the Western U.S. The depth of erosion of the Hercules vein system is evidenced by the following:
1.
Multiple parallel veins that should merge at depth.
2.
Presence of low-temperature alteration minerals such as chalcedony, calcite, and kaolinite in exist in veins at current surface.
3.
Presence of low temperature elements such as mercury, arsenic and antimony.
4.
A low silver to gold ratio relative to bonanza horizon.
5.
Low base metal content (lead, zinc) relative to bonanza horizon.
6.
Localized high-grade gold (+0.5 oz/ton) in veins at current erosion surface.
The Hercules mineralization is largely localized along two parallel dip-slip multi-vein structures which trend north-northeast. The structures have near-vertical dips and have been offset by two east-west faults. Gold/silver is hosted by permeable volcanics/volcaniclastics as well as by the high-angle structures. The highest grade mineralization occurs in quartz veins within the faults. Silicification and banded quartz-adularia veins are surrounded by intense clay alteration grading to weak propylitic alteration.
The second target type at Hercules is bulk-minable, heap-leachable gold/silver. This area contains the following individual target areas:
•
Zones C/D/E contains significant mineralization within three separate pods. Drilling is wide spaced and incomplete between the three pods. The pods remain open ended along strike and down dip. These pods may join along strike. Two claims not owned by MinQuest cover part of this resource. In the past, these claims were leased for reasonable terms.
•
Zone A/B is an extension of the C/D/E/ zone. The A/B zone contains additional mineralization of gold and silver.
•
The West Cliff Zone also contains additional mineralization as indicated in widely spaced drilling and surface sampling results. Untested mineralization occurs north of the West Cliff resource. This area has a 5,000 feet (1620 m) strike length.
•
The Loaves Zone is the last target in this area.
All of these areas remain open along strike and at depth.
St. Joe and Horizon Gold performed bulk tests from drill cuttings and surface samples. The average recovery for gold was 88%. The process involved crushing and pulverizing the sample and completing a bottle roll using over 50 separate samples. Although the tests are encouraging, further metallurgy is needed to determine recoveries of various size fractions.
A bonanza grade gold/silver deposit is the primary target at Hercules. All of the mineralized vein structures listed previously are targets. Exploration should begin in areas with higher-grade gold values at surface, with higher silver/gold ratios, more base metals, higher temperature alteration suites and where multiple veins occur. This will ensure the shallowest targets will be tested first. The most likely site to start as indicated by initial study is area D and E of the Hercules Mine target. Accurate drilling down dip in 100 m steps will allow spot coring of the target horizon at 300-400 m beneath the surface.
The secondary target is open pit bulk-minable heap leachable gold/silver for which some resources have already been established. The size and grade of these resources could be increased by drilling across their feeder structures and by drilling possible extensions.
The West Cliff target is located in the southwest portion of the property. This area is defined by 17 widely spaced drill holes and underground and surface channel sampling results. Soil sampling and drilling suggests a second en-echelon zone occurs 300 feet (100 m) east of the main zone. The area is open ended for 1000 feet (305m) north, 600 feet (180 m) south and down dip to the west. Only two holes have tested the parallel zone.
The Loaves target consists of a zone of silicified volcanics containing banded quartz veins. The zone has a strike length of over 5,000 feet (1520 m) and extends under cover to the northwest. This zone is probably the offset extension of the West Cliffs resource. Only two of ten holes drilled to date have tested the structure. Previous drilling has targeted the footwall side of the fault. Even so, long intervals of anomalous gold with occasional short intervals of higher grade were encountered. This target requires angle drilling to test the hanging wall side of the structure to penetrate the fault zone at depth and along strike.
The Hercules Mine and Extensions (C\D\E) targets cover the main Hercules structure and parallel fault zones. Drilling and sampling from underground and outcrop areas have encountered relatively thick intercepts of gold and silver. This wide spaced drilling (both core and RC) and underground sampling indicate multiple mineralized structures with associated disseminated mineralization. The core samples were only partially assayed and may contain more gold than is displayed on the cross sections. The zone remains open for at least 1000 feet (300 m) north, over 1000 feet (300 m) south. Parallel mineralized structures are known to exist further to the east within the claim block.
The southern of the three Loaves targets contains 3 holes and surface panel sampling. Soil sampling suggests a minimum of 1700 feet (515 m) of strike length that remains untested.
Current State of Exploration
The Hercules claims have had a significant amount of exploration undertaken in their history. However, they do not currently have any mineral reserves. The property that is the subject to our mineral claims is undeveloped. 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.
Geological Exploration Program
The exploration potential at the Hercules Property is considered excellent. Several of the near-surface targets were poorly tested and are open between the current targets. Obvious extensions of drilling, soil and rock gold anomalies and high grade veins in old workings suggest not only an excellent chance of increasing the known resource of open pit mineralization but of finding a world class bonanza gold/silver deposit at depth. The vast majority of the previous resource drilling was vertical and did not test for these potentially higher grade fault zones.
During 2005 the Company undertook an exploration program on the Hercules Property. The program consisted of geologic mapping, geochemical sampling, compilation of previous drilling data, and a re-evaluation of geophysical surveys. Also, a total of 105 soil samples were collected on the north end of the property. The geophysical targets on the northern portion of the claim block were reviewed and evaluated. The information developed from previous exploration groups was combined with new information from the geophysical surveys and recent mapping to place 7 reverse circulation holes to determine strike, dip and stratigraphy within the A, B, C, West Cliffs and Bread Loaves mineralized zones. The structures believed to be present in these areas would provide a pathway for mineral rich fluids. The fluids should pond within certain porous rock types below impermeable stratigraphy.
Six drill holes were located on the margins of the previously defined mineralized zones. The seventh hole tested a parallel alteration zone to the west of any previous drilling. Seven drill holes were completed for 2,470 feet (753 m). The drilling extended the known precious metals mineralization near surface and between pods A-C. The holes also defined several fault zones that fed these mineralized areas. Generally, the fault zones were encountered within an impermeable mudstone unit. The faults were represented by bleaching, iron oxide and clay alteration within the mudstone. The faults were 3 to 8 meters wide and contained anomalous gold values in the 0.01 to 0.05 g/t range. It is believed that this mudstone unit restricted the flow of mineralizing fluids and may have caused ponding of the fluids at its base.
The following table lists the intercepts in each drill hole:
NSV = no significant values found
All holes successfully identified altered and mineralized structures. Holes 05-01 through 05-04 extended the known ore zones of A through C east and north. It appears that drill hole 05-05 may have missed the West Cliffs vein due to thicker alluvial cover than anticipated. Hole 05-07 was the only hole that tested outside of the known mineralization. The hole intersected an opaline rich structure hosted within basalt and andesite west of any previous drilling. The structure contained sulfide minerals (mainly pyrite) and low temperature quartz, but did not contain any significant precious metal values. The cuttings were not assayed for trace elements. This structure is along strike of an interpreted fault defined by an IP geophysical survey to the north.
During 2006 the Company completed a drill program consisting of 10 holes for a total of 4,805 feet which was completed in March 2007.
Hole H0601 - tested altered volcanic rock on the west side of the property. This hole was angled at -45 degrees N25E to test a fault zone containing silicified and pyritic mudstone and tuff at surface. This near surface zone of alteration was encountered from surface to 45 feet. The hole passed through clay altered volcanic tuff and remained in unaltered mudstone from 140 feet to 480 feet. The last 20 feet of the drill hole from 480 to 500 feet contained unaltered latite. In other areas of the property the mudstone unit varies from 140 to 210 feet in thick. Given the angle of the drill hole and the possibility of relatively flat bedding, the true thickness of the mudstone in H0601 is probably 230 to 240 feet. This is consistent although a little thicker than the suggested thickness from elsewhere on the property.
Holes H0602 to H0605 - targeted the eastern structural trend. H0602, H0602A and H0603 were step offs of the 2005 drilling efforts. This year’s drill holes were drilled at steeper angles from -60o to -70o and to depths of 500 to 600 feet to provide deeper penetration of the mudstone unit in resource area “A”. The holes were stepped back east from the 2005 drill holes by 100 feet. No faults were apparent in the mudstone, although the faulting projected from the 2005 drilling suggested a 60 to 65 degree dip to the east.
Hole H0602 was drilled 100 feet east of H0501 N60W at an angle of -70. The hole penetrated 65 feet of post mineral dacite then encountered silicified and clay altered volcanic agglomerate to 120 feet. At this point the hole was lost due to caving. A five foot intercept of 2.32 ppm gold within a broader 20 feet zone of .89 ppm gold was encountered immediately below the dacite cap.
Hole H0602A was drilled 20 feet northeast of 0602 due east at an angle of -60. This hole encountered 10 feet of 0.2 ppm gold from 75 to 85 feet and at least one five foot sample that was a void (no sample collected). The alteration was similar to H0602 just below the dacite. H0602A contained 260 feet of mudstone before encountering an unaltered crystal tuff to volcanic agglomerate at 490 feet. No alteration or elevated gold values were encountered below the initial gold values described above.
Hole H0603 was drilled 400 feet north of H0602 on the northern margin of the “A” resource described in previous reports. H0603 offset H0503 by 125 feet east. Hole H0603 was set up to intersect the projected “A” structure perpendicularly. The hole was angled N60W at -70 degrees. It entered the mudstone unit at 30 feet and remained in mudstone for its entire length. Clay alteration of the mudstone was noted between 30 and 125 feet, but no significant gold values or silica were present within this zone. It is assumed that a fault zone down dropping the mudstone to the west, artificially thickening the unit by repeating the sequence.
Holes H0604 and H0605 were drilled to the west of resource area “C”. Hole H0604 was drilled due east at -45o. Hole H0605 was drilled S80E at -45o. The “C” resource area is poorly defined by drilling. Only 2 holes were previously drilled on the western side of the “C” resource fault zone. Only one of those contained ore grade values and that hole was positioned on top of the fault. The 2006 drill program stepped back 100 to 200 feet from the fault to determine if the fault rolled back to the west. Both holes encountered significant near surface alteration and mineralization from 40 feet to depth.
Hole H0604 was drilled furthest south and encountered 50 feet of 0.45 ppm gold from 70 feet to 120 feet. An additional five feet assayed 0.42 ppm at 250 feet. Both mineralized zones contained significant quartz veining, silicification and argillization. The second area of deeper mineralization may be related to high-angle faulting. Drill hole H0605 was positioned 300 feet northwest of H0604. H0605 penetrated 105 feet of alluvium before encountering 60 feet of 0.49 ppm gold. Within this mineralized interval, 25 feet of 0.71 ppm was intercepted with a best of 1.345 ppm over five feet. These intercepts have significantly increased the area of the “C” resource and provided excellent potential for discovery of additional resources to the west of the known mineralization.
Holes H0606 to 0608 - were all drilled in the West Ridge resource area. The holes offset known mineralization in the pediment and were projected to encounter vein mineralization at depth. All of the drill holes encountered significant alteration with anomalous gold and silver values over widths of 25 to 80 feet thick. Generally, these altered zones start immediately below alluvial cover. The alteration consists of stockwork quartz-calcite veining and silicification within a crystal tuff to tuff breccia.
H0606 was the furthest south drill hole in the 2006 drill program. It offset Phelps Dodge drill holes with significant mineralization in alluvium cover. Hole 0606 intersected the best overall gold and silver values of the three holes drilled in this area. The mineralization started at the base of the alluvium (140 feet) and continued over a width of 55 feet. The best interval averaged 0.47 ppm gold and 11 ppm silver over 40 feet or 10 feet of 0.72 ppm gold and 13 ppm silver. Although these values are not stunning, this hole extends mineralization from the Phelps Dodge drilling. It is the furthest west hole drilled to date and indicates the mineralization continues to get better further to the west.
H0607 was drilled about 400 feet northeast of H0606. This hole contained approximately 50 feet with an average of 0.1 ppm gold and 1 ppm silver. Although this is not ore grade, the zone is definitely significant. It suggests a rather large area of alteration which is totally blind and open to the north, west and south in relatively flat landscape which would be easy to explore. Weak alteration and mineralization continues in H0607 to 480 feet. The drilling continued to 530 feet, but alteration tapers off dramatically.
H0608 was drilled about 300 feet further to the northeast to offset a Phelps Dodge drill hole. The PD hole encountered 20 feet of 0.23 opt gold (about 7.5 ppm gold). In H0608 the entire hole contained moderately altered volcanic breccias with minor quartz stockworks and moderate bleaching of mafic minerals. The entire hole was anomalous in gold (0.0X ppm). Several individual zones contained 15 to 20 feet thick intercepts of mineralized quartz veining. The gold and silver values remained weak compared to the previous drilling by Phelps Dodge. However, the discreet zones of mineralization generally averaged 0.2 ppm gold and 12 ppm silver within thicker intercepts of 0.0X ppm. Individual five feet samples assayed 0.3 to 0.45 ppm gold and up to 30 ppm silver.
