NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015 and 2014
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION
Pacific Gold Corp. (Pacific Gold or the Company) was originally incorporated in Nevada on December 31, 1996 under the name of Demand Financial International, Ltd. On October 3, 2002, Demand Financial International, Ltd. changed its name to Blue Fish Entertainment, Inc. On August 5, 2003, the name was changed to Pacific Gold Corp. Pacific Gold is engaged in the identification, acquisition, and development of prospects believed to have gold, vanadium, uranium, and tungsten mineral deposits. Pacific Gold currently owns mining claims and royalties on mining property in Nevada and Colorado.
Basis of Presentation
These consolidated financial statements and related notes are presented in accordance with accounting principles generally accepted in the United States ("GAAP") and are expressed in U.S. dollars. The Company's fiscal year-end is December 31.
Principle of Consolidation
The consolidated financial statements include all of the accounts of Pacific Gold Corp.,and its wholly-owned subsidiary Fernley Gold, Inc. All significant inter-company accounts and transactions have been eliminated.
Reclassification of Accounts
Certain accounts in the prior period have been reclassified to conform to the current year presentation.
Significant Accounting Principles
Use of Estimates and Assumptions
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect (i) the reported amounts of assets and liabilities, (ii) the disclosure of contingent assets and liabilities known to exist as of the date the consolidated financial statements are published, and (iii) the reported amount of net sales, expenses and costs recognized during the periods presented. Adjustments made with respect to the use of estimates often relate to improved information not previously available. Uncertainties with respect to such estimates and assumptions are inherent in the preparation of consolidated financial statements; accordingly, actual results could differ from these estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. At December 31, 2015 and December 31, 2014 cash includes cash on hand and cash in the bank.
Revenue Recognition
Pacific Gold recognizes revenue from the sale of minerals when persuasive evidence of an arrangement exists, services have been rendered, the sales price is fixed or determinable, and collection is reasonably assured, which is determined when it places a sale order of gold from its inventory on hand with the refinery.
Property and Equipment
Property and equipment are valued at cost. Additions are capitalized and maintenance and repairs are charged to expense as incurred. Gains and losses on dispositions of equipment are reflected in operations. Depreciation is provided using the straight-line method over the estimated useful lives of the assets, which are 2 to 10 years.
F-7
Mineral Rights
All mine-related costs, other than acquisition costs, are expensed prior to the establishment of proven or probable reserves. Reserves designated as proven and probable are supported by a final feasibility study, indicating that the reserves have had the requisite geologic, technical and economic work performed and are legally extractable at the time of reserve determination. Once proven or probable reserves are established, all development and other site-specific costs are capitalized.
Capitalized development costs and production facilities are depleted using the units-of-production method based on the estimated gold which can be recovered from the ore reserves processed.
Lease development costs for non-producing properties are amortized over their remaining lease term if limited. Maintenance and repairs are charged to expense as incurred.
As per Industry Guide 7, there are no proven or probable reserves as of December 31, 2015.
Impairment of Long-Lived Assets
The Company reviews the carrying value of its long-lived assets annually or whenever events or changes in circumstances indicate that the historical cost-carrying value of an asset may no longer be appropriate. Pacific Gold assesses recoverability of the carrying value of the asset by estimating the undiscounted future net cash flows, which depend on estimates of metals to be recovered from proven and probable ore reserves, and also identified resources beyond proven and probable reserves, future production costs and future metals prices over the estimated remaining mine life. If undiscounted cash flows are less than the carrying value of a property, an impairment loss is recognized based upon the estimated expected future net cash flows from the property discounted at an interest rate commensurate with the risk involved. If the future net cash flows are less than the carrying value of the asset, an impairment loss is recorded equal to the difference between the assets carrying value and fair value.
The fair value of an asset retirement obligation is recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The present value of the estimated asset retirement costs is capitalized as part of the carrying amount of the long-lived asset. For Pacific Gold, asset retirement obligations primarily relate to the abandonment of ore-producing property and facilities.
The Company reviews the carrying value of its interest in each group of mineral claims owned by its subsidiaries on an annual basis to determine whether impairment has incurred in the claim value. The Company evaluates the mineral claim values based on one of four criteria; cash flow projection, geological reports, asset sale and option agreements, and comparative market analysis including public market value. Where information and conditions suggest impairment, the Company writes-down these properties to the lowest estimated value based on its evaluation criteria. The estimate of gold price, mineralized materials, operating capital, and reclamation costs are subject to risks and uncertainties affecting the recoverability of investment in property and equipment.
