UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-QSB

 

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE

ACT OF 1934

 

For the Quarterly Period Ended February 28, 2007

 

OR

 

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE

ACT OF 1934

 

For the transition period from _____________ to _____________

 

Commission file number 000-32919

 

PATRIOT GOLD CORP.

 

(Exact name of registrant as specified in its charter)

 

 

501-1775 Bellevue Avenue, West Vancouver B.C. V7V 1A9, Canada

(Address of principal executive offices) (Zip Code)

(604) 925-5257

(Registrant's telephone number, including area code)

 

(Former name, former address and former fiscal year, if changed since last report)

 

Check mark whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes o No

 

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes [_] No x

 

State the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 26,224,400 shares of common stock, $0.001 par value, issued and outstanding as of April 11, 2007.

 

 

 

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Page

 

 

 

 

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PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements.

PATRIOT GOLD CORP.

(An Exploration State Company)

BALANCE SHEETS

 

 

 

The accompanying notes are an integral part of these financial statements.

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PATRIOT GOLD CORP.

(An Exploration State Company)

STATEMENTS OF OPERATIONS

(Unaudited)

 

 

 

The accompanying notes are an integral part of these financial statements.

 

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PATRIOT GOLD CORP.

(An Exploration State Company)

STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

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PATRIOT GOLD CORP.

(An Exploration State Company)

STATEMENTS OF CASH FLOWS

(Unaudited)

(Continued)

 

 

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITIES:

 

On March 10, 2006 the Company granted 1,000,000 stock options to various directors and consultants for an exercise price of $0.25 per share. Consulting expense of $86,483 was recorded at May 31, 2006. The vesting period for some of these options is up to three years. As a result, the unvested portions of the options have been revalued at February 28, 2007 resulting in an additional option expense of $13,894 due to the amortization of the fair value of the options as determined by the Black-Scholes model between the date of grant and February 28, 2007.

 

The accompanying notes are an integral part of these financial statements.

 

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PATRIOT GOLD CORP.

(An Exploration State Company)

NOTES TO FINANCIAL STATEMENTS

 

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

This summary of accounting policies for Patriot Gold Corp. (An Exploration State Company) is presented to assist in understanding the Company's financial statements. The accounting policies conform to generally accepted accounting principles and have been consistently applied in the preparation of the financial statements.

 

Interim Reporting

 

The unaudited financial information furnished herein reflects all adjustments, which in the opinion of management are necessary to fairly state the financial position of Patriot Gold Corp. (the “Company”) and the results of its operations for the periods presented. This report on Form 10-QSB should be read in conjunction with the Company’s financial statements and notes thereto included in the Company’s Form 10-KSB for the fiscal year ended May 31, 2006. The Company assumes that the users of the interim financial information herein have read or have access to the audited financial statements for the preceding fiscal year and that the adequacy of additional disclosure needed for a fair presentation may be determined in that context. Accordingly, footnote disclosure, which would substantially duplicate the disclosure contained in the Company’s Form 10-KSB for the fiscal year ended May 31, 2006 has been omitted. The results of operations for the three and nine-month period ended February 28, 2007 is not necessary indicative of results for the entire year ending May 31, 2007.

 

Nature of Operations

 

The Company has no products or services as of February 28, 2007. The Company operated from November 30, 1998 through approximately May 31, 2000 in the production of ostrich meat. On June 1, 2000, the Company ceased operations.

 

In June 2003, Management decided to change the direction of the Company and became a natural resource exploration company and will continue to seek opportunities in this field. The Company is currently engaging in the acquisition, exploration, and if warranted and feasible, development of natural resource properties. Since June 1, 2000, the Company is in the exploration state.

 

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 $23,291,631 for the period from June 1, 2000 (inception of exploration state) to February 28, 2007, and has no sales. The future of the Company is dependent upon its ability to obtain future financing and upon future profitable operations from the development of its mineral properties. Management is not currently seeking additional capital but will be required to do so in order to continue to operate in the future. The consolidated 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.

If the Company were unable to continue as a “going concern”, then substantial adjustments would be necessary to the carrying values of assets, the reported amounts of its liabilities, the reported expenses, and the balance sheet classifications used.

 

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PATRIOT GOLD CORP.

(An Exploration State Company)

NOTES TO FINANCIAL STATEMENTS

(Continued)

 

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

Organization and Basis of Presentation

 

The Company was incorporated under the laws of the State of Nevada on November 30, 1998. On June 11, 2003, the Company changed its name to Patriot Gold Corp.

 

Cash and Cash Equivalents

 

For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents to the extent the funds are not being held for investment purposes.

 

Office Equipment

 

Office equipment is recorded at cost and is depreciated using the straight-line method over its expected useful life, which is estimated at three years. Depreciation expense of $1,047 was charged to general and administrative expenses during the nine-months ended February 28, 2007 (2006 - $698).