Holes H0609 and H0610 - targeted two altered structures within a crystal tuff unit. The mineralized area is 800 feet west of the western margin of resource “A”. Both drill holes were located to intersect apparent mineralized structures observed on surface. Drill hole H0609 was drilled due east at -60 degrees. It intersected 15 feet of gold mineralization (0.66 ppm) from 65 to 80 feet. This zone may be related to bedding replacement of a volcanic tuff.
Hole H0610 encountered 15 feet of 0.24 ppm gold and 3 ppm silver in a near surface zone of silicified volcanic material between 55 and 70 feet. An additional zone of silicified and mineralized material was encountered between 180 and 200 feet. This zone included an average of 0.2 ppm gold and 2 ppm silver which is likely coincident with the obvious structure on surface. Both drill holes encountered blind near surface mineralization adjacent to structures that had been previously recognized and drilled.
The 2006 drilling program was successful in expanding the known target areas and finding new areas of near-surface, low grade gold and silver. The new intercepts in the “C” resource area (H0604 and H0605), and the West Cliffs zone (H0606 through 0608) combined with the intercepts from the 2005 drilling program in the “A” area indicate potential for an increase in the historic target zones. Drilling in the north central area also provided new evidence for increasing targets (H0609 and 0610). The interpretation of the 2006 drilling results also suggests faults previously believed to dip to the east may roll to the west at relatively shallow depth. This finding coupled with the potential for increase of near-surface resources indicates changes are necessary to the exploration philosophy at Hercules.
Future drill programs will be concentrated on further developing the shallow targets on both the east and west sides of the known structures. Previously, the historic drilling had concentrated on the east side of the structures, defining the shallow resources in “A” through “C”. The recent holes drilled in the 2005 and 2006 exploration programs suggest further near-surface targets are likely to be developed within the “A” through “C” areas, the West Cliffs hanging wall and the central core between these two areas. The topography is relatively flat allowing for an inexpensive, shallow drilling program.
Drilling to depth on the structural zones remains a significant target for developing high grade resources at depth. Because of the interpretation of the deeper drill holes completed during this program, it is recommended that the next set of deep holes on the property should be drilled from west to east on the northeastern veins within the “B” to “C” resource areas. The interpretation of the recent drilling suggests that the veins may roll over developing dips of near vertical to westerly at depths of less than 500 feet.
During 2007 the Company conducted a drill program that was completed in March 2008. The program included the drilling of 24 holes for a total 7,415 feet. The budget for the program approved by the Board of Directors was $275,000. Nearly all of the holes tested new areas of mineralization, mostly within the Central, West Cliffs and “C” zones. The drill holes were positioned to expand mineralization found in the previous year’s drill program. Most holes were located from 200 to 300 feet apart along perceived fault trends.
The West Cliffs zone appears to be at least 2000 feet long. The zone is nearly 1000 feet wide, composed of a series of sub-parallel fault zones, each zone being from 50 to 125 feet wide. The zones are hosted within volcanic rock and mudstone, now altered to clay, blocky silicification and quartz veining. About 50% of the alteration is within the oxidized level.
The “C” zone has been traced for at least 1400 feet along strike and may be up to 300 feet wide. Alteration includes blocky quartz replacement of volcanic rock, banded quartz veins and clay. Nearly 95% of the alteration is oxidized.
A few holes were placed to test the central area of alteration. These were some of the last holes completed. Holes drilled immediately adjacent of known alteration within the Central Target encountered relatively thin areas of oxidized, quartz veined and clay altered volcanic rock. Step off drilling in areas of post mineral volcanic rock encountered thick blankets of unaltered dacite and ash before encountering epithermal alteration. However, when the alteration was encountered the rock was oxidized even 250 feet deep. This would suggest that at least some of the post mineral cover occurred after the oxidation event. This is important because the “A” and “B” ore zones were partially limited by post mineral volcanic cover. The previous exploration groups quit looking under young volcanic rocks believing first that the cover would be too thick and cost too much to strip and second, the underlying mineralization would be pyritic and not amenable to heap leach. The new information leaves room for additional expansion potential along strike of the previously defined resource areas.
The following table lists the intercepts in each drill hole.
The 2007 drilling program was very successful in expanding the known resource areas and finding new areas of near-surface, low grade gold and silver. The new intercepts in the “C” resource area (H0604 and 0605), and the West Cliffs zone (H0606 through 0608) combined with the intercepts from the 2005 drilling program in the “A” resource indicate potential for dramatic increases to the historic resources. Drilling in the north central area also provided new evidence for increasing resources (H0609 and 0610). The interpretation of the 2006 drilling results also suggests faults previously believed to dip to the east may roll to the west at relatively shallow depth. This finding coupled with the potential for increase of near-surface resources indicates changes are necessary to the exploration philosophy at Hercules.
It is recommended that future drill programs concentrate on further development of the shallow resources on both the east and west sides of the known structures. Previously, the historic drilling had concentrated on the east side of the structures, defining the shallow resources in “A” through “C”. This historic work has outlined approximately four and a half million tons of material hosting over 150,000 ounces of gold. Metallurgical work completed in the mid to late 1980’s suggests +87% recoveries from cyanide leaching of the near surface, oxidized material within these resource areas. The historic drilling was eventually halted due to the declining gold price and insolvency of the company involved.
The recent holes drilled in the 2005 and 2006 exploration programs initiated by AGFL suggest further near-surface resources are likely to be developed within the “A” through “C” Resource areas, the West Cliffs hanging wall and the central core between these two areas. The topography is relatively flat allowing for an inexpensive, shallow drilling program. This type of drilling could quickly expand the current resources. Further resources may also be developed north of West Cliffs where the zone has either been poorly drilled or had no drilling at all. It is likely that this type of exploration program will more than double the current resources.
Drilling to depth on the structural zones remains a significant target for developing high grade resources at depth. Because of the interpretation of the deeper drill holes completed during this program, it is recommended that the next set of deep holes on the property should be drilled from west to east on the northeastern veins within the “B” to “C” resource areas. The interpretation of the recent drilling suggests that the veins may roll over developing dips of near vertical to westerly at depths of less than 500 feet.
Fritz Geophysics has commented on the previous geophysical programs in the Hercules area. An IP survey was carried out over the northern part of the property position in the late 1980’s. Thick interbeds of mudstone confused the interpretations of this survey. Geophysics may be warranted over the southern end of the property where drilling has shown the volcanic units to be thicker. This is especially true in the West Ridge area where a relatively thick zone of silicification has been identified under alluvial cover. It is recommended that Fritz be contacted to give advice on what kind of geophysical tool would be advantages to AGFL’s exploration program. Assuming a positive response, his report will be forwarded for AGFL’s consideration.
CORTEZ PROPERTY
Map of the Cortez Properties located in western Nevada.
On February 28, 2005, the Company entered into an agreement with MinQuest for an option to acquire a 100% interest in properties known as the “Crescent Fault Property,” the “Bankop Property,” and the “Bullion Mountain Property” (collectively, the “Cortez Property”). Concurrent with the signing of the agreement, the Company made the first property option payment of $65,000. The agreement requires certain additional minimum annual property option payments totaling $445,000 and minimum annual exploration expenditures totaling $1,150,000 to be paid or incurred by February 15, 2010. The agreement is subject to a 3% royalty payable to MinQuest. In addition, the Company is required to use MinQuest for exploration activities undertaken on the properties. On May 29, 2006 by way of a letter agreement, the Company and MinQuest agreed to adjust the timing of exploration expenditures such that an aggregate amount of approximately $250,000 was to be spent by September 1, 2006. On April 21, 2009 MinQuest granted the Company a one year extension on its Cortez property obligations. The result is that the $75,000 property option payments due on February 26, 2009 is now due February 26, 2010 and the $250,000 due on February 26, 2010 is now due February 26, 2011. The annual property expenditure requirement of $300,000 required to be incurred by February 26, 2009 is now due to be incurred by February 26, 2010 and the $250,000 due February 26, 2010 is now due to be incurred by February 26, 2011.
To January 31, 2010, the Company had made the initial option payment of $65,000 due on signing as well as the $50,000, $40,000 and the $30,000 option payments due in February of 2008, 2007, and 2006 respectively, however is in default of the $75,000 payment due in February 2010. In addition the Company has incurred approximately $242,900 in exploration expenditures on the property. At January 31, 2010 the Company had a shortfall in property expenditures of approximately $207,100. As a result of the extension granted by MinQuest, this amount was due to be incurred by February 26, 2010, but is in default, pending financing. The Company is at risk of losing its interest in the property by not making the indicated option payments and incurring the exploration expenditures, when demanded.
On March 11, 2010, the Company entered into an Assignment Agreement with its wholly owned subsidiary, Goldmin Exploration Inc., a Nevada corporation (“Goldmin”), to assign the exclusive option to an undivided right, title and interest in the Crescent Fault, Bankop and Bullion Mountain, collectively named the Cortez property to Goldmin. Pursuant to the Agreement, Goldmin assumed the rights, and agreed to perform all of the duties and obligations, of the Company arising under the Gilman Property Option Agreement.
CRESCENT FAULT PROPERTY
Description and Location of the Crescent Fault Property
The Crescent Fault Property is located in Eureka County, Nevada and consists of 33 unpatented claims. Access to the property is via paved highway and graded gravel road. Land claims in the district are administered under Department of Interior, Bureau of Land Management (“BLM”) under the Federal Land Policy and Management Act of 1976. All claims are held by Desert Pacific Exploration (‘DPE’) and under a Letter Agreement dated February 26, 2005 MinQuest acquired the rights to the claims comprising the Crescent Fault Property from DPE. The Letter Agreement allows MinQuest to assign its interest to third parties.
Exploration History of the Crescent Fault Property
The Crescent Fault Property was explored by Homestake from 1983 to 1986, Noranda from 1992 to 1994, and North Mining from 1995 to 1996. Past exploration includes considerable rock chip sampling, geologic mapping, and drilling. Clastic sediments have been silicified and argillized along a range front fault zone. Drilling has tested part of the range front and some of the down dropped section. Drilling on the property is summarized as follows:
Homestake
1985-1986
holes drilled for 1,855 feet
Noranda
1992-1993
holes drilled for 4,436 feet
North
holes drilled for 3,930 feet
Drilling has intersected significant sphalerite and galena. The lead-zinc mineralization appears to be related to epidote-chlorite skarn. The drilling has focused on testing the surface expression of pyritic jasperoid and quartz veining developed within parallel to sub-parallel faults to the range front. Potential down dropped sections of mineralization may exist under alluvial cover. Outcrops of jasperoid are developed along low angle thrust faults and high angle shear zones. Tertiary age dikes have been noted along high angle faults trending northwesterly.
Geology of the Crescent Fault Property Mineral Claims
The property was discovered while prospecting along the Crescent fault. One short adit and a few small prospect pits were the only evidence of previous exploration efforts prior to the first drill holes. The drilling has focused along the range front, intersecting significant alteration and mineralization.
The regional geology consists of a package of Pennsylvanian to Permian carbonate to siliciclastic sediments. This sediment package has been intruded by a possible Cretaceous granodiorite to porphyry rhyolite. The range front has had both strike-slip and dip-slip movement, down dropped along the Crescent fault. Placer Dome has determined the strike-slip movement to be up to 1 mile in an east-northeasterly direction. Many parts of the Crescent fault have been down dropped over 1000 feet under alluvial cover. In the vicinity of the property, drilling and geophysical data indicate a shelf of bedrock has been preserved at depths ranging from 250 to 400 feet deep for up to 1000 feet from the fault zone. Potential for a preserved portion of mineralized bed rock at reasonable depth is very good.
Tertiary volcanoclastics on the eastern part of the property are altered and quartz veined along strike of the fault. Jasperoid shows slickensides indicating two movements, one down dropped and one left lateral. Low angle faulting was noted near the top of the ridge and has been down faulted along the range front, in the next section west. The low angle faulting is represented by Ordovician chert and quartzite thrust over Pennsylvanian carbonate. North to northwest trending faults bisect the range front fault zone, down dropping and offsetting mineralization in several areas. Possible Tertiary age dikes and sills have intruded and healed several northwesterly faults and the crescent fault zone. These dikes are argillized, iron stained and in a few places, quartz veined.
The property covers a well defined zone of alteration exposed along the range front fault zone bounding the southeast portion of Crescent Valley. The alteration is composed of jasperoid, decalcified limestone, silicified shale, and quartz veining filling faults and fractures in intrusive rocks and siliciclastic sediments. Tertiary age dikes have intruded the sediments and older intrusive rocks, generally following a northwesterly trend. Alteration zones carry low values in gold, silver and copper along with minor elevations of trace elements typically identified in other disseminated gold deposits of the area. The jasperoid is vuggy with weak, erratic gold and anomalous arsenic, mercury and antimony on the surface.
The Jasperoid target dips northwesterly under alluvium, paralleling the Crescent Fault. Drilling has intercepted relatively shallow bedrock under the alluvium, but no gold has been encountered to date. Extensions of the zone will be mapped and sampled to further define this target area.
Skarn mineralization is hidden. Skarn is weakly developed and spotty throughout the area. Drilling has encountered high grade gold and base metals in carbonate rocks. Mapping of alteration phases may better define the Skarn target. At present, the best potential target is a blind skarn zone with high-grade gold potential.
