Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions
of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging
growth company” in Rule 12b-2 of the Exchange Act. (Check one)
If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards
provided pursuant to Section 13(a) of the Exchange Act.
o
The aggregate market value of the voting
and non-voting common equity held by non-affiliates computed by reference to the average bid and asked price of such common equity
as of November 30, 2016 was approximately $3,221,823.
The number of shares of the issuer’s
common stock issued and outstanding as of August 31, 2017 was 55,877,604 shares.
This Annual Report on Form 10-K contains
forward-looking information. Forward-looking information includes statements relating to future actions, prospective products,
future performance or results of current or anticipated products, sales and marketing efforts, costs and expenses, interest rates,
outcome of contingencies, financial condition, results of operations, liquidity, business strategies, cost savings, objectives
of management of Patriot Gold Corp. (hereinafter referred to as the “Company,” “Patriot Gold” or “we”)
and other matters. Forward-looking information may be included in this Annual Report on Form 10-K or may be incorporated by reference
from other documents filed with the Securities and Exchange Commission (the “SEC”) by the Company. One can find many
of these statements by looking for words including, for example, “believes,” “expects,” “anticipates,”
“estimates” or similar expressions in this Annual Report on Form 10-K or in documents incorporated by reference in
this Annual Report on Form 10-K. The Company undertakes no obligation to publicly update or revise any forward-looking statements,
whether as a result of new information or future events.
The Company has based the forward-looking
statements relating to the Company’s operations on management’s current expectations, estimates and projections about
the Company and the industry in which it operates. These statements are not guarantees of future performance and involve risks,
uncertainties and assumptions that we cannot predict. In particular, we have based many of these forward-looking statements on
assumptions about future events that may prove to be inaccurate. Accordingly, the Company’s actual results may differ materially
from those contemplated by these forward-looking statements. Any differences could result from a variety of factors, including,
but not limited to general economic and business conditions, competition, and other factors.
PART I
Item 1. Description
of Business
We are engaged in natural resource exploration
and acquiring, exploring, and developing natural resource properties. Currently we are undertaking exploration and development
programs in Nevada.
Development of Business
We were incorporated in the State of Nevada
on November 30, 1998. In June, 2003, the Company filed Amended and Restated Articles of Incorporation with the Secretary of State
of the State of Nevada changing its name to Patriot Gold Corp. and moving the Company into its current business of natural resource
exploration and mining. On June 17, 2003, the Company adopted a new trading symbol - PGOL- to reflect the name change. The Company
has been in the resource exploration and mining business since June, 2003.
On April 16, 2010, we caused the incorporation
of our wholly owned subsidiary, Provex Resources Inc. (“Provex”) under the laws of Nevada.
On April 16, 2010, the Company entered
into an Assignment Agreement with Provex to assign the exclusive option to an undivided right, title and interest in the Bruner
and Vernal properties and the Bruner Expansion property to Provex. Pursuant to the Assignment Agreements, Provex assumed the rights,
and agreed to perform all of the duties and obligations, of the Company arising under the Bruner and Vernal Property Option Agreement
and the Bruner Property Expansion Option Agreement. Provex’s only assets are the aforementioned agreements and it does
not have any liabilities.
On May 28, 2010, Provex entered into an
exclusive right and option agreement with Canamex Resources Corp. (“Canamex”) whereby Canamex could earn up to 75%
in the Bruner and the Bruner Property Expansion. Canamex agreed to spend an aggregate total of US $6 million on exploration
and related expenditures over the ensuing seven years whereupon Provex agreed to grant the right and option to earn a vested seventy
percent (70%) and an additional five percent (5%) upon delivery of a bankable feasibility study.
On February 28, 2011, the Company entered
into an Exploration and Option to Enter Joint Venture Agreement with Idaho State Gold Company, LLC, (“ISGC”) whereby
the Company granted the option and right to earn a vested seventy percent (70%) interest in the property and the right and option
to form a joint venture for the management and ownership of the property called the Moss Mine Property, Mohave County, Arizona
(the "Moss Property" or "Moss Mine Property"). Upon execution of the agreement ISGC paid the Company $500,000
USD and agreed to spend an aggregate total of $8,000,000 USD on exploration and related expenditures over the ensuing five years.
Subsequent to exercise of the earn-in, ISGC and the Company agreed to form a 70/30 joint venture.
In March, 2011, ISGC transferred its rights
to the Exploration and Option to Enter Joint Venture Agreement dated February 28, 2011, to Northern Vertex Capital Inc. (“Northern
Vertex”).
On May 12, 2016, the Company entered into
a material definitive Agreement for Purchase and Sale of Mining Claims and Escrow Instructions (the “Purchase and Sale Agreement”)
with Golden Vertex Corp., an Arizona corporation (“Golden Vertex,” a wholly-owned Subsidiary of Northern Vertex) whereby
Golden Vertex agreed to purchase the Company’s remaining 30% working interest in the Moss Gold/Silver Mine for C$1,500,000
(the “Purchase Price”) plus the retention by Patriot of a 3% net smelter returns royalty. Specifically, the Company
conveyed all of its right, title and interest in those certain patented and unpatented lode mining claims situated in the Oatman
Mining District, Mohave County, Arizona (the “Claims”) together with all extralateral and other associated rights,
water rights, tenements, hereditaments and appurtenances belonging or appertaining thereto, and all rights-of-way, easements, rights
of access and ingress to and egress from the Claims appurtenant thereto and in which Seller had any interest (collectively, the
“Property”). The Purchase Price consisted of C$1,200,000 in cash payable at closing and the remaining C$300,000 was
paid by the issuance of Northern Vertex common shares to the Company valued at $0.35 (857,140 shares), issued pursuant to the terms
and provisions of an investment agreement (the “Investment Agreement”) entered between the Company and Northern Vertex
contemporaneous to the Purchase and Sale Agreement. The Investment Agreement prohibits the resale of the shares during the four
month period following the date of issuance and thereafter, the Company will not sell the shares in an amount exceeding 100,000
shares per month.
On April 25, 2017, Provex and Canamex Resources Corp. entered
into a purchase and sale agreement whereby Canamex Resources purchased Patriot Gold's 30-per-cent working interest in the Bruner
gold/silver mine project for US$1.0 million cash, and the retention of a net smelter return (“NSR”) royalty on the
Bruner property including any claims acquired within a two-mile area of interest around the existing claims. Additionally, Canamex
has the option to buy-down half of the NSR royalty retained by Patriot for US$5 million any time during a five-year period following
closing of the purchase and sale agreement. The Company recognized a gain on sale of mineral properties of $1,000,000 from the
sale of the Bruner in its Consolidated Statement of Operations.
On May 23, 2017, the Company caused the
incorporation of its wholly owned subsidiary, Patriot Gold Canada Corp (“Patriot Canada”), under the laws of British
Columbia, Canada.
Business Operations
We are a natural resource exploration and
mining company which acquires, explores, and develops natural resource properties. Our primary focus in the natural resource sector
is gold.
The search for valuable natural resources
as a business is extremely risky. We can provide investors with no assurance that the properties we have either optioned or purchased
contain commercially exploitable reserves. Exploration for mineral reserves is a speculative venture involving substantial risk.
Few properties that are explored are ultimately developed into producing commercially feasible reserves. Problems such as unusual
or unexpected formations and other conditions are involved in mineral exploration and often result in unsuccessful exploration
efforts. In such a case, we would be unable to complete our business plan and any money spent on exploration would be lost.
Natural resource exploration and development
requires significant capital and our assets and resources are limited. Therefore, we anticipate participating in the natural resource
industry through the selling or partnering of our properties, the purchase of small interests in producing properties, the purchase
of properties where feasibility studies already exist or by the optioning of natural resource exploration and development projects.
To date, we have two gold projects located in the southwest United States. In May 2016, we sold our interest in the Moss Mine project
and in April 2017, we sold our interest in the Bruner project leaving our project inventory to consist of the Vernal project and
the Windy Peak project.
Financing
There was ($162,000) of financing
activities undertaken by the Company during the fiscal year ended May 31, 2017 through the issuance of common stock and
warrants, and checks written in excess of cash. Additionally, it had $885,000 cash generated from investing activities due to
the sale of mineral properties. Management estimates that the Company will not require additional funds for the
Company’s planned operations for the next twelve months.
Competition
The mineral exploration industry, in general,
is intensely 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
and Regulatory Matters
Mining Control and Reclamation Regulations
The Surface Mining Control and Reclamation
Act of 1977 ("SMCRA") is administered by the Office of Surface Mining Reclamation and Enforcement ("OSM") and
establishes mining, environmental protection and reclamation standards for all aspects of U.S. surface mining, as well as many
aspects of underground mining. Mine operators must obtain SMCRA permits and permit renewals for mining operations from the OSM.
Although state regulatory agencies have adopted federal mining programs under SMCRA, the state becomes the regulatory authority.
States in which we expect to have active future mining operations have achieved primary control of enforcement through federal
authorization.
SMCRA permit provisions include requirements
for prospecting including mine plan development, topsoil removal, storage and replacement, selective handling of overburden materials,
mine pit backfilling and grading, protection of the hydrologic balance, subsidence control for underground mines, surface drainage
control, mine drainage and mine discharge control and treatment and re-vegetation.