 

Pervasiveness of Estimates

 

The preparation of financial statements in conformity with generally accepted accounting principles required management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Foreign Currency

 

Prior to the quarter ending August 31, 2003, the Company’s primary functional currency was the Canadian dollar. During, the quarter ended August 31, 2003, the Company underwent some significant changes in its operations. Prior to May 31, 2000, the company was in the business of producing ostrich meat in Canada. Subsequently on June 1, 2000, the Company ceased operations and remained dormant until June 2003, when the Company decided to enter the mining industry in the United States. Due to the change in direction the Company was headed, the majority of its operations and transactions would be located in the United States and the majority of the transaction would be in U.S. dollars. This was considered “a significant change in economic facts and circumstances” per SFAS 52, Appendix A and thus the Company changed its functional currency from the Canadian dollar to the U.S. dollar.

 

The Company's primary functional currency is the U.S. dollar. However, the Company still has a few transactions with Canadian suppliers. Transaction gains and losses are included in income. For the nine-month period ended February 28, 2007 the Company recognized a transaction loss of $21 (2006 - $2,551).

 

Concentration of Credit Risk

 

The Company has no significant off-balance-sheet concentrations of credit risk such as foreign exchange contracts, options contracts or other foreign hedging arrangements. The Company maintains the majority of its cash balances with one financial institution, in the form of demand deposits.

 

Loss per Share

 

Net income (loss) per share is computed by dividing the net income by the weighted average number of shares outstanding during the period. The effect of the Company’s common stock equivalents would be anti-dilutive for February 28, 2007 and 2006 and are thus not presented.

 

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PATRIOT GOLD CORP.

(An Exploration State Company)

NOTES TO FINANCIAL STATEMENTS

(Continued)

 

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

Comprehensive Income

 

The Company has adopted SFAS No. 130, "Reporting Comprehensive Income", which establishes standards for reporting and display of comprehensive income, its components and accumulated balances. The Company is disclosing this information on its Consolidated Statement of Operations. Comprehensive income is comprised of net income (loss) and all changes to capital deficit except those resulting from investments by owners and distribution to owners.

 

Stock Options

 

Effective June 1, 2006, the company adopted the provisions of SFAS No. 123(R). SFAS No. 123(R) requiring 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. Prior to June 1, 2006, the company accounted for awards granted to employees under its equity incentive plans under 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 three or nine-months ended February 28, 2007 or 2006 and accordingly, no compensation expense was recognized under APB No. 25 for the three or nine-months ended February 28, 2007 or 2006. In addition, no compensation expense is required to be recognized under provisions of SFAS No. 123(R) with respect to employees.

Under the modified prospective method of adoption for SFAS No. 123(R), the compensation cost recognized by the company beginning on June 1, 2006 includes (a) compensation cost for all equity incentive awards granted prior to, but not yet vested as of June 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 June 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.

During the three and nine-months ended February 28, 2007 and 2006, no stock options were granted to non-employees. Accordingly, no stock-based compensation expense was recognized for new stock option grants in the Statement of Operations and Comprehensive Loss at February 28, 2007 and 2006.

 

Compensation expense for unvested options granted to non-employees in previous periods is revalued at each period end and is being amortized over the vesting period of the options. As a result of amortizing and revaluing common stock option expense for unvested options granted in the year ended May 31, 2006, an additional $13,894 in stock-based compensation has been recognized in the Statement of Operations at February 28, 2007.

 

Exploration and Development Costs

 

On June 1, 2000, the Company ceased operations and until June 2003 conducted minimal administrative activities. The Company has been in the exploration state since that time and has not yet realized any revenue from its planned operations. It is primarily engaged in the acquisition, exploration and development of mining properties. Mineral exploration costs and payments related to the acquisition of the mineral rights are expensed as incurred. When it has been determined that a mineral property can be economically developed as a result of establishing proven and probable reserves, the costs incurred to acquire and develop such property will be capitalized. Such costs will be amortized using the units-of-production method over the estimated life of the probable reserve.

 

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PATRIOT GOLD CORP.

(An Exploration State Company)

NOTES TO FINANCIAL STATEMENTS

(Continued)

 

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

Advertising Costs

 

Advertising costs are expensed as incurred. There was no advertising expense for the periods ended February 28, 2007 and 2006.

 

NOTE 2 - INCOME TAXES

As of May 31, 2006, the Company had a net operating loss carryforward for income tax reporting purposes of approximately $6,097,000 that may be offset against future taxable income through 2025. Current tax laws limit the amount of loss available to be offset against future taxable income when a substantial change in ownership occurs. Therefore, the amount available to offset future taxable income may be limited. No tax benefit has been reported in the financial statements, because the Company believes there is a 50% or greater chance the carryforwards will expire unused. Accordingly, the potential tax benefits of the loss carryforwards are offset by a valuation allowance of the same amount.