Current State of Exploration
The Crescent Fault claims presently do not have any mineral reserves. The property that is the subject to 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.
Paved roads come within 5 miles of the property and well maintained gravel roads provide access within 1,000 feet of the property boundary. A dirt road is in place and provides adequate access throughout the property. All currently proposed drilling can be done without further road building.
Geological Exploration Program
Potential exists for the existence of relatively high-grade gold. The exploration completed to date has identified mineralization within fault zones parallel to the range front fault. Sampling has indicated weakly anomalous gold values exist over 12,000 feet of strike length. In 2005 the Company initiated a program of geophysical and geochemical surveys over the pediment area along strike of the mineralization. The surveys were following up on the observations of previous geophysicists and drill-hole data from former property owners suggesting shallow pediment. Five CSMT (Controlled Source Magneto Telluric) survey lines were collected to determine changes in lithology and potential parallel faulting to the main Crescent Fault.
Also in 2005 a reconnaissance auger sampling program was designed to test for concealed gold mineralization in pediment cover. The auger holes were positioned 30 meters apart along each line and the lines were separated about 300 meters apart, perpendicular to the range front. The holes tested the caliche layer developed within transported material. Gold mineralization is known to leak from sources below and become entrapped in the caliche layer. This system is not widely used but is proven technology in finding buried gold deposits in desert environments in both Nevada and Australia. It has been successful in finding at least two gold deposits in the Battle Mountain area.
A total of 175 samples were collected along 9 widely separated lines. The samples were tested for calcium carbonate on site and 31 elements in the ALS/Chemex lab. No gold was identified in any of the samples.
The 2005 program of CSMT and auger drilling did not identify any significant drill targets within the pediment zone. The topography is too steep to effectively conduct geophysical surveys to identify new drill targets on the rest of the property. However, the original drill targets still remain.
The exploration contractor has made several recommendations to the Company. Amongst the recommendations are that at least one drill hole should be spotted to intersect the favorable host rocks at a depth of 300 meters and a second hole should be placed to twin the original drill hole that intersected 4 g/t gold. This hole would determine the alteration type and structural control of the mineralization. It has also been recommended that 5 additional drill holes be targeted at areas of gold in rock chip that have yet to be drill tested. Offsetting known mineralization in previous drilling is also highly recommended.
The Crescent Fault Property forms part of the Cortez Property and as such is covered by the Cortez Property Option Agreement such that annual minimum property expenditures can be incurred on any of the three properties making up the Cortez Property. Based on an evaluation of the previous work undertaken on the Cortez Property and based upon recommendations from MinQuest, the Company elected to conduct a drill exploration program on the Bankop Property in 2006 in order to meet the Company’s exploration expenditure commitments under the Cortez Property Option Agreement. As a result, the Company did not undertake an exploration program on the Crescent Fault claims in 2006.
For 2007 the Board of Directors has approved a budget of $150,000 for the Crescent Fault Property. The exploration plan includes drilling three or four holes for a total of 2,000 feet. The work has not yet been completed but it is hoped that it will be undertaken in 2010 but the Company has not yet made its determination on its 2010 exploration programs.
BANKOP PROPERTY
Description and Location of the Bankop Property
The Bankop Property is located in eastern Lander County, Nevada, approximately 40 kilometers (25 miles) southeast of Battle Mountain and six kilometers (4 miles) northwest of the Pipeline Mine. The property consists of 24 unpatented mining claims. Land claims in the district are administered under Department of Interior, Bureau of Land Management (“BLM”) under the Federal Land Policy and Management Act of 1976. All claims are held by Desert Pacific Exploration (‘DPE’) and under a Letter Agreement dated February 26, 2005 MinQuest acquired the rights to the claims comprising the Bankop Property from DPE. The Letter Agreement allows MinQuest to assign its interest to third parties.
Exploration History of the Bankop Property
There has been no production from the Bankop claims.
Historic prospect pits, adits, and shafts occur throughout the low lying hills of the area. The property has seen recent exploration efforts beginning as early as 1965. Exploration companies involved included U.S Mining and Exploration Company, Inc., Phelps Dodge, Inc., Placer Amex, Inc., Cyprus Exploration Company, Homestake Mining Company, U.S Borax, Placer Dome U.S. Inc., Noranda Exploration, Inc. (Hemlo Gold, Inc.), Uranerz U.S.A., Inc. and Minorca Resources Inc. This very large volume of geologic information is an extremely valuable tool for further study of the property.
Geology of the Bankop Mineral Claims
Regionally, the Utah Camp property is situated within the Battle Mountain-Eureka Trend, a northwest striking 30 to 40 mile wide (45 to 60 km) belt of mostly Paleozoic rocks which are intruded by numerous Cretaceous to Tertiary age intrusives. All bedrock mapped to date on the Bankop property is Upper Plate fine-grained clastic rocks. Although these rocks are dominated by siliceous lithologies, they do contain an appreciable thickness of carbonate-rich rocks. Deep drilling by Uranerz contains thick sections of calcareous siltstone within the Valmy. Calcareous sandstones make up a significant portion of the middle Elder Formation. Both of these rock types are good host rocks for Carlin style mineralization.
A significant portion of the property is covered by Quaternary alluvium. Outcrop is normally sparse, except where thick sections of quartzite occur. Colluvial cover is relatively thick once the break in slope is reached traversing from ridge top to valley.
Besides the bedding plane faults associated with thrust slices, several high angle faults have been mapped. The dominant trend is northeast and the next most abundant trend is northwest. East-west high angle structures are most common in the southern portion of the property.
Mineralization occurring within the property is gold associated with arsenic and mercury. The main alteration type is clay, and therefore, it is rare for the mineralization to outcrop. Instead it is usually found in topographic lows. Bulldozer work has exposed decalcified sandstone. This and several other gold anomalies in rocks and soils within the property are indications of Carlin style mineralization. Significant gold intercepts of Carlin style mineralization occur around a bulldozer trench. Several holes drilled in this area have shown mineralization. All of the above holes were drilled vertically.
A number of companies have explored for Carlin style systems within the property. Although these efforts provide an excellent database for further studies they failed to define or test a single feeder structure. Because the property is underlain by upper plate rocks not known to host large gold deposits elsewhere in the district, the emphasis has been on deep drilling to test lower plate carbonate rocks. Without an associated feeder fault this effort will be fruitless.
Current State of Exploration
The Bankop claims presently do not have any mineral reserves. The property that is the subject to 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.
Geological Exploration Program
The work program undertaken by the Company in 2005 included an auger program that grid-sampled the entire claim block with 30 by 300 meter centers. This program was successful in further defining the trend and extent of gold mineralization and identifying four other gold anomalies elsewhere on the property. The reconnaissance auger sampling program was designed to further extend the known gold anomaly and potentially identify a widening of the gold zone. Areas of blossoming gold anomalies may suggest structural intersections that should be drill tested. The auger holes were positioned 30 meters apart along each line and lines were separated about 200 meters apart. The holes penetrated the loess cover in almost every instance and collected soil and/or rock from the bottom of the hole. Depths of penetration ranged from less than 0.3 meters to over 7 meters.
Gold values were generally widespread within the south half of the property. High grade values were encountered along several lines. The best value was collected from Line D near the middle of the traverse. A compilation of rock, soil, auger and drill geochemistry for gold indicates three anomalous areas with multiple sample sites and two single point anomalies. The anomalous areas range from 600 by 150 meters to 30 by 30 meters.
A second gold anomaly was identified on the southern portion of the claim block. This zone trends northerly and is 600 meters long and 150 meters wide. The zone is hosted partly within the Ordovician Valmy quartzite. A brecciated fault zone defines the contact between the Valmy and Elder Formations. Gold values are elevated along this fault zone. However, the fault is oblique to the sample lines and has limited coverage by the auger survey.
A third gold anomaly was identified by Uranerz, but missed by the Auger survey. The anomaly is represented by two sample sites that fall midway between lines A and B on the northern portion of the claim block.
During 2006 the Company conducted a drill program that was completed in January 2007. A total of seven holes covering 2,440 feet of the initially planned 3,000 feet of drilling were completed on the Property. The drilling was terminated early because of extreme winter weather causing equipment failure. The 2006 drill program on the Bankop Property was designed to test the expression of surface gold values discovered in the previous work programs at relatively shallow depths. The surface expression of the gold values indicates at least three separate targets variously named the South, Central and East Targets. The South and Central targets were drill-tested to determine the strike and extent of faulting that presumably controlled the gold deposition at surface. The Company determined not to undertake an exploration program on the Bankop portion of the Cortez property in 2007.
The Bankop Property forms part of the Cortez Property and as such is covered by the Cortez Property Option Agreement such that annual minimum property expenditures can be incurred on any of the three projects making up the Cortez Property. Based on an evaluation of the previous work undertaken on the Cortez Property and based upon recommendations from MinQuest, the Company elected to conduct a drill exploration program on the Crescent Fault Property in 2007 in order to meet the Company’s exploration expenditure commitments under the Cortez Property Option Agreement. Because of other commitments the 2007 program has not been conducted. The Company’s current plan is to do the work in the summer of 2010.
BULLION MOUNTAIN PROPERTY
Description and Location of the Bullion Mountain Property
The Bullion Mountain Property is located in Lander County, Nevada within T29N, R46E and consists of 18 mining claims. A portion of the claims is made up of the Bully and Chief groups of claims. Access is via gravel road south from Battle Mountain Land claims in the district are administered under Department of Interior, Bureau of Land Management (“BLM”) under the Federal Land Policy and Management Act of 1976. All claims are held by Desert Pacific Exploration (‘DPE’) and under a Letter Agreement dated February 26, 2005 MinQuest acquired the rights to the claims comprising the Bullion Mountain Property from DPE. The Letter Agreement allows MinQuest to assign its interest to third parties.
Exploration History of the Bullion Mountain Property
The property may have been prospected as early as the 1870’s. Numerous prospect pits and shallow adits dot the top of the ridge that makes up part of Bullion Mountain. The most extensive prospecting occurs along low and high angle fault zones with clear quartz veins. The fault zones generally trend east-northeasterly. These veins can assay over a half ounce of gold across 1 meter.
The property lies along the Pipeline fault zone which has been defined by Placer Dome as having a northwesterly trend. The Chief and Bully claims have been previously explored by Placer Dome, Asarco, Hemlo, Lac, Barrick, and Pallum. Recent work includes drilling by Asarco on the Bully claims and drilling by Placer Dome and Pallum on the Chief claims.
Numerous surface samples have identified high grade gold (>0.5 opt) in fault zones in upper plate rocks. Drilling by Asarco has encountered 3 meters of 0.204 opt gold on the Bully claims. Drilling by Pallum encountered 1.5 meters of 0.08 opt gold and 15 meters of 0.02 opt gold on the Chief claims. Drilling by Placer Dome and Pallum has identified a small, low grade gold target on the Chief Claims.
Geology of the Bullion Mountain Mineral Claims
Upper plate Silurian to Devonian siliciclastic rocks have been thrust over Cambrian to Silurian carbonate facies. The entire package of sediments has been intruded by Tertiary age granite (Bullion Mountain granite). The Upper Plate assemblage is hornfelsed and bleached near the margin of the intrusive.
The entire area within the claim block is structurally complex with both low and high angle faulting. High angle faults have displaced all rock types. ENE faults on the Bully claims contain significant gold values. Many of these ENE faults and shears have been healed with quartz veins and jasperoid silica. Gold is generally found associated with clear, crystalline quartz veins and narrow, argillized dikes. Many of the faults of the area show secondary movement represented by several stages of quartz veining. Recent exploration efforts have been limited to low angle fault zones on the Chief claims and within a discreet area on the Bully claims.
Drilling has identified significant gold values on the Chief and Bully Claim groups. The Bully target area contains several high grade fault zones within a breccia zone of lower grade material. The Chief area has been drilled on a grid with roughly 200 foot centers. The drilling suggests a shallow dipping fault breccia zone with consistent gold values. Both target areas may have high angle faults providing plumbing for the gold mineralization in the area. At present, a feeder fault has not been identified within the Chief claim boundary. Exploratory drilling in the valley between Chief and Bully has encountered minor gold values in upper plate rocks. Further work in this area is also recommended.
Current State of Exploration
The Bullion Mountain claims presently do not have any mineral reserves. The property that is the subject to 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.
Geological Exploration Program
Recommended exploration work at the Bully and Chief portion on the property includes detailed geologic mapping and sampling of the claim blocks. Drilling is recommended within the previously defined resource area on the Chief claims. Previous sampling on the Bully claims has identified high grade gold in narrow veins throughout the claim block. Infrastructure is well established in the Chief area. Access roads may have to be built into much of the Bully area. A modest program of infill sampling and detailed mapping should help define drill targets within the Bully claim group. Permitting should be relatively simple since roads are in and the surrounding area is a well known mining field situated on land administered by the US Bureau of Land Management.