The U.S. mining permit application process
is initiated by collecting baseline data to adequately characterize the pre-mining environmental condition of the permit area.
We will develop mine and reclamation plans by utilizing this geologic data and incorporating elements of the environmental data.
Our mine and reclamation plans incorporate the provisions of SMCRA, state programs and complementary environmental programs which
impact mining. Also included in the permit application are documents defining ownership and agreements pertaining to minerals,
oil and gas, water rights, rights of way and surface land and documents required of the OSM’s Applicant Violator System,
including the mining and compliance history of officers, directors and principal stockholders of the applicant.
Once a permit application is prepared and
submitted to the regulatory agency, it goes through a completeness and technical review. Public notice of the proposed permit is
given for a comment period before a permit can be issued. Some SMCRA mine permit applications take over a year to prepare, depending
on the size and complexity of the mine and often take six months to two years to be issued. Regulatory authorities have considerable
discretion in the timing of the permit issuance and the public has the right to comment on, and otherwise engage in, the permitting
process including public hearings and intervention by the courts.
Surface Disturbance
All mining activities governed by the Bureau
of Land Management ("BLM") require reasonable reclamation. The lowest level of mining activity, “casual use,”
is designed for the miner or weekend prospector who creates only negligible surface disturbance (for example, activities that do
not involve the use of earth-moving equipment or explosives may be considered casual use). These activities would not require either
a notice of intent to operate or a plan of operation. For further information regarding surface management terms, please refer
to 43 CFR Chapter II Subchapter C, Subpart 3809.
The second level of activity, where surface
disturbance is 5 acres or less per year, requires a notice advising the BLM of the anticipated work 15 days prior to commencement.
This notice must be filed with the appropriate field office
.
No approval is needed although bonding is required. State agencies
must be notified to ensure all requirements are met.
For operations involving more than 5 acres
total surface disturbance on lands subject to 43 CFR 3809, a detailed plan of operation must be filed with the appropriate BLM
field office
.
Bonding is required to ensure proper reclamation. An Environmental Assessment (EA) is to be prepared for all
plans of operation to determine if an Environmental Impact Statement is required. A National Environmental Policy Act review is
not required for casual use or notice level operations unless those operations involve occupancy as defined by 43 CFR 3715. Most
occupancies at the casual use and notice level in Arizona are covered by a programmatic EA.
An activity permit is required when use
of equipment is utilized for the purpose of land stripping, earthmoving, blasting (except blasting associated with an individual
source permit issued for mining), trenching or road construction.
Future legislation and regulations are
expected to become increasingly restrictive and there may be more rigorous enforcement of existing and future laws and regulations
and we may experience substantial increases in equipment and operating costs and may experience delays, interruptions or termination
of operations. Failure to comply with these laws and regulations may result in the assessment of administrative, civil and criminal
fines or penalties, the acceleration of cleanup and site restoration costs, the issuance of injunctions to limit or cease operations
and the suspension or revocation of permits and other enforcement measures that could have the effect of limiting production from
our future operations.
Trespassing
The BLM will prevent abuse of public lands
while recognizing valid rights and uses under the mining laws. The BLM will take appropriate action to eliminate invalid uses,
including unauthorized residential occupancy. The Interior Board of Land Appeals (IBLA) has found that a claim may be declared
void by the BLM when it has been located and held for purposes other than the mining of minerals. The issuance of a notice of trespass
may occur if an unpatented claim/site is:
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(1)
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used for a home site, place of business, or for other purposes not reasonably related to mining or milling activities;
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(2)
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used for the mining and sale of leasable minerals or mineral materials, such as sand, gravel and certain types of building stone; or
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(3)
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located on lands that for any reason have been withdrawn from location after the effective date of the withdrawal.
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Trespass actions are taken by the BLM Field
Office.
Environmental Laws
We may become subject to various federal
and state environmental laws and regulations that will impose significant requirements on our operations. The cost of complying
with current and future environmental laws and regulations and our liabilities arising from past or future releases of, or exposure
to, hazardous substances, may adversely affect our business, results of operations or financial condition. In addition, environmental
laws and regulations, particularly relating to air emissions, can reduce our profitability. Numerous federal and state governmental
permits and approvals are required for mining operations. When we apply for these permits or approvals, we may be required to prepare
and present to federal or state authorities data pertaining to the effect or impact that a proposed exploration for, or production
or processing of, may have on the environment. Compliance with these requirements can be costly and time-consuming and can delay
exploration or production operations. A failure to obtain or comply with permits could result in significant fines and penalties
and could adversely affect the issuance of other permits for which we may apply.
Clean Water Act
The U.S. Clean Water Act and corresponding
state and local laws and regulations affect mining operations by restricting the discharge of pollutants, including dredged or
fill materials, into waters of the United States. The Clean Water Act provisions and associated state and federal regulations are
complex and subject to amendments, legal challenges and changes in implementation. As a result of court decisions and regulatory
actions, permitting requirements have increased and could continue to increase the cost and time we expend on compliance with water
pollution regulations. These and other regulatory requirements, which have the potential to change due to legal challenges, Congressional
actions and other developments increase the cost of, or could even prohibit, certain current or future mining operations. Our operations
may not always be able to remain in full compliance with all Clean Water Act obligations and permit requirements. As a result,
we may be subject to fines, penalties or changes to our operations.
Clean Water Act requirements that may affect
our operations include the following:
Section 404
Section 404 of the Clean Water Act requires
mining companies to obtain U.S. Army Corps of Engineers (“ACOE”) permits to place material in streams for the purpose
of creating slurry ponds, water impoundments, refuse areas, valley fills or other mining activities.
Our construction and mining activities,
including our surface mining operations, will frequently require Section 404 permits. ACOE issues two types of permits pursuant
to Section 404 of the Clean Water Act: nationwide (or “general”) and “individual” permits. Nationwide permits
are issued to streamline the permitting process for dredging and filling activities that have minimal adverse environmental impacts.
An individual permit typically requires a more comprehensive application process, including public notice and comment; however,
an individual permit can be issued for ten years (and may be extended thereafter upon application).
The issuance of permits to construct valley
fills and refuse impoundments under Section 404 of the Clean Water Act, whether general permits commonly described as the Nationwide
Permit 21 (NWP 21) or individual permits, has been the subject of many recent court cases and increased regulatory oversight. The
results may materially increase our permitting and operating costs, permitting delays, suspension of current operations and/or
prevention of opening new mines.
Employees
Currently, our officers and directors provide
planning and organizational services for us on an as-needed basis, and our administrative and office staff also works on an as-needed
basis. Some of the field work is completed by service providers and/or exploration partners. All of the operations,
technical and otherwise, are overseen by the directors of the Company.
Subsidiaries
On April 16, 2010, we caused the incorporation
of our wholly owned subsidiary, Provex Resources, Inc., under the laws of Nevada. On April 16, 2010, the Company entered into an
Assignment Agreement to assign the exclusive option to an undivided right, title and interest in the Bruner and Vernal property;
and the Bruner Property Expansion to Provex. Pursuant to the Assignment Agreement, Provex assumed the rights, and agreed to perform
all of the duties and obligations, of the Company arising under the Bruner and Vernal Property Option Agreement; and the Bruner
Property Expansion Option Agreement. Provex’s only assets are the aforementioned agreements and it does not have
any liabilities.
On May 28, 2010, Provex Resources, Inc.
entered into an exclusive right and option agreement with Canamex Resources Corp. (“Canamex”) whereby Canamex could
earn up to a 75% undivided interest in the Bruner and the Bruner Property Expansion. Canamex agreed to spend an
aggregate total of US $6 million on exploration and related expenditures over the ensuing seven years whereupon the Company agreed
to grant the right and option to earn a vested seventy percent (70%) and an additional five percent (5%) upon delivery of a bankable
feasibility study.
On April 25, 2017, Provex and Canamex Resources Corp. entered
into a purchase and sale agreement whereby Canamex Resources purchased our 30-per-cent working interest in the Bruner gold/silver
mine project for US$1.0 million cash, and the retention of a net smelter return (“NSR”) royalty on the Bruner property
including any claims acquired within a two-mile area of interest around the existing claims. Additionally, Canamex has the option
to buy-down half of the NSR royalty for US$5 million any time during a five-year period following closing of the purchase and sale
agreement.
On May 23, 2017, the Company caused the
incorporation of its wholly owned subsidiary, Patriot Gold Canada Corp (“Patriot Canada”), under the laws of British
Columbia, Canada.
Item 1A. Risk
Factors
Factors that May Affect Future Results
1. We may require additional funds to
achieve our business objectives and any inability to obtain funding will impact our business.
We may incur operating losses in future
periods because there are expenses associated with the acquisition, exploration and development of natural resource properties.
We may need to raise additional funds in the future through public or private debt or equity sales in order to fund our future
operations and fulfill contractual obligations. These financings may not be available when needed, and even if these financings
are available, they 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. Any inability to obtain financing could have an adverse
effect on our ability to implement our business objectives and as a result, could require us to diminish or suspend our operations
or cause a materially adverse affect on our business. Obtaining additional financing would be subject to a number of factors, including
the market prices for gold, silver and other minerals. These factors may make the timing, amount, terms or conditions of additional
financing unavailable to us.