 

NOTE 3 - EXPLORATION STATE COMPANY/ GOING CONCERN

 

The Company has not begun principal operations and as is common with a company in the exploration state, the Company has had recurring losses. Continuation of the Company as a going concern is dependent upon obtaining the additional working capital necessary to be successful in its planned activity, and the management of the Company has developed a strategy, which it believes will accomplish this objective through additional equity funding and long term financing, which will enable the Company to operate for the coming year.

 

NOTE 4 - RELATED PARTY TRANSACTIONS

 

As of February 28, 2007, all activities of the Company have been conducted by corporate officers from either their homes or business offices. There are no commitments for future use of the facilities.

 

On November 1, 2005, the Company signed a service agreement with its President, Robert Coale. Commencing November 2005 pursuant to the agreement the Company began paying Robert Coale $2,500 per month for his expertise to identify and acquire certain exploration style properties that fit the parameters of the Company’s business plan, oversee and manage, as directed by the Company, the Company’s exploration programs that will be undertaken from time-to-time, and perform all of the duties normally associated with serving as the President and Chief Executive Officer of a publicly traded mineral exploration company. The service agreement shall be for an indefinite term, cancelable in writing by either party with 30 days written notice. For the nine-months ended February 28, 2007, the Company paid $22,500 (2006 - $10,000) pursuant to this agreement.

 

During the quarter ended February 28, 2007, the Company paid $6,000 to one of its Directors for geological services for the Moss Property.

 

NOTE 5 – ISSUED SHARES

 

During the quarter ended February 28, 2007 the Company settled the outstanding balance of its Subscriptions Receivable of $79,000. The two shareholders returned the underlying 55,000 shares of common stock to the Company in settlement of the balance of $79,000. The shares were then cancelled by the Company.

 

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PATRIOT GOLD CORP.

(An Exploration State Company)

NOTES TO FINANCIAL STATEMENTS

(Continued)

 

NOTE 6 - STOCK OPTIONS / WARRANTS

Pursuant to the 2005 and 2003 Stock Option Plans, grants of shares can be made to employees, officers, directors, consultants and independent contractors of non-qualified stock options as well as for the grant of stock options to employees that qualify as incentive stock options under Section 422 of the Internal Revenue Code of 1986 (“Code”) or as non-qualified stock options. The Plan is administered by the Option Committee of the Board of Directors (the “Committee”), which has, subject to specified limitations, the full authority to grant options and establish the terms and conditions for vesting and exercise thereof. Currently the entire Board functions as the Committee.

In order to exercise an option granted under the Plan, the optionee must pay the full exercise price of the shares being purchased. Payment may be made either: (i) in cash; or (ii) at the discretion of the Committee, by delivering shares of common stock already owned by the optionee that have a fair market value equal to the applicable exercise price; or (iii) with the approval of the Committee, with monies borrowed from us.

Subject to the foregoing, the Committee has broad discretion to describe the terms and conditions applicable to options granted under the Plan. The Committee may at any time discontinue granting options under the Plan or otherwise suspend, amend or terminate the Plan and may, with the consent of an optionee, make such modification of the terms and conditions of such optionee’s option as the Committee shall deem advisable.

 

On May 26, 2003, the Board of Directors approved a stock option plan whereby 2,546,000 common shares have been set aside for employees and consultants to be distributed at the discretion of the Board of Directors. On September 22, 2003, the Board of Directors amended the stock option plan to allow 3,000,000 additional options. As of February 28, 2007, 5,040,000 stock options had been granted to various directors and consultants for an exercise price ranging from $.05 to $1.50 per share.

 

On November 18, 2005, the Board of Directors approved the 2005 stock option plan whereby 2,000,000 common shares have been set aside for employees and consultants to be distributed at the discretion of the Board of Directors. As of February 28, 2007, 1,000,000 stock options had been granted to various directors and consultants for an exercise price of $0.25 per share.

 

No stock options were granted under either plan during the three or nine-months ended February, 2007 or 2006.

 

The following table sets forth the options outstanding under the 2003 Plan as of February 28, 2007:

 

 

The following table sets forth the options outstanding under the 2005 Plan as of February 28, 2007:

 

 

 

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PATRIOT GOLD CORP.

(An Exploration State Company)

NOTES TO FINANCIAL STATEMENTS

(Continued)

 

NOTE 6 - STOCK OPTIONS / WARRANTS (continued)

 

The following table summarizes information concerning outstanding and exercisable common stock options under the 2003 and 2005 Plans at February 28, 2007:

 

 

The following table sets forth common share purchase warrants outstanding as of February 28, 2007:

 

 

The following table lists the common share warrants outstanding at February 28, 2007. Each warrant is exchangeable for one common share.

