ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This quarterly report contains forward-looking statements. These statements
relate to future events or our future financial performance. In some cases, you
can identify forward-looking statements by terminology such as "may", "should",
"expects", "plans", "anticipates", "believes", "estimates", "predicts",
"potential" or "continue" or the negative of these terms or other comparable
terminology. These statements are only predictions and involve known and unknown
risks, uncertainties and other factors, including the risks in the section
entitled "Risk Factors" that may cause our or our industry's actual results,
levels of activity, performance or achievements to be materially different from
any future results, levels of activity, performance or achievements expressed or
implied by these forward-looking statements.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Except as required by applicable law,
including the securities laws of the United States, we do not intend to update
any of the forward-looking statements to conform these statements to actual
results.
Our unaudited interim financial statements are stated in United States dollars
and are prepared in accordance with United States generally accepted accounting
principles. The following discussion should be read in conjunction with our
Company's audited financial statements and 10-K for the year ended August 31,
2011 and unaudited interim financial statements and the related notes that
appear elsewhere in this quarterly report.
In this quarterly report, unless otherwise specified, all references to "common
stock" refer to common shares in the capital of our company and the terms "we",
"us" and "our" mean American Paramount Gold Corp.
GENERAL OVERVIEW
We were incorporated under the laws of the State of Nevada on July 20, 2006
under the name Zebra Resources, Inc. At inception, we were an exploration stage
company engaged in the acquisition, exploration and development of mineral
properties.
On February 26, 2011, Monaco Capital Inc. acquired a controlling interest in our
company by purchasing 20,000,000 shares of our common stock in a private
transaction.
On March 17, 2011, we effected a 1 old for 2 new forward stock split of our
issued and outstanding common stock. As a result, our authorized capital
increased from 75,000,000 to 150,000,000 shares of common stock and our issued
and outstanding increased from 32,000,000 shares of common stock to 64,000,000
shares of common stock, all with a par value of $0.001.
Also effective March 17, 2011, we changed our name from Zebra Resources, Inc. to
American Paramount Gold Corp., by way of a merger with our wholly owned
subsidiary American Paramount Gold Corp., which was formed solely for the change
of name.
The name change and forward stock split became effective with the
Over-the-Counter Bulletin Board at the opening for trading on April 12, 2011
under the stock symbol APGA. Our CUSIP number is 02882T 05.
On April 16, 2011, we entered into an agreement with Royce L. Hackworth and
Belva L. Tomany in respect of an option to acquire 189 unpatented mining claims
situated in the Walker Lane Structural Belt in Nye County, Nevada known as the
Cap Gold Project. The 189 claims making up the Cap Gold Project form a
contiguous block of approximately 3,960 acres (1,602 hectares). We paid $125,000
to secure the option, giving us the right acquire a 100% long-term lease
interest in the Cap Gold Project. To exercise the option we must: (i) make
ongoing yearly advance production royalty cash payments during the term of the
agreement of $125,000 in years two (2) through five (5), $150,000 in years six
(6) through twelve (12), $200,000 in years 13 through 20 and $300,000 in years
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21 through 30; (ii) incur expenditures on exploration of the Cap Gold Project of
not less than an aggregate of $1,250,000 over five (5) years; and (iii) make
production royalty payments from production from the property after the advance
production royalty cash payments described above have been repaid to our company
from production from the property. At our company's election, the production
royalty may be calculated either on a sliding scale or on a fixed production
royalty basis, and must range from 1% to a maximum of 3%.
On April 22, 2011, we entered into a convertible loan agreement with Monaco
Capital Inc., wherein Monaco Capital Inc. has agreed to loan our company up to
$500,000. The loan (and accrued interest) is convertible in whole or in part
into common shares of our company at a conversion price of $1.05 and will bear
interest at 10% per annum. The principal amount of the loan and accrued interest
is due and payable one year from the advancement date. We may at any time during
the term of the loan prepay any sum up to the full amount of the loan and
accrued interest then outstanding for an additional 10% of such amount. At
February 28, 2012, Monaco Capital Inc. has advanced $400,933. The balance sheet
at February 28, 2012 records the loan value at $394,338 due to the unamortized
beneficial conversion feature on the convertible debt totalling $6,595. The
initial beneficial conversion feature was valued at $16,833 of which $10,238 was
amortized. Accrued interest relating to the loan totalling $18,331 as at
February 28, 2012 was recorded in accounts payable and accrued liabilities.
On July 30, 2011, our directors approved the adoption of the 2011 stock option
plan which permits our company to issue up to 6,500,000 shares of our common
stock to directors, officers, employees and consultants of our company upon the
exercise of stock options granted under the 2011 plan.
On July 28, 2011, we obtained an extra-provincial license to carry on business
in the Province of Ontario, Canada. Our Ontario corporation number is 1827852.