2. 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.
Our Directors and Officers may 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’ employment and affiliations with other entities limit
the amount of time they can dedicate to us. Also, our Directors and Officers may have a conflict of interest in helping us identify
and obtain the rights to mineral properties because they may also be considering the same properties. To mitigate these risks,
we work with several technical consultants in order to ensure that we are not overly reliant on any one of our Officers and Directors
to provide us with technical 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.
3. Because of the speculative nature
of exploration and development, there are substantial risks in our business model.
The search for valuable natural resources
as a business is extremely risky. We can provide investors with no assurance that the properties we own contain commercially exploitable
reserves. Exploration for natural resources is speculative and involves 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.
4. Because of the unique difficulties
and uncertainties inherent in mineral exploration and the mining business, we face risks.
Potential investors should be aware of
the difficulties normally encountered by mineral exploration companies. The likelihood of success must be considered in light of
the problems, expenses, difficulties, complications and delays encountered in connection with the exploration of the mineral properties
that we plan to undertake. These potential problems include, but are not limited to, unanticipated problems relating to exploration,
and additional costs and expenses that may exceed current estimates. In addition, the search for valuable minerals involves numerous
hazards, which pose financial risks.
5. Because we our operating expenses
may vary, as may our revenues, profitability may be inconsistent.
We anticipate that our expenses may vary
and so may our revenues. Therefore, any profitability we may have could be inconsistent. There is little history upon which to
base any assumption as to the likelihood that we will be consistently profitable, and we can provide investors with no assurance
that we will generate consistent revenues or consistently achieve profitable operations.
6. 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.
7. Because of the speculative nature
of exploration of mineral properties, there is substantial risk.
The search for valuable minerals as a business
is extremely risky. Exploration for minerals is a speculative venture involving substantial risk. The expenditures to be made by
us in the exploration of the mineral claims may not always result in the discovery of economic mineral deposits. Problems such
as unusual or unexpected formations and other conditions are involved in mineral exploration and often result in unsuccessful exploration
efforts.
8. Because of the inherent dangers involved
in mineral exploration, there is liability risk.
The search for valuable minerals involves
numerous hazards. As a result, there is potential liability for hazards, including pollution, cave-ins and other hazards against
which we cannot insure or against which we may elect not to insure.
9. We are heavily dependent on our CEO
and President.
Our success depends heavily upon the continued
contributions of our CEO and President, whose knowledge, leadership and technical expertise would be difficult to replace. Our
success is also dependent on our ability to retain and attract experienced engineers, geoscientists and other technical and professional
staff. We do not maintain key man insurance. If we were to lose our CEO and President, our ability to execute our business
plan could be harmed.
Risks Related to Legal Uncertainties
and Regulations
10. As we undertake exploration
and development of our mineral claims, we will be subject to compliance with government regulation which may increase the anticipated
cost of our exploration programs.
There are several governmental regulations
that materially restrict mineral exploration. We will be subject to the federal, state and local laws 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 and development program budgets for regulatory compliance,
there is a risk that new regulations could increase our costs of doing business and prevent us from carrying out our exploration
and development programs.
Item 1B. Unresolved
Staff Comments
There are no unresolved staff comments.
Item 2. Description
of Properties.
We do not lease or own any real property
for our corporate offices. We currently maintain our corporate office on a month-to-month basis at 3651 Lindell Road, Suite D165,
Las Vegas, Nevada 89103. Management believes that our office space is suitable for our current needs.
Our property holdings as of May 31, 2017
consists of the Vernal and Windy Peak Property.
Vernal Project
Map showing the location of our Vernal Project located in
Central Western Nevada.
Acquisition of Interests - Vernal Project
Pursuant to a Property Option Agreement
(the “BV Agreement”), dated as of July 25, 2003, with MinQuest, Inc., a Nevada Company (“MinQuest”), we
acquired the option to earn a 100% interest in the Bruner and Vernal mineral exploration properties located in Nevada. Together,
these two properties originally consisted of 28 unpatented mining claims on a total of 560 acres in the northwest trending Walker
Lane located in western central Nevada. The Bruner position was subsequently expanded from 16 unpatented mining claims to
80 unpatented mining claims bringing the total at Bruner to approximately 1,653 acres. Any additional claims agreed by the
Company to be staked by MinQuest within 2 miles from the existing perimeter of the Property boundaries shall form part of the BV
Agreement.
In order to earn a 100% interest in these
two properties, option payments totaling $92,500 and an additional $500,000 in exploration expenditures were required. All
mining interests in the property are subject to MinQuest retaining a 3% royalty of the aggregate proceeds from any smelter or other
purchaser of any ores, concentrates, metals or other material of commercial value produced from the property, minus the cost of
transportation of the ores, concentrates or metals, including related insurance, and smelting and refining charges.
Pursuant to the BV Agreement, we have a
one-time option to purchase a portion of MinQuest’s royalty interest at a rate of $1,000,000 for each 1%. We may exercise
our option 90 days following completion of a bankable feasibility study of the Bruner and Vernal properties, which, as it relates
to a mineral resource or reserve, is an evaluation of the economics for the extraction (mining), processing and marketing of a
defined ore reserve that would justify financing from a banking or financing institution for putting the mine into production.
To date, the Company has paid the option
payments totaling $92,500, and has accumulated approximately $625,070 and $79,760 of exploration expenditures on the
Bruner and Vernal properties, respectively. These expenditures have satisfied the requirements of the BV Agreement and 100% interest
in these two properties has been transferred to Patriot, subject to MinQuest retaining a 3% royalty.
On April 16, 2010, the Company entered
into an Assignment Agreement with its wholly owned subsidiary, Provex Resources, Inc., a Nevada Company, to assign the exclusive
option to an undivided right, title and interest in the Bruner, Bruner Expansion and Vernal properties to Provex. Pursuant to the
Agreement, Provex assumed the rights, and agreed to perform all of the duties and obligations, of the Company arising under the
original property option agreements.
Description and Location of the
Vernal Property
The Vernal 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. The Company holds the property via 12 unpatented mining
claims (approximately 248 acres). The Company has a 100% interest in the Vernal property, subject to an existing royalty.
Exploration History of the Vernal Property
Historical work includes numerous short
adits constructed on the Vernal Property between 1907 and 1936. There appears to have been little or no mineral production.
The Vernal Property is underlain by a thick
sequence of Tertiary age rhyolitic volcanic rocks including tuffs, flows and intrusives. A volcanic center is thought to underlie
the district, with an intruding rhyolite plug dome (a domal feature formed by the extrusion of viscous quartz-rich volcanic rocks)
thought to be closely related to mineralization encountered by the geologists of Amselco, the U.S. subsidiary of a British company,
who explored the Vernal Property back in the 1980’s, and who in 1983 mapped, sampled and drilled the Vernal Property. Amselco
has not been involved with the Vernal Property over the last 20 years and is not associated with our option on the Vernal Property
or the exploration work being done. A 225 foot wide zone of poorly outcropping quartz stockworks (a multi-directional quartz veinlet
system) and larger veining trends exist northeast from the northern margin of the plug. The veining consists of chalcedony containing
1-5% pyrite. Clay alteration of the host volcanics is strong. Northwest trending veins are also present but very poorly exposed.
Both directions carry gold values. Scattered vein float is found over the plug. The most significant gold values in rock chips
come from veining in tuffaceous rocks north of the nearly east-west contact of the plug. This area has poor exposure, but sampling
of old dumps and surface workings show an open-ended gold anomaly that measures 630 feet by 450 feet.
The Vernal Property claims presently do
not have any known mineral reserves. The property that is the subject of our mineral claims is undeveloped and does not contain
any commercial scale open-pits. Numerous shallow underground excavations occur within the central portion of the property. No reported
historic production is noted for the property. 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 claims. Although drill holes are present within the
property boundary, there is no known drilled reserve on our claims.
In July 2003 and again in June 2017, members
of our Board of Directors and geology team made an onsite inspection of the Vernal property. Mapping (the process of laying
out a grid on the land for area identification where samples are taken) and sampling (the process of taking small quantities of
soil and rock for analysis) have been completed. In March 2005, the Company initiated the process to secure the proper
permits for trenching and geochemical sampling from the U.S. Forest Service.
Our exploration of the Vernal Property
to date has consisted of geologic mapping, trenching and rock chip geochemical sampling. The Board of Directors approved a
budget of approximately $55,000 (including the refundable bond of $900) for the Vernal property. An exploration program was
conducted in November, 2008. The program consisted of 200 feet of trenching, sampling and mapping, and opening, mapping and
sampling of an underground workings consisting of approximately 275 feet of workings. The Company is continuing to evaluate
the Vernal Property.
Planned Exploration
The Company’s current objectives
are to assess the geological merits and if warranted and feasible establish an exploration program to identify the potential for
economically viable mineralization. The cost of an exploration plan has not yet been determined therefore estimated exploration
expenditures are not available at this time. The Company recognizes that the Vernal Property is an early-stage exploration opportunity
and there are currently no proven or probable reserves. The Company is currently preparing a 43-101 compliant technical report
on the Vernal property which it expects to be complete later in 2017.