 

 

 

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PATRIOT GOLD CORP.

(An Exploration State Company)

NOTES TO FINANCIAL STATEMENTS

(Continued)

 

NOTE 7 - STOCK SPLIT

 

On November 17, 2006, the Company held a special meeting (the "Meeting") of the shareholders, pursuant to a proxy statement that it filed with the Securities and Exchange Commission and that it had furnished to holders of record of the outstanding shares of its common stock as of October 20, 2006. At the Meeting, the Board of Directors received approval from a majority of the Company’s shareholders of the following matters: (1) grant of discretionary authority to the Board of Directors to implement either of the following: (a) a reverse stock split of the common stock on the basis of one post-consolidation share for up to each ten pre-consolidation shares to occur at some time within twelve months of the date of the shareholders’ meeting, with the exact time of the reverse split to be determined by the Board of Directors, or (b) a forward stock split of the common stock on the basis of up to three post-split shares for each one pre-split share to occur at some time within twelve months of the date of the shareholders’ meeting, with the exact time of the forward split to be determined by the Board of Directors; and (3) the increase of the number of authorized shares of the common stock from 100,000,000 shares, par value $0.001, to 200,000,000 shares, par value $0.001, should the Board of Directors implement a forward stock split as previously described. Our Directors believe that shareholder approval of a range for the exchange ratio of the reverse or forward splits (as contrasted with approval of a specified ratio of the split) provides the Board of Directors with maximum flexibility to achieve the purposes of a stock split, and, therefore, is in the best interests of our shareholders. The actual ratio for implementation of the reverse or forward split would be determined by our Board based upon its evaluation as to what ratio of pre-split shares to post-split shares would be most advantageous to our shareholders. Our Board of Directors also believes that, should it determine to implement a forward stock split as described above, it would be necessary to increase the number of authorized shares of common stock in order to provide the Company with the flexibility to issue common stock without further action by the Company's stockholders. As of the date of this report, the Board of Directors has not yet decided on what action, if any, to take.

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The following discussion should be read in conjunction with the financial statements of Patriot Gold Corp. (the “Company”), which are included elsewhere in this Form 10-QSB. Certain statements contained in this report, including statements regarding the anticipated development and expansion of the Company's business, the intent, belief or current expectations of the Company, its directors or its officers, primarily with respect to the future operating performance of the Company and the products it expects to offer and other statements contained herein regarding matters that are not historical facts, are "forward-looking" statements. Future filings with the Securities and Exchange Commission, future press releases and future oral or written statements made by or with the approval of the Company, which are not statements of historical fact, may contain forward-looking statements. Because such statements include risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements.

 

All forward-looking statements speak only as of the date on which they are made. Except as otherwise required by applicable federal securities laws, the Company undertakes no obligation to update such statements to reflect events that occur or circumstances that exist after the date on which they are made.

 

General

 

The Company was incorporated under the laws of the State of Nevada on November 30, 1998. The Company operated from incorporation through approximately May 31, 2000 in the production of ostrich meat. On June 1, 2000, the Company ceased operations. On June 11, 2003, the Company changed its name to Patriot Gold Corp. and become a natural resource exploration company and will seek opportunities in this field. The Company is currently engaged in the acquisition, exploration, and if warranted and feasible, development of natural resource properties. Since June 1, 2000, the Company has been in the exploration stage. Upon location of a commercial minable reserve, the Company expects to actively pursue development alternatives.

 

Financing over the next twelve months

 

Over the next twelve months, the Company intends to explore various properties to determine whether there are commercially exploitable reserves of gold and silver or other metals. The Company does not intend to hire any employees nor to make any purchases of equipment over the next twelve months, as it intends to rely upon outside consultants to provide all the tools needed for the exploratory work being conducted.

 

Current cash on hand is sufficient for all of the Company’s commitments for the next 12 months. We anticipate that the additional funding that we require in the future 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

 

Notwithstanding, we cannot be certain that any required additional financing will be available on terms favorable to us. If additional funds are raised by the issuance of our equity securities, such as through the issuance and exercise of warrants, then existing stockholders will experience dilution of their ownership interest. If additional funds are raised by the issuance of debt or other equity instruments, we may be subject to certain limitations in our operations, and issuance of such securities may have rights senior to those of the then existing holders of common stock. If adequate funds are not available or not available on acceptable terms, we may be unable to fund expansion, develop or enhance services or respond to competitive pressures.