The Bullion Mountain Property forms part of the Cortez Property and as such is covered by the Cortez Property Option Agreement such that annual minimum property expenditures can be incurred on any of the three projects making up the Cortez Property. To date, based on an evaluation of the previous work undertaken on the Cortez Property and based upon recommendations from MinQuest, the Company has elected to conduct exploration programs on the Bankop and Crescent Fault portions of the Property in order to meet the Company’s exploration expenditure commitments under the Cortez Property Option Agreement. As a result, the Company has not undertaken any significant exploration on the Bullion Mountain claims.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
There are no pending legal proceedings to which the Company is a party or in which any director, officer or affiliate of the Company, any owner of record or beneficially of more than 5% of any class of voting securities of the Company, or security holder is a party adverse to the Company or has a material interest adverse to the Company. The Company’s property is not the subject of any pending legal proceedings.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There was no matter submitted to a vote of security holders during the fourth quarter of the fiscal year ended January 31, 2010.
PART II
ITEM 5.
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
Our common stock is traded on the Over the Counter Bulletin Board sponsored by the National Association of Securities Dealers, Inc. under the symbol “AGFL.OB”. The Over the Counter Bulletin Board is maintained by the NASDAQ Stock Market, but does not have any of the quantitative or qualitative standards such as those required for companies listed on the NASDAQ Small Cap Market or National Market System. The following table sets forth the range of quarterly high and low closing bids of the common stock as reported on http://finance.yahoo.com during the fiscal years ending January 31, 2010 and 2009.
*The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.
Holders of Our Common Stock
The Company estimates that as of May 3, 2009, we had 48 (forty-eight) registered holders of shares of common stock.
Recent Sales of Unregistered Securities
There were no sales of equity securities of the Company by the Company during the period covered by this report that were not registered under the Securities Act of 1933, as amended.
Dividend Policy
As of May 3, 2010, there had been no dividends declared on the Company’s Common Stock. 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.
There are no restrictions in our articles of incorporation or bylaws that prevent us from declaring dividends. The Nevada Revised Statutes, however, do prohibit us from declaring dividends where, after giving effect to the distribution of the dividend:
1. We would not be able to pay our debts as they become due in the usual course of business; or
2. Our total assets would be less than the sum of our total liabilities plus the amount that would be needed to satisfy the rights of shareholders who have preferential rights superior to those receiving the distribution.
Securities Authorized for Issuance under Equity Compensation Plans
The following table presents certain information as of January 31, 2010 with respect to compensation plans under which equity securities of the Company are authorized for issuance:
(1) Such amount includes 750,000 common stock purchase options which are outstanding and exercisable pursuant to the American Goldfields Inc.’s 2004 Stock Option Plan. It also includes 1,523,300 common stock purchase warrants.
The 2004 Stock Option Plan
In March 2004, the Board of Directors adopted the American Goldfields Inc.’s 2004 Stock Option Plan (the 2004 Plan) reserving 5,000,000 common shares for grant to employees, directors and consultants. As of May 3, 2010, there were a total of 3,100,000 options that had been granted under the plan. Of these, 750,000 remain outstanding and exercisable at a weighted average exercise price of $1.07 per option. The following discussion describes material terms of grants made pursuant to the stock option plans:
Pursuant to the 2004 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.
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.
Purchases of equity securities by the issuer and affiliated purchasers
None.
ITEM 6.
ITEM 6.
SELECTED FINANCIAL DATA
Smaller reporting companies are not required to provide the information required by this item.
ITEM 7.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS AND PLAN OF OPERATIONS
The following discussion of our financial condition and results of operations should be read in conjunction with the financial statements and the related notes thereto included elsewhere in this Form 10-K. The matters discussed herein contain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended, which involve risks and uncertainties. All statements other than statements of historical information provided herein may be deemed to be forward-looking statements. Without limiting the foregoing, the words “believes”, “anticipates”, “plans”, “expects” and similar expressions are intended to identify forward-looking statements. Factors that could cause actual results to differ materially from those reflected in the forward-looking statements include, but are not limited to, those discussed under the heading “Factors that May Affect Future Results” and elsewhere in this report and the risks discussed in our other filings with the SEC. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s analysis, judgment, belief or expectation only as of the date hereof. We undertake no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date hereof.
Plan of Operations
Our business plan is to proceed with the exploration of the Gilman, Hercules and Cortez Properties to determine whether there are commercially exploitable reserves of gold and silver or other metals. We had cash of $811 and working capital of $(47,171) as of January 31, 2010. We shall require additional funding and we anticipate that such funding will be in the form of equity financing from the sale of our common stock. However, we cannot provide investors with any assurance that we will be able to raise sufficient funding from the sale of our common stock to fund additional phases of the exploration program, should we decide to proceed. We believe that debt financing will not be an alternative for funding any further phases in our exploration program. The risky nature of this enterprise and lack of tangible assets places debt financing beyond the credit-worthiness required by most banks or typical investors of corporate debt until such time as an economically viable mine can be demonstrated. We do not have any arrangements in place for any future equity financing.
During our exploration stage, our President will only be devoting approximately one day per week of his time to our business. We do not foresee the limited involvement of our President as negatively impacting our Company over the next twelve months as all exploratory work is being performed by outside consultants. Additionally, we will not have a need to hire any employees over the next twelve months; nor do we plan to make any purchases of equipment over the next twelve months due to reliance upon outside consultants to provide all tools needed for the exploratory work being conducted.
Results of Operations for the Fiscal Year Ended January 31, 2010
We did not earn any revenues during the fiscal year ended January 31, 2010 or 2009. We do not anticipate earning revenues until such time as we have entered into commercial production of our mineral properties. We are presently in the exploration stage of our business and we can provide no assurance that we will discover commercially exploitable levels of mineral resources on our properties, or if such resources are discovered, that we will enter into commercial production of our mineral properties.
For the year ended January 31, 2010 we had a net loss of $75,126 compared to a net loss of $32,507 for the prior year, an increase of $42,619. Our loss for 2010 has increased over 2009 primarily due to the Company recording a gain of $236,745 from the assignment of the Imperial property to Patriot Gold Corp. in 2009, whereas there was no such gain in 2010. In addition there was a reduction in mineral claim payments and exploration expenditures in 2010 of $165,884 (2010 - $32,653 and 2009 - $198,537). The decrease was due to lower exploration costs and option payments. There was no stock-based compensation recognized in 2010 and 2009. There were no mineral claim payments and exploration expenditures in 2010 compared to the Company making option payments totaling $85,000 in 2009. During 2010 the Company made $nil option payments under the Hercules (2009 - $20,000), Gilman $nil (2009 - $15,000), and the Cortez $nil (2009 - $50,000) property option agreements. There were no Imperial option payments in 2009 as the Company assigned its rights under the property option agreement to Patriot Gold Corp. for $250,000. Due to this assignment the Company recognized $13,255 as a refund of the reclamation bond and recorded a gain of $236,745 in 2009, whereas there was no such gain in 2010.
General and administrative expenses were lower in 2010 compared to 2009. Office and sundry decreased to $4,023 in 2010 from $28,669 while professional fees were increased to $35,913 in 2010 from $23,912 in 2009. Directors fees were reduced to $894 in 2010 compared to $11,182 in 2009 due to the directors temporary fee suspension. Rent was reduced to $1,676 in 2010 compared to $7,321 in 2009 due to expiration of the office lease agreement. The lower expenses were due to an overall reduction in the Company’s activity in 2010 compared to 2009.
Liquidity and Capital Resources
We had cash of $811 and working capital of $(47,171) as of January 31, 2010. We anticipate that we will incur over the next twelve months:
·
$110,000 in connection with property payments under the Company’s three option agreements.
·
$1,600,000 in property exploration expenses in order to meet the requirements of the Company’s property option agreements;
·
$54,000 for operating expenses, including working capital and general, legal, accounting and administrative expenses associated with reporting requirements under the Securities Exchange Act of 1934.
Net cash used in operating activities during the year ended January 31, 2010 was $74,317 compared to $186,561 during the year ended January 31, 2009. The decrease in cash used in operations was primarily due to a reduction in accounts payable and accrued liabilities in 2010 ($85) compared to 2009 ($186,561). We had a net loss of $75,126 compared to a net loss of $32,507 for the prior year, an increase of $42,619. In addition there was a prepaid expense outflow of $894 in 2010 compared to $21,894 in 2009.
We did not receive any cash from financing in 2010. While cash from financing in 2009 related to $218,750 received from the exercise of share purchase warrants. As a subsequent event on March 3, 2010 the Company received $40,000 from the exercise of share purchase warrants. There were no investing activities in 2010 related to refundable reclamation deposits paid to the State of Nevada while in 2009 the Company received a net refund of $13,168.
Current cash on hand is not sufficient to fund all of the Company’s operating requirements for the next twelve months. We shall require additional funding and we anticipate that such funding will be in the form of equity financing from the sale of our common stock. However, we cannot provide investors with any assurance that we will be able to raise sufficient funding from the sale of our common stock to fund additional phases of the exploration program, should we decide to proceed. We believe that debt financing will not be an alternative for funding any further phases in our exploration program. The risky nature of this enterprise and lack of tangible assets places debt financing beyond the credit-worthiness required by most banks or typical investors of corporate debt until such time as an economically viable mine can be demonstrated. We do not have any arrangements in place for any future equity financing.
Off Balance Sheet Arrangements
We do not have any off balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, revenues, results of operations, liquidity or capital expenditures.
ITEM 7A
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Smaller reporting companies are not required to provide the information required by this item.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements:
1.
Auditors’ Reports;
2.
Audited Financial Statements for the year ended January 31, 2010, including:
a.
Balance Sheets as at January 31, 2010 and 2009;
b.
Statements of Operations for the years ended January 31, 2010 and 2009 and for the period from inception on December 21, 2001 to January 31, 2010;
c.
Statements of Cash Flows for the years ended January 31, 2010 and 2009 and for the period from inception on December 21, 2001 to January 31, 2010;
d.
Statements of Stockholders’ Equity for the years ended January 31, 2010 and 2009 and for the period from inception on December 21, 2001 to January 31, 2010;
e.
Notes to the Financial Statements.
AMERICAN GOLDFIELDS INC.
(An Exploration Stage Company)
FINANCIAL STATEMENTS
JANUARY 31, 2010 and 2009
(Stated in U.S. Dollars)
ROBISON, HILL & CO.
Certified Public Accountants
A PROFESSIONAL CORPORATION
BRENT M. DAVIES, CPA
DAVID O. SEAL, CPA
W. DALE WESTENSKOW, CPA
BARRY D. LOVELESS, CPA
STEPHEN M. HALLEY, CPA
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
American Goldfields, Inc. (An Exploration Stage Company)
We have audited the accompanying balance sheet of American Goldfields, Inc (an exploration stage company) as of January 31, 2010 and 2009, and the related statements of operations, and cash flows for the years ended January 31, 2010 and 2009, and the cumulative since December 21, 2001 (inception) to January 31, 2010, and the statement of stockholder’s equity since December 21, 2001 (inception) to January 31, 2010. 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 audit.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 American Goldfields, Inc (an exploration stage company) as of January 31, 2010 and 2009 and the results of its operations and its cash flows for the years ended January 31, 2010 and 2009 and the cumulative since December 21, 2001 (inception) to January 31, 2010, 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, has no revenues, and is dependent upon obtaining adequate financing to fulfill its exploration activities. These factors 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.
/s/ ROBISON, HILL & CO.
Certified Public Accountants
Salt Lake City, Utah
May 3,
AMERICAN GOLDFIELDS INC.
(An Exploration Stage Company)
BALANCE SHEETS
(Stated in U.S. Dollars)
The accompanying notes are an integral part of these financial statements.
AMERICAN GOLDFIELDS INC.
(An Exploration Stage Company)
STATEMENTS OF OPERATIONS
(Stated in U.S. Dollars)
The accompanying notes are an integral part of these financial statements.
AMERICAN GOLDFIELDS INC.
(An Exploration Stage Company)
STATEMENTS OF CASH FLOWS
(Stated in U.S. Dollars)
SCHEDULE OF NON-CASH ACTIVITIES
The accompanying notes are an integral part of these financial statements.
AMERICAN GOLDFIELDS INC.
(An Exploration Stage Company)
STATEMENT OF STOCKHOLDERS’ (DEFICIENCY) EQUITY
Period from Inception, December 21, 2001 to January 31, 2010
(Stated in U.S. Dollars)
AMERICAN GOLDFIELDS INC.
(An Exploration Stage Company)
STATEMENT OF STOCKHOLDERS’ (DEFICIENCY) EQUITY
Period from Inception, December 21, 2001 to January 31, 2010
(Stated in U.S. Dollars)
(Continued)
The accompanying notes are an integral part of these financial statements.
AMERICAN GOLDFIELDS INC.
(An Exploration Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
JANUARY 31, 2010 AND 2009
(Stated in U.S. Dollars)
1. NATURE OF OPERATIONS
Organization
The Company was incorporated in the State of Nevada, U.S.A., on December 21, 2001.