Windy Peak Property
Acquisition of Interest
In May 2015, after a review of historical
records and information available regarding a potential mineral property interest in Churchill County, Nevada, the Company acquired
the Windy Peak Property, (referred to herein as the “Windy Peak Property,” "Windy Peak” or the “Property”).
This early-stage exploration project was secured through the completion of an Assignment and Assumption Agreement. Windy Peak has
been visited by directors and technical staff of the Company in June 2017.
The Windy Peak Property Location in
Nevada
Description and Location of the Windy
Peak Property
The Windy Peak Property consists of 79
unpatented mineral claims covering approximately 1,630 acres, 3 miles NNE of the Bell Mountain and 7 miles east of the Fairview
mining district in southwest Nevada. Windy Peak is approximately 45 miles southeast of Fallon and 6 miles SSW of Middlegate in
sections 4,5,8,9,28,32,33 of T15 &16N R35E, Nevada. The Property is divided into 2 non-contiguous claim blocks with the northern
claim block being adjacent to Hill 6483 in the Windy Fault.
Access to the Windy Peak Property is from
U.S. Highway 50, thence south via Highway 361 to an unmarked dirt road that heads west along the south side of an unnamed wash
referred to as Windy Wash. The dirt road exits Highway 95 near the border of Sections 27 & 34. The Bell Mountain quadrangle
(dated 1972) shows an older dirt road that follows the floor of the wash. About 2 miles along the dirt road, trenching and cutting
of trails to access various portions of the Property have extensively disturbed the hill. The dirt road is in good condition, however
the steeper trails near Windy Peak require a 4-wheel-drive for access. There is no plant, equipment, water source nor power currently
on site. Power could be provided by portable diesel-powered generators. Non potable water may be source able on site for drilling,
mining and milling purposes.
The Property claims are held as unpatented
federal land claims administered under the Department of Interior, BLM. In order to acquire an unpatented mineral claim the land
must be open to mineral entry. Federal law specifies that a claim must be located or “staked” and site boundaries be
distinctly and clearly marked to be readily identifiable on the ground in addition to filing the appropriate state and or federal
documentation such as Location Notice, Claim Map, Notice of Non-liability for Labor and Materials Furnished, Notice of Intent to
Hold Mining Claims, Maintenance Fee Payment and fees to secure the claim. The State may also establish additional requirements
regarding the manner in which mining claims and sites are located and recorded. 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. The Property surface
estate and mineral rights are federally owned and subject to BLM regulations. None of the Property claims have been legally surveyed.
Although our legal access to unpatented Federal claims cannot be denied, staking or operating a mining claim does not provide the
claim holder exclusive rights to the surface resources (unless a right was determined under Public Law 84-167), establish residency
or block access to other users. Regulations managing the use and occupancy of the public lands for development of locatable mineral
deposits by limiting such use or occupancy to that which is reasonably incident is found in 43 CFR 3715. These Regulations apply
to public lands administered by the BLM.
The Property claims were located and recorded
along with the necessary payments being filed in March 2013. Annual maintenance fees of $155 per claim paid to the BLM and recording
fees of approximately $15 per claim must be paid to the respective county on or before September 1 of each year to keep the claims
in good standing, provided the filings are kept current these claims can be kept in perpetuity.
Past Exploration in the Windy Peak Area
Fairview District
The Windy Peak area has been considered
to be part of, or at least an extension of, the Fairview District, which, is located on Fairview Peak about 6 miles WNW of Hill
6483. Both areas are within the Fairview Peak caldera but their geochemical differences indicate they are not related.
Windy Peak
The only published information found regarding
the Windy Peak area refers to a small leach pad at the Cye Cox prospect at Hill 6483. This exploration was located adjacent to
but not on our northern claim block. According to historical reports, an initial 6 claims (Red Star) were staked by Cye Cox of
Fallon from 1945 to 1969. Subsequent lessees staked an additional 79 Red Star claims from 1978 to 1979. Cye Cox together with Pete
Erb and "Pine Nut" Forbush discovered high-grade gold on the south side of Hill 6483 in the Windy fault in 1970. The
presence of old timbers near a mostly-covered hole at the western trench (about mile west of the Windy adit) indicates that they
also did some work there. After further examination a plant with a 6-8" grizzly and trommel (21' x 30") was setup and
operated.
At least 56 RC holes have been drilled
on and around the Windy Peak claims area. The identifiable holes are vertical holes which is interesting because the primary target
in the Windy area is bonanza grade veins in steep to vertical structures. In effect, the high-grade structurally hosted gold potential
on the property has not been tested by previous drilling programs.
Geology of the Windy Peak Property Area
Review of late Tertiary epithermal gold-silver
deposits in the northern Great Basin, revealed that most deposits are spatially and temporally related to two magmatic assemblages:
bimodal basalt-rhyolite and western andesite. The Fairview district, including the Bell Mine, is related to a third, minor magmatic
assemblage, the late Eocene to early Miocene caldera complexes of the interior andesite-rhyolite assemblage. This assemblage hosts
the giant late-Oligocene Round Mountain deposit plus smaller deposits in the Atlanta, Fairview, Tuscarora, and Wonder mining districts.
The youngest rocks in the interior andesite-rhyolite assemblage are in the Fairview and Tonopah mining districts. Recent studies
have shown that the magmatism associated with the interior andesite rhyolite assemblage had a close spatial and temporal association
with crustal extension, and that these magmas may have been formed by partial mixing of mantle-derived basal with crustal melt.
Planned Exploration
The Company’s current objectives
are to assess the Windy Peak geological merits to establish an exploration program and identify the potential for economically
viable mineralization. The cost of this exploration plan has not yet been determined therefore estimated exploration expenditures
are not available at this time. The Company recognizes that Windy Peak is an early-stage exploration opportunity and there are
currently no proven or probable reserves.
Item 3. Legal
Proceedings
There are no pending legal proceedings involving the Company
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.
Item 4. Mine
Safety Disclosures
The Dodd-Frank Wall Street Reform and
Consumer Protection Act (the “Act”) and Item 104 of Regulation S-K require certain mine safety disclosures to be
made by companies that operate mines regulated under the Federal Mine Safety and Health Act of 1977. However, the
requirements of the Act and Item 104 of Regulation S-K do not apply as the Company does not engage in mining activities.
Therefore, the Company is not required to make such disclosures.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - NATURE OF BUSINESS AND OPERATIONS
Patriot Gold Corp. (“Company”)
was incorporated in the State of Nevada on November 30, 1998. The Company is engaged in natural resource exploration and anticipate
acquiring, exploring, and developing natural resource properties. Currently the Company is undertaking programs in Arizona and
Nevada. The Company’s common stock trades on the Over-The-Counter Bulletin Board (“OTCQB”) exchange under the
ticker symbol PGOL.
On May 23, 2017, the Company caused the incorporation
of its wholly owned subsidiary, Patriot Gold Canada Corp (“Patriot Canada”), under the laws of British Columbia, Canada.
On April 16, 2010, the Company caused the incorporation
of its wholly owned subsidiary, Provex Resources, Inc., (“Provex”) under the laws of Nevada.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements have
been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”)
and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). These consolidated
financial statements include the accounts of the Company and its wholly-owned subsidiaries, Provex and Patriot Canada. Collectively,
they are referred to herein as “the Company”. Inter-company accounts and transactions have been eliminated.
Management’s Estimates and Assumptions
The preparation of the consolidated financial
statements in conformity with generally accepted accounting principles requires 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.
Exploration and Development Costs
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.
No costs have been capitalized through May 31, 2017.
Cash and Cash Equivalents
The Company considers all investment 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. The Company had no cash equivalent as of May 31, 2017 and 2016.
Marketable Securities
Investment securities are classified in one
of three categories: held to maturity, available for sale, or trading. Management determines the appropriate classification of
securities at the time of purchase. Investment securities are classified as held to maturity when the Company has the positive
intent and ability to hold the securities to maturity. As of May 31, 2017 and 2016, the Company has no investments in held to maturity
securities.
Investment securities that are bought and held
principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with
unrealized gains and losses included in earnings.
Investment securities that are not considered
to be held to maturity or trading are classified as available for sale. This type of investment is stated at fair value with unrealized
gains and losses, net of tax, reported in a separate component of shareholders' equity (“accumulated other comprehensive
income”). Gains and losses from sales of investments classified as available for sale are determined using the specific identification
method. As of May 31, 2017 and 2016, the Company has no investments classified as available for sale.
The Company’s short term marketable securities
classified as trading securities are comprised of Northern Vertex Mining Corp. and Strata Oil and Gas. The Company acquired the
Northern Vertex stock on May 26, 2016 as part of the Moss Property sale and is required to hold the stock for four-months after
the date of acquisition and thereafter, the Company will not sell the shares in an amount exceeding 100,000 shares per month. The
common stock will be free of trading restrictions within twelve months of acquisition. As of May 31, 2017, the Northern Vertex
stock is free of trading restrictions. The Company purchased Strata Oil and Gas common stock through multiple private placement
offering during the year ended May 31, 2017 as an investment in leading-edge mining extraction technologies.