 

Overview

 

We are a natural resource exploration company with an objective of acquiring, exploring, and if warranted and feasible, exploiting natural resource properties. Our primary focus in the natural resource sector is gold. We do not consider ourselves a “blank check” company required to comply with Rule 419 of the Securities and Exchange Commission, because we were not organized for the purpose of effecting, and our business plan is not to effect, a

 

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merger with or acquisition of an unidentified company or companies, or other entity or person. We do not intend to merge with or acquire another company in the next 12 months.

 

Though we have the expertise on our board of directors to take a resource property that hosts a viable ore deposit into mining production, the costs and time frame for doing so are considerable, and the subsequent return on investment for our shareholders would be very long term indeed. We therefore anticipate optioning or selling any ore bodies that we may discover to a major mining company. Most major mining companies obtain their ore reserves through the purchase of ore bodies found by junior exploration companies. Although these major mining companies do some exploration work themselves, many of them rely on the junior resource exploration companies to provide them with future deposits for them to mine. By optioning or selling a deposit found by us to these major mining companies, it would provide an immediate return to our shareholders without the long time frame and cost of putting a mine into operation ourselves, and it would also provide future capital for the company to continue operations.

 

The search for valuable natural resources as a business is extremely risky. We can provide investors with no assurance that the properties we have in Arizona and Nevada contain commercially exploitable reserves. Exploration for natural reserves is a speculative venture involving substantial risk. Few properties that are explored are ultimately developed into producing commercially feasible reserves. Problems such as unusual or unexpected formations and other conditions are involved in mineral exploration and often result in unsuccessful exploration efforts. In such a case, we would be unable to complete our business plan and any money spent on exploration would be lost.

 

Natural resource exploration and development requires significant capital and our assets and resources are limited. Therefore, we anticipate participating in the natural resource industry through the purchase or option of early stage properties. To date we have acquired several properties and we have several properties under option. We have already conducted various kinds of exploration on these properties, including mapping, sampling, surveying and drilling, we expect to conduct further exploration of these properties. There has been no indication as yet that any mineral deposits exist on these properties, and there is no assurance that a commercially viable mineral deposit exists on any of our properties. Further exploration will be required before a final evaluation as to the economic and legal feasibility is determined.

 

In the following discussion, there are references to “patented” mining claims and “unpatented” mining claims. A patented mining claim is one for which the U.S. government has passed its title to the claimant, giving that person title to the land as well as the minerals and other resources above and below the surface. The patented claim is then treated like any other private land and is subject to local property taxes. An unpatented mining claim on U.S. government lands establishes a claim to the locatable minerals (also referred to as stakeable minerals) on the land and the right of possession solely for mining purposes. No title to the land passes to the claimant. If a proven economic mineral deposit is developed, provisions of federal mining laws permit owners of unpatented mining claims to patent (to obtain title to) the claim. If you purchase an unpatented mining claim that is later declared invalid by the U.S. government, you could be evicted.

 

Exploration Programs

 

Bruner and Vernal Agreement

 

Pursuant to a Property Option Agreement with MinQuest, Inc. (“MinQuest”), a Nevada corporation, we have the option to earn a 100% interest in the Bruner and Vernal mineral exploration properties located in Nevada. The property option payments and required annual expenditures under the agreement apply to the properties in aggregate and the Company has discretion as to which property it incurs the annual expenditures. The option with MinQuest terminates if, prior to July 25, 2008, we fail to make any payments when due to MinQuest or complete property expenditures as required by the option. The option will have been fully exercised, and we can earn a 100 percent interest in both properties if we make payments to MinQuest of $80,000 and spend $500,000 in exploration over a five year period ending on July 25, 2008. On July 25, 2003, we paid MinQuest $12,500 with respect to the properties, and we owed an additional $80,000 which was due in four equal annual installments commencing on July 25, 2004. With the approval of MinQuest, we paid the first installment on August 27, 2004 and we paid the second installment on September 20, 2005. On July 25, 2006 we made the third installment of $20,000. By July 25, 2006, we were to have spent $275,000 on exploration, and by that date we had spent approximately $272,000 in aggregate on exploration of the two properties. The shortfall of $3,000 in our required expenditures will be applied

 

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to our future exploration commitments. We are obligated to spend another $225,000 over the next two years as follows: $100,000 by July 25, 2007 and $125,000 by July 25, 2008. MinQuest retains a three percent NSR production royalty.

 

An overview of our activities and obligations with respect to these properties are set forth below.

 

BRUNER PROJECT

 

The property is located approximately 130 miles east-southeast of Reno, Nevada at the northern end of the Paradise Range. Access from Fallon, the closest town of any size, is by 50 miles of paved highway and 16 miles of gravel roads. We hold the property via 16 unpatented mining claims (320 acres).