Exploration Stage Activities
The Company has been in the exploration stage since its formation and has not yet realized any revenues from its planned operations. It is primarily engaged in the acquisition and exploration of mining properties. Upon location of a commercial, minable reserve, the Company expects to actively prepare the site for its extraction and enter a development stage.
Going Concern
The accompanying financial statements have been prepared assuming the Company will continue as a going concern.
As shown in the accompanying financial statements, the Company has incurred a net loss of $3,994,235 for the period from December 21, 2001 (inception) to January 31, 2010, and has no sales. The future of the Company is dependent upon its ability to obtain financing and upon future profitable operations from the development of its mineral properties. Management has plans to seek additional capital through a private placement and public offering of its common stock. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities that might be necessary in the event the Company cannot continue in existence.
2. SIGNIFICANT ACCOUNTING POLICIES
The financial statements have, in management’s opinion, been properly prepared within reasonable limits of materiality and within the framework of the significant accounting policies summarized below:
Basis of Presentation
In prior years the annual financial statements were presented on a consolidated basis, which included the accounts of the Company and its wholly-owned Canadian subsidiary, Baymont Explorations Inc. (“Baymont”). Since May 2004, the Parent Company has focused its exploration activity in the State of Nevada and the Company’s subsidiary has been inactive. As a result, during the year ended January 31, 2007, Baymont was dissolved. Baymont had no assets and its sole liability was to its Parent Company.
In accordance with generally accepted accounting principles in the United States financial statements for years prior to the dissolution of Baymont are to be restated to eliminate the effect of Baymont. Since Baymont had no assets and its sole liability and its equity were eliminated on consolidation there is no effect on prior years’ financial statements.
AMERICAN GOLDFIELDS INC.
(An Exploration Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
JANUARY 31, 2010 AND 2009
(Stated in U.S. Dollars)
2. SIGNIFICANT ACCOUNTING POLICIES - Continued
Capital Assets
Web-site development, including upgrades that extend the useful life of the web-site, is recorded at cost. Web-site development costs are amortized on a straight-line basis over their estimated useful life of three years.
Mineral Claim Payments and Exploration Expenditures
The Company expenses all costs related to the acquisition, maintenance and exploration of its unproven mineral properties, to which it has secured exploration rights. If and when proven and probable reserves are determined for a property and a feasibility study prepared with respect to the property, then subsequent development costs of the property will be capitalized. To date, the Company has not established the commercial feasibility of its exploration prospects. Therefore, all costs have been expensed.
Use of Estimates
The preparation of financial statements, in conformity with accounting principles generally accepted in the United States, requires management to make estimates and assumptions of future events that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements, and the reported amounts of revenues and expenses for the reporting period. Areas requiring the use of estimates include stock-based compensation, and accounts payable and accrued liabilities. Management believes the estimates are reasonable. However, actual results could differ materially from those reported.
Stock-Based Compensation
Effective February 1, 2006, the Company adopted the provisions of SFAS No. 123(R) “Share Based Payment” (SFAS No. 123(R)). SFAS No. 123(R) requires employee equity awards to be accounted for under the fair value method. Accordingly, share-based compensation is measured at grant date based on the fair value of the award. No stock options were granted to employees during the years ended January 31, 2009 or 2008, therefore no compensation expense is required to be recognized under provisions of SFAS No. 123(R).
Prior to February 1, 2006, the company accounted for awards granted to employees under its equity incentive plans using the intrinsic value method prescribed by Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees” (APB 25), and related interpretations, and provided the required pro forma disclosures prescribed by SFAS No. 123, “Accounting for Stock-Based Compensation” (SFAS No. 123), as amended. No stock options were granted to employees during the year ended January 31, 2006 and accordingly, no compensation expense was recognized under APB No. 25 and no compensation expense was required to be recognized under provisions of SFAS No. 123(R) with respect to employees.
AMERICAN GOLDFIELDS INC.
(An Exploration Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
JANUARY 31, 2010 AND 2009
(Stated in U.S. Dollars)
2. SIGNIFICANT ACCOUNTING POLICIES - Continued
Stock-Based Compensation - continued
Under the modified prospective method of adoption for SFAS No. 123(R), the compensation cost recognized by the company beginning on February 1, 2006 includes (a) compensation cost for all equity incentive awards granted prior to, but not yet vested as of February 1, 2006, based on the grant-date fair value estimated in accordance with the original provisions of SFAS No. 123, and (b) compensation cost for all equity incentive awards granted subsequent to February 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of SFAS No. 123(R). The company uses the straight-line attribution method to recognize share-based compensation costs over the service period of the award. Upon exercise, cancellation, forfeiture, or expiration of stock options, or upon vesting or forfeiture of restricted stock units, deferred tax assets for options and restricted stock units with multiple vesting dates are eliminated for each vesting period on a first-in, first-out basis as if each vesting period was a separate award. To calculate the excess tax benefits available for use in offsetting future tax shortfalls as of the date of implementation, the company followed the alternative transition method discussed in FASB Staff Position No. 123(R)-3.
Impairment and Disposal of Long-Lived Assets
The carrying value of intangible assets and other long-lived assets are reviewed on a regular basis for the existence of facts or circumstances that may suggest impairment, in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”. For assets that are to be held and used, an impairment loss is recognized when the estimated undiscounted future cash flows associated with the asset or group of assets is less than their carrying value. If impairment exists, an adjustment is made to write the asset down to its fair value, and a loss is recorded as the difference between the carrying value and fair value.
Environmental Costs
Environmental expenditures that relate to current operations are charged to operations or capitalized as appropriate. Expenditures that relate to an existing condition caused by past operations, and which do not contribute to current or future revenue generation, are charged to operations. Liabilities are recorded when environmental assessments and/or remedial efforts are probable, and the cost can be reasonably estimated. Generally, the timing of these accruals coincides with the earlier of completion of a feasibility study or the Company’s commitments to a plan of action based on the then known facts.
Cash and Cash Equivalents
The Company considers all liquid investments, with an original maturity of three months or less when purchased, to be cash equivalents.
AMERICAN GOLDFIELDS INC.
(An Exploration Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
JANUARY 31, 2010 AND 2009
(Stated in U.S. Dollars)
2. SIGNIFICANT ACCOUNTING POLICIES - Continued
Foreign Currency Translation
The Company’s functional currency is the U.S. dollar. Transactions in foreign currency are translated into U.S. dollars as follows:
i)
monetary items at the rate prevailing at the balance sheet date;
ii)
non-monetary items at the historical exchange rate;
iii)
revenue and expense at the average rate in effect during the applicable accounting period.
Exchange gains or losses arising on translation are included in income (loss) for the year.
Income Taxes
The Company follows Statement of Financial Accounting Standards No. 109 - “Accounting for Income Taxes” (SFAS 109). Pursuant to SFAS No. 109, deferred income tax assets and liabilities are computed for differences between the financial statement carrying amounts and the respective tax bases. Deferred tax assets and liabilities are measured using enacted or substantially enacted tax rates expected to apply to the taxable income in the periods in which those differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred income tax assets to the amount expected to be realized. Potential benefits of net operating losses have not been recognized in the financial statements because the Company cannot be assured it is more likely than not it will utilize the net operating losses carried forward in future years.
Loss Per Share
Basic earnings (loss) per share of common stock is computed by dividing net income (loss) available to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per share of common stock reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company.
At January 31, 2010, potential common shares of 2,273,300 (January 31, 2009 - 2,373,300) related to common stock options and warrants were excluded from the computation of diluted earnings per share since their effect is anti-dilutive.
Financial Instruments
The Company's financial assets and liabilities consist of cash and accounts payable and accrued liabilities. Except as otherwise noted, it is management's opinion that the Company is not exposed to significant interest or credit risks arising from these financial instruments. The fair values of these financial instruments approximate their carrying values due to the short-term maturities of these instruments.
AMERICAN GOLDFIELDS INC.
(An Exploration Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
JANUARY 31, 2010 AND 2009
(Stated in U.S. Dollars)
2. SIGNIFICANT ACCOUNTING POLICIES - Continued
Asset Retirement Obligations
The Company has adopted SFAS No. 143, “Accounting for Asset Retirement Obligations”, which addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated retirement costs. The standard applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and normal use of the asset.
SFAS No. 143 requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The fair value of the liability is added to the carrying amount of the associated asset and this additional carrying amount is depreciated over the life of the asset. The liability is accreted at the end of each period through charges to operating expense. If the obligation is settled for other than the carrying amount of the liability, the Company will recognize a gain or loss on settlement.
New Accounting Pronouncements
In April 2009, the FASB updated ASC 820 to provide additional guidance for estimating fair value when the volume and level of activity for the asset or liability have decreased significantly. ASC 820 also provides guidance on identifying circumstances that indicate a transaction is not orderly. The implementation of ASC 820 did not have a material effect on the Company’s financial statements.
In April 2009, the FASB updated ASC 825 regarding interim disclosures about fair value of financial instruments. ASC 825 requires disclosures about fair value of financial instruments in interim reporting periods of publicly traded companies that were previously only required to be disclosed in annual financial statements. The implementation of ASC 825 did not have a material effect on the Company’s financial statements.
In April 2009, the FASB updated ASC 320 for proper recognition and presentation of other-than-temporary impairments. ASC 320 provides additional guidance designed to create greater clarity and consistency in accounting for and presenting impairment losses on securities. The implementation of ASC 320 did not have a material effect on the Company’s consolidated financial statements.
In June 2009, the FASB created the Accounting Standards Codification, which is codified as ASC 105. ASC 105 establishes the codification as the single official non-governmental source of authoritative accounting principles (other than guidance issued by the SEC) and supersedes and effectively replaces previously issued GAAP hierarchy framework. All other literature that is not part of the codification will be considered non-authoritative. The codification is effective for interim and annual periods ending on or after September 15, 2009. The Company has applied the codification, as required, beginning with the 2010 Form 10-K. The adoption of the codification did not have a material impact on the Company’s financial position, results of operations or cash flows.
AMERICAN GOLDFIELDS INC.
(An Exploration Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
JANUARY 31, 2010 AND 2009
(Stated in U.S. Dollars)
2. SIGNIFICANT ACCOUNTING POLICIES - Continued
New Accounting Pronouncements - continued
In June 2009, the FASB updated ASC 855, which established principles and requirements for subsequent events. This guidance details the period after the balance sheet date which the Company should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which the Company should recognize events or transactions occurring after the balance sheet date in its financial statements and the required disclosures for such events. ASC 855 is effective for interim and annual periods ending after June 15, 2009. The implementation of ASC 855 did not have a material effect on the Company’s financial statements.
In October 2009, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2009-13 (ASU 2009-13), which provided an update to ASC 605. ASU 2009-13 addresses how to separate deliverables and how to measure and allocate arrangement consideration to one or more units of accounting in multiple-deliverable arrangements. The amendments in this update will be effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. The Company is currently evaluating the impact that this update will have on its Financial Statements.
3. MINERAL PROPERTY INTERESTS
Gilman Property
On May 7, 2004, the Company completed an agreement with MinQuest Inc. (‘MinQuest’) for an option to acquire a 100% interest in the Gilman Property. The Gilman property consists of 61 contiguous, unpatented mineral claims located in Lander County, Nevada, U.S.A. Upon signing the agreement the Company paid MinQuest $10,000. By May 15, 2009 the Company must make additional minimum annual option payments totaling $75,000 and incur annual exploration expenditures of an aggregate $450,000 on the property. The agreement is subject to a 3% royalty payable to MinQuest with the Company being able to repurchase up to two-thirds of the royalty for $1,000,000 for each 1% repurchased.
On March 22, 2005, the Company executed an amendment to the Gilman Property Option Agreement with MinQuest. As a result of the amendment, the Company’s obligation to incur $50,000 in exploration expenditures on the Gilman Property by May 2005 was moved to May 2009. On May 29, 2006 by way of a letter agreement the Company and MinQuest agreed to adjust the exploration expenditure commitments such that the amount due to be spent by May 15, 2006 was moved to May 15, 2007. On April 21, 2009 MinQuest granted the Company a one year extension on its Gilman property obligations. The result is that the final property option payment of $15,000 and the property expenditure requirement of $175,000 due May 15, 2009 are now due May 15, 2010. All other terms and commitments of the original agreement remain unchanged.
AMERICAN GOLDFIELDS INC.
(An Exploration Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
JANUARY 31, 2010 AND 2009
(Stated in U.S. Dollars)
3. MINERAL PROPERTY INTERESTS - Continued
Gilman Property - continued
To January 31, 2010, the Company had made the initial option payment of $10,000 due on signing as well as the $15,000 option payments due in May 2008, 2007, 2006 and 2005. In addition the Company has incurred approximately $154,000 in exploration expenditures on the property. At January 31, 2010 the Company had a shortfall in property expenditures of approximately $121,000. As a result of the extension granted by MinQuest, this amount is now due to be incurred by May 15, 2010. In the event the Company does not make the indicated option payments and incur the exploration expenditures, when demanded, the Company will lose its interest in the property.