Where estimates of future net operating cash flows are not available and where other conditions suggest impairment, the Company assesses if the carrying value can be recovered from net cash flows generated by the sale of the asset or other means.
Income Taxes
In accordance with Accounting Standards Codification (ASC) Topic 740,
Income Taxes,
Pacific Gold recognizes deferred tax assets and liabilities based on differences between the financial reporting and tax bases of assets and liabilities using the enacted tax rates and laws that are expected to be in effect when the differences are expected to be recovered.
Loss per Share
The basic net loss per common share is computed by dividing the net loss by the weighted average number of common shares outstanding. Diluted net loss per common share is computed by dividing the net loss adjusted on an as if converted basis, by the weighted average number of common shares outstanding plus potential dilutive securities. For the years ended December 31, 2015 and 2014, potential dilutive securities had an anti-dilutive effect and were not included in the calculation of diluted net loss per common share. As of December 31, 2015 and 2014, the Company had 18,203,179,400 and 28,388,473,000, respectively, of potentially dilutive common stock equivalents.
F-8
Advertising
The Companys policy is to expense advertising costs as incurred. For the years ended December 31, 2015 and 2014, the Company incurred $114 and $1,578, respectively, in advertising costs.
Environmental Remediation Liability
At December 31, 2014, the Company had posted a bond with the State of Nevada in the amount required by the State of Nevada equal to the maximum cost to reclaim land disturbed in its mining process. The bond required a quarterly premium to be paid to the State of Nevada Division of Minerals. The Bond is no longer required as the Company has sold Nevada Rae Gold, Inc.
Convertible Debentures
Convertible debt is accounted for under ASC 470-20,
Debt Debt with Conversion and Other Options
. The Company records a beneficial conversion feature (BCF) related to the issuance of convertible debt that have conversion features at fixed or adjustable rates that are in-the-money when issued and records the fair value of warrants issued with those instruments. The BCF for the convertible instruments is recognized and measured by allocating a portion of the proceeds to warrants and as a reduction to the carrying amount of the convertible instrument equal to the intrinsic value of the conversion features, both of which are credited to paid-in-capital. The Company calculates the fair value of warrants issued with the convertible instruments using the Black-Scholes valuation method, using the same assumptions used for valuing employee options for purposes of following ASC Topic 718
Compensation Stock Compensation
, except that the contractual life of the warrant is used. Under these guidelines, the Company allocates the value of the proceeds received from a convertible debt transaction between the conversion feature and any other detachable instruments (such as warrants) on a relative fair value basis. The allocated fair value is recorded as a debt discount or premium and is amortized over the expected term of the convertible debt to interest expense. For a conversion price change of a convertible debt issue, the additional intrinsic value of the debt conversion feature, calculated as the number of additional shares issuable due to a conversion price change multiplied by the previous conversion price, is recorded as additional debt discount and amortized over the remaining life of the debt.
The Company accounts for modifications of its Embedded Conversion Features in accordance with ASC 470-50,
Debt Modifications and Extinguishments,
which requires the modification of a convertible debt instrument that changes the fair value of an embedded conversion feature and the subsequent recognition of interest expense or the associated debt instrument when the modification does not result in a debt extinguishment pursuant to ASC 470-50-40
, Debt Modification and Extinguishments Derecognition
.
Stock Based Compensation
The Company accounts for stock-based compensation in accordance with ASC Topic 718,
Compensation Stock Compensation
which requires that the fair value compensation cost relating to share-based payment transactions be recognized in the consolidated financial statements. Share-based compensation cost is measured at the grant date, based on the fair value of the award, and is recognized over the employees requisite service period, which is generally the vesting period. The fair value of the Companys stock options is estimated using a Black-Scholes option valuation model. There were no stock options granted during the years ended December 31, 2015 or 2014.
Recently Issued Accounting Pronouncements
The Company does not expect the adoption of any other recently issued accounting pronouncements to have a significant impact on its results of operations, financial position or cash flow.
NOTE 2 MINERAL RIGHTS
Nevada Rae Gold
On July 15, 2015, the Company sold all of its interest in Nevada Rae Gold, Inc. and the Black Rock Canyon Mine for the following consideration; $300,000, which was all used to satisfy some of the immediate accounts payable of Nevada Rae Gold, Inc.; $100,000 due to the Company on July 15, 2016,
of which $54,777 was used to satisfy remaining payroll liabilities taxes; and a royalty of 4% on all Nevada Rae Gold, Inc. gold sales up to a maximum total royalty payments of $720,000. All of the payments are subject to a 10% finders fee which has not yet been paid.