 

Our exploration program to date at Bruner has included:

 

In October 2004, we received the approval of a Notice of Intent for Exploration Drilling, and an environmental bond filed with the Nevada office of the Bureau of Land Management. A total of 18 drill sites have been located to target both extensions of the gold intercepts in previous drilling and geophysical anomalies found by a CSMT survey. A CSMT survey is an electromagnetic method used to map the variation of the Earth’s resistance to conduct electricity by measuring naturally occurring electric and magnetic fields at the Earth’s surface. With the proper approvals in place, we began drilling on the Bruner property on December 20, 2004. This drilling program was completed in March 2005 at a total cost of approximately $153,811, with a total of 3,200 feet of reverse circulation (RC) drilling in 7 holes. The depths of the holes ranged from 300 to 750 feet. We have received assays for all holes and the results were encouraging enough that additional drilling was approved.

 

Because of the favorable drilling results from the drilling program we began on December 20, 2004, we decided to conduct additional drill testing on the Bruner property, including both reverse circulation and core drilling. In April 2005, we filed an amended drilling plan with the Bureau of Land Management that allowed three fences of drill holes with the fences spaced 400 feet apart along the apparent trend of the mineralization. This program was completed in the fall of 2005 with 11 holes totaling 4,205 feet being drilled. Subsequent to the completion of this drill program, the Company has focused its exploration efforts on the Moss Property. The Company does not currently have any plans to complete an exploration program on the Bruner property in 2007.

 

VERNAL PROJECT

 

The property is located approximately 140 miles east-southeast of Reno, Nevada on the west side of the Shoshone Mountains. Access from Fallon, the closest town of any size, is by 50 miles of paved highway and 30 miles of gravel roads.

 

We hold the property via 12 unpatented mining claims (240 acres). MinQuest retains a three percent NSR production royalty. Our exploration of the Vernal property to date has consisted of geologic mapping and rock chip geochemical sampling. The Company does not currently have an exploration program planned for the Vernal property.

 

MOSS PROPERTY

 

The Moss Property is located in Mohave County, Arizona in the historic Oatman District, and is located some 5 miles northwest of the town of Oatman, with Kingman, Arizona to the east, Laughlin, Nevada to the west and Las Vegas, Nevada to the north. Access is via gravel roads from Bullhead City. We hold the property in the Moss Mine region via 62 unpatented mining claims and 15 patented claims.

 

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The unpatented claims are held under a lease/purchase agreement with MinQuest, Inc., a Nevada Corporation. On March 4, 2004, we signed the agreement that earned us a 100 percent interest in these claims by paying MinQuest a one time lease fee of $50,000. The fee of $50,000 was paid on July 7, 2004. A three percent NSR production royalty is retained by MinQuest.

 

The patented claims were acquired through a series of transactions between November 2003 and January 2005 as noted below.

 

Gintoff Claim

 

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

 

Williams Property

 

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

 

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

 

At the recommendation of Mr. Sibthorpe, in January, 2004, Mr. Robert Coale (P.E.), another one of our directors and our current President, visited the site to see the overall geological setting and occurrence of mineralization and evaluated the drilling program proposed by MinQuest, the company that we would contract to co-ordinate any work programs undertaken. At that time, the metallurgical data and reports that had been collected from the sellers were reviewed. Mr. Coale’s analysis revealed that reagent (liquid chemicals used for leaching) consumptions are acceptable and deleterious compounds (things present in the ore that would be difficult to work with) were not apparent. He recommended bulk sampling at a selected location in the future once the definition of the ore body was further advanced through drilling. On January 31, 2004 Robert Sibthorpe wrote a report with a summary of the property, a review of the draft budget supplied by Richard Kern, our work program contractor, and a layout of the drilling program planned for the property.

 

The drilling was conducted throughout the spring and early summer of 2004, and in June, 2004, Mr. Sibthorpe wrote a report incorporating the results of the drill program which encouraged us to pursue the project. Also in June, 2004, Mr. Kern sent a memo to the Company regarding the potential at the Williams property. Mr. Kern’s recommendation was that we should proceed with the purchase of the Williams Property.

 

On February 19, 2004, we executed a formal agreement to purchase the Williams Property for $350,000. On February 27, 2004 we deposited $25,000 with the title company, which was acting as escrow agent, and three months after signing, on June 14, 2004, we deposited an additional $25,000. When the title company, acting as escrow agent, received the signature pages from the various sellers, the initial $25,000 deposit was to be delivered to the sellers. On the three-month anniversary after we signed the definitive agreement, the second $25,000 was to be delivered to the sellers. By mid-July, 2004, the escrow agent had received 19 of the 23 signatures, which under

 

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Arizona law was enough to complete the transaction, and on July 24, 2004, the first and second deposits of $25,000 each were released to the sellers. On or before the 6-month anniversary after we signed the definitive agreement, the balance of $300,000 was due to the sellers. As a result of our due diligence, we decided to complete the purchase of the Williams Property. On August 27, 2004 we paid the final $300,000 to the escrow agent for the closing of the sale. On November 11, 2004, the escrow agent released the $300,000 to the sellers for the closing of the sale, and, as a result, we now own 100% interest in the Williams Property.