Reclamation Deposits
Various mining laws and permits require that
financial assurances be in place for certain environmental and reclamation obligations. Accordingly, the Company pays cash bonds
to the Bureau of Land Management ( “BLM” ) upon acquisition of mining rights for estimated potential reclamation obligations.
Any residual funds after reclamation obligations have been paid, are refunded to the Company. Upon payment of a cash bond, the
Company recognizes a reclamation deposit as a long-term asset on its Consolidated Balance Sheets.
As of May 31, 2017, the Company charged the
remaining reclamation deposit balance of $13,255 to general and administrative expenses on the Consolidated Statement of Operations
after notification from the BLM all reclamation deposits had been met and all funds had been returned to the Company.
Foreign Currency Translation
The Company’s functional currency and
reporting currency is the U.S. dollar. Monetary items denominated in foreign currency are translated to U.S. dollars at exchange
rates in effect at the balance sheet date and non-monetary items are translated at rates in effect when the assets were acquired
or obligations incurred. Revenue and expenses are translated at rates in effect at the time of the transactions. Foreign exchange
gains and losses are included in the consolidated statements of operations.
Concentration of Credit Risk
The Company has no 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 two financial institutions in the form of demand deposits.
Income/Loss per Share
Basic earnings per share is computed by dividing
the net income by the weighted average number of shares outstanding during the period. Diluted earnings per share is computed by
dividing net income by the weighted-average number of common shares plus dilutive potential common shares outstanding during the
period.
The following is a reconciliation of the number
of shares used in the calculation of basic earnings per share and diluted earnings per share:
|
|
|
For the years ended May 31,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Numerator:
|
|
|
|
|
|
|
|
Net income (loss) available to common stockholders
|
|
$
|
726,620
|
|
|
$
|
(145,734
|
)
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
Weighted-average shares basic
|
|
|
55,785,034
|
|
|
|
49,832,435
|
|
|
Effective of dilutive shares:
|
|
|
|
|
|
|
|
|
|
Incremental shares from the assumed exercise of dilutive stock options
|
|
|
692,857
|
|
|
|
–
|
|
|
Incremental shares from the assumed exercise of dilutive stock warrants
|
|
|
8,871,549
|
|
|
|
–
|
|
|
Weighted-average shares diluted
|
|
|
65,349,440
|
|
|
|
49,832,435
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share, basic
|
|
$
|
0.01
|
|
|
$
|
(0.00
|
)
|
|
Net income (loss) per common share, diluted
|
|
$
|
0.01
|
|
|
$
|
(0.00
|
)
|
The following were excluded from the computation
of diluted shares outstanding as they would have had an anti-dilutive impact on the Company’s loss from continuing operations
and loss from discontinued operations. In periods where the Company has a net loss, all dilutive securities are excluded.
|
|
|
For the years ended May 31,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Common stock equivalents:
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
–
|
|
|
|
5,376,667
|
|
|
Stock warrants
|
|
|
9,737,104
|
|
|
|
32,011,204
|
|
|
Total
|
|
|
9,737,104
|
|
|
|
37,387,871
|
|
Comprehensive Income
Comprehensive income consists of net income
and other gains and losses affecting shareholders’ equity that, under generally accepted accounting principles, are excluded
from net income. For the Company, such items consist primarily of foreign currency translation gains and losses.
Accumulated other comprehensive income at May
31, 2017 and 2016, consists of foreign currency adjustments related to the Company changing its functional currency from Canadian
to U.S. dollar in 2003.
Stock Options
The Company measures all employee stock-based
compensation awards using a fair value method on the date of grant and recognizes such expense in its consolidated financial statements
over the requisite service period. The Company uses the Black-Scholes pricing model to determine the fair value of stock-based
compensation awards on the date of grant. The Black-Scholes pricing model requires management to make assumptions regarding option
lives, expected volatility, and risk free interest rates.
The Company accounts for non-employee stock-based
awards in accordance with the provision of ASC 505, “Equity Based Payments to Non-Employees” (“ASC 505”),
which requires that such equity instruments are recorded at their fair value on the measurement date. The measurement of stock-based
compensation is subject to periodic adjustment as the underlying equity instruments vest. The Company uses the Black-Scholes pricing
model to determine the fair value of stock-based compensation awards. The Black-Scholes pricing model requires management to make
assumptions regarding option lives, expected volatility, and risk free interest rates.
Fair Value of Financial Instruments
The carrying value of the Company's financial
instruments, including prepaids, accounts payable and accrued liabilities, at May 31, 2017 and 2016 approximates their fair values
due to the short-term nature of these financial instruments. Management is of the opinion that the Company is not exposed to significant
interest or credit risks arising from these financial instruments. The Company carries other company’s equity instruments
at fair value as required by U.S. GAAP, which are valued using level 1 inputs under the fair value hierarchy.
In general, investments with original maturities
of greater than 90 days and remaining maturities of less than one year are classified as short-term investments. Investments with
maturities beyond one year may also be classified as short-term based on their highly liquid nature and can be sold to fund current
operations.
Fair Value Hierarchy
Fair value is defined within the accounting
rules as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. The rules established a fair value hierarchy that prioritizes the inputs to valuation techniques
used to measure fair value. As presented in the tables below, this hierarchy consists of three broad levels:
Level 1
. Quoted prices in active markets for identical assets
or liabilities.
Level 2.
Observable inputs other than
Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets with insufficient volume or infrequent
transactions (less active markets), or model-derived valuations in which all significant inputs are observable or can be derived
principally from or corroborated with observable market data for substantially the full term of the assets or liabilities. Level
2 inputs also include non-binding market consensus prices that can be corroborated with observable market data, as well as quoted
prices that were adjusted for security-specific restrictions.
Level 3
. Unobservable inputs to the
valuation methodology are significant to the measurement of the fair value of assets or liabilities. These Level 3 inputs also
include non-binding market consensus prices or non-binding broker quotes that we were unable to corroborate with observable market
data.
Assets measured at fair value on a recurring
basis by level within the fair value hierarchy are as follows:
|
|
|
Fair Value Measurement at
|
|
|
Fair Value Measurement at
|
|
|
|
|
May 31, 2017
|
|
|
May 31, 2016
|
|
|
|
|
Using
Level 1
|
|
|
Total
|
|
|
Using
Level 1
|
|
|
Total
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities
|
|
$
|
438,523
|
|
|
$
|
438,523
|
|
|
$
|
235,564
|
|
|
$
|
235,564
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total asset
|
|
$
|
438,523
|
|
|
$
|
438,523
|
|
|
$
|
235,564
|
|
|
$
|
235,564
|
|
Related Party Transactions
A related party is generally defined as (i)
any person who holds 10% or more of the Company’s securities and their immediate families, (ii) the Company’s management,
(iii) someone who directly or indirectly controls, is controlled by or is under common control with the Company, or (iv) anyone
who can significantly influence the financial and operating decisions of the Company. A transaction is considered to be a related
party transaction when there is a transfer of resources or obligations between related parties.
Income Taxes
Deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets, including tax loss and credit carryforwards, and liabilities
are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date. Deferred income tax expense represents the change during the period in the
deferred tax assets and deferred tax liabilities. The components of the deferred tax assets and liabilities are individually classified
as current and non-current based on their characteristics. Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
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 years ended May 31, 2017 and 2016.
New Accounting Pronouncements
From time to time, new accounting pronouncements
are issued by the Financial Accounting Standards Board (“FASB”) that are adopted by the Company as of the specified
effective date. Unless otherwise discussed, management believes that the impact of recently issued standards did not or will not
have a material impact on the Company’s consolidated financial statements upon adoption.
In August 2015, the FASB issued ASU 2014-15,
Presentation of Financial Statements Going Concern (Subtopic 205-40) - Disclosure of Uncertainties about an Entity’s Ability
to Continue as a Going Concern. Currently, there is no guidance in U.S. GAAP about management’s responsibility to evaluate
whether there is substantial doubt about an entity’s ability to continue as a going concern or to provide related footnote
disclosures. The amendments in this update provide that guidance. The amendments are intended to reduce diversity in the timing
and content of footnote disclosures. The amendments require management to assess an entity’s ability to continue as a going
concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically, the
amendments (1) provide a definition of the term “substantial doubt,” (2) require an evaluation every reporting period,
including interim periods, (3) provide principles for considering the mitigating effect of management’s plans, (4) require
certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) require
an express statement and other disclosures when substantial doubt is not alleviated, and (6) require an assessment for a period
of one year after the date that the financial statements are issued (or available to be issued). The amendments in this update
are effective for annual periods ending after December 15, 2016. Early adoption is permitted. The Company has adopted this standard
as of May 31, 2017.
In November 2015, the FASB issued ASU 2015-17
which simplifies income tax accounting. The update requires that all deferred tax assets and liabilities be classified as noncurrent
on the balance sheet instead of separating deferred taxes into current and noncurrent amounts. This update is effective for fiscal
years beginning after December 15, 2016 and interim periods within those fiscal years, and early adoption is permitted. Adoption
of the new guidance is not expected to have an impact on the financial position, results of operations or cash flows.