F-9
Fernley Gold
On August 26, 2015, the Company let lapse all of its mining rights to the Butcher Boy claims that it leased under a lease agreement held through Fernley Gold. These claims reverted to the claim holders.
Graysill Claims
On August 31, 2015, the Company acquired the Graysill Mining claims for no consideration, but assumed the annual claims registration fees. These claims had been previously owned by its subsidiary company, Pacific Metals Corp.
Pilot Mountain Resources Royalty
On February 10, 2011, our prior subsidiary Pilot Mountain Resources Inc. (PMR) entered into an Option and Asset Sale Agreement with Pilot Metals Inc., a subsidiary of Black Fire Minerals of Australia, whereby Pilot Metals secured an option on the Project W Tungsten claims. Pilot Metals exercised their purchase option and subsequently transferred their interest in Project W to Thor Mining LLC. Upon the commencement of commercial mining, Pacific Gold is owed a final payment of $1,500,000, subject to a 15% share of any payments received by the Company being forwarded to Platoro West, Inc.
NOTE 3 SALE OF NEVADA RAE GOLD, INC.
On July 15, 2015 Pacific Gold Corp sold 100% of its equity interest in Nevada Rae Gold to New Gold Recovery. In exchange for $300,000 in cash and settlement of liabilities, $100,000 due to the Company on July 15, 2016, of which $54,777 was used to satisfy remaining payroll liabilities taxes, and a royalty of 4% on all future Nevada Rae Gold, Inc. gold sales up to a maximum total royalty payments of $720,000.
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Sale of Nevada Rae Gold
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|
|
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Details of Consideration Received
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|
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Cash
|
$
|
24,644
|
Amount Receivable
|
|
45,223
|
Liabilities Paid at Closing
|
|
275,356
|
Liabilities Paid at Post Closing
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|
54,777
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Total
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|
400,000
|
Net Assets, after liabilities paid at closing
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|
(9,083)
|
Gain from Sale of Nevada Rae Gold
|
$
|
390,917
|
NOTE 4
PLANT AND EQUIPMENT
Plant and equipment at December 31, 2015 and 2014, consisted of the following:
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PLANT AND EQUIPMENT
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|
December 31,
2015
|
|
December 31,
2014
|
Building
|
|
$
|
-
|
|
$
|
720,353
|
Equipment
|
|
|
-
|
|
|
917,038
|
Accumulated Depreciation
|
|
|
-
|
|
|
(1,509,053)
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|
|
$
|
-
|
|
$
|
128,338
|
Depreciation expense was $49,911 and $106,173, for the years ended December 31, 2015 and 2014, respectively.
NOTE 5 SHAREHOLDER NOTE PAYABLE/RELATED PARTY TRANSACTIONS
As of December 31, 2015, Pacific Gold owes $1,248,376 in principal and $121,269 in accrued interest to a company owned by the Chief Executive Officer. The amount due is represented by a promissory note accruing interest at 10% per year. During 2016, the note was extended to a maturity date of June 30, 2019 and is convertible into shares of common stock of Pacific Gold at $0.0001 per share. The note is presented net of $312,500 in discount. As of December 31, 2014 the balance on the note was $1,165,000 in principal and $62,164 in accrued interest.
F-10
As of December 31, 2015, Pacific Gold owes a total of $952,000 in principal and $146,295 in accrued interest to a related party of our Chief Executive Officer. The amount due is represented by promissory notes accruing interest at 10% per year, was extended to a maturity date of June 30, 2019 during 2016 and is convertible into shares of common stock of Pacific Gold at $0.01 per share. As of December 31, 2014 the balance on the note was $952,000 in principal and $51,099 in accrued interest.
Compensation for Robert Landaus services as CEO is Paid to Leveljump Inc., a company that Mr. Landau controls.
As of December 31, 2015, Pacific gold owes $67,013 to its CEO. Of which $36,000 for accrued and unpaid services as CEO and $31,013 for accrued business expenses that were not yet reimbursed.
An officer of the Company has provided office space to the Company without charge. There is no obligation for the officer to continue this arrangement.
NOTE 6 PROMISSORY NOTE
The note accrued interest at a rate of 10% per annum and was extended during 2016 to a maturity date of June 30, 2019. As of December 31, 2015, there was a principal balance of $265,000 and $41,088 in accrued interest and is convertible into shares of common stock of Pacific Gold at $0.01 per share.