Imperial Property
On June 30, 2004, the Company entered into an agreement with MinQuest for an option to acquire a 100% interest in the Imperial Property. The Imperial Property consists of 22 contiguous, unpatented mineral claims covering approximately 450 acres located in Esmeralda County, Nevada, U.S.A. Upon signing the agreement the Company paid MinQuest $60,000. The agreement requires certain additional minimum annual option payments totaling $80,000 to be paid by July 1, 2008. The agreement also requires minimum annual exploration expenditures with a grand total of $500,000 in expenditures required to be incurred on the property by the July 1, 2009. The property option agreement is subject to a 3% royalty payable to MinQuest. The Company is required to use MinQuest for exploration conducted on the Imperial Property.
To January 31, 2008, the Company had made the initial option payment of $60,000 upon signing the agreement as well as the $20,000 option payments due in July 2007, 2006 and 2005. In addition the Company has incurred approximately $277,000 in exploration expenditures on the property which satisfied the Company’s expenditure requirements to July 1, 2007.
On May 30, 2008, the Company entered into an Assignment and Assumption Agreement (the “Agreement”) with Patriot Gold Corp., a Nevada corporation (“Patriot”), to assign the exclusive option to an undivided right, title and interest in the Imperial Property to Patriot. Pursuant to the Agreement, Patriot assumed the rights, and agreed to perform all of the duties and obligations, of the Company arising under the Imperial Property Option Agreement. Simultaneous with the execution and delivery of the Agreement, the Company received $250,000 from Patriot, which amount represents the full payment and satisfaction for the assignment by the Company to Patriot of the Imperial Property Option Agreement and all rights and obligations with respect thereto. Included in the assignment were, without limitation, all sums incurred by the Company in connection with the Imperial Property, specifically (i) the refunding of the reclamation bond previously paid by the Company to the Bureau of Land Management in Nevada in the amount of $13,255; (ii) the approximately $277,000 of expenditures incurred by the Company prior to the Agreement; and (iii) the $120,000 paid to MinQuest Inc. by the Company as option payments under the Imperial Property Option Agreement.
AMERICAN GOLDFIELDS INC.
(An Exploration Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
JANUARY 31, 2010 AND 2009
(Stated in U.S. Dollars)
3. MINERAL PROPERTY INTERESTS - Continued
Hercules Property
On October 22, 2004, the Company entered into an agreement with MinQuest for an option to acquire a 100% interest in the Hercules Property. The Hercules Property consists of 40 mineral claims located in Lyon County, Nevada, USA. Upon signing the agreement the Company paid MinQuest $20,000. The agreement requires certain additional minimum annual option payments totaling $200,000 and minimum annual exploration expenditures totaling $4,050,000 to be paid or incurred by November 25, 2014. The agreement is subject to a 3% royalty payable to MinQuest with the Company being able to repurchase up to two-thirds of the royalty for $3,000,000. On April 21, 2009 MinQuest granted the Company a one year extension on its Hercules property obligations. The result is that the $20,000 property option payments due annually on November 25, 2008 through 2014 inclusive are now due on November 25, 2009 through 2015 inclusive. The annual property expenditure requirements of $500,000 required to be incurred annually by November 25, 2009 through 2014 respectively are now due to be incurred by November 25, 2010 through November 25, 2015.
To January 31, 2010, the Company had made the initial option payment of $20,000 due on signing as well as the $20,000 option payments due in November 2007, 2006 and 2005. In addition the Company has incurred approximately $792,200 in exploration expenditures on the property. At January 31, 2010 the Company had a shortfall in property expenditures of approximately $257,800. As a result of the extension granted by MinQuest, this amount is now due to be incurred by November 25, 2009, but is currently in default, pending financing. The Company is at risk of losing its interest in the property by not making the indicated option payments and incurring the exploration expenditures, when demanded.
Cortez Property
On February 28, 2005, the Company entered into an agreement with MinQuest for an option to acquire a 100% interest in the Crescent Fault Claims, the Bankop Property, and the Bullion Mountain Property (collectively, the ‘Cortez Property’). The Cortez Property consists of an aggregate of approximately 75 mineral claims located in Eureka and Lander Counties, Nevada, U.S.A. Upon signing the agreement the Company paid MinQuest $65,000. By February 15, 2010 the Company must make additional minimum annual option payments totaling $445,000 and incur annual exploration expenditures of an aggregate $1,150,000 on the property. The property option agreement is subject to a 3% royalty payable to MinQuest and the Company is required to use MinQuest for exploration conducted on the Cortez Properties. On May 29, 2006 by way of a letter agreement, the Company and MinQuest agreed to adjust the timing of exploration expenditures such that an aggregate amount of approximately $250,000 was to be spent by September 1, 2006. On April 21, 2009 MinQuest granted the Company a one year extension on its Cortez property obligations. The result is that the $75,000 property option payments due on February 26, 2009 is now due February 26, 2010 and the $250,000 due on February 26, 2010 is now due February 26, 2011.
AMERICAN GOLDFIELDS INC.
(An Exploration Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
JANUARY 31, 2010 AND 2009
(Stated in U.S. Dollars)
3. MINERAL PROPERTY INTERESTS - Continued
Cortez Property - continued
The annual property expenditure requirement of $300,000 required to be incurred by February 26, 2009 is now due to be incurred by February 26, 2010 and the $250,000 due February 26, 2010 is now due to be incurred by February 26, 2011.
To January 31, 2010, the Company had made the initial option payment of $65,000 due on signing as well as the $50,000, $40,000 and the $30,000 option payments due in February of 2008, 2007, and 2006 respectively. In addition the Company has incurred approximately $242,900 in exploration expenditures on the property. At January 31, 2010 the Company had a shortfall in property expenditures of approximately $207,100. As a result of the extension granted by MinQuest, this amount is now due to be incurred by February 26, 2010, but is in default, pending financing. The Company is at risk of losing interest in the property by not making the indicated option payments and incurring the exploration expenditures, when demanded.
4. RECLAMATION DEPOSITS
The Company has been granted exploration permits from the State of Nevada for several of its properties. As part of the application process, the Company is required to pay refundable deposits to the State as surety for the estimated reclamation costs associated with planned exploration programs. Upon completion of required reclamation the Company will receive a refund of the deposit.
5. COMMON STOCK
a)
Issued Common Shares
i)
On July 12, 2006, the Company granted stock options to its President. Pursuant to such agreement, the Company’s President was granted 200,000 options, with each entitling him to purchase one share of common stock at a price of $1.00 until July 12, 2016.
ii)
On July 12, 2006 the Company and its President entered into an Agreement, pursuant to which the Company acquired 3,000,000 common shares of the Company’s stock owned by the President for a purchase price of $0.01 per share. The payment of the $30,000 purchase price was made in April 2007. The shares were returned to treasury for cancellation.
iii)
In connection with the resignation of a Director, the Company and the Director entered into a Redemption Agreement (the “Agreement”), dated July 14, 2006, whereby the Director agreed to sell 3,000,000 common shares of the Company owned by the Director to the Company at a price of $0.01 per share. Pursuant to the Agreement the Company paid $30,000 to the Director and returned the shares to treasury for cancellation.
AMERICAN GOLDFIELDS INC.
(An Exploration Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
JANUARY 31, 2010 AND 2009
(Stated in U.S. Dollars)
5. COMMON STOCK - Continued
a)
Issued Common Shares - continued
iv)
During the year ended January 31, 2008, 375,000 (2007 - 400,000) shares were issued, pursuant to exercise of stock options, for total consideration of $199,500 (2007 - $480,000).
v)
On December 6, 2007 the Company closed a private placement of 312,500 units at $0.64 per unit for a total offering price of $200,000. Each unit consisted of one common share and two non-transferable share purchase warrants, designated Class A and Class B. Each warrant entitles the subscriber to purchase one common share of the Company for a period of five years from the vesting date at a price of $0.70 per share for the Class A warrants and $0.74 per share for the Class B warrants. The Class A warrants are exercisable commencing December 6, 2007 and the Class B warrants are exercisable commencing February 6, 2008. Values of $72,660 and $127,340 were assigned to the common shares and warrants, respectively, based on their relative fair values at the closing date.
vi)
During the year ended January 31, 2009, 312,500 shares were issued pursuant to the exercise of common share purchase warrants for total consideration of $218,750.
b)
Stock Options
In March 2004, the Board of Directors adopted the American Goldfields Inc.’s 2004 Stock Option Plan (the 2004 Plan) reserving 5,000,000 common shares for grant to employees, directors and consultants. Because additional stock options are expected to be granted in future periods, the following stock-based compensation expenses are not representative of the effects on reported financial results for future periods.
The Company did not grant any stock options for the year ended January 31, 2010 and for the year ended January 31, 2009.
The weighted average fair value of options granted for the year ended January 31, 2010 was $nil (January 31, 2009 - $nil). As a result of the recognition of stock-based compensation, the following amounts have been included in the Statements of Operations:
AMERICAN GOLDFIELDS INC.
(An Exploration Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
JANUARY 31, 2010 AND 2009
(Stated in U.S. Dollars)
5. COMMON STOCK - Continued
b)
Stock Options - continued
Activity under the 2004 Plan is summarized as follows:
The following table summarizes information concerning outstanding and exercisable common stock options under the 2004 Plan at January 31, 2010:
The aggregate intrinsic value of stock options outstanding as well as those exercisable at January 31, 2010 is $3,500 (2009 - $500). All options granted by the Company under the 2004 plan have vested immediately. As a result, there is no unrecognized compensation expense for unvested options at period end for any of the periods shown. There were no stock options exercised during the years ended January 31, 2010 and 2009.
c) Warrants
AMERICAN GOLDFIELDS INC.
(An Exploration Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
JANUARY 31, 2010 AND 2009
(Stated in U.S. Dollars)
5.
COMMON STOCK - Continued
c) Warrants - continued
The following table lists the common share warrants outstanding at January 31, 2010. Each warrant is exchangeable for one common share.
6.
RELATED PARTY TRANSACTIONS
a)
Operations
On May 26, 2004, Mr. Richard Kern joined the Company’s Board of Directors and on September 12, 2008 he was appointed the Company’s President, Chief Executive Officer, Secretary, and Treasurer. Mr. Kern is also the President of MinQuest Inc. (“MinQuest”). The Company has optioned all of its mineral property interests from MinQuest. Further, the Cortez Property option agreements require the Company to use MinQuest as the primary contractor for exploration activity undertaken on the property. All exploration work undertaken on any of the Company’s properties will be at the direction and discretion of the Company.
For the year ended January 31, 2010, the Company paid MinQuest a total of $nil (January 31, 2009 - $65,000) related to property option payments for the Cortez and Gilman Properties. Included in the net loss for the twelve months ended January 31, 2010 is an amount of $4,800 (January 31, 2009 - $7,980) with respect to fees paid to Mr. Kern for geological services rendered to the Company.
b)
Share Redemption
On July 12, 2006 the Company and its former President entered into an Agreement, pursuant to which the Company acquired 3,000,000 common shares of the Company’s stock owned by its former President for a purchase price of $0.01 per share. The payment of the $30,000 purchase price was made in April 2007.
AMERICAN GOLDFIELDS INC.
(An Exploration Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
JANUARY 31, 2010 AND 2009
(Stated in U.S. Dollars)
7.
INCOME TAXES
Deferred tax assets of the Company are as follows:
A valuation allowance has been recorded to reduce the net benefit recorded in the financial statements related to these deferred tax assets. The valuation allowance is deemed necessary as a result of the uncertainty associated with the ultimate realization of these deferred tax assets.
The provision for income taxes differs from the amount computed by applying the statutory federal income tax rate of 34% (2009 - 34%) to net loss for the year. The sources and tax effect of the differences are as follows:
As at January 31, 2010 the Company has net operating loss carry-forwards of approximately $2,247,000 (2009 - $2,172,000), which expire between 2022 and 2030.
8.
UNCERTAIN TAX POSITIONS
Effective February 1, 2007, the Company adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The adoption of the provisions of FIN 48 did not have a material impact on the company’s financial position and results of operations. At February 1, 2007, the company had no liability for unrecognized tax benefits and no accrual for the payment of related interest.
Interest costs related to unrecognized tax benefits are classified as “Interest expense, net” in the accompanying statements of operations. Penalties, if any, would be recognized as a component of “Selling, general and administrative expenses”. The Company recognized $0 of interest expense related to unrecognized tax benefits for the year ended January 31, 2010. In many cases the company’s uncertain tax positions are related to tax years that remain subject to examination by relevant tax authorities.
AMERICAN GOLDFIELDS INC.
(An Exploration Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
JANUARY 31, 2010 AND 2009
(Stated in U.S. Dollars)
8.
UNCERTAIN TAX POSITIONS - Continued
With few exceptions, the company is generally no longer subject to U.S. federal, state, local or non-U.S. income tax examinations by tax authorities for years before 2006. The following describes the open tax years, by major tax jurisdiction, as of February 1, 2010:
United States (a)
- Present
(a) Includes federal as well as state or similar local jurisdictions, as applicable.