In January 2016, the FASB issued ASC 2016-01
which amends the guidance on the classification and measurement of financial instruments. The new guidance significantly revises
an entity’s accounting related to the classification and measurement of investments in equity securities and the presentation
of certain fair value changes for financial liabilities measured at fair value. The new guidance also amends certain disclosure
requirements associated with the fair value of financial instruments. The new guidance is effective for the Company’s fiscal
year beginning June 1, 2017 Early adoption for most of the provisions is not allowed. The Company is currently evaluating this
guidance and the impact on its consolidated financial statements.
In February 2016, the FASB issued ASU
2016-02 a new standard on the accounting for leases, which requires a lessee to record a right-of-use asset and a
corresponding lease liability on the balance sheet for all leases with terms longer than twelve months. The standard also
expands the required quantitative and qualitative disclosures surrounding lease arrangements. The standard is effective
for annual and interim reporting periods beginning after December 15, 2018. The Company is currently evaluating the effect
this new guidance will have on its consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09
which simplifies several aspects of the accounting for share-based payment award transactions, including the accounting for income
taxes, forfeitures and statutory tax withholding requirements, as well as classification in the statement of cash flows. The
guidance is effective for annual and interim reporting periods beginning after December 15, 2016. The Company is currently evaluating
the effect this new guidance will have on its consolidated financial statements.
In August 2016, the FASB issued ASU
2016-15 providing additional guidance on eight specific cash flow classification issues. The goal of the ASU is to reduce
diversity in practice of classifying certain items. The amendments in the ASU are effective for fiscal years beginning after
December 15, 2017, and interim periods within those fiscal years and early adoption is permitted. The Company is evaluating
the effect ASU 2016-15 will have on its consolidated financial statements and disclosures and has determined the standard
will have no impact on its ongoing financial reporting at this time.
In October 2016, the FASB issued ASU No. 2016-17
improving GAAP involving situations consisting of common control, wherein a single decision maker focuses on the economics to which
it is exposed when determining whether it is the primary beneficiary of a variable interest entity (“VIE”) before potentially
evaluating which party is most closely associated with the VIE. ASU 2016-17 is effective for public entities for fiscal periods
beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted, including
adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected
as of the beginning of the fiscal year that includes that interim period. The Company is currently evaluating the impact of adopting
this ASU on its consolidated financial statements.
These amendments change the evaluation of whether
a reporting entity is the primary beneficiary of a variable interest entity by changing how a reporting entity that is a single
decision maker of a variable interest entity treats indirect interests in the entity held through related parties that are under
common control with the reporting entity. If a reporting entity satisfies the first characteristic of a primary beneficiary (such
that it is the single decision maker of a variable interest entity), the amendments require that reporting entity, in determining
whether it satisfies the second characteristic of a primary beneficiary, to include all of its direct variable interests in a variable
interest entity and, on a proportionate basis, its indirect variable interests in a variable interest entity held through related
parties, including related parties that are under common control with the reporting entity.
In November 2016, the FASB issued AUS 2016-18
providing additional guidance on specific restricted cash flow classification on the cash flow statement. Cash flow should include
restricted cash in total cash, and an entity is required to provide a disclosure indicating the reconciliation of all cash accounts.
The amendments in the ASU are effective for fiscal years beginning after December 15, 2017, and interim periods within those
fiscal years and early adoption is permitted. The Company is evaluating the effect ASU 2016-18 will have on its consolidated financial
statements and disclosures and believes the effect of the standard on its ongoing financial reporting will not have a material
impact.
In January
2017, the FASB issued ASU 2017-01 which clarifies the definition of a business in order to allow for the evaluation of whether
transactions should be accounted for as acquisitions or disposals of assets or business. The standard is effective for the Company
on May 1, 2018, with early adoption permitted. The future impact of ASU 2017-01 will be dependent upon the nature of
future acquisitions or dispositions made by the Company.
In January 2017, the FASB issued ASU 2017-03
providing guidance on how a company should evaluate ASUs that have not yet been adopted to determine the appropriate financial
statement disclosures about the potential material effects of those ASUs on the financial statements when adopted. The Company
is currently evaluating the effect ASU 2017-03 will have on its consolidated financial statements and disclosures.
In
May 2017, the FASB issued ASU 2017-09 which clarifies when changes to the terms or conditions of a share-based payment award
require an entity to apply modification accounting. Under the new guidance, modification accounting is only required if the
fair value, vesting conditions or classification (equity or liability) of the new award are different from the original award
immediately before the original award is modified. The standard is effective for the Company on June 1, 2018, with early
adoption permitted. The new guidance must be applied prospectively to awards modified on or after the adoption date. The
future impact of ASU 2017-09 will be dependent on the nature of future stock award modifications.
There are no other recently issued accounting
pronouncements that are expected to have a material impact on our financial condition, results of operations or cash flows.
NOTE 3 - MINERAL PROPERTIES
Bruner and Vernal Properties
On May 28, 2010 Provex entered into an exclusive
right and option agreement with Canamex Resources Corp. (“Canamex”) whereby Canamex could earn a 70% (or up to 75%
if a bankable feasibility study is performed) undivided interest in the Bruner, and Bruner Expansion properties, herein after collectively
referred to as the “Bruner Properties”. Upon the completion of the terms of the Agreement by Canamax, and upon earning
its’ initial interest, the parties have agreed to negotiate a definitive joint venture agreement in good faith which will
supersede the current agreement.
On April 1, 2009, the Company entered into
a Property Option Agreement (the “AIV Agreement”) with American International Ventures Inc. (“AIV”), to
acquire the exclusive option to an undivided right, title and interest in 28 patented Federal mining claims and mill sites located
in Nye County, Nevada. Simultaneous with the execution and delivery of the Agreement, the Company paid AIV $30,000. In order to
earn its option in the Property, the Company agreed to make annual property option payments each year on April 1 consisting of
$35,000 in 2010, $40,000 in 2011, $45,000 in 2012, $50,000 in 2013, $55,000 in 2014, $60,000 in 2015, and $1,185,000 in 2016. Following
which the Company would be deemed to have exercised its option under the Agreement and would be entitled to an undivided 100% right,
title and interest in and to the Bruner Property Expansion subject to a 1.5% Net Smelter Return (“NSR”) royalty payable
to AIV and a 2% NSR payable to the former Property owner. The 2% NSR royalty may be purchased by the Company for a total payment
of $500,000 and 1% of AIV’s 1.5% NSR royalty can be purchased by the Company for an additional payment of $500,000 at any
time up to 30 days after beginning mine construction. The claims optioned under the agreement with AIV are contiguous with
the Company’s existing Bruner property claims and therefore are also subject to the terms and conditions of the original
BV Agreement with MinQuest.
In November 2015, Canamex announced that it
had completed the purchase of the patented claims from AIV for US$760,000, securing ownership of those claims for the joint venture
(in anticipation of Canamex earning 70% of the Bruner project) and saving the joint venture US$425,000. Canamex purchased the claims
directly from American International Ventures Inc. (“AIV”), subject to Patriot Gold’s rights under an Option
Agreement dated April 1, 2009 that gives Patriot Gold the ability to purchase those patented claims by making a final payment of
US$1,185,000 on or before April 1, 2016. Both Canamex and Patriot Gold expect, however, that those patented claims will be conveyed
to the joint venture once the more comprehensive joint venture agreement has been executed.
During the first half of 2016 it was determined
by the Company that Canamex had successfully earned a 70% interest in the Bruner Property according to the terms of the Bruner
Option Agreement, and the parties have began working to negotiate terms of a definitive joint venture agreement. This joint venture
agreement is still being negotiated.
On April 25, 2017, Provex and Canamex Resources
Corp. entered into a purchase and sale agreement whereby Canamex Resources purchased Patriot Gold's 30% working interest in the
Bruner gold/silver mine for US$1,000,000 cash. Provex retains a two percent net smelter return (“NSR”) royalty on the
Bruner properties including any claims acquired within a two-mile area of interest around the existing claims. Additionally, Canamex
has the option to buy-down half of the NSR royalty retained by Patriot for US$5 million any time during a five-year period following
closing of the purchase and sale agreement. The company recognized a gain on sale of mineral properties of $1,000,000 from
the sale of the Bruner in its Consolidated Statement of Operations.
As of May 31, 2017, the Company has incurred
approximately $85,748 of accumulated option and exploration expenses on the Vernal property.
During the years ended May 31, 2017 and 2016,
the Company incurred exploration expenses of $2,008 and $1,990 on the Vernal property, respectively.
Moss Property
On March 4, 2004 the Company signed a Letter
Agreement (the “Agreement”) that earned it a 100% interest in a number of patented and unpatented mining claims known
as the Moss Mine property located in the Oatman Mining District of Mohave county Arizona by paying MinQuest Inc. a one-time fee
of $50,000. This $50,000 fee was paid on July 7, 2004. Subject to the terms and conditions of the Agreement, MinQuest would
retain a 3% NSR on any and all production derived from the unpatented mining claims listed under the Agreement and on public lands
within 1 mile of MinQuest, Inc.’s outside perimeter of the present claim boundary; a 1.0% NSR on patented claims with no
other royalty within the property; and a 0.5% overriding NSR on all production within the property derived from patented claims
with other royalty interests.