On November 9, 2011, we entered into a non-binding letter of intent to acquire
the Kisita Gold Mine Property, an operational gold property four hours northwest
of the capital city of Kampala, Uganda. The acquisition was subject to further
negotiation and due diligence of the project satisfactory to us. On December 9,
2011 our company, having performed the due diligence required to acquire the
Kisita Gold Mine Property, advised Lonsdale Acquisition Corporation that we
declined to proceed with the purchase agreement under its current terms and
conditions. Discussions with Lonsdale Acquisition Corporation are ongoing.
On November 28, 2011, the Nevada Secretary of State accepted for filing a
Certificate of Change, wherein the corporation amended our Articles of
Incorporation to implement a forty (40) for one (1) reverse stock split of our
authorized and issued and outstanding common shares such that our company's
authorized capital will be decreased from 150,000,000 shares of common stock
with a par value of $0.001 to 3,750,000 shares of common stock with a par value
of $0.001 and, correspondingly, its issued and outstanding shares of common
stock shall decrease from 64,500,000 shares of common stock to 1,612,500 shares
of common stock. No fractional shares shall be issued and fractional shares
shall be rounded up. The reverse split was effective at the opening of trading
on January 26, 2012.
On March 9, 2012 based on recently released drill results the Board of Directors
decided the company could not justify the further expense of continuing with its
planned drill program at Cap Gold, Nye County, Nevada, USA. The Company advised
the owners that it was cancelling its option agreement.
OUR CURRENT BUSINESS
We are an exploration stage mining company engaged in the identification,
acquisition, and exploration of metals and minerals with a focus on gold
mineralization.
Since we are an exploration stage company, there is no assurance that a
commercially viable mineral reserve exists on any of our current or future
properties, To date, we do not know if an economically viable mineral reserve
exists on our property and there is no assurance that we will discover one. Even
if we do eventually discover a mineral reserve on our property, there can be no
assurance that we will be able to develop our property into a producing mine and
extract those resources. Both mineral exploration and development involve a high
degree of risk and few properties which are explored are ultimately developed
into producing mines.
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CASH REQUIREMENTS
We intend to conduct exploration activities on our newly optioned property over
the next twelve months. We estimate our operating expenses and working capital
requirements for the next twelve month period to be as follows:
ESTIMATED EXPENSES FOR THE NEXT TWELVE MONTH PERIOD
General, administrative, and corporate expenses $ 50,000
Operating expenses $ 50,000
Exploration $500,000
--------
TOTAL $600,000
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At present, our cash requirements for the next 12 months outweigh the funds
available to maintain or develop our properties. Of the $600,000 that we require
for the next 12 months, we had $18,000 in cash as of February 28, 2012. In order
to improve our liquidity, we intend to pursue additional equity financing from
private investors or possibly a registered public offering. Other than as set
out below, we currently do not have any arrangements in place for the completion
of any further private placement financings and there is no assurance that we
will be successful in completing any further private placement financings. If we
are unable to achieve the necessary additional financing, then we plan to reduce
the amounts that we spend on our business activities and administrative expenses
in order to be within the amount of capital resources that are available to us.
On April 22, 2011, we entered into a convertible loan agreement with Monaco
Capital Inc., wherein Monaco Capital Inc. has agreed to loan our company up to
$500,000. The loan is convertible into common shares of our company at a
conversion price of $1.05. On December 6, 2011 Monaco Capital Inc. advanced
$100,000. To date, $500,933 has been advanced under the April 2011 loan
agreement. On December 17, 2011, we entered into a convertible loan agreement
with Monaco Capital which replaces the original convertible loan agreement
entered into on April 22, 2011 in its entirety. Under the December 17, 2011
convertible loan agreement, Monaco Capital has agreed to loan our company up to
$5,000,000. The loan bears interest at a rate of 10% per annum.
During the quarter ended February 28, 2012, Monaco Capital Inc. advanced
$121,004. The total advanced under the Convertible Loan as at February 28, 2012
is $952,599.
RESULTS OF OPERATIONS - THREE MONTHS ENDED FEBRUARY, 2012 AND 2011
The following summary of our results of operations should be read in conjunction
with our financial statements for the six month period ended February 28, 2012
and 2011 which are included herein.
Our operating results for the three months ended February 28, 2012 and for the
three months ended February 28, 2011 and the changes between those periods for
the respective items are summarized as follows:
Change Between
Three Months Three Months Three Month
Ended Ended Period Ended
February 28, February 28, February 28,
2012 2011 2012
---------- ---------- ----------
($) ($) ($)
Consulting (19,227) -- 19,227
Exploration expenses (310,640) (94,695) 215,945
General and administrative (10,974) (57,911) (46,937)
Management fees -- (37,869) (37,869)
Professional fees -- (37,757) (37,757)
Amortization of debt discount -- (1,946) (1,946)
Interest expense (23,750) (19,428) 4,322
---------- ---------- ----------
Net loss from operations (364,491) (249,606) 114,985
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REVENUES
We have not generated revenues since inception and we do not anticipate earning
revenues in the near future.