NOTE 7 INCOME TAXES
Pacific Gold uses the asset/liability method, where deferred tax assets and liabilities are determined based on the expected future tax consequences of temporary differences between the carrying amounts of assets and liabilities for financial and income tax reporting purposes. During 2015 and 2014, Pacific Gold incurred net losses and, therefore, had no tax liability. The net deferred tax asset generated by the loss carry-forward has been fully reserved. The cumulative net operating loss carry-forward is $12,523,516 at December 31, 2015, and will expire in the years 2029 through 2035.
Net operating loss carry forwards expire according to the following:
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|
|
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Year of NOL
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|
NOL
|
|
Expires
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2015
|
|
|
120,479
|
|
2035
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2014
|
|
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1,594,406
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2034
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2013
|
|
|
399,793
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|
2033
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2012
|
|
|
6,477,108
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|
2032
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2011
|
|
|
1,494,150
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|
2031
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2010
|
|
|
949,914
|
|
2030
|
2009
|
|
|
1,487,666
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|
2029
|
Total
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|
$
|
12,523,516
|
|
|
At December 31, 2015, and 2014 deferred taxes (34%) consisted of the following:
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2015
|
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2014
|
|
Current
|
|
Noncurrent
|
|
Noncurrent
|
Deferred tax assets
|
|
|
|
|
|
|
|
|
Net operating losses
|
$
|
-
|
|
$
|
4,257,995
|
|
$
|
4,464,796
|
Valuation allowance
|
|
-
|
|
|
(4,257,995)
|
|
|
(4,464,796)
|
Net deferred tax asset
|
$
|
-
|
|
$
|
-
|
|
|
-
|
A valuation allowance is provided when it is more likely than not that some portion of the deferred tax asset will not be realized. Because of the lack of taxable earnings history, the Company has established a valuation allowance for all future deductible net operating loss carry forwards. The valuation allowance has changed by $40,963 from December 31, 2014.
A reconciliation between income taxes at statutory tax rates (34%) and the actual income tax provision for continuing operations as of December 31, 2015 follows:
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| |
Expected Provision based on 2015 NOL (based on 34% statutory tax rate)
|
|
$
|
(40,963)
|
Difference between 2014 NOL estimate and actual
|
|
|
206,801
|
Increase/(decrease) in valuation allowance
|
|
|
(165,838)
|
Total actual provision
|
|
$
|
|
F-11
There are no adjustments to deferred tax assets or liabilities for material uncertain tax positions on returns that have been filed or that will be filed. The Company continues to incur large net operating losses as disclosed above. Since it is not certain that these net operating loss carry forwards will ever produce a tax benefit, even if examined by taxing authorities and disallowed entirely, there would be no effect on the consolidated financial statements.
The Company has filed income tax returns in the U.S. federal jurisdiction.
The Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses. During the years ended December 31, 2015, and 2014, the Company recognized no interest and penalties. The Company had no payments of interest and penalties accrued at December 31, 2015 and 2014, respectively.
NOTE 8 COMMON STOCK AND PREFERRED STOCK
In the year ended December 31, 2015, 625,000,000 shares of common stock were issued in exchange for $62,500 of interest on a related party convertible promissory note.
For the year ended December 31, 2014, 3,499,064,577 common shares were issued for $354,344 in principal and $9,084 in interest on the convertible notes.
NOTE 9 OPERATING LEASES
All of the Companys operating leases were held by its former subsidiary Nevada Rae Gold, Inc. and as such the Company currently has no future operating lease commitments.
NOTE 10 LEGAL PROCEEDINGS
From time to time the Company is involved in minor trade, employment and other operational disputes, none of which have or are expected to have a material impact on the current or future consolidated financial statements or operations.
NOTE 11 GOING CONCERN
The Companys financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As of December 31, 2015, the Company had an accumulated deficit of $47,675,865, negative working capital of $595,647, and negative operating cash flows from the year ended December 31, 2015 of $167,653, raising substantial doubt about its ability to continue as a going concern. During the year ended December 31, 2015, the Company financed its operations through the sale of securities, sale of its Nevada Rae Gold subsidiary and the issuance of debt.
Managements plan to address the Companys ability to continue as a going concern includes obtaining additional funding from the sale of the Companys securities and establishing revenues. Although management believes that it will be able to obtain the necessary funding to allow the Company to remain a going concern through the methods discussed above, there can be no assurances that such methods will prove successful. Should we be unsuccessful, the Company may need to discontinue its operations.
NOTE 12 SUBSEQUENT EVENTS
The Company evaluated subsequent events through the date the consolidated financial statements were issued.
F-12