On February 28, 2011, the Company entered into
an Exploration and Option to Enter Joint Venture Agreement (the “Moss Agreement”), with Idaho State Gold Company, LLC,
(“ISGC”) whereby the Company granted the option and right to earn a vested seventy percent (70%) interest in the property
and the right and option to form a joint venture for the management and ownership of the properties called the Moss Property, Mohave
County, Arizona. Pursuant to the Moss Agreement, ISGC paid US $500,000 upon execution, and agreed to spend an aggregate total of
US $8 million on exploration and related expenditures over the next five years and subsequent to exercise the earn-in, ISGC and
Patriot Gold would form a 70/30 joint venture. Under this agreement financing of future work on the property would be on a proportional
basis under the direction of a management committee with voting rights proportional to ownership percentage. Either party could
be diluted on the basis of a standard formula if it did not contribute to the planned programs. If either party was diluted below
10 percent, their interest would convert to a three percent NSR (net smelter return) royalty. An existing 3-3.5 percent NSR existed
on the Moss Mine Property.
In March, 2011, ISGC transferred its rights
to the Exploration and Option Agreement dated February 28, 2011, to Northern Vertex Mining Corp. (“Northern Vertex”).
On January 21, 2016, an arbitrator ruled that
Northern Vertex met the required expenditures, successfully carried out pilot production, and produced a feasibility study thereby
fulfilling the Exploration and Option Agreement terms entitling them to have earned an undivided 70% interest in the Moss Property.
On May 12, 2016, the Company entered into a
material definitive Agreement for Purchase and Sale of Mining Claims and Escrow Instructions (the “Purchase and Sale Agreement”)
with Golden Vertex Corp., an Arizona corporation (“Golden Vertex,” a wholly-owned Subsidiary of Northern Vertex) whereby
Golden Vertex agreed to purchase the Company’s remaining 30% working interest in the Moss Gold/Silver Mine for $1,155,600
(C$1,500,000) plus the retention by the Company of a 3% net smelter returns royalty. Specifically, the Company conveyed all of
its right, title and interest in those certain patented and unpatented lode mining claims situated in the Oatman Mining District,
Mohave County, Arizona together with all extralateral and other associated rights, water rights, tenements, hereditaments and appurtenances
belonging or appertaining thereto, and all rights-of-way, easements, rights of access and ingress to and egress from the claims
appurtenant thereto and in which the Company had any interest. The purchase price consisted of $924,479 (C$1,200,000) in cash payable
at closing and the remaining $231,120 (C$300,000) was paid by the issuance of Northern Vertex common shares to the Company valued
at $0.26 (C$0.35) (857,140 shares), issued pursuant to the terms and provisions of an investment agreement entered between the
Company and Northern Vertex contemporaneous to the Purchase and Sale Agreement. The investment agreement prohibits the resale of
the shares during the four-month period following the date of issuance and thereafter, the Company will not sell the shares in
an amount exceeding 100,000 shares per month. As of May 31, 2016, the Company recognized a gain on sale of mineral property of
$1,155,600 in the Consolidated Statements of Operations.
Windy Peak Property
The Windy Peak Property, (“Windy Peak”)
consists of 79 unpatented mineral claims covering approximately 1630 acres, 3 miles NNE of the Bell Mountain and 7 miles east of
the Fairview mining district in southwest Nevada.
As of May 31, 2017, the company has incurred
approximately $101,033 of exploration expenses on the Windy Peak Property, $13,605 and $12,428 were spent for the years ended May
31, 2017 and 2016, respectively.
On June 14, 2017, the Company acquired 54 additional
mineral claims in the Windy Peak areas for a purchase price of $11,448. After the acquisition, the Windy Peak consists of 133 unpatented
mineral claims.
NOTE 4 - STOCK OPTIONS
The Company’s Board of Directors adopted
the 2014 Stock Option Plan (the “2014 Plan”) in June 2014, the 2012 Stock Option Plan (the “2012 Plan”)
in July 2012 and the 2005 Stock Option Plan (the “2005 Plan”) in November 2005. The combined compensation costs charged
against those plans was $29,243 and $260,500 for the years ended May 31, 2017 and 2016, respectively.
The 2014 Plan, the 2012 Plan and the 2005 Plan
reserve and make available for grant common stock shares of up to 5,000,000, 3,900,000 and 2,000,000, respectively. In November
2015, the 2005 Stock Option Plan expired so that no share maybe granted pursuant to this Plan. No option can be granted under the
plans 10 years after the plan inception date.
Options granted to officers or employees under
the plans may be incentive stock options or non-qualified stock options. Options granted to directors, consultants, and independent
contracts are limited to non-qualified stock options.
The plans are administered by the Board of
Directors or a committee designated by the Board of Directors. Subject to specified limitations, the Board of Directors or the
Committee has full authority to grant options and establish the terms and conditions for vesting and exercise thereof. However,
the aggregate fair market value (determined at the time the option is granted) of the shares with respect to which incentive stock
options are exercisable for the first time by an optionee during any calendar year cannot exceed $100,000.
Options granted pursuant to the both plans
are exercisable no later than ten years after the date of grant. The exercise price per share of common stock for options granted
shall be determined by the Board of Directors or the designated committee, except for incentive stock options granted to a holder
of ten percent or more of Patriot's common stock, for whom the exercise price per share will not be less than 110% of the fair
market value.
As of May 31, 2017, there were 2,980,000 and 680,000 shares available
for grant under the 2014 Plan and 2012 Stock Option Plan, respectively.
Stock Option Activity
The fair value of each stock option is estimated
at the date of grant using the Black-Scholes option pricing model. The weighted-average fair value of stock options granted in
2017 and 2016 was $0.159 and $0.067, respectively. Assumptions regarding volatility, expected term, dividend yield and risk-free
interest rate are required for the Black-Scholes model. The volatility assumption is based on the Company’s historical experience.
The risk-free interest rate is based on a U.S. treasury note with a maturity similar to the option award’s expected life.
The expected life represents the average period of time that options granted are expected to be outstanding. The assumptions for
volatility, expected life, dividend yield and risk-free interest rate are presented in the table below:
|
|
2017
|
|
2016
|
|
Risk-free interest rate
|
1.14% - 1.44%
|
|
1.37% - 1.73%
|
|
Expected life in years
|
3.5 to 6.0
|
|
5.5
|
|
Volatility
|
106.06% - 127.03%
|
|
126.11% - 130.20%
|
|
Expected dividend yield
|
$0
|
|
$0
|
|
Weighted average grant date fair value
|
$0.159
|
|
$0.067
|
The following table summarizes stock option activity and related
information for the years ended May 31, 2017:
|
|
|
Number of
Stock Options
Outstanding
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Life (Years)
|
|
|
Aggregate
Intrinsic Value
|
|
|
Balance May 31, 2015
|
|
|
5,770,000
|
|
|
|
0.11
|
|
|
|
8.4
|
|
|
|
|
|
|
Option granted
|
|
|
2,120,000
|
|
|
|
0.10
|
|
|
|
|
|
|
|
|
|
|
Options cancelled / expired
|
|
|
(200,000
|
)
|
|
|
0.19
|
|
|
|
|
|
|
|
|
|
|
Options exercised
|
|
|
(100,000
|
)
|
|
|
0.05
|
|
|
|
|
|
|
|
|
|
|
Balance May 31, 2016
|
|
|
7,590,000
|
|
|
|
0.10
|
|
|
|
8.6
|
|
|
|
|
|
|
Option granted
|
|
|
375,000
|
|
|
|
0.18
|
|
|
|
|
|
|
|
|
|
|
Options cancelled / expired
|
|
|
(884,000
|
)
|
|
|
0.10
|
|
|
|
|
|
|
|
|
|
|
Options exercised
|
|
|
(66,000
|
)
|
|
|
0.10
|
|
|
|
|
|
|
|
|
|
|
Balance May 31, 2017
|
|
|
7,015,000
|
|
|
|
0.10
|
|
|
|
7.8
|
|
|
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at May 31, 2017
|
|
|
6,466,667
|
|
|
|
0.10
|
|
|
|
7.1
|
|
|
|
0.00
|
|
The following table summarized information pertaining to unvested
stock options for the years ended May 31, 2017:
|
|
|
Shares
|
|
|
Weighted
Average
Grant Date
Fair Value
|
|
|
Unvested at May 31, 2015
|
|
|
4,070,000
|
|
|
|
|
|
|
Granted
|
|
|
2,120,000
|
|
|
$
|
0.067
|
|
|
Vested
|
|
|
(3,876,667
|
)
|
|
$
|
0.067
|
|
|
Exercised / forfeited
|
|
|
(100,000
|
)
|
|
$
|
0.057
|
|
|
Unvested at May 31, 2016
|
|
|
2,213,333
|
|
|
|
|
|
|
Granted
|
|
|
375,000
|
|
|
$
|
0.159
|
|
|
Vested
|
|
|
(1,856,667
|
)
|
|
$
|
0.095
|
|
|
Exercised / forfeited
|
|
|
(183,333
|
)
|
|
$
|
0.095
|
|
|
Unvested at May 31, 2017
|
|
|
548,333
|
|
|
$
|
0.121
|
|
As of May 31, 2017, the Company had $45,574 of total unrecognized
compensation cost related to unvested stock options which is expected to be recognized over a weighted average period of 1.2 years.