EXPLORATION EXPENSES
Exploration expenses increased by $114,985 during the three months ended
February 28, 2012 as compared to the three months ended February 28, 2011.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses decreased by $46,937 during the three months
ended February 28, 2012 as compared to the three months ended February 28, 2011.
MANAGEMENT FEES
Management fees decreased by $37,869 during the three months ended February 28,
2012 as compared to the three months ended February 28, 2011.
PROFESSIONAL FEES
Professional fees decreased by $37,757 during the three months ended February
28, 2012 compared to the three months ended February 28, 2011.
LIQUIDITY AND FINANCIAL CONDITION
WORKING CAPITAL
February 28, August 31,
2012 2011
------------ -----------
Current assets $ 19,713 $ 146,357
Current liabilities 1,333,823 924,499
------------ -----------
Working capital (deficit) $ (1,314,110) $ (778,142)
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OPERATING ACTIVITIES
Net cash used by operating activities was $178,254 for the six months ended
February 28, 2012.
INVESTING ACTIVITIES
Net cash used in investing activities was $Nil for the six months ended February
28, 2012.
FINANCING ACTIVITIES
Net cash from financing activities for the six months ended February 28, 2012
was $106,768.
CONTRACTUAL OBLIGATIONS
As a "smaller reporting company", we are not required to provide tabular
disclosure obligations.
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OFF-BALANCE SHEET ARRANGEMENTS
We have no significant off-balance sheet arrangements that have or are
reasonably likely to have a current or future effect on our financial condition,
changes in financial condition, revenues or expenses, results of operations,
liquidity, capital expenditures or capital resources that are material to
stockholders.
APPLICATION OF CRITICAL ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of the 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 amount of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
NET LOSS PER COMMON SHARE
Our company computes net loss per share in accordance with ASC 260, "Earnings
per Share" and SEC Staff Accounting Bulletin No. 98 (SAB 98). Under the
provisions of ASC 260 and SAB 98, basic net loss per share is computed by
dividing the net loss available to common stockholders for the period by the
weighted average number of shares of common stock outstanding during the period.
The calculation of diluted net loss per share gives effect to common stock
equivalents; however, potential common shares are excluded if their effect is
anti-dilutive. For the period from inception (July 20, 2006) through February
28, 2012, our company had no potentially dilutive securities.
STOCK-BASED COMPENSATION
On August 1, 2009, the company adopted the fair value recognition provisions of
FASB ASC 718-10. The company accounts for equity instruments issued in exchange
for the receipt of goods or services from other than employees in accordance
with FASB ASC 505-10. Costs are measured at the estimated fair market value of
the consideration received or the estimated fair value of the equity instruments
issued, whichever is more reliably measurable. The value of equity instruments
issued for consideration other than employee services is determined on the
earliest of a performance commitment or completion of performance by the
provider of goods or services as defined by FASB ASC 505-10.
MINERAL PROPERTY COSTS
The Company has been in the exploration stage since its formation July 20, 2006
and has not yet realized any revenues from its planned operations. It is
primarily engaged in the acquisition and exploration of mining properties.
Mineral property acquisitions are capitalized and exploration costs are charged
to operations 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 develop such property, are capitalized. Such
costs will be depleted using the units-of-production method over the estimated
life of the probable reserve.
Although the Company has taken steps to verify title to mineral properties in
which it has an interest, according to the usual industry standards for the
stage of exploration of such properties, these procedures do not guarantee the
Company's title. Such properties may be subject to prior agreements or transfers
and title may be affected by undetected defects.
GOING CONCERN
Our company has incurred a net loss $801,661 for the six month period ended
February 28, 2012 [2011 - $2,978,100] and at February 28, 2012 had a deficit
accumulated of $5,083,284. Since inception (July 20, 2006) to February 28, 2012,
our company has commenced limited operations, raising substantial doubt about
our company's ability to continue as a going concern. Our company will seek
additional sources of capital through the issuance of debt or equity financing,
but there can be no assurance our company will be successful in accomplishing
its objectives.
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The ability of our company to continue as a going concern is dependent on
additional sources of capital and the success of our company's plan. The
financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts, or amounts and
classification of liabilities that might result from the outcome of this
uncertainty.
At this time, we cannot provide investors with any assurance that we will be
able to raise sufficient funding from the sale of our common stock or through a
loan from our directors, shareholders or investors to meet our obligations over
the next twelve months. Other than a convertible loan agreement with Monaco
Capital Inc., we do not have any further arrangements in place for any future
debt or equity financing.