9. SUBSEQUENT EVENTS
The Company adopted ASC 855, and has evaluated all events occurring after January 31, 2010, the date of the most recent balance sheet, for possible adjustment to the financial statements or disclosures through May 3, 2010, which is the date on which the financial statements were issued.
On March 3, 2010 the Company received $40,000 from the exercise of 54,054 share purchase warrants at an exercise price of $0.74.
On March 10, 2010, we caused the incorporation of our wholly owned subsidiary, Goldmin Exploration Inc., (“Goldmin”) under the laws of Nevada. On March 11, 2010 the Company entered into two Assignment Agreements to assign the exclusive option to an undivided right, title and interest in the Gilman property; and the Crescent Fault, Bankop and Bullion Mountain, collectively named the Cortez property to Goldmin. Pursuant to the Assignment Agreements, Goldmin assumed the rights, and agreed to perform all of the duties and obligations, of the Company arising under the Gilman Property Option Agreement; and the Cortez Property Option Agreement. Goldmin Explorations Inc.’s only assets are the aforementioned agreements and it does not have any liabilities.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
We have had no disagreements with our independent auditors on accounting or financial disclosures.
ITEM 9A.
ITEM 9A. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
As required by Rule 13a-15 under the Securities Exchange Act of 1934 (the “Exchange Act”), the Company’s management carried out an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures as of January 31, 2010, being the date of the Company’s most recently completed fiscal year end. This evaluation was carried out under the supervision and with the participation of our Principal Executive Officer and Principal Financial Officer, Mr. Richard Kern.
Changes in Internal Control Over Financial Reporting
During the most recently completed fiscal year ended January 31, 2010, the Company reduced its staff and as a result, a limitation in the segregation of duties occurred. This weakness has been reported by the Company.
Evaluation of Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control system has been designed to provide reasonable assurance to our management and board of directors regarding the preparation and fair presentation of our published financial statements. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
Management conducted an evaluation of the design and operation of the Company’s internal control over financial reporting as of January 31, 2010, based on the criteria set forth in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. This evaluation included review of the documentation of controls, evaluation of the design effectiveness of controls, testing of the operating effectiveness of controls and a conclusion on this evaluation. Based on this evaluation, the Principle Executive and Principal Financial Officers concluded that our internal control over financial reporting was not effective as of January 31, 2010 due to the following material weakness:
·
Our company’s administration is composed of a small number of administrative individuals resulting in a situation where limitations on segregation of duties exist. In order to remedy this situation we would need to hire additional staff to provide greater segregation of duties. Currently, it is not feasible to hire additional staff to obtain optimal segregation of duties. Management will reassess this matter in the following year to determine whether improvement in segregation of duty is feasible.
This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management’s report in this annual report.
ITEM 9B.
ITEM 9B. OTHER INFORMATION
None
PART III
ITEM 10.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Set forth below is certain information concerning the Company’s executive officers and directors as of May 3, 2010.
(1) On May 26, 2004, Mr. Richard Kern joined the Company’s Board of Directors and on September 12, 2008 he was appointed the Company’s President, Chief Executive Officer, Secretary, and Treasurer.
The following is a brief account of the education and business experience of each director and executive officer during the past five years:
Richard Kern is an exploration geologist with over twenty-five years experience in base and precious metals exploration in the United States, Central and South America, and Australia. Mr. Kern worked for Homestake Mining for over thirteen years, where his positions included Exploration Manager Eastern Australia and District Geologist Western United States. Mr. Kern directly managed major exploration programs in diverse locations, including Malaysia, Ecuador, Mexico and the Western U.S. In Nevada, his team drilled the discovery holes into a 1.6 million ounce gold deposit which has since gone into production, and a 9 million ounce gold-equivalent deposit in Australia, also in production. Mr. Kern has operated as an independent mineral exploration geologist for the last several years, with a focus on the Western United States. He holds a Bachelor of Science in Geology (Montana State) and Master of Science in Geology (Idaho State).
Jared Beebe is an experienced geologist with an extensive background in mineral exploration. In his nearly 20 years of working in the mining industry, he has worked for a variety of exploration companies in Canada and the United States. He is currently an independent consulting Project Manager. He previously worked for Soho Resources from 2007 to 2008, for Globex Mining in 2006, for Scorpio Mining in 2005 and from 1999 to 2004 he worked as a researcher at the University of Quebec where he studied Geographic Information Systems. Mr. Beebe earned a Bachelor of Science degree in Geology from Metropolitan State College, Denver, Colorado, in 1981. He is a member of the Association of Applied Geochemists, the Geological Society of Nevada, the Ordre du Géologues du Québec, and the Society of Economic Geologists.
Dr. David Gladwell is an experienced geochemist with an extensive background in mineral exploration utilizing advanced technologies. After completing his formal geological education, Dr. Gladwell came to Canada to work as staff geochemist and later airborne operations geochemist for Barringer Magenta and then Barringer Research. During this time Dr. Gladwell conducted research on several significant gold zones including the Kerr Addison deposit in Ontario (later published) and the Cortez deposit/trend in Nevada. As geochemist at Barringer, Dr. Gladwell developed a suite of multivariate statistical software tools to provide interpretation of exploration programs in northern Ontario. In a joint effort between Barringer and British Petroleum, he also assisted with the development of a pressurized airborne Flame Ionization Detector (AIRTRACE) which he used to manage and interpret surveys in the North Sea, the Minches, the Irish Sea, the English Channel, the Mediterranean offshore of Egypt, the Baltic Sea, the Gulf Coast, the Beaufort Sea and large tracts of the Northwest Territories. From 1999 to 2005, Dr. Gladwell worked as a Pastor, in 2006 he was an instructor at Georgian College and Applegate School in Ontario, Canada, from 2007 to 2008 he was employed as a Senior Geochemist at Klohn Crippen Berger Ltd. and since 2008 he has held the position of Senior Geochemist with Wardrop Engineering Ltd. Dr. Gladwell earned a Bachelor of Science degree in Chemistry and Geology from the University of Liverpool, and a Ph.D. in Geochemistry from the Royal School of Mines, London University, UK.
Richard Kehmeier is a Certified Professional Geologist with nearly forty years of international experience in all phases of resource development for the mining industry. Mr. Kehmeier is currently a Senior Geologist for Vector Engineering Inc. in Golden, Colorado. During his career he has held such positions as Vice President of Exploration at Gold Reserve Corp and Atlas Corporation and has worked for companies such as Union Carbide, and Anaconda. He is responsible for the discovery of nearly 15 million ounces of gold in his career. Mr. Kehmeier graduated from the Colorado School of Mines with a Bachelor of Science in Geological Engineering and a Master of Science in Geology.
Dr. Ronald Wynn Sheets is an exploration geologist with more than twenty-five years of domestic and international experience in base and precious metals exploration. Dr. Sheets has an extensive background both in field and management positions, and has worked for such companies as Helio Resources Corp. from October 2008 until February 2009 as a Technical Manager and May 2007 to October 2008 as a Country Manager; Axmin Ltd., from March 2006 to April 2007 as the Manager of Regional Exploration; Applied Geology CC from May 2004 to March 2006 as a Consulting Geologist; and Boynton Platinum, and Harmony Gold as a Consulting Geologist. For most of the past decade, Dr. Sheets has acted as a geological consultant to various mining exploration companies throughout Africa, specifically in Tanzania, Central African Republic, and South Africa. As of February 2009 Dr. Sheets relocated back to the United States and has been further developing his database and 3D geological modeling skills. Dr. Sheets has also lectured at Rhodes University (South Africa) and the University of Alberta, and has published various research papers. Dr. Sheets earned a B.Sc. in Geology (Grand Valley State University), a M.Sc. in Geology & Mineralogy (Ohio State University), and a Ph.D. in Geological Sciences (Virginia Tech).
None of our directors holds any directorships in companies with a class of securities registered pursuant to Section 12 of the Securities Exchange Act or subject to the requirements of Section 15(d) of such Act or any company registered as an investment company under the Investment Company Act of 1940, as amended.
Our Directors are appointed for a one-year term to hold office until the next annual general meeting of our shareholders or until removed from office in accordance with our bylaws. Our officers are appointed by our board of directors and hold office until removed by the board.
The Board of Directors has not established an audit committee and does not have an audit committee financial expert. The Board is of the opinion that an audit committee is not necessary since the Company’s directors have been performing the functions of an audit committee.
The Board has established an Option Committee and a Compensation Committee, each consisting of Messrs. Kern and Beebe. The Option Committee recommends and grants options to individuals under the option plans adopted by the company. The Compensation Committee recommends and grants compensation to individuals who work for the company.
The Board does not have a nominating committee, the functions of which are performed by the Board.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Company’s executive officers, directors and persons who beneficially own more than 10% of a registered class of the Company’s equity securities to file with the Commission initial reports of ownership and reports of changes in ownership of Common Stock and other equity securities of the Company. Such persons are required by Commission regulations to furnish the Company with copies of all Section 16(a) forms they filed.
We are not aware of any instances in fiscal year 2010 when an executive officer, director or owners of more than 10% of the outstanding shares of our common stock failed to comply with the reporting requirements of Section 16(a) of the Securities Exchange Act of 1934.
Code of Ethics
The Company has adopted a code of ethics that applies to its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. For purposes of this Item, the term code of ethics means written standards that are reasonably designed to deter wrongdoing and to promote:
honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;
full, fair, accurate, timely, and understandable disclosure in reports and documents that the issuer files with, or submits to, the Commission and in other public communications made by the issuer; compliance with applicable governmental laws, rules and regulations;
the prompt internal reporting of violations of the code to the board of directors or another appropriate person or persons; and
accountability for adherence to the code.
The Company hereby undertakes to provide to any person without charge, upon request, a copy of such code of ethics. Such request may be made in writing to the board of directors at the address of the issuer.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation.
Mr. Richard Kern has been serving as our Director since May 26, 2004 and as our President, Chief Executive and Operating Officer, Treasurer, and Secretary since September 12, 2008. From February 1, 2008 to September 12, 2008, Mr. Donald Neal was our President, Chief Executive and Operating Officer, Treasurer, and Secretary. We had no other officers during the fiscal year ended January 31, 2010.
Mr. Kern is also the President of MinQuest Inc. (“MinQuest”). The Company has optioned all of its mineral property interests from MinQuest. Further, the Cortez Property option agreements require the Company to use MinQuest as the primary contractor for exploration activity undertaken on the property. While Mr. Kern does not receive any compensation for serving as a Director or Officer of the Company, he has been engaged by the Company to undertake exploration activities on behalf of the Company. All exploration work undertaken on any of the Company’s properties will be at the direction and discretion of the Company.
For the year ended January 31, 2010, the Company paid MinQuest a total of $nil related to property option payments, whereas for the year ended January 31, 2009, the Company paid MinQuest a total of $65,000 (Cortez $50,000 and Gilman $15,000). Included in the net loss for the twelve months ended January 31, 2010 is an amount of $4,800 (January 31, 2009 - $7,980) with respect to fees paid to Mr. Kern for geological services rendered to the Company.
We have no employment agreements with any of our directors or our sole executive officer. We have no pension, health, annuity, bonus, insurance, equity incentive, non-equity incentive, stock options, profit sharing or similar benefit plans.
The following table sets forth information concerning the compensation paid or earned during the fiscal years ended January 31, 2010 and 2009 for services rendered to our Company in all capacities by the following persons: (i) all individuals who served as the principal executive officer or acting in a similar capacity during the fiscal year ended January 31, 2010, regardless of compensation level; (ii) all individuals who served as officers at January 31, 2010 and whose total compensation during the fiscal year ended January 31, 2010 exceeded $100,000; and (iii) up to two additional individuals who served as officers during the fiscal year ended January 31, 2010 and whose total compensation during the fiscal year ended January 31, 2010 exceeded $100,000, regardless of whether they were serving as officers at the end of such fiscal year.
(1)
Mr. Richard Kern has been serving as our Director since May 26, 2004 and as our President, Chief Executive and Operating Officer, Treasurer, and Secretary since September 12, 2008. Mr. Kern is also the President of MinQuest. The Company has optioned all of its mineral property interests from MinQuest. Further, the Cortez Property option agreements require the Company to use MinQuest as the primary contractor for exploration activity undertaken on the property. While Mr. Kern does not receive any compensation for serving as a Director or Officer of the Company, he has been engaged by the Company to undertake exploration activities on behalf of the Company. All exploration work undertaken on any of the Company’s properties will be at the direction and discretion of the Company. For the year ended January 31, 2010, the Company paid MinQuest a total of $nil related to property option payments, whereas for the year ended January 31, 2009, the Company paid MinQuest a total of $65,000 (Cortez $50,000 and Gilman $15,000). Included in the net loss for the twelve months ended January 31, 2010 is an amount of $4,800 (January 31, 2009 - $7,980) with respect to fees paid to Mr. Kern for geological services rendered to the Company.
Outstanding Equity Awards
The table set forth below presents certain information concerning unexercised options, stock that has not vested, and equity incentive plan awards for each named executive officer above outstanding as of January 31, 2010. None of our directors or executive officers hold unexercised options or stock that has not vested, or equity incentive plan awards.