The Company issues new stock when options are exercised.
NOTE 5 - COMMON STOCK
The Company may issue up to 100,000,000 shares
of $.001 par value common stock. As of May 31, 2017, the Company had 55,877,604 common shares outstanding.
During the year ended May 31, 2017, the Company
completed multiple private placements issuing 3,436,000 shares of the Company’s common stock at $0.05 per share. Total proceeds
were $172,800.
During the year ended May 31, 2016, the Company
completed multiple private placements issuing 2,400,000 shares of the Company’s common stock at $0.05 per share. Total proceeds
were $120,000.
During the year ended May 31, 2016, the Company
completed multiple private placements issuing 1,700,000 units for $0.05 per unit where a unit consists of one share of the Company’s
common stock and one Class A Warrant. Total proceeds were $85,000 of which $39,726 was allocated to the warrants. The relative
fair value was determined using a Black-Scholes option pricing model and was recorded in the equity section of the balance sheet.
Each warrant allows for the purchase of one share of the Company’s common stock for $0.08. The vesting period of the warrants
is one year from the date of grant.
The following table summarizes the assumptions
used in the Black-Scholes models to estimate the grant date fair value of the warrants:
|
|
2016
|
|
Volatility
|
115.34% - 123.98%
|
|
Expected life
|
2.5 years
|
|
Risk-free interest rate
|
0.775% - 1.055%
|
|
Dividend yield
|
$0
|
|
Weighted average grant date fair value
|
$0.044
|
The following table summarizes warrant activity during the years
ended May 31, 2017 and 2016.
|
|
|
Number of
Warrants
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Warrants
Exercisable
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Outstanding May 31, 2015
|
|
|
34,011,204
|
|
|
$
|
0.09
|
|
|
|
26,274,247
|
|
|
$
|
0.08
|
|
|
Issued
|
|
|
1,700,000
|
|
|
$
|
0.08
|
|
|
|
–
|
|
|
|
–
|
|
|
Canceled / exercised
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
Expired
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
Outstanding May 31, 2016
|
|
|
35,711,204
|
|
|
$
|
0.09
|
|
|
|
32,011,204
|
|
|
$
|
0.09
|
|
|
Issued
|
|
|
–
|
|
|
$
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
Canceled / exercised
|
|
|
(100,000
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
Expired
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
Outstanding May 31, 2017
|
|
|
35,611,204
|
|
|
$
|
0.09
|
|
|
|
35,611,204
|
|
|
$
|
0.09
|
|
The following tables summarizes outstanding warrants as of May 31,
2017:
|
|
|
Warrants Outstanding
|
|
|
Warrants Exercisable
|
|
|
Range of Exercise Prices
|
|
Number of
Warrants
|
|
|
Weighted
Avg Exercise
Price
|
|
|
Remaining
Contractual
Life (yrs)
|
|
|
Number of
Warrants
|
|
|
Weighted
Avg Exercise
Price
|
|
|
Remaining
Contractual
Life (yrs)
|
|
|
$0.06 - $0.08
|
|
|
22,096,957
|
|
|
$
|
0.07
|
|
|
|
2.2
|
|
|
|
22,096,957
|
|
|
$
|
0.07
|
|
|
|
2.2
|
|
|
$0.09 - $0.14
|
|
|
9,839,643
|
|
|
$
|
0.11
|
|
|
|
4.2
|
|
|
|
9,839,643
|
|
|
$
|
0.11
|
|
|
|
4.2
|
|
|
$0.15 - $0.21
|
|
|
3,674,604
|
|
|
$
|
0.17
|
|
|
|
3.6
|
|
|
|
3,674,604
|
|
|
$
|
0.17
|
|
|
|
3.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,611,204
|
|
|
|
|
|
|
|
|
|
|
|
35,611,204
|
|
|
|
|
|
|
|
|
|
NOTE 6 - PREFERRED STOCK
The Preferred Stock may be issued in one or
more series, from time to time, with each such series to have such designation, relative rights, preferences or limitations, as
shall be stated and expressed in the resolution or resolutions providing for the issue of such series adopted by the Board of Directors
of the Company.
The Company has authorized a total of 20,000,000
shares of Preferred Stock with a par value of $0.001 of which 13,500,000 Preferred Stock have been designated as the Series A,
7% Redeemable Preferred Stock, par value of $0.001. The Corporation is under no obligation to pay dividends on the Series A Redeemable
Preferred Stock, and the stock is redeemable at the option of the Company. In the event of any liquidation, dissolution or winding-up
of the Corporation, the holders of outstanding shares of Series A Preferred shall be entitled to be paid out of the assets of the
Corporation available for distribution to shareholders, before any payment shall be made to or set aside for holders of the Common
Stock, at an amount of $.001 plus any unpaid and accrued dividends per share.
A holder
of Series A Preferred has the right to one vote per share in the case of matters provided for in the General Corporation Law of
the State of Nevada or the Amended and Restated Articles of Incorporation or Bylaws to be voted on by the holders of the Series
A Preferred Stock as a separate class. In the case of matters to be voted on by the holders of Common Stock and the holders of
Series A Preferred voting together as a single class, each share of Series A Preferred, has full voting rights and powers equal
to the voting rights and powers of the holders of the Common Stock.
As of May 31, 2017, there are no preferred
shares outstanding.
NOTE 7 - INCOME TAXES
As of May 31, 2017, the Company had a net operating
loss (“NOL”) carryforward for income tax reporting purposes of approximately $10,170,000 that may be offset against
future taxable income through 2036. 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.
Deferred tax assets of the Company are as
follows:
|
|
|
2017
|
|
|
2016
|
|
|
Loss carryforwards
|
|
$
|
3,458,000
|
|
|
$
|
3,685,000
|
|
|
Stock compensation expense
|
|
|
178,000
|
|
|
|
186,000
|
|
|
Mineral property amortization
|
|
|
9,000
|
|
|
|
11,000
|
|
|
Deferred tax asset
|
|
|
3,645,000
|
|
|
|
3,882,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Less valuation allowance
|
|
|
(3,645,000
|
)
|
|
|
(3,882,000
|
)
|
|
Deferred tax asset recognized
|
|
$
|
–
|
|
|
$
|
–
|
|
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% (2017 - 34%) to net loss for the year. The sources
and tax effect of the differences are as follows:
|
|
|
2017
|
|
|
2016
|
|
|
Computed expected tax benefit (liability)
|
|
$
|
(247,051
|
)
|
|
$
|
49,550
|
|
|
Permanent differences
|
|
|
26,620
|
|
|
|
(1,616
|
)
|
|
Other
|
|
|
(17,569
|
)
|
|
|
(5,934
|
)
|
|
Change in valuation allowance
|
|
|
238,000
|
|
|
|
(42,000
|
)
|
|
Income tax provision
|
|
$
|
–
|
|
|
$
|
–
|
|
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 2014.
NOTE 8 - RELATED PARTY
TRANSACTIONS
During the year ended May 31, 2017, the Company
acquired 7,602,600 shares of common stock of Strata Oil and Gas (“Strata”) through a series of private placements for
a total cost of $152,091 (CDN$200,000) as an investment in leading-edge mining extraction technologies. The purchase was accounted
for a marketable security in available for sale securities. Strata is a related party through Trevor Newton, who is President and
a member the Board of Directors of both Patriot and Strata.
For the years ended May 31, 2017 and 2016,
consulting services fees in the amount of $nil and $23,008, respectively, were paid to Mr. Robert Coale the Chairman of the Board
and prior President, Chief Financial Officer, Secretary, Treasurer and Director. On May 27, 2016, Mr. Coale resigned these
positions and was simultaneously appointed as Chairman of the Board. Mr. Coale provides geological consulting services to
the Company pursuant to a consulting agreement. He is paid on an hourly basis for his services and reimbursed for his
out-of-pocket expenses in performing such consulting services.
For the years ended May 31, 2017 and 2016,
consulting services fees in the amount of $68,631 and $110,921, respectively, were paid to Mr. Trevor Newton, President, Chief
Financial Officer, Secretary, Treasurer and Director of the Company. On May 27, 2016, Mr. Newton was appointed as President,
Chief Financial Officer, Secretary and Treasurer, prior to this appointment Mr. Newton was a Director of the Company. Mr. Newton
provides geological consulting services to the Company pursuant to a consulting agreement. He is paid on an hourly basis for
his services and reimbursed for his out-of-pocket expenses in performing such consulting services.
The Company recognizes these consulting fees
as general and administrative expenses in the Consolidated Statements of Operations.
NOTE 9 - SUBSEQUENT EVENTS
On July 6, 2017, the Company granted 400,000
common stock options to a director of the Company with an exercise price of $0.10 per option, vesting equally on the first and
second anniversary date of the grant.
See “Note 3: Mineral Properties” for information on
the purchase of mineral claims subsequent to year end.