 

Greenwood Claim

 

On January 18, 2005 the Company completed the acquisition of a single patented claim from an individual for $150,000.

 

Martinez Claims

 

The Company acquired five patented claims from Ramon and Edna Martinez for a total of $150,000. The Company made one payment of $75,000 on November 8, 2004 and made the final payment of $75,000 on February 14, 2005.

 

Ruth and Rattan Claims

 

On January 18, 2005, the Company made a single payment of $25,000 to acquire two patented claims known as the Ruth and Rattan claims.

 

The Moss Mine was the first gold discovery made in the Oatman district. Discovered in 1864, the mine was worked discontinuously through the 1930’s. Production records are very poor. The mine lay idle until the early 1980’s when a number of mining companies explored the district. These companies included Billiton Minerals, Magma Copper, Golconda Resources and Addwest Minerals.

 

Our exploration of the Moss Property has consisted of geologic mapping, vein geochemical sampling and drill testing of the identified veins. The Moss Property contains the site of the former Moss Mine. The most significant historic mining at Moss Mine occurred on narrow veins that trend sub-parallel to the Moss Mine vein and dip steeply northerly. These veins should intersect the Moss Mine vein at depth. The deepest vein intercepts at Moss are less than 400 feet. The Ruth vein should intersect the Moss Mine vein at 800-900 feet below the surface. If the Moss Mine vein is the feeder for the Ruth vein it must contain similar gold values at that level. The Moss Mine vein needs drill testing to a depth of 900 feet to determine its potential to contain high grade gold mineralization.

 

Phase 1 drilling has been completed at the Moss Property. A total of 36 holes were drilled totaling 8,807 feet. Thirty holes were drilled on the Gintoff Claim on the Moss Property, and six holes were drilled on one of the adjacent parcels of land. The easternmost section of the Property, which was mostly untested by drilling, was drilled with thirty reverse circulation holes. This allowed accurate cross-sections to be made for this area. The coverage on this section is generally two or three holes on 100 foot sections testing grades and widths from 50-250 feet down dip. In the western area, limited confirmation drilling was carried out and the results obtained were generally in line with the values obtained by previous operators. Geological information obtained may now provide a structural explanation for the lack of success obtained here to date by previous operators.

 

A study of all drilling results at the Moss Property indicates a tendency for total gold content to increase with intercept depth. Roughly 60% of the deeper holes have better intercepts than shallow holes. An example from our drilling tested the vein over a vertical extent of 300 feet. In this example the gold content nearly doubles between AR-5 and AR-23.

 

An expanded program of drilling began in April 2005, and was expected to be completed by May 2006. Approximately 12,000 feet of reverse circulation (RC) drilling was planned to be done to test for possible high-grade (0.30 ounces per ton or above) down-dip extensions of the Moss vein. We planned to drill 10 to 15 holes. The depths of these holes were to have ranged from 500 to 1,300 feet. The program budget, which included significant contingency expenditures, was $643,700.

 

The first portion of this expanded drilling program was expected to be completed by the fall of 2005. However, after eight holes were attempted, drilling was halted because of difficulty in drilling through the granite, because the drilling rig that we contracted to use was too light to penetrate the rock. We had sought to contract a heavier rig to

 

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continue the program, which we had expected to happen by December 2005. However, this follow-up drilling was delayed. In March 2006 the Board approved a $300,000 exploration program for the Moss Property. The budgeted exploration program includes approximately 2,500 feet of core drilling. The goal of the program is to test the existence of high grade gold and silver mineralization at depth. The drill program began in December 2006 and was completed in February 2007. The Company is currently awaiting final assay and report results.

 

Results of Operations

 

We did not earn any revenues during the three or nine-months ended February 28, 2007 or 2006. 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.

 

During the nine months ended February 28, 2007, we incurred a net loss of $264,970 compared to a net loss of $215,817 for the comparative period in 2006. Our year to date net loss for 2007 has increased over 2006 largely due to higher exploration costs, and higher general and administrative costs offset by higher interest earned in 2007 compared to 2006. During the nine-months ended February 28, 2006, a portion of drill programs was incurred at both the Bruner and Moss properties. In 2007, there was only one drill program underway which was at the Moss Property but the amount incurred in 2007 on the single program exceeded the amount expended on the two programs in 2006. The current year’s drill program on the Moss Property began in December 2006 and concluded in February 2007. General and administrative costs increased to $130,111 in 2007 from $96,623 in 2006 primarily due to $13,894 in stock-based compensation recognized in 2007 and due to the costs the Company incurred relating to the holding of a Special Meeting on November 17, 2006. Partially offsetting these costs were higher professional fees in 2006 related to the filing of the Company’s SB-2 registration statement in 2006 which was filed for the last time on July 5, 2005. There was no stock-based compensation recognized in 2006.