Compensation of Directors
Mr. Beebe and Mr. Gladwell each receive CDN $500 per month for serving as Directors of the Company. As of January 1, 2009, and April 1, 2009, Mr. Gladwell and Mr. Beebe respectively, agreed to suspend their director’s fees in order to conserve working capital. For the fiscal period ending January 31, 2010 a total of $894.16 was paid to Mr. Beebe.
Effective February 1, 2010 and April 1, 2010 Mr. Sheets and Mr. Gladwell respectively, will receive USD $500 per month for serving as a Director.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information concerning the number of shares of our common stock owned beneficially as of May 3, 2010 by: (i) each person (including any group) known to us to own more than five percent (5%) of any class of our voting securities, (ii) each of our directors, and (iii) officers and directors as a group. 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 percentages below are calculated based on 21,346,932 shares of common stock issued and outstanding.
The persons or entities named in this table, based upon the information they have provided to us, have sole voting and investment power with respect to all shares of common stock beneficially owned by them.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Related Transactions Involving Richard Kern
Mr. Richard Kern has been serving as our Director since May 26, 2004 and as our President, Chief Executive and Operating Officer, Treasurer, and Secretary since September 12, 2008. Mr. Kern is also the president of MinQuest. All of the Company’s mineral properties have been optioned from MinQuest. Such properties are discussed above under Item 2, “Description of Properties,” and the material terms of the agreements entered into between our Company and Minquest with respect to such properties are summarized below. As a result, MinQuest and Mr. Kern are related parties to the Company and both MinQuest and Mr. Kern receive substantial payments from the Company. In addition, the Company has agreed to use Mr. Kern as the primary contractor on exploration undertaken to date on all of its properties. The potential exists for conflicts of interest to occur from time to time that could adversely affect the Company’s ability conduct its business of exploration. Also, Mr. Kern is the most knowledgeable person regarding the historical and current state of exploration on the mineral properties currently optioned by the Company. If Mr. Kern were to terminate his relationship with the Company, the Company would be adversely affected while we found a suitable replacement.
Gilman Property
On May 7, 2004, the Company completed the formal agreement with MinQuest for an option to acquire a 100% interest in the Gilman Property. Concurrently, the Company made the first $10,000 option payment to MinQuest. The agreement requires certain additional minimum annual property option payments with a total of $75,000 required to be paid by May 15, 2009. The agreement also requires minimum annual exploration expenditures with a grand total of $450,000 in expenditures required to be incurred on the property by May 15, 2009. The agreement is subject to a 3% royalty payable to MinQuest with the Company being able to repurchase up to two-thirds of the royalty for $1,000,000 for each 1% repurchased. The Company is not required to use MinQuest for exploration undertaken on the Gilman Property. However, at its discretion, the Company has engaged MinQuest as the principal contractor for exploration performed to date. On March 22, 2005, the Company executed an amendment to the Gilman Property Option Agreement. As a result of the amendment, the Company’s obligation to incur $50,000 in exploration expenditures on the Gilman Property by May 2005 was moved to May 2009. On May 29, 2006 by way of a letter agreement the Company and MinQuest agreed to adjust the exploration expenditure commitments such that the amount due to be spent by May 15, 2006 was moved to May 15, 2007. The result is that the Company is now required to spend approximately $153,000 by May 15, 2007. On April 21, 2009 MinQuest granted the Company a one year extension on its Gilman property obligations. The result is that the final property option payment of $15,000 and the property expenditure requirement of $175,000 due May 15, 2009 are now due May 15, 2010. All other terms and commitments of the original agreement remain unchanged.
To January 31, 2010, the Company had made the initial option payment of $10,000 due on signing as well as the $15,000 annual option payments due in May 2008, 2007, 2006 and 2005. In addition the Company has incurred approximately $154,000 in exploration expenditures on the property. At January 31, 2010 the Company had a shortfall in property expenditures of approximately $121,000. As a result of the extension granted by MinQuest, this amount is now due to be incurred by May 15, 2010. In the event the Company does not make the indicated option payments and incur the exploration expenditures, when demanded, the Company will lose its interest in the property.
On March 11, 2010, the Company entered into an Assignment Agreement with its wholly owned subsidiary, Goldmin Exploration Inc., a Nevada corporation (“Goldmin”), to assign the exclusive option to an undivided right, title and interest in the Gilman Property to Goldmin. Pursuant to the Agreement, Goldmin assumed the rights, and agreed to perform all of the duties and obligations, of the Company arising under the Gilman Property Option Agreement.
Imperial Property
On June 30, 2004, the Company entered into an agreement with MinQuest for an option to acquire a 100% interest in the Imperial Property. The Imperial Property consists of 22 contiguous, unpatented mineral claims covering approximately 450 acres located in Esmeralda County, Nevada, U.S.A. Upon signing the agreement the Company paid MinQuest $60,000. The agreement requires certain additional minimum annual option payments totaling $80,000 to be paid by July 1, 2008. The agreement also requires minimum annual exploration expenditures with a grand total of $500,000 in expenditures required to be incurred on the property by the July 1, 2009. The property option agreement is subject to a 3% royalty payable to MinQuest. The Company is required to use MinQuest for exploration conducted on the Imperial Property.
To January 31, 2008, the Company had made the initial option payment of $60,000 upon signing the agreement as well as the $20,000 option payments due in July 2007, 2006 and 2005. In addition the Company has incurred approximately $277,000 in exploration expenditures on the property which satisfied the Company’s expenditure requirements to July 1, 2007.
On May 30, 2008, the Company entered into an Assignment and Assumption Agreement (the “Agreement”) with Patriot Gold Corp., a Nevada corporation (“Patriot”), to assign the exclusive option to an undivided right, title and interest in the Imperial Property to Patriot. Pursuant to the Agreement, Patriot assumed the rights, and agreed to perform all of the duties and obligations, of the Company arising under the Imperial Property Option Agreement. Simultaneous with the execution and delivery of the Agreement, the Company received $250,000 from Patriot, which amount represents the full payment and satisfaction for the assignment by the Company to Patriot of the Imperial Property Option Agreement and all rights and obligations with respect thereto. Included in the assignment were, without limitation, all sums incurred by the Company in connection with the Imperial Property, specifically (i) the refunding of the reclamation bond previously paid by the Company to the Bureau of Land Management in Nevada in the amount of $13,255; (ii) the approximately $277,000 of expenditures incurred by the Company prior to the Agreement; and (iii) the $120,000 paid to MinQuest Inc. by the Company as option payments under the Imperial Property Option Agreement.
Hercules Property
On October 22, 2004, the Company entered into an agreement with MinQuest for an option to acquire a 100% interest in the Hercules Property. Concurrent with the signing of the agreement, the Company made the first property option payment of $20,000. The agreement requires certain additional minimum annual property option payments totaling $200,000 and minimum annual exploration expenditures totaling $4,050,000 to be paid or incurred by November 25, 2014. The agreement is subject to a 3% royalty payable to MinQuest with the Company being able to repurchase up to two-thirds of the royalty for $3,000,000. On May 29, 2006 by way of a letter agreement, the Company and MinQuest agreed to adjust the timing of exploration expenditures such that an aggregate amount of approximately $300,000 was to be spent by September 1, 2006. On April 21, 2009 MinQuest granted the Company a one year extension on its Hercules property obligations. The result is that the $20,000 property option payments due annually on November 25, 2008 through 2014 inclusive are now due on November 25, 2009 through 2015 inclusive. The annual property expenditure requirements of $500,000 required to be uncured annually by November 25, 2009 through 2014 respectively are now due to be incurred by November 25, 2010 through November 25, 2015.
To January 31, 2010, the Company had made the initial option payment of $20,000 due on signing as well as the $20,000 option payments due in November 2007, 2006 and 2005, however is in default of the November 2009 option payment. In addition the Company has incurred approximately $792,200 in exploration expenditures on the property. At January 31, 2010 the Company had a shortfall in property expenditures of approximately $257,800. As a result of the extension granted by MinQuest, this amount was due to be incurred by November 25, 2009, but is currently in default, pending financing. The Company is at risk of losing its interest in the property by not making the indicated option payments and incurring the exploration expenditures, when demanded.
Cortez Property
On February 28, 2005, the Company entered into an agreement with MinQuest for an option to acquire a 100% interest in properties known as the “Crescent Fault Property,” the “Bankop Property,” and the “Bullion Mountain Property” (collectively, the “Cortez Property”). Concurrent with the signing of the agreement, the Company made the first property option payment of $65,000. The agreement requires certain additional minimum annual property option payments totaling $445,000 and minimum annual exploration expenditures totaling $1,150,000 to be paid or incurred by February 15, 2010. The agreement is subject to a 3% royalty payable to MinQuest. In addition, the Company is required to use MinQuest for exploration activities undertaken on the properties. On May 29, 2006 by way of a letter agreement, the Company and MinQuest agreed to adjust the timing of exploration expenditures such that an aggregate amount of approximately $250,000 was to be spent by September 1, 2006. On April 21, 2009 MinQuest granted the Company a one year extension on its Cortez property obligations. The result is that the $75,000 property option payments due on February 26, 2009 is now due February 26, 2010 and the $250,000 due on February 26, 2010 is now due February 26, 2011. The annual property expenditure requirement of $300,000 required to be uncured by February 26, 2009 is now due to be incurred by February 26, 2010 and the $250,000 due February 26, 2010 is now due to be incurred by February 26, 2011.
To January 31, 2010, the Company had made the initial option payment of $65,000 due on signing as well as the $50,000, $40,000 and the $30,000 option payments due in February of 2008, 2007, and 2006 respectively, however is in default of the $75,000 payment due in February 2010. In addition the Company has incurred approximately $242,900 in exploration expenditures on the property. At January 31, 2010 the Company had a shortfall in property expenditures of approximately $207,100. As a result of the extension granted by MinQuest, this amount was due to be incurred by February 26, 2010, but is in default, pending financing. The Company is at risk of losing its interest in the property by not making the indicated option payments and incurring the exploration expenditures, when demanded.
On March 11, 2010, the Company entered into an Assignment Agreement with its wholly owned subsidiary, Goldmin Exploration Inc., a Nevada corporation (“Goldmin”), to assign the exclusive option to an undivided right, title and interest in the Crescent Fault, Bankop and Bullion Mountain, collectively named the Cortez property to Goldmin. Pursuant to the Agreement, Goldmin assumed the rights, and agreed to perform all of the duties and obligations, of the Company arising under the Gilman Property Option Agreement.
Related Party Transactions Involving Greg Crowe
On July 14, 2006 Mr. Greg Crowe resigned as a Director of the Company. In connection with his resignation, the Company and Mr. Crowe entered into a Redemption Agreement, dated July 14, 2006, pursuant to which Mr. Crowe agreed to sell the 3,000,000 common shares of the Company owned by Mr. Crowe to the Company at a price of $0.01 per share. The Company paid Mr. Crowe $30,000 and returned the shares to treasury for cancellation.
Related Party Transactions Involving Donald Neal
On July 12, 2006 the Company granted Donald Neal, our former Director, President, Chief Executive and Operating Officer, Treasurer, and Secretary, 200,000 stock options, each entitling him to purchase one share of common stock at a price of $1.00 until July 12, 2016.
On July 12, 2006 the Company and Mr. Neal entered into an Agreement, pursuant to which the Company acquired 3,000,000 common shares of the Company’s stock owned by Mr. Neal for a purchase price of $0.01 per share. The payment of the $30,000 purchase price was made on April 30, 2007.
Director Independence
We are not subject to listing requirements of any national securities exchange or national securities association and, as a result, we are not at this time required to have our board comprised of a majority of “independent directors.” We believe that the following directors currently meet the definition of “independent” as that term is defined in the rules and regulations of the American Stock Exchange: Jared Beebe; David Gladwell; Richard Kehmeier; and Ronald Sheets.
ITEM 14
ITEM 14 PRINCIPAL ACCOUNTING FEES AND SERVICES
Morgan & Company served as the Company’s Principal Accountant since the Company’s incorporation until December 1, 2008. Subsequently, Robison, Hill & Co. has been the Company’s Principal Accountant. Their fees billed to the Company for the fiscal years ending January 31, 2010 and 2009 are set forth below:
As of January 31, 2010, the Company did not have a formal, documented pre-approval policy for the fees of the principal accountant. It is in the process of adopting such a policy. All of the principal accounting fees and services were approved by the audit committee.
PART IV
ITEM 15.
ITEM 15.
EXHIBITS
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
SIGNATURE
TITLE
DATE
/s/Richard Kern
Richard Kern
Director, President, Chief Executive and Operating Officer, Secretary, and Treasurer (Principal Executive, Financial, and Accounting Officer)
May 3, 2010
/s/ Jared Beebe
Jared Beebe
Director
May 3, 2010
David Gladwell
Director
May 3, 2010
/s/ Richard Kehmeier
Richard Kehmeier
Director
May 3, 2010
/s/ Ronald Wynn Sheets
Ronald Wynn Sheets
Director
May 3, 2010