 

During the three months ended February 28, 2007 we incurred a net loss of $180,225 compared to a net loss of $10,441 for the comparative period in 2006. The increase in the quarterly loss was due to increased exploration costs. In 2007, the majority of the Moss Property drill program took place during the current quarter. In 2006, the drill programs on the Bruner and the Moss were both completed in the second quarter so very few exploration expenses were incurred for the three months ended February 28, 2006. General and administrative costs were consistent between 2007 and 2006.

 

Liquidity and Capital Resources

 

We had cash of $3,044,500 as of February 28, 2007. We anticipate that we will incur the following through the next twelve months:

 

 

 

Net cash used in operating activities during the nine months ended February 28, 2007 was $218,524 compared to $248,042 during the nine months ended February 28, 2006. Even though the net loss increased in 2007 ($264,970) compared to 2006 ($215,817) cash used in operations decreased partially due to non-cash stock-based compensation of $13,894 being recognized in 2007 while none was recognized in 2006. Also, working capital inflows of $31,505 occurred in 2007 while working capital outflows of $32,923 took place in 2006. The main reason for the difference in working capital cash flows was that in 2007 the Company recovered $21,000 from prepaid expenses while in 2006 $34,253 from the payment of accounts payable was incurred. There were no financing activities for either of the nine months ended February 28, 2007 or 2006. During the nine-months ended February 28, 2006, the Company purchased $4,193 of office furniture while no investing activities took place in 2007.

 

 

 

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Going Concern Consideration

 

As shown in the accompanying financial statements, the Company has incurred a net loss of $23,291,631 for the period from June 1, 2000 (inception of exploration state) to February 28, 2007, 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 consolidated 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.

There is substantial doubt about our ability to continue as a going concern. Accordingly, our independent auditors included an explanatory paragraph in their report on the May 31, 2006 financial statements regarding concerns about our ability to continue as a going concern. Our financial statements contain additional note disclosures describing the circumstances that lead to this disclosure by our independent auditors.

 

Off-Balance Sheet Arrangements

 

We have no off-balance sheet arrangements.

 

Item 3. Controls and Procedures.

 

Evaluation of Disclosure Controls and Procedures

 

Our disclosure controls and procedures are designed to ensure that information required to be disclosed in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the United States Securities and Exchange Commission. Our Chief Executive Officer and Chief Financial Officer have reviewed the effectiveness of our "disclosure controls and procedures" (as defined in the Securities Exchange Act of 1934 Rules 13a-15(f) and 15d-15(f)) as of the end of the period covered by this report and have concluded that the disclosure controls and procedures are effective to ensure that material information relating to the Company is recorded, processed, summarized, and reported in a timely manner. There were no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the last day they were evaluated by our Chief Executive Officer and Chief Financial Officer.

 

Changes in Internal Controls over Financial Reporting

 

There have been no changes in the Company's internal control over financial reporting during the last quarterly period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

 

PART II - OTHER INFORMATION

 

Item 1. 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 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

None.

 

Item 3. Defaults upon Senior Securities.

 

None.

 

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

 

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No matter was submitted to a vote of the Company’s security holders during the fiscal quarter ended February 28, 2007.

 

Item 5. Other information.

 

During the quarter ended February 28, 2007 the Company cancelled an aggregate of 55,000 shares of its common stock that had been issued to two shareholders in December 2003 and April 2004. Such shares were cancelled because the holders of such shares had not paid to the Company the purchase price that was to be paid in consideration for such shares, which in the aggregate amounted to $79,000. The Company and such shareholders agreed that the Company would release such shareholders from their obligation to pay the purchase price of the shares and that the shares would be cancelled in exchange therefor.

 

The Company does not have any procedures by which security holders can recommend nominees to the Board of Directors.

 

Item 6. Exhibits.

 

Exhibit 31.1 - Certification of Principal Executive and Financial Officer pursuant to Rule 13a-14 of the Securities and Exchange Act of 1934 as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

Exhibit 32.1 – Certification of Principal Executive and Financial Officer Pursuant to 18 U.S.C Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

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SIGNATURES

 

Pursuant to the requirements of Section 13 of 15(d) of the Securities Exchange act of 1934, as amended, the Registrant has duly caused this report to be signed on behalf by the undersigned, thereunto duly authorized.

 

 

PATRIOT GOLD CORP.

 

By: /s/ Robert Coale

Robert Coale

President, Chief Executive

Officer, Secretary and Treasurer

(Principal Executive Officer and

Principal Financial Officer)